Mr DIY to ride on economic recovery in 4Q

RHB Research forecasts the group to post a 50% QoQ jump in profit 

by ANIS HAZIM / pic by TMR

MR DIY Group (M) Bhd’s net profit of RM297 million for nine months of 2021 (9M21) marginally trailed expectations due to a slower-than-expected return in footfall stemming from the prolonged lockdown in its third-quarter (3Q). 

RHB Research analyst Soong Wei Siang stated that the group’s net profit of 9M21 had increased by 28% year-on-year (YoY) and met 65% of RHB Research and consensus forecasts. 

“Post-results, we trim the financial year of 2021 forecast (FY21F) earnings by 4%, but make no material changes to FY22-23F profits,” Soong wrote in a research note on the company on Wednesday. 

The analyst has maintained a ‘Buy’ call for Mr DIY with a target price (TP) of RM4.59. 

“Our discounted cashflow-derived TP remains at RM4.59, which is inclusive of a 4% environmental, social and governance premium. The TP implies 48 times price-to-earnings (P/E) FY22F, in line with the valuation we ascribed to other large-cap consumer peers,” he stated. 

Mr DIY sales jumped 34% YoY to RM2.4 billion in 9M21, primarily driven by the net addition of 107 stores, with its brand making up 60% of the outlet expansion. 

Its gross profit margin slipped 0.9 points to 41.6% due to planned promotional campaigns and higher raw material costs. 

Operating expenditure rose 36% YoY, which is largely in tandem with the topline growth, while profit before tax surged 29% to RM407 million in 9M21. 

Quarter-on-quarter (QoQ), Mr DIY’s 3Q21 revenue was flattish at RM768 million on a longer period of store closures enforced by the lockdown but offset by the lifting of trading restrictions. 

On its outlook, the analyst expects Mr DIY’s encouraging recovery momentum in September should sustain into 4Q21, considering broader reopening of the economy and the ease in movement restrictions. 

“The store expansion plans have also resumed progressively since end-3Q21, and Mr DIY is confident of achieving its FY21 target of opening 175 new stores. 

“As such, we anticipate a sharp earnings recovery in 4Q21, also taking into consideration the post-lockdown pent-up demand and favourable year-end seasonality,” he added. 

RHB Research forecasts the group to post a 50% QoQ jump in 4Q21 core net profit. 

The downside risks to the recommendation include a critical supply chain disruption and a resurgence of Covid-19 infections. 

Hong Leong Investment Bank (HLIB Research) analyst Syifaa’ Mahsuri Ismail noted that Mr DIY’s 3Q21 and 9M21 results accounted for 70% and 65% of HLIB Research and consensus full-year forecasts. 

“We deem this to be in line as 4Q is a seasonally stronger quarter for the group. Historically, 9M19 and 9M20 accounted for 72% and 67% of the full-year numbers,” Syifaa’ stated in a note yesterday. 

Mr DIY’s core profit after tax (PAT) was arrived after adjusting for foreign exchange loss (RM757,000) and gain on disposal of properties, plant and equipment for RM271,000. 

Mr DIY had declared a dividend per share of 65 sen, which goes ex on Nov 29, 2021, while the 9M21 dividend amounted to 2.05 sen per share. 

The analyst said Mr DIY’s QoQ PAT leapt further by 9.4% owing to sales improvement and increase in Ebitda margin from the lower operating and administrative expenses. 

For YoY basis, its turnover increased by 3.8% on the back of the increase in the number of stores and higher average basket size. 

“On the flipside, core PAT recorded a 21.4% decline owing to shrinking of Ebitda margin by 3.8 points as the group continues to incur fixed operating expenses with prolonged store closures,” she stated. 

Mr DIY’s year-to-date sales momentum lifted topline growth by 33.9% to RM2.4 billion with a bottom line staged 27.5% improvement to RM296.8 million. 

On its outlook, the analyst expects an improvement in the number of transactions and average basket following the normalisation of store operations. 

“The group is ramping up on its private-label stock-keeping units to leverage on its scale to negotiate for competitive pricing from suppliers. 

“As more sectors of the economy are allowed to open, we remain optimistic on pent-up demand premised on normalisation of social activities coupled with stable margins from higher portion of private label product mix,” she said. 

HLIB Research maintained its ‘Buy’ call on Mr DIY with a TP of RM4.51 based on an unchanged P/E multiple of 50 times pegged to FY22 earnings per share. 

“We expect the steady store expansion and omni channel strategy (online Touch ‘n Go collaboration) to shore up the company’s profitability in line with the clearer recovery picture,” she added.