Analysts trim valuations on MR DIY, remain bullish on prospects

KUALA LUMPUR: MR DIY Group Bhd is still experiencing an elevated increase in input costs, especially staff costs, which are having a negative impact on its bottomline.

In its recent 4QFY22 earnings report, the home improvement retailer’s profit after tax came in at RM138.3mil, 3% higher year-on-year (y-o-y), which bought its entire financial year earnings to RM481.5mil.

According to Hong Leong Investment Bank (HLIB) Research, the FY22 result was slightly below its estimate at only 94% of full-year forecast but met consensus expectations.

This came on the back of the group’s topline rising 9% y-o-y to RM1.1bil in 4QFY22 as its number of stores increased to 1,080 and total value of transactions increased.

The research firm said the group reported smaller margins with operating expenditure rising 27% year-on-year on the back of higher wage costs following the implementation of the RM1,500 minimum wage.

However, HLIB noted that freight costs have eased significantly to return to pre-Covid levels.

“Note that the improvement in 4Q22 Ebitda margin was partially due to the lower ex-China freight

cost that tapered down from the high of RM15,400 in early 2022 and declined 81% to RM3,000 with momentum still trending lower,” it said in its results review.

Moving forward, HLIB said the positive impact from the price hike implemented in 2Q and 3Q in 2022 is expected to trickle down to subsequent quarters due to a lag effect.

Howeve, post-results it trimmed its FY23/24 forecasts by 10% and 14% respectively.

The research firm maintained “buy” on MR DIY but cut its target price to RM2.15 from RM2.40 previously.

Meanwhile, RHB Research said in its own report that the share price retracement in MR DIY’s stock is overdone as it now trades at a steep discount to its large-cap consumer peers and is below its two-year mean.

The research firm, which has a “buy” call on the counter, said it remains optimistic of MR DIY’s growth prospects after taking into consideration the solid underlying fundamentals and strong brand equity.

However, MR DIY’s FY22 earnings missed RHB’s expectations at 95% of its full-year forecast, leading to a target price reduction to RM2.48 from RM2.62.

Moving forward, RHB said the group’s outlet expansion and cost tailwinds are expected to anchor FY23 growth.

“Management foresees FY23F gross profit margin to further expand to 43-44% considering the sharp drop in freight costs and the full impact of price increases implemented in FY22.

“In addition, it will also allow MR DIY more room to be more aggressive in launching promotional campaigns to stimulate sales,” it said.

The research firm added that the group is targeting to open at least 180 stores in FY23F (predominantly MR DIY brand) as it sets its sights to further penetrate the market and extends its reach to more consumers.