2Q22: Record high quarterly net profit
- 1H22 core net profit of RM242.3m (+17.2% yoy) was within our expectations.
- We view MDGM as a beneficiary of consumer downtrading amid the high inflation environment, thanks to its value offerings and good affordability.
- We reiterate our Add call with a higher TP of RM2.71 (36x CY24 P/E).
1H22 core net profit rose 17.2% yoy; within expectations
2Q22 revenue rose 38.0% yoy to RM1.0bn, from normalisation of consumer spending and easing of lockdown measures. This resulted in: i) higher transaction volumes (+35.0% yoy), and ii) higher same-store-sales growth (SSSG, +19.9% yoy). In 2Q22, MDGM also grew its store count to 993 (+20.1% yoy, +166 net new stores). However, 2Q22 GP margin dipped 0.5% pt yoy to 41.0%, owing to higher input and freight costs. Still, 2Q22 core net profit rose 72.7% yoy to RM141.8m, after accounting for one-off losses of RM6.6m (mainly tax expense of RM6.7m). This brought 1H22 core net profit to RM242.3m (+17.2% yoy), in line with our full-year estimate (at 48%), but below Bloomberg consensus’ (44%).
2Q22: Driven by higher consumer spending and selling price hikes
On a qoq basis, 2Q22 revenue and net profit rose 15.9% and 41.1% respectively. This was mainly thanks to: i) strong demand during the Hari Raya festivities, ii) selling price hikes (price lock campaign was held in 1Q22), and iii) higher economies of scale. Note that 1Q22 performance was also affected by store closures (due to high Covid-19 infection rates) that led to a decline in SSSG of 10.9%. MDGM declared an interim dividend of 0.6sen/share, bringing 1H22 dividend to 1.3sen/share, within our expectations (41.8% payout).
MDGM a beneficiary of consumer downtrading
Despite ongoing inflationary pressures, we expect MDGM to post stronger results in 2H22F as we view MDGM as a key beneficiary of consumer downtrading. Despite MDGM’s recent price increases, we believe that the pricing differentials between its products and those of its peers remain sizeable, thus maintaining MDGM’s attractiveness. In addition, we expect gradual selling price hikes undertaken throughout 2Q22 to be reflected in 2H22F.
Further opportunities for store expansion
In 1H22, MDGM opened 93 net new outlets (+10.3% growth from 900 stores at end-FY21), on track to reach a store count of 1,080 (+20% yoy, +180 net new stores) in FY22F. Beyond 2022, we expect MDGM to continue its aggressive store expansion plans, as we pencil in 180 new store openings annually for 2023-24F. We continue to see room for MDGM to open new outlets, mainly in non-urban areas (less competition and lower capex).
Reiterate Add; proxy for consumer downtrading activities
We keep our FY22-24F EPS estimates post the in-line 1H22 results. Yet, we raise our TP to RM2.71 (36x CY24F P/E) as we roll over our valuation to 2024F. We retain Add as we see MDGM as a proxy for consumer downtrading activities amid high inflation, backed by: i) its solid execution track record, ii) robust growth profile (3-year EPS CAGR of 15.4%), iii) strong balance sheet, and iv) captive market in Malaysia (large outlet count)