MRDIY’s 2QFY23 net profit rose to RM150.3mn (+17.7% QoQ, +11.2% YoY) propelled by higher sales during the festive season, contributions from new stores and improved GP margins. The overall 1HFY23 net profit of RM278.1m was in line with ours and consensus expectations accounting for 48% and 49% respectively. MRDIY outlook will be driven by strategic stores opening (aiming 1,260 total stores by end FY23 or +16.7% YoY) and stable GP margin supported by reduced input and freight cost as well as better economies of scale. We maintain a BUY call with TP of RM2.50.

• Within expectations. 1HFY23 net profit of RM278.1mn was in line with ours and consensus expectations accounting for 48% and 49%, respectively.

• Higher Dividend. Declared DPS of 0.8 sen or 50% payout (above company target of 40% payout), bringing YTD DPS of 1.4 sen (1HFY22: 1.3 sen). We estimate total FY23f DPS of 3 sen, translating into a dividend yield of 2.1%.

• QoQ. MRDIY’s 2QFY23 saw an increase in both revenue and net profit, reaching to RM1.1bn (+5.1% QoQ) and RM150.3mn (+17.7% QoQ) respectively. This quarter demonstrated seasonal strength, attributed to elevated sales during the Raya festive season and the positive contribution from newly opened stores.

• YoY. Net profit rose by +11.2% YoY driven by i) strong sales with transaction volume increase (+13.1 YoY), ii) gross profit margin expansion by 5.3ppts and lower effective tax rate of 25.3% (-0.9ppts).

• YTD. MRDIY’s 1HFY23 revenue increased by 9.8% YoY to RM2.1bn, thanks to a positive contribution from new stores (17.6% increase in the number of stores to 1,168), leading to higher total transaction volume (+15.5% YoY). Net profit jumped higher by 18% YoY, driven by higher revenue and improved GP margin to 45.3% (+5.2 ppts YoY). The margin improved mostly thanks to lower freight rate, which mitigated other higher operating expenses (i.e. wages and utilities).

• Outlook. MRDIY outlook will be driven by strategic store openings and stable margins. To date, they have opened 88 new stores, which majority constitutes of MRDIY Plus and Store (+84), MR Toy (+2), and EMTOP (+2). This brings the total number of stores to 1,168 and is on track to meet the target of 1,260 total stores by the end of FY23. Additionally, we are positive about the MRDIY PLUS format stores (currently have 31 stores: 80% are conversions from existing stores), which could yield positive benefits in terms of revenue, manpower savings, and overall operating cost reduction. MRDIY operating costs remain a concern especially on higher wages, but this could be mitigated by overall lower input and freight costs.

• Our call. We maintain a BUY call on MRDIY with TP of RM2.50 based on 41x PER pegged to FY23F EPS of 6.1 sen. We continue to like MRDIY due to its i) solid track record, ii) attractive FY23F earnings growth of c.22%, iii) largest home improvement retailer in Malaysia and iv) competitive pricing which makes it a key beneficiary from consumer down trading.

Source: BIMB Securities Research - 10 Aug 2023