• Maintain BUY and TP of MYR2.29, 42% upside with c.2% FY24F yield.Mr DIY Group’s 9M23 earnings broadly met expectations, in anticipation ofa stronger 4Q23 ahead. Against the backdrop of soft consumer sentiment,we believe MRDIY will be able to offer resilient growth, thanks to its valuefor-money product offerings – made possible by its industry-leading scaleand effective business model. Hence, the gap between its valuation andthat of other large-cap consumer peers is unwarranted, as we take in itssolid earnings delivery and consistent dividend payout since listing.

• 9M23 results are broadly within expectations. Core net profit ofMYR402m (+17% YoY) met 71% of our and consensus full-year forecastsand we anticipate a stronger 4Q23F ahead, in line with the historicalseasonal patterns. Post-results, we make no changes to our earningsforecasts and DCF-derived TP of MYR2.29 (inclusive of a 4% ESGpremium), which implies 34x P/E FY24F which is on par with the stock’s 3-year mean.

• Results review. YoY, 9M23 revenue rose 10% to MYR3.2bn, primarilydriven by the contributions from new stores (+170 to 1,208 stores).Meanwhile, GPM expanded by 4.7ppt to 45.2%, thanks to receding freightcosts and ASP adjustments. That said, the gain was offset by the higheropex (+26%), which outpaced topline growth and store expansion – due tothe higher minimum wages and soft consumer spending. QoQ, 3Q23revenue dipped 3% to MYR1.1bn, in line with the weaker seasonality withthe absence of major festivals and lengthy holidays. Its quarterly GPMmargin slipped marginally by 1.3ppt to 45%, likely due to changes in theproduct mix and inventory write-downs. Correspondingly, 3Q23 net profitfell 18% to MYR124m.

• Outlook. We expect to see a sequential pick-up in 4Q23 sales, boosted bystronger seasonality on the back of the year-end festive season and schoolholidays. In addition, the company has lined up several marketingcampaigns to stimulate consumer spending and drive traffic to its stores,taking advantage of the GPM expansion. Looking beyond the immediateterm, MRDIY has set a new store opening target of 180 stores(predominantly for the Mr DIY brand) for FY24, as it continues to see roomfor further market penetration. It also aims to tap into opportunities in theunderserved East Malaysia region, which currently generates higher salesper store and better profitability for the group. With regards to the longerterm growth strategy, it is planning to launch 1-2 new formats whilst alsoexploring M&A opportunities with modest targets worth

• Downside risks to our recommendation include a sharp hike in input oroperating costs and major supply chain disruptions.

Source: RHB Securities Research - 21 Nov 2023