• Maintain BUY (TP: RM2.30). MRDIY’s 9MFY23 net profit of RM402mn (+19% YoY) was slightly below ours but in line with consensus expectations, accounting for 69% and 71% respectively. The deviation against our forecast was mainly due to higher-than-expected administrative and operating costs. Consequently, we tweaked our FY23f/FY24f earnings lower by 4%/3% as we increased our marketing and business expansion costs. MRDIY's 3QFY23 saw both revenue and net profit, surging by +10.4% and 22.5% YoY respectively, driven by positive contributions from new stores and a substantial increase in transaction volume (+16.3% YoY), partially offsetting the lower average basket size (-5.1% YoY). The long-term outlook remains positive, supported by strategic store openings and better economic of scale. We maintain a BUY call with lower TP of RM2.30 (from RM2.50). Our valuation is based on a lower PER of 33x (below MRDIY’s -0.5SD 3-years average forward PE), pegged to FY24F EPS of 6.9sen. We believe this is fair, considering unfavourable currency movements and the expectation of higher inflationary pressures in 2024. MRDIY declared a DPS of 0.8sen, accounting for 60% payout (YTD: 2.2sen) and we estimate a total FY23F DPS of 3 sen, translating into 1.9% DY.

• Key Highlight: 3QFY23 revenue of RM1066.5mn rose by +10.4% YoY, driven by positive contribution from new stores and a substantial increase in transaction volume (+16.3%), which partially mitigated the impact of lower average basket size (-5.1%). Net profit surged to RM123.9mn (+22.5% YoY), supported by higher revenue and improved GP margin attributed to lower freight costs. However, on QoQ basis, net profit declined by -17.6% mainly due to a decrease in overall transactions in the absence of festive periods, coupled with softer retail trade and weaker consumer sentiment.

• Earnings Revision: We tweaked our FY23f/FY24f earnings by -4%/-3% as we increase our opex associated with marketing and business expansion activities.

• Outlook: MRDIY outlook is driven by strategic store openings and stable margins. The company aims to reach 1,260 total stores by the end of FY23, with a larger goal of 2,000 total stores in the next five years. Next year’s openings store will be focus on underserved areas of East Malaysia, with the majority being flagship MRDIY concept stores.

Source: BIMB Securities Research - 21 Nov 2023