Analysts lower MR DIY's TPs after 3Q earnings miss expectations

TheEdge Wed, Nov 09, 2022 12:08pm - 2 months View Original

KUALA LUMPUR (Nov 9): Analysts have reduced their target prices (TPs) for MR DIY Group (M) Bhd after its earnings for the third quarter ended Sept 30, 2022 (3QFY2022) missed expectations.

HLIB Research's Syifaa' Mahsuri Ismail cut its TP by 17.8% to RM2.40 from RM2.92 previously, while maintaining her "buy" call, after lowering its price-earnings multiple to 35 times earnings per share of 6.9 sen for its financial year ending Dec 31, 2023 (FY2023).

She noted that MR DIY has opened 138 new stores and is on course to exceed its target of 180 stores for FY2022.

"Despite healthy store expansion, the group is still experiencing pronounced increase in input costs mainly in freight charges and staff costs.

"Opex rose by 2% year-on-year on the back of the higher wage costs by 1.2 percentage points with the implementation of RM1,500 minimum wage. To mitigate the impact, the group is exploring several key operating and strategic initiatives including pricing reviews of its product ranges, optimising the product mix as well as automation and simplification of operating processes.   

"We trimmed our FY2022/2023/2024 forecasts by 11%/6%/6% respectively, to account for the deviation mentioned above," she said.   

Meanwhile, RHB Research's Soong Wei Siang lowered MR DIY's TP by 9.7% to RM2.62 from RM2.90, while also maintaining a "buy" call.

"MR DIY’s results for the nine months ended Sept 30, 2022 (9MFY2022) disappointed mainly on weaker-than-expected sales momentum and stalled GPM [gross profit margin] recovery. That said, we believe earnings are well poised for an immediate rebound in 4Q2022 on seasonality and GPM normalisation, with its solid fundamentals remaining intact. We continue to like the stock as a proxy to capture the resilient consumer spending in Malaysia thanks to its entrenched network of stores and strong brand equity," he said in a note on Wednesday (Nov 9).

He added that there could be a strong earnings rebound in the fourth quarter, which is seasonally the strongest quarter thanks to the festivities and long year-end holidays.

"Meanwhile, GPM is also set to expand by an estimated 1.5-2.0 percentage points starting 4Q2022 taking into account the latest round of price adjustments towards end-3Q2022 and the fall in freight rates. Beyond the immediate term, management is committed to 180 new store openings (125 MR DIY, 35 MR DIY Express and 20 MR Toy and MR Dollar) for FY2023, as it believes its business model will be able to thrive at a greater degree of density and MR DIY Express is expected to capture more growth opportunities," he said.

On Tuesday, MR DIY announced that its net profit for 3QFY2022 rose 11.99% to RM101.18 million from RM90.35 million a year earlier, on the back of a 25.8% increase in revenue to RM966.17 million from RM768.02 million.

The group noted that its bottom line during the quarter was hampered by administrative expenses of RM37.6 million (up 39% year-on-year) and other operating expenses of RM214.7 million (up 38.7% year-on-year).

“This was mainly due to business expansion activities, which resulted in increases in staff costs, utility expenses, marketing expenses for promotional activities as well as the depreciation of right-of-use assets, in line with growth in the number of stores,” MR DIY said in a filing with Bursa Malaysia.

MR DIY said it will continue undertaking pricing reviews to address continued input cost pressure.

At the time of writing, MR DIY was unchanged at RM1.98, giving it a market capitalisation of RM18.67 billion.

Read also:
MR DIY to implement pricing reviews to combat rising costs; 3Q net profit up 12%

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