MRDIY: To break 52-week high

Ongoing store expansion. We remain upbeat about MRDIY’s earnings outlook, driven by its ongoing store expansion. To date, the group has opened 79 net new stores, primarily under its core Mr DIY brand. Although trailing behind its FY24 target of 180 new stores, management is confident to catch up in the coming quarters with a focus on East Malaysia. This regional push to broaden its presence is supported by (i) a 58% higher population density per store and (ii) approximately 30% higher average sales per store. Additionally, the planned rollout of around 10 new KKV stores by year-end represents a strategic effort to capture a fresh customer segment.

Currently operating three stores in Malaysia, KKV is a popular lifestyle chain offering a broad range of products targeted at a young, trendy demographic, with over 20,000 SKUs. These larger-format stores (average 15,000 sqft compared to the typical Mr DIY store’s 10,000 sqft) generates above 3x of Mr DIY’s average monthly revenue due to the nature of higher priced items. Moreover, MRDIY stands to benefit from a stronger ringgit against the CNY, as roughly 70% of its cost of goods is sourced from China.

To gain further limelight? We see potential renewed interests in the consumer sector ahead of the tabling of Budget 2025 on 18 Oct. Overall, we expect the Budget to bode well for the consumer sector, including potentially higher cash handouts. In light of the ongoing subsidy rationalization and improved revenue channels for the government, we believe these savings and increased revenue will support the government’s targeted subsidies, such as cash handouts via BSH and Budi Madani. Moreover, the impending civil servants' pay hike and the consumption boost from the EPF Account 3 should augur well for the domestic retail sales outlook. Additionally, market speculation regarding an increase in the minimum wage hike from RM1.5k to RM1.7k-2k could further boost retail spending if it materializes.

Pending breakout. MRDIY is pending for a breakout above its 52-week high of RM2.22, with indicators showing uptick bias. A successful breakout above the said level will spur the share price toward RM2.34-2.43-2.55 region. Cut loss at RM2.04.

Collection range: RM2.07-2.15-2.18

Upside targets: RM2.34-2.43-2.55

Cut loss: RM2.04

Source: Hong Leong Investment Bank Research - 17 Oct 2024