Mr DIY Group’s (Mr DIY) 1Q24 results met expectations, supported by outlet expansion and steady margins.
RHB Investment Bank’s (RHB) Malaysia Results Review note said today (May 10) that given the improved broader market sentiment, they 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.
RHB maintains a BUY call on Mr DIY and MYR2.20 TP.
1Q24 results were within expectations. Mr DIY’s net profit of MYR145m (+13% YoY) accounted for 23% of RHB’s and consensus forecasts – in line with the seasonal patterns.
Post results, RHB makes no material changes to their earnings forecasts. 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.
RHB said 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.
RHB views Mr DIY as a major proxy to capitalise on recent positive developments, including the salary hikes for civil servants and flexible EPF withdrawal scheme – RHB again believes the beneficiaries of both proposals fall well within Mr DIY’s customer groups.
Delivered well, with store growth
Meanwhile, CGS International said today MR DIY announced a 1Q24 core net profit (CNP) of RM145.0m.
The higher yoy CNP in 1Q24 was mainly driven by new store additions (+37 new stores in 1Q24) and normalisation of freight costs, which more than offset the higher staff and utility costs due to the opening of new stores.
MR DIY announced a 1Q24 DPS of 1 sen (1Q23: 0.6 sen), representing a payout of 65% of net profit. This is at the high end of management’s target payout of c.50-65%, supported by its net cash position of RM28m as at 31 Mar 2024, and healthy operating cashflow.
MR DIY expects cash handouts to lower income households in 2H24, higher civil servant salaries from 2025, and Employees’ Provident Fund (EPF) Account 3 withdrawals as positive catalysts for MR DIY’s revenue trajectory over the next 12 months.
At its 1Q24 briefing, management likewise said it believes the smaller EPF withdrawals and more constant flows from the withdrawals would be more beneficial for MR DIY’s business than larger one-off withdrawals.
Management said 1,201 of its existing 1,292 stores as at end-1Q24 (or 93%) were of the MR DIY store format.
While there are loss-making stores among the other store formats, such as the 29 MR Dollar stores, the impact has been relatively small, and CGS is of the opinion that investors should focus on the strong performance of the MR DIY store format, and its expansion target of reaching 2,000 stores by 2028F.
Management noted that the 1Q24 GP margin of 45.8% (+1.5% pts yoy, flat qoq) is a “comfortable level” and sustainable moving forward, as MR DIY continues to benefit from the weaker Chinese yuan vs. RM (it sources 70% of its supplies from China), and normalisation of freight costs (CGSI FY24F GP margin estimate: 45%).
CGS Reiterates Add with an unchanged TP of RM1.90.
