Measly 1Q22 results for Mr DIY, but drags to dissipate ahead
KUCHING: Mr DIY Group (M) Bhd (Mr DIY) registered a net profit of RM100 million for its first quarter of financial year 2022 (1QFY22 ) which analysts deem to be below expectations, accounting for 15 or 16 per cent of consensus full-year estimates.
The negative deviant stems from dented sales as pandemic cases took a sharp rise in February 22, and sharp hike in inputs costs coupled with a pricelock campaign beginning 4QFY21.
Year on year (y-o-y), sales continued to improve as its stores remained open under the National Recovery Plan. Average monthly revenue for the quarter surged to RM302 million, commented analysts with Kenanga Investment Bank Bhd (Kenanga Research).
“A total of 49 new stores were added for the quarter versus 180 targeted for the whole of 2022. Gross profit margin of 39 per cent versus 41 per cent were impacted by higher inputs and promotion of its Price Lock
campaign throughout 1Q22,” it said in its notes.
“Earnings before interest and tax (EBIT) margin eroded by four percentage points to 17 per cent on higher depreciation and amortisation expenses and operating expenditure, including
higher inventory buffer to mitigate supply issues.”
Quarter on quarter (q-o-q), Mr DIY's average monthly revenue fell by seven per cent from RM325 million. Erosion of GP margin were minimal but EBIT margin saw higher erosion given the higher opex incurred.
“We do not see further risk from lower footfall entering into the endemic phase. Average selling price looks likely to increase as the Price Lock campaign has ended; we are confident demand will be sustainable as historically in 2018, when the group increased prices, demand was sustained,” it added.
“Given the inflationary pressure ahead, the group's “low prices and quality” products will remain an attractive proposition. We take note that 54 per cent of its outlets are located in the central and south region – a favourable position given the reopening economy and consumers looking for competitively-priced goods.”
Despite the elevated inputs costs, management guided for 40 to 41 per cent gross profit margin for FY22 boosted by the passing of rising costs to consumers.
Post results, Kenanga Research tweak slightly its FY22/FY23 earnings to RM602 million and RM743 million respectively as it revised its margins assumptions.
RHB Investment Bank Bhd (RHB Research) said essentially, the two main factors dragging 1Q22 performance are likely to dissipate in the upcoming quarters – considering the decline of Covid-19 infection rates and the end of the Price Lock campaign.
“Footfall is expected to normalise and the Aidil Fitri festivities should further spur consumer spending whereas price adjustments are estimated to lift gross profit margins by two to three percentage points, according to management guidance,” it said in its own note.
“Meanwhile, the higher minimum wage, effective May, will translate to higher wage costs for the group, with half of its 12,000 staff drawing salaries below the new minimum wage.
“On the flipside, the resultant higher disposable income should also lead to higher consumer spending and the retail industry could well be one of the biggest beneficiaries. As such, the net impact to Mr DIY could be positive taking into account its dominant market share in the home improvement retail industry.”