• Maintain BUY and MYR2.20 TP, 23% upside and c.2% FY24F yield. Mr DIY’s 1Q24 results met expectations, supported by outlet expansion and steady margins. Given the improved broader market sentiment, we see valuation rerating potential for the company considering its entrenched position to capture consumer spending and capitalise on the recent positive developments in the sector. In addition, the relatively higher trading liquidity vs other large-cap consumer peers is favourable to attract the interest of returning foreign investors.

• 1Q24 results were within expectations. Mr DIY’s net profit of MYR145m (+13% YoY) accounted for 23% of ours and consensus forecasts – in line with the seasonal patterns. Post results, we make no material changes to our earnings forecasts. Our DCF-derived TP remains at MYR2.20 (inclusive of a 4% ESG premium), which implies 33x P/E FY24F or close to the stock’s 3 year-mean.

• Results review. YoY, 1Q24 sales climbed 9% to MYR1.1bn primarily driven by net new store addition of 173 outlets (+15%) whilst SSSG was -1%, which could be due to the earlier fasting month in 2024. Meanwhile, 1Q24 GPM was 1.5ppt higher at 45.8%, thanks to the relatively lower freight costs and effects of price increases. With the opex kept in tandem with store expansion, 1Q24 PBT jumped 13% YoY to MYR195m. QoQ, 1Q24 sales was flat as outlet expansion (+37 outlets) offset the softer seasonality (4Q being Mr DIY’s seasonally strongest quarter). That said, 1Q24 net profit was 9% lower QoQ on stable GPM and increased opex to support the outlet expansion.

• Outlook. Mr DIY’s earnings growth will continue to be underpinned by robust outlet expansion (FY24F target: c.180 stores) for deeper market penetration and strong brand equity, thanks to its effective business model. Meanwhile, the strong cash flow generation coupled with normalisation of inventory turnover and capex should sustain the high dividend payout ratio. Notwithstanding the cautious consumer spending on the back of heightened inflationary pressures, the company is well-positioned to benefit from any consumer downtrading given its value-for-money product offering and convenient locations. We view Mr DIY as a major proxy to capitalise on recent positive developments, including the salary hikes for civil servants and flexible EPF withdrawal scheme – we believe the beneficiaries of both proposals fall well within Mr DIY’s customer groups.

• Risks to our recommendation include weaker-than-expected consumer sentiment and sharp rise in operating costs.

Source: RHB Research - 10 May 2024