Kenanga Research expects MR DIY’s gross margin to remain stable at about 41% for the rest of the year.
PETALING JAYA: While MR DIY Group Bhd’s store expansion appears to be positive for its growth but moving forward its sales may be hit due to inflationary pressures.
Historically, festive periods have proven to be MR DIY’s strong quarters and the expectation is the fourth quarter (4Q22) to be so due to year-end shopping and festivities.
With the adjustments in prices and easing of freight charges, Kenanga Research expects MR DIY’s gross margin to remain stable at about 41% for the rest of the year.
Post its 3Q22 results, Kenanga Research cut the home improvement retailer’s financial year 2022 (FY22) earnings by 9% as it reduced its basket size by RM1 to RM28.
The research house noted that even though there is no change to its FY23 earnings for MR DIY, it had revised its assumptions based on average basket size of RM28 (from RM29), 180 new stores (from 150), flattish same-store sales growth from 2% growth, and gross margin of 43% from 42%.
MR DIY released its 3Q22 financial results on Tuesday with sales dampened by disruption to inventory replenishment efforts and tightened consumer spending.
UOB Kay Hian (UOBKH) Research said higher operating cost and input costs offset MR DIY’s price revision.
The confluence of factors weighed on earnings, disappointing expectations but noted headwinds are at a tail end.
The research house continue to like MR DIY for its high cash generation and attractive earnings growth.
RHB Research believes a strong immediate earnings rebound is on the cards for the company with 4Q seasonally the strongest quarter considering the festivities and holidays.
It believes the company’s gross profit margin is set to expand by an estimated 1.5 to two percentage points starting 4Q22.
Beyond the immediate term, MR DIY’s management is committed to 180 new store openings for FY23.
It believes the hardware retailer’s business model will be able to thrive at the greater degree of density and MR DIY Express is expected to capture more growth opportunities.
RHB Research has a “buy’’ call on MR DIY with a target price (TP) of RM2.62 a share. The risks cited to its call include a critical supply chain disruption and sharp rise in input costs.
Kenanga Research maintains its “market perform’’ outlook on the company and lowered its TP to RM2 a share.
It cited risks include unfavourable foreign exchange trends, volatile supply and logistics, and high inflation eating into consumer spending power.
UOBH Research revised its 2022 to 2024 earnings for MR DIY by minus 10.9%, 9% and 7.3% respectively to account for lower margin assumptions.
It noted Creador’s stake in the company has been pared down to 7.3% from 15.2% during its initial public offering but maintained its “buy’’ call with a lower TP of RM2.30 a share.
