KENANGA Research has bucked the trend by downgrading its rating on MR DIY Group (M) Bhd to “market perform” (from “outperform” previously) amid concern of inflationary impact to the 2H 2022 top line growth of Malaysia’s largest home improvement retail chain.
Amid the company’s 1H FY2022 earnings which came in below the research house expectations, Kenanga Research has also slashed MR DIY’s target price slightly to RM2.40 (from RM2.65 previously).
“While we are positive on its store expansion for FY2022, we remain cautious for its sales in 2H 2022 as inflationary pressures creep in,” opined analyst Ahmad Ramzani Ramli in a results review.
“However, historically 4Q is the strongest quarter due to the year-end shopping season and festivities. With the adjustments in prices, we expect gross profit (GP) margin to remain stable at circa 41% for the rest of the year.”
According to Kenanga Research, MR DIY’s 1H FY2022 profit after tax and minority interests (PATAMI) of RM242 mil came in below expectations at only 40%/44% of its full-year forecast and full-year consensus estimate respectively.
“(This came about) as consumers cut back on spending, even on small low-value items as inflation ate into their disposable income,” justified the research house. “Dividend per share (DPS) of 1.3 sen came short of expectation of 4.6 sen.”
Post results, Kenanga Research has reduced MR DIY’s FY2022E/FY2023E earnings by 16%/10% on expectation of it slowing in 2H 2022. “We maintain our assumption of a net addition of 180 stores for both years with same-store sales growth (SSSG) at 1%/2% respectively (from 4% for both years previously),” added the research house.
Meanwhile, RHB Research retained its “buy” call on MR DIY but adjusted downward its target price to RM2.90 (from RM3 previously) as the company’s 1H FY2022 results “slightly missed our lofty forecasts despite record 2Q FY2022 earnings.”
“We continue to like MR DIY as a major proxy to capture the recovery in consumer spending thanks to its entrenched network of stores and strong brand equity,” noted analyst Soong Wei Siang. “The valuation gap vs its large-cap peers should close, premised on the company’s superior earnings growth profile and higher trading liquidity, in our view.”
Elsewhere, Maybank IB Research also maintained its “buy” call on MR DIY with a lift in its target price to RM2.70 (from RM2.60 previously) “after rolling forward valuations to FY2023 based on unchanged 40 times price-to-earnings (P/E) ratio mean.
Nevertheless, the research house reduced its FY2022-FY2024 earnings estimates by 5%-13%. “Full impact from the price hikes in 2Q 2022 could buffer cost pressures on group operating margins in 2H 2022 but sales volume could soften given the adverse impact of overall cost inflation on consumers,” cautioned Maybank IB Research.
At the close of today’s mid-day trading MR DIY was down 7 sen or 3.02% to RM2.25 with 5.99 million shares traded, thus valuing the company at RM21.21 bil. – Aug 5, 2022
