Store count expansion fuelled growth
? FY21 core net profit of RM430m (+23% yoy) met expectations.
? We expect MDGM to record stronger results from 1Q22F onwards, driven by: i) higher sales volume, ii) store count expansion, and iii) selling price hikes.
? Reiterate Add, with lower TP of RM4.20 (40x CY23F P/E).
FY21: Core net profit of RM430m (+23% yoy) within expectations
D. I.Y. Group (MDGM) posted FY21 core net profit of RM430m (+23% yoy), in line with expectations at c.99% of our and Bloomberg consensus forecasts. The 23% growth in FY21 net profit was in tandem with the 31.8% growth in its topline. This was despite FY21 gross margin waning 1.4% pts to 41.3% due to higher input and freight costs as well as lower margins from growing its MR Dollar business. It announced an interim dividend of 0.9sen/share, bringing cumulative FY21 dividend to 3sen/share (43% dividend payout); within expectations.
4Q21: Stronger qoq thanks to easing of lockdown measures
In 4Q21, MDGM’s revenue and core net profit rose 27% and 49% qoq respectively. This was mainly due to: i) higher sales, thanks to easing of lockdown restrictions towards end3Q21, ii) increase in store count (+59 stores), and iii) higher economies of scale.
Aims to add another 180 new stores in 2022F (20% growth)
In 2021, MDGM opened a total of 166 outlets (below our estimate of 180), raising its total outlet count to 900 (+22.6%). It plans to continue expanding its store network in 2022, with a target of c.180 new stores, primarily across two main store formats – MR DIY and MR DIY Express. As for MR DOLLAR and MR TOY, MDGM is taking a more conservative approach in opening new stores (10-15 new stores for each), given the tougher operating environment for and lower margins from the two businesses.
Price increases on the cards, but more selective and gradual
While increases in both input costs and freight charges is a concern, MDGM aims to mitigate this impact via raising its selling prices as well as better cost management. We gather from MDGM that it will continue to strike a balance between preserving consumer demand (as its products are relatively price elastic) and ensuring its margins remain favourable. Hence, we think it will likely raise ASPs selectively and on a gradual basis.
Maintain Add, with lower TP of RM4.20 (40x CY23F P/E)
We lower our FY22-23F EPS as we lower our store count estimates and GP margins (to account for input cost increases). Accordingly, our TP dips to RM4.20, still based on 40x P/E, a 15% premium over the weighted average P/E of 35x for the Malaysian consumer sector (ex-MDGM). We believe the premium is justified given MDGM’s solid execution track record despite challenges in the retail sector. Reiterate Add. A strong recovery in footfall is a key potential re-rating catalyst. Downside risks include a weaker-than-expected sales recovery and higher costs.