FY21 results were in line despite margins suffering slight erosion, lower targeted stores and transaction/store/day (-3%). Average basket size remained robust (+10%). We expect FY22 to continue to be robust given the reopening of the economy, further expansion of stores (+180) though margins are likely to be under pressure due to volatile input costs. We, however, revised down our FY22E earnings by 4% on lower average transaction/store/day estimate. TP is reduced to RM4.00 based on a FY22E PER of 37x. Downgrade to MARKET PERFORM.

In line. 4QFY21 PATAMI RM134m brought FY21 PATAMI to RM432m, accounting for 96%/99% of our/consensus full-year estimates. An interim DPS of 0.9 sen was declared for the quarter raising cumulative DPS declared to 3.0 sen, (implying a 43% payout vs. our initial estimate of 40%).

Lower stores than initially targeted. YoY, FY21 PATAMI saw a 28.1% uptick underpinned by a solid top-line of RM3.37bn (+31.8%). This was driven by expanded stores or 22.6% to 900 outlets or addition of 166 stores vs. 175 initial targeted – the bulk of these stores were added in the 1Q and 4Q. Average basket size is at RM29 (or +10.5%) vs. our initial expectation of RM26. Average transaction/month is guesstimated at RM9.6m vs. RM8.0m in FY21. Expansion outside of the Klang Valley saw a 15.1% growth with rest of the region at 26.4% (led by expansion in the North at 36.5% and South at 40.7%). GP margin saw a slight erosion of 2ppt to 41% on account of higher input costs and freight costs. On a positive note, PATAMI margin remained stable due to lower finance costs, absence of listing expenses and margin dilution from revenue contribution of the Mr Dollar. QoQ, topline surged 27.0% to RM975.4m given the easing of restrictions. For the quarter, we guesstimate 98% stores were in operation vs. 92% in the 3Q. 59 stores were added vs. 14 in the previous quarter. While GP margin (-1ppt) eased on account of higher input costs, EBITDA margin improved due to higher operating income (RM22.2m). PATAMI ended at RM134.6m on account of improved revenue and lower ETR by 2ppt to 25%.

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 another robust performance in FY22 given the addition of another 180 stores in FY22. About 83% of these new stores will be MR D.I.Y. and MR D.I.Y. Express with the remainder MR DOLLAR or MR TOY. We expect this expansion to be mostly outside of the Central Region given its vision of affordable products targeting price-sensitive customers. While risks on downside pressure on margins remains and likely to persist in 1QFY22 (due to volatile inputs and ramping up of sales volume), we expect it to stabilize for the rest of the year given management’s ability to purchase in bulk to average down costs.

Post results, we tweak slightly (-4%) our FY22E earnings to RM678m and introduced our FY23E earnings. The Cukai Makmur impact is expected to be negligible given that MR D.I.Y. has about 14 subsidiaries and most are likely to have a taxable income of <RM100m. We assumed: (i) basket size at RM31 (RM26 previously), and (ii) average transaction/store/day at RM391 (RM426 previously).

MARKET PERFORM call with a TP of RM4.00 (from RM4.10) based on an FY22E PER of 37x (vs. peers of 31x). We believe the high PER is justified based on: (i) robust growth potential, driven by sustainable market demand for its products and stores expansion, (ii) unchallenged position in the domestic space, (iii) strong GP margins (c.41% vs peers of 34%) with the absence of near- and long-term margin volatility thanks to its supply source, China’s massive economies of scale, (iv) robust balance sheet providing ample cash for expansion, and (v) net cash position ahead, allowing MR D.I.Y. to deliver sustainable dividends. However, being fully-valued with uninspiring dividend yield, it is downgraded to Market Perform.

Source: Kenanga Research - 17 Feb 2022