9MFY21 earnings of RM297m is deemed broadly within our estimates at 66% of our FY21E as 4Q21 is anticipated to be a much stronger quarter with the reopening of the economy. Average basket size remained robust (+12% YTD). We expect its 4Q results to be stellar underpinned by the higher % of stores in operation and more opening of stores to achieve the targeted 175 for FY21. Our TP of RM4.10 (based on FY22E PER of 36x) remains as we maintain our FY22E earnings at RM707m as we see negligible impact from the Budget 2022 prosperity tax.

Broadly within expectation. 9MFY21 PATAMI of RM297m accounted for 66%/65% of our/consensus full-year estimates. We consider the results as broadly within our expectations given the EMCO in 3QFY21 with 4QFY21 earnings expected to stellar given the reopening of the economy and the targeted 175 outlets expansion to be achieved by the coming quarter. An interim DPS of 0.7 sen was declared for the quarter raising cumulative DPS declared to 2.1 sen, (accounting for 88% of our estimate).

YoY, despite a moderate 3Q, 9MFY21 PATAMI saw a 30% uptick underpinned by a solid top-line of RM2.4b (+34%). This was driven by expanded stores (+22% to 841 outlets) – mostly added in 1HFY21. The Group added 107 new stores YTD or 61% of its targeted new stores. Average basket YTD is at RM29 vs. FY20 of RM26. Given its vision of affordable products targeting price-sensitive customers, expansion outside of the Klang Valley saw a 9% growth YTD with the north and southern region seeing YTD growth of 26% each. GP margin declined 1ppt to 42% due to planned promotional campaigns as well as overall sustained cost pressures and margin dilution from the revenue contribution of the MR DOLLAR store chain.

QoQ, Top-line of RM768m (+1%) impacted by Covid-19 restrictions which curtailed the operations of most its outlets. For the quarter, about 92% of stores were in operation vs. 95% in 2QFY21 with only 14 new stores added vs. 39 in the previous quarter. In terms of product category, HH & Furnishing makes the bulk of sales up by 1ppt to 40%, followed by Hardware seeing a 1ppt decline to 25%. Decline in opex (- 7% - alluded to lower opening of stores) underpinned its PAT of RM90m (+10%).

Agile and flexible. The key in Mr DIY’s sustainability is its agility in offering a variety of quality products at affordable prices coupled with its flexibility in product mix to sustain sales and margins. We expect 4QFY21 to be stellar given underpinned higher operating days with traffic in retail mall-based stores expected to return to normal. The higher revenue contribution in HH & Furnishing products is a testimony to consumers accustomed to MR D.I.Y.’s affordable but quality products. Management guided for 180 new stores for FY22 (from 175 previously guided). About 80% of these new stores will be MR D.I.Y./MR D.I.Y. Express with the remainder MR DOLLAR/MR TOY.

Post results, we make no changes to our FY21E/FY22E earnings of RM451/RM707m. We believe impact from the one-off prosperity tax will be negligible given that MR DIY has about 14 subsidiaries and most are likely to have a chargeable income of <RM100m.

OUTPERFORM call 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 - 3 Nov 2021