Mr DIY’s 3Q20 likely to be on par with May-June 2020 levels

KUCHING: Mr D.I.Y. Group (M) Bhd’s (Mr DIY) third quarter of 2020 ( 3Q20) results have been projected to be at least on par with May-June 2020 levels.

Affin Hwang Investment Bank Bhd (AffinHwang Capital) gathered that the group is expected to release its 3Q20 results in early November 2020.

“Post the trough during Movement Control Order (MCO) (March-April 2020), sales have swiftly recovered to above preCovid or January levels - likely in part due to pent-up demand or restocking activities post the lockdown,” the research firm said.

“We anticipate 3Q20 to likely be at least on par with May-June 2020 levels, as gradual relaxation of strict standard operating procedures (SOPs) may have temporarily induced a spike in consumer consumption.”

While 3Q20 results may give investors a sense of the recovery pattern, the research firm cautioned that earnings delivery could still be volatile from 4Q20 onward attributed to the lingering pandemic uncertainties.

“With local Covid-19 cases on the rise since late September 2020, the Malaysian government has since reinstated Conditional MCO (CMCO) in Kuala Lumpur, Selangor, Putrajaya and Sabah - of which three regions ( KL, Selangor, Putrajaya) are amongst the highest yielding for the group.”

Reeling from the impact of pandemic, AffinHwang Capital foresaw an earnings contraction of 16.6 per cent to RM264.8 million in 2020E.

Going into 2021E, the research firm believed a recovery from a low base is imminent, and should see earnings rebound by 37 per cent to RM362.4 million, supported by a recovery in sales and economies of scale.

“However, we caution that until an effective vaccine that is deemed safe is discovered, targeted lockdown measures (or even a return to the stricter MCO) may return, in our view, and will continue have a negative bearing on sales as well as projected store opening going into 2021.

“That aside, amidst a more moderate per store sales projection, we foresee cost of sales, operating and finance costs to likely see a proportionately higher increase, eroding margins going forward.

“Subsequently, we estimate earnings growth to settle at 13.5 per cent year on year (y- o-y) to RM411.4 million in 2022E.”

AffinHwang Capital’s basecase scenario assumed 165 new store openings in 2021E, slightly conservative versus management’s 175 target, in view of the lingering pandemic disruptions.

Based on the research firm’s estimates, for every 25 stores addition or shortfall would impact Mr DIY’s net profit estimates and subsequently fair value by circa two per cent, assuming a constant daily sales turnover per store.