KUALA LUMPUR: The weaker earnings performance registered by MR DIY Group (M) Bhd in the first quarter of 2022 is unlikely to continue in subsequent quarters given the improving operational environment, says RHB Research.

       The research firm highlighted that the two main factors that dragged on earnings in the previous quarter - the Covid-19 infection rate and the Price Lock campaign - will likely not be a factor in the coming quarters.

       "Footfall is expected to normalise and the Aidil Fitri festivities should further spur consumer spending whereas price adjustments are estimated to lift GPM by 2-3 ppts, according to management guidance," it said.

       The research firm noted that the higher minimum wage, effective in May, will translates to higher wage costs for the group as half of its more than 12,000 staff draw salaries below the new minimum wage.

       However, it said the resulting higher disposable income from the higher minimum wage should lead to improved consumer spending in the retail sector.

       "As such, the net impact to MR DIY could be positive taking into account its dominant market share in the home improvement retail industry," said RHB.

       The broker maintained its "buy" call on the stock but lowered its target price to RM4.50 from RM4.59 previously.

       "We continue to like it as a major proxy to capture the recovery in consumer spending thanks to its entrenched network of stores and strong brand equity.

       "The valuation gap vs large-cap peers should close, premised on the group’s superior earnings growth profile and higher trading liquidity, in our view," it said.