Mr DIY Group registered a net profit of RM128 million, accounting for 22% of RHB Research (RHB) and consensus forecasts. Post results, RHB in the recent Malaysia Results Review made no material changes to their earnings forecasts.
“Correspondingly, our discounted cash flow-derived trading price is unchanged at RM2.48, which implies 40 times the financial year 2023 future price-earnings ratio, in line with the valuation we ascribe to large-cap consumer peers,” said RHB.
Year-on-year, quarter one 2023 revenue jumped 16% to RM1 billion largely driven by the higher number of stores as same-store-sales growth was flattish at 0.4%.
Meanwhile, quarter one 2023 gross profit margin expanded strongly by 5.1 points to 44.3% thanks to the effect of price hikes implemented last year and cost savings from lower freight rates.
With operating expenses increasing in tandem with the store expansion and higher minimum wages, quarter one 2023 profit before tax surged 28% to RM173 million.
Quarter-on-quarter, quarter one 2023 revenue was 2% lower as quarter four 2022 was a high base boosted by the stronger seasonality. As a result, quarter one 2023 profit before tax fell 6% quarter-on-quarter despite the continuous gross profit margin expansion.
“We believe the positive earnings momentum is sustainable, taking into account the cost tailwinds with the favourable freight rates movement,” said RHB.
This should protect the improved gross profit margin, and at the same time, render Mr DIY room to be more aggressive with promotions. This will be effective in driving foot traffic and stimulating consumer spending against the backdrop of elevated inflation.
Meanwhile, the plan to open 180 stores in the financial year 2023 future is on track with the addition of 45 net new stores in quarter one 2023.
The group is also introducing a new variant of the Mr Dollar brand in the form of Mr Dollar One Plus in order to be more flexible with its product offering.
Furthermore, it is targeting to launch a new brand – Empro. Risks identified by RHB include a sharp hike in input or operating costs, and major supply chain disruption.
