• Maintain BUY, with new TP of MYR2.48 from MYR2.62, 42% upside and c.2% yield. Mr DIY’s FY22 results lagged behind our, but met consensus forecasts. That said, we believe the share price retracement is overdone with the stock now trading at a steep discount to its large-cap consumer peers and below its 2-year mean, which we deem as attractive. We remain optimistic of its growth prospects taking into consideration the solid underlying fundamentals and strong brand equity.

• Mr DIY’s FY22 results missed our, but were in line with consensus expectations. Core net profit of MYR480m (+11% YoY) met only 95% of our but was 100% of Street forecasts on lower-than-expected sales and higher-than-expected opex. Post results, we trim FY23F-24F earnings by 2-7% and roll out FY25F earnings (+12% YoY). Correspondingly, our DCF- derived TP drops to MYR2.48 (inclusive of a 4% ESG premium), which implies 40x FY23F P/E – in line with the valuations we ascribe to large-cap consumer peers.

• Results review. YoY, FY22 revenue rose 18% to MYR4bn primarily driven by 180 new store openings to bring the total store count to 1,080 stores. Meanwhile, FY22 GPM was flat YoY thanks to the price adjustments in 3Q22 which propelled a sharp margin recovery in 4Q22. That said, higher wage cost on the back of higher minimum wages dragged operating margin by 1.5 ppts to 17.6%. QoQ, 4Q22 revenue climbed 10% to MYR1.1bn boosted by year-end seasonality and new store openings (+42 stores). Together with the abovementioned GPM recovery (+2.7ppt), 4Q22 PBT jumped 40% to MYR189m with PBT margin expanding by 3.8 ppts to 17.7%. However, the higher effective tax rate or ETR on the back of Cukai Makmur adjustments partially offset the growth hence 4Q22 net profit grew at a slower pace of 35% to MYR136m.

• Outlet expansion and cost tailwinds to anchor FY23F growth (+24% YoY). Management foresees FY23F GPM to further expand to 43-44% considering the sharp drop in freight costs (from a high of MYR15,400/ container in end-2021 to MYR3,000 in end-2022) and the full impact of price increases implemented in FY22. In addition, it will also allow Mr DIY more room to be more aggressive in launching promotional campaigns to stimulate sales. Meanwhile, the group is targeting to open at least 180 stores in FY23F (predominantly Mr DIY brand) as it sets its sights to further penetrate the market and extends its reach to more consumers.

• Risks to our recommendations include a sharp hike in input or operating costs and major supply chain disruption.

Source: RHB Research - 15 Feb 2023