1HFY21 earnings came within expectations, accounting for 46%/40% of our/consensus estimate as its aggressive store expansion continued. The expanding outlets contributed further to revenue but negated by weak footfall traffic especially from its mall-based stores. Premised on a recovery theme on vaccinations ramp-up, we remain positive on MR D.I.Y. for its robust growth potential, strong GP margins, internally generated funds for expansion and net cash position ahead, allowing it to deliver sustainable dividends. OUTPERFORM on an unchanged TP of RM4.10.

Within expectations. 1HFY21 PATAMI of RM207m came in within expectations accounting for 46%/40% our/consensus full-year estimate. An interim DPS of 0.006 was declared for the quarter raising cumulative DPS declared to 0.014, translating to a payout of 46% (in line with our forecast).

YoY, PATAMI of RM207m saw a 79% uptick underpinned by a solid top-line of RM1.63b (+55%). Top-line was driven by its vigorous store expansion (93 net stores YTD to 822; on track to meet its targeted 175 new outlets). Given its vision of affordable products targeting price- sensitive customers, expansion outside of the Klang Valley saw 15% uptick YTD vs. Klang Valley’s of 7%. Average sales/store saw 25% growth to RM2.2m (Kenanga Research’s estimate). Average basket size YTD was furnished at RM28 (vs. FY20 of RM26). In terms of product category, HH & Furnishing makes the bulk of sales up by 2ppt to 40%, followed by Others (F&B, toys) seeing 1ppt uptick to 25%, while Hardware was down 1ppt to 18%. GP margins saw a 1ppt dip to 42% largely due to higher freight charges and FX.

QoQ, Top-line fell 13% to RM760m. Average sales/store fell 18% to RM0.94m due to lower transaction/store/day but average basket size remained fairly stable at RM28. On a positive note, GP margin remained stable at 42%. However, EBIT shed 4ppt to 17% on higher opex and depreciation- in line with its stores expansion – resulting in PATAMI falling 34% to RM82m.

Agile and flexible. The key in Mr DIY’s sustainability is its agility to offer a variety of quality products at affordable prices coupled with its flexibility in product mix to sustain sales and margins. While traffic in its retail-mall based stores is affected by the prevailing lockdowns, standalone stores are seeing better volumes especially those in towns and remote areas. In reaching out and sustaining sales in this challenging period, the Group has started Mr DIY Express – smaller, standalone/petrol stations-based stores with higher rental cost but offset by higher volume and sales. Being quality conscious, the Group is tweaking its store mix, cutting its targeted 2021 Mr Dollar stores by 20% (targeted 50 new outlets in FY21) as well as fine tuning its product mix and margins. Given the extensive lockdowns in recent months, expansion of Mr Toy outlets (6 out of a targeted 25) are strategically on hold while the Group speed up its Mr DIY stores to compensate for lower sales. The Group is positive, given the ramp-up in vaccinations, that its targeted 175 new outlets will be met (with Mr Toy’s targeted new outlets unchanged).

Post results, which are in line, we make no changes to our FY21E/FY22E earnings.

OUTPERFORM call reiterated with an unchanged Target Price of RM4.10 based on FY22E PER of 36x. Positive on MR D.I.Y. for its: (i) robust growth potential, driven by sustainable market demand for its products and stores expansion, (ii) strong GP margins (above 40%) with the absence of near-and long-term margin volatility thanks to its supply source China’s massive economies of scale, (iii) robust balance sheet, providing it ample cash for expansion, and (iv) net cash position ahead, allowing MR D.I.Y. to deliver sustainable dividends.

Risks to our call include: (i) unfavourable forex trend and (ii) prolonged lockdowns.
 

Source: Kenanga Research - 6 Aug 2021