Mr DIY’s chalked in FY22’s core PAT of RM481.5m (+12% YoY). This missed our estimate (94%) but in line with consensus (100%). Despite the healthy top line, the group is still experiencing pronounced increase in input costs mainly in staff costs. Opex registered a 27% YoY uptick on the back of the higher wage by 2.9ppt complying with the min wage hike. As for the freight cost, we understand that the cost has eased significantly back to pre -Covid level. Note that the QoQ improvement in EBITDA margin was partially due to the lower ex China freight cost that tapered down and still trending lower. With the price hike implemented in 2Q-3Q22 we opine the positive impact will trickle down to subsequent quarters due to lag effect. We trim our FY23/24 forecasts by -10%/- 14% respectively. As a result, our TP is lowered to RM2.15 (from RM2.40) based on unchanged PE multiple of 35x pegged to FY23 EPS. Maintain BUY.

Missed ours but in line with consensus. Mr DIY registered 4Q22 core PAT of RM138.3m (+37% QoQ, +3% YoY), which brought FY22 sum to RM481.5m (+12% YoY). This slightly missed our estimate but was within consensus at 94% and 100% of full year forecasts, respectively. The deviation was on the back of margin miss. Core PAT was arrived after adjusting for forex gain (-RM462k), gain on disposal of PPE (- RM196k), and write-down on slow-moving inventories (+RM2.5m).

Dividend. Declared DPS of 0.6 sen which goes ex on 2 Mar 2023 (4Q21: 0.9 sen). FY22 dividend amounted to 2.4 sen per share (FY21:2.95 sen per share).

QoQ. Revenue increased by +10% to RM1.1bn on the back of positive contribution from additional stores coupled with the higher sales generated from the festive season and school holidays. Encouragingly, core PAT climbed up by 37% boosted by the EBITDA margin expansion thanks to (i) the price hike impl emented in Sept-Oct; and (ii) the normalisation of the freight cost ex-China.

YoY/YTD. Top line rose by +9% YoY/ 18% YTD attributable to (i) 20% increase in the number of stores to 1,080; and (ii) better total transaction registered +15% YoY to 38.1m. Bottom line chalked in softer growth of +3% YoY/ 12% YTD due to (i) EBITDA margin dilution by 0.8ppt from higher administrative, opex, and freight costs; and (ii) higher effective tax rate of +3.1ppt YoY attributable to one-off additional prosperity corporate tax of RM10.2m on subsidiary.

Outlook. Mr DIY met its target with 180 new stores launched in FY22 (+42 in 4Q22) which majority constitute of Mr DIY and Mr DIY Express stores. The group set a target of similar number of 180 new stores for FY23. Despite the healthy top line, the group is still experiencing pronounced increase in input costs mainly in staff cost. Opex registered a 27% YoY uptick on the back of the higher wage costs by 2.92ppt complying with the implementation of RM1,500 min wage. As for the freight cost, we understand that the cost has eased significantly back to pre-Covid level. Note that the improvement in 4Q22 EBITDA margin was partially due to the lower ex-China freight cost that tapered down from the high of RM15,400 in early 2022 and declined 81% to RM3,000 with momentum still trending lower. With the price hike implemented in 2Q- 3Q22 we opine the positive impact will trickle down to subsequent quarters due to lag effect.

Forecast. We trim our FY23/24 forecasts by -10%/-14% respectively to account for the deviation mentioned above.

Maintain BUY, with lower TP of RM2.15 (from RM2.40) based on 35x PE of FY23 EPS. We remain optimistic with the group strategy of store expansion to defend its market share as the leading home improvement retailer.

Source: Hong Leong Investment Bank Research - 15 Feb 2023