UOBKH Research said the retailer has been exploring a few initiatives to drive in-store purchases.
PETALING JAYA: While higher inflationary pressures may impact consumer sentiment, broad salary adjustments could spur spending and this bodes well for home improvement retailer MR DIY Group (M) Bhd
, going forward.
UOB Kay Hian (UOBKH) Research said although high inflationary pressures appear to have curtailed spending and demand, especially across the middle to lower income segments, broad salary adjustments should somewhat elevate this.
The additional income could translate to improved discretionary spending and thereby benefit the company, it noted.
“The increase in the minimum wage to RM1,700 and civil servant salary adjustments are expected to infuse RM20.4bil across about 6.1 million individuals.
“With a touted additional RM5bil from the Employees’ Provident Fund (EPF) Account 3 withdrawal scheme, this significant boost to disposable income could support household spending.
“For perspective, MR DIY reported a RM97mil sales uplift during the RM44.6bil EPF withdrawal scheme in 2022, underscoring the potential impact of this increased liquidity,” the research house said.
Among others, at a recent visit to the group’s KKV store and its sub-brand, The Colorist in Pavilion Bukit Jalil, UOBKH Research said the retailer has been exploring a few initiatives to drive in-store purchases, including collaborations with local brands such as Zoe Arissa and Bath Garden to sell its products in its stores.
“Not only does it drive foot traffic, it lifts the average dollar spend of these ticket purchases as well.
“In addition to this initiative, MR DIY is exploring purchase with purchase, a promotional strategy where customers are offered the opportunity to purchase an additional product at a discounted price, provided they first buy a qualifying item. It encourages upselling and offers customers a value perception,” it said.
According to the group’s management, favourable foreign exchange rates are beginning to be realised following an average five-month lag due to its inventory holding levels.
Assuming all else remains constant, the research house said the first quarter 2025 gross margins should see a sequential uptick.
The sustained strength of the ringgit against the yuan at 0.6045 represents a 5% increase compared with the 2024 average of 0.6361 and furthermore, MR DIY does not hedge its purchases.
The research house is maintaining its “buy” call on the stock with a target price of RM2.35.
