• Maintain BUY, with new MYR2.35 TP from MYR2.59, 12% upside and c.3% FY25F yield. Mr DIY’s 9M24 results disappointed as weak consumer sentiment continued to dampen consumer spending. That said, we maintain our positive stance in anticipation of an improving environment ahead lifted by rising disposable income of which the company will be well-placed to capitalise on. Valuation is not overly demanding considering the robust expansion plans lined up and promising prospects of the KKV brands as a second leg of growth.

• 9M24 results were below expectations. Net profit of MYR422m (+5% YoY) met only 69% of both our and consensus forecasts due to the weaker-thanexpected sales traction on persistently cautious consumer sentiment. Post results, we cut FY24F-26F earnings by 6%,10%, and 11%. Correspondingly, our DCF-derived TP drops to MYR2.35 (inclusive of a 4% ESG premium) which implies 30x FY25F P/E or at the stock’s 4-year mean.

• Results review. YoY, 9M24 revenue grew 8% to MYR3.5bn primarily driven by the 181 net new store additions (+15%), whilst SSSG remained in the negative territory, impacted by the subdued consumer sentiment. As a result, 9M24 opex (+12%) outpaced revenue growth and translated to a modest 5% growth in 9M24 PBT to MYR568m. QoQ, 3Q24 revenue was 5% lower at MYR1.1bn on softer seasonality in the absence of major festivities. Meanwhile, additional costs of MYR6m were incurred in 3Q24 related to the transition to a new automated warehouse. Consequently, 3Q24 net profit dipped 22% to MYR122m. DPS of 1 sen was declared in 3Q24 which represents a payout ratio of 78% – the highest level since listing.

• Outlook. Earnings momentum should pick up in 4Q24F in view of the favourable year-end seasonality but we understand that the additional costs related to the new warehouse will continue to incur before reaching the optimal level by 1Q25F. Meanwhile, management shared the FY25F new store opening target of 190 outlets, which is inclusive of the KKV brands (>20 outlets) with another brand – The Colorist (beauty and cosmetic specialty) to be introduced by end-2024. Looking further ahead, the higher wages in both public and private sector in 2025F is expected to lift disposable income and consumer sentiment. Together with the upsized cash handouts for the lowerincome groups, Mr DIY could stand to benefit as the recipients of these measures fall well within its targeted customer groups. On top of that, the stronger MYR/CNY is another catalyst, by bringing about a margin upside potential.

• Risks to our recommendation include a sharp rise in input costs and weakerthan-expected consumer sentiment. 

Source: RHB Securities Research - 15 Nov 2024