A weak 1Q22 but better quarters to come
? 1Q22 core net profit waned 19.9% yoy to RM99.4m, below estimates due to
weaker-than-expected sales and narrower margin from higher input costs.
? MDGM should post stronger qoq results in subsequent quarters, driven by: i)
higher consumer footfall, ii) selling price hikes, and iii) new store openings.
? Reiterate Add, with a lower TP of RM4.00 (40x CY23F P/E).
1Q22 core net profit declined 19.9% yoy, below estimates
D.I.Y. Group’s (MDGM) 1Q22 revenue rose 4% yoy, thanks to higher store count (+20.2%
yoy) and transaction volume (+8.1% yoy). This more than offset low er same-store-sales
growth of 10.9% yoy. 1Q22 GP margin declined by a larger-than-expected 2.9% pts to
39.2% due to higher input and freight costs, as higher cost w as not passed on due to its
“Price Lock” campaign in 1Q22. Coupled with increases in administrative (+5.4% yoy) and
operating costs (+15.2% yoy) from a larger store base, 1Q22 net profit dipped 19.9% yoy
to RM99.4m, below at 17.8% of our and 15.9% of Bloomberg consensus FY22 estimates.
1Q22 results affected by a surge in Covid-19 cases in the quarter
On a qoq basis, 1Q22 revenue and core net profit declined by 7.2% and 25.9%,
respectively. This was owing to i) the impact of a surge in Covid-19 cases in the quarter
(due to the Omicron variant), leading to lower consumer footfall (resulting in a decline in
SSSG), ii) Covid-19-related impact (fewer operating days), and iii) higher input costs. A
dividend of 0.7 sen/share w as declared, in line with expectations (43.8% payout).
Targeting 180 total new outlets in 2022F
In 1Q22, MDGM opened 47 net new outlets, raising its total outlet count to 947 (+47 new
stores). It plans to continue expanding its store network going forward, targeting c.180 new
stores in 2022. Its new outlets w ill primarily be 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 and targets 10-15 new stores for each format in FY22.
Better sales and margins in quarters ahead
While rising input costs, weaker ringgit and increase in minimum w age w ill have a near-term negative impact on margins, w e expect MDGM to record stronger qoq results in
subsequent quarters from higher revenue and margin expansion. In addition to further price
hikes, MDGM should benefit from increased sales from a pick-up in footfall as Covid-19
cases subside. We think MDGM w ill not face a steep drop in sales as it w ill focus on
preserving consumer demand despite upcoming price hikes.
Reiterate Add, with a lower TP of RM4.00
We cut our FY22-24F EPS to account for low er transaction volumes and higher input costs.
We reiterate Add with TP down to RM4.00 (40x CY23F P/E, a 14% premium over the
weighted average P/E of 35x for the Malaysian consumer sector ex-MDGM). The premium
is justified by MDGM’s stronger growth profile (3-year EPS CAGR of 17%) and solid
execution track record