Beneficiary of consumer downtrading
? MDGM’s stock traded ex-bonus (1-for-2 bonus) today; we reflect this in our
core EPS and DPS forecasts, as well as TP of RM2.40 (36x CY23F P/E).
? We reiterate our Add call as we project strong FY21-24F core EPS CAGR of
15.4%, driven by its store expansion plan and higher average sales per store.
1-for-2 bonus issue goes ex today
Mr D.I.Y.’s Group (M) Berhad (MDGM) share price traded ex-bonus (1-for-2 bonus issue)
today, enlarging its share base by 3.1bn to 9.4bn. The exercise was mainly undertaken to
reward its shareholders and broaden its shareholder base. While this will not have any
fundamental impact on the company, we are slightly positive on it as it should help to
enhance the stock’s liquidity and near-term sentiment.
Expecting better qoq results from 2Q22F onwards
Going forward, we expect MDGM to benefit from strong recovery in footfall and average
sales per store. This is in tandem with return to full operating hours for all its 947 outlets
since 2Q22, as its 1Q22 results were impacted by a rise in Covid-19 cases (1Q22 SSSG:
-10.9%), leading to lower transaction volumes (closure of several outlets). We also expect
MDGM to benefit from selling price hikes, as it has made price adjustments since 2Q22 to
pass on its higher input and freight costs. Note that MDGM held a “Price Lock” campaign
in 1Q22 which led to lower margins for the quarter (1Q22 GP margin: -2.9% pts yoy).
A key beneficiary of consumer downtrading activities
We view MDGM as a key beneficiary of consumer downtrading activities due to the ongoing
inflationary pressures. Despite price increases, we believe the pricing differential between
MDGM’s products and its peers’ are still sizeable, keeping its products attractive. MDGM
is able to price its products very attractively as it has the economies of scale (from its total
store count of 947 outlets) and operating efficiency from sourcing products in bulk volumes
in a more economical way. Nevertheless, we lower our FY22-24F EPS to account for
higher operating expenses and input costs.
Growth backed by store expansion plans
We expect MDGM’s earnings growth to be mainly driven by its store expansion plans. It
aims to open 180 new stores in 2022F to end the year with 1,080 outlets (20% growth). It
added 47 new stores (net) in 1Q22. We believe most of its new outlets will be focused on
the MR DIY brand, as it continues to see room to open more MR DIY outlets, especially in
non-urban areas.
Maintain Add, with an ex-bonus TP of RM2.40 (36x CY23F P/E)
In tandem with our EPS cut, our ex-bonus TP falls slightly to RM2.40. This is pegged to
36x CY23F P/E, in line with our current target CY23F P/E for the overall consumer sector
(from 40x previously). The lower P/E multiple is to reflect expectations of weaker consumer
sentiment in 2H22F. We continue to like MDGM for its: i) solid execution track record, ii)
robust growth profile (3-year FY21-24 EPS CAGR of 15.4%), iii) strong balance sheet and
iv) captive market in Malaysia via its large outlet count.