• MR DIY’s 4Q23 results were in line, with FY23 core profit at 101%/100% of our/Bloomberg consensus estimates.

• Closures of 18 underperforming stores vs. 193 new store openings in FY23 suggest discipline in its growth push, in our view.

• Reiterate Add call with TP of RM1.90; Valuations at 22.8x FY24F P/E are undemanding. This note marks the transfer of coverage to Lew Cheng Wei.

FY23 earnings and DPS in line

• MR DIY today (23 Feb) announced 4Q23 core net profit (CNP) of RM158.6m (+15.8% yoy, +29.2% qoq), bringing FY23 CNP to RM560.6m (+19.1% yoy). This was in line with our expectation at 101%/100% of our/Bloomberg consensus full -year forecasts. The higher yoy CNP in 4Q23 was mainly driven by new store additions (+52 new stores in 4Q23), the full reflection of price hikes undertaken in FY22 and normalisation of freight costs, which more than offset increased staff costs and utility costs due to the opening of new stores.

• MR DIY announced 4Q23 DPS of 1 sen (4Q22: 0.6 sen), bringing its full -year DPS to 3.2 sen and representing a full-year payout of 54% of net profit. This was in line with management’s target payout of c.50-65% and in line with our estimates and 107% of Bloomberg consensus estimates.

Key takeaways from the results briefing

• The closure of 18 underperforming stores vs. 193 new stores in FY23 points to its disciplined expansion plans, in our view. We gather from management that most of these store closures were Mr Dollar stores, and there are still some Mr Dollar stores that are unprofitable amongst the 35 remaining Mr Dollar stores.

• While freight costs have increased recently, management guides that they are marginal and not significant enough at the moment to warrant further price increases. We also gather that management is taking steps to further reduce inventory levels, which were elevated during the pandemic, with the aim to improve cashflows further.

• MR DIY acquired a small minority stake in a plastic products manufacturer which is one of their suppliers for RM22.4m in 4Q23. Management guided that the acquisition was at a relatively modest P/E and should be earnings accretive, although the share of pro fits is unlikely to be significant in the short term.

Reiterate Add with an unchanged GGM-based TP of RM1.90

• We reiterate our Add call on MR DIY as we remain positive on its growth trajectory, driven by its focused store expansion and private label strategy. MR DIY currently trades at a compelling 22.8x FY24F P/E (a 19% discount to Dollarama’s historical 10-year average P/E) vs. global peers. At our TP, MR DIY would trade at 25.8x CY25F P/E (an 8.5% discount to Dollarama’s historical 10-year average P/E). Downside risks: weaker- than-expected consumer sentiment and operating margin. Key re-rating catalyst is delivery of an improved earnings trajectory.

  Source: CGS-CIMB Research - 27 Feb 2024