PETALING JAYA: Coming off a strong year, MR DIY Group (M) Bhd is expected to see sustained earnings growth momentum in 2022 as restrictions continue to ease and economic activities pick-up.

       The retail group positively surprised analysts with its 15% year-on-year (y-o-y) and 49% quarter-on-quarter (q-o-q) increase in its core net profit to RM135mil for the fourth quarter ended Dec 31, 2021 (Q4’21).

       This brought FY21 core net profit to RM432mil, which is above Maybank Investment Bank’s (Maybank IB) expectations at 106% of its and 99% of consensus full-year estimates.

       “The earnings surprise was largely due to higher-than-expected other operating income,” Maybank IB said in a report.

       For FY21, revenue grew 32% y-o-y to RM3.4bil on the back of a larger network of stores as well as higher sales per store and average basket size. Last year, the group added 166 stores to 900 stores at year-end.

       It plans to continue expanding its store network in 2022, with a target of 180 new stores, primarily across two main store formats – MR DIY and MR DIY Express.

       As for the MR Dollar and MR Tot brands, the group is taking a more conservative approach in new store openings of about 10 to 15 new stores for each, given the tougher operating environment and lower margins from the two businesses. Nonetheless, the group may have to contend with rising operational cost.

       “Besides leveraging its data analytics capability to constantly optimise its product offerings, the company may look into negotiating with its suppliers to increase the volume of inventory purchases while bringing down the price per product.

       “We also will not rule out the possibility of the company passing the additional cost to end consumers by increasing the prices of its products.

       “Even with the price increase, MR DIY may still be able to price its products relatively cheaper compared to competitors given its extensive store network and direct access to suppliers which could cushion the impact on its transaction volume,” said AmInvestment Bank Research.

       Looking ahead, RHB Research believes the group’s encouraging earnings growth momentum can be sustained, notwithstanding the pandemic challenge.

       Apart from the network expansion, the research house said cost and operational efficiencies, as well as supply chain management will be the other areas of focus for management to drive growth going forward.

       “With the ongoing price lock campaign only ending in March, we believe MR DIY will maintain its selling prices, notwithstanding the higher input costs.

       “This should render MR DIY market share gains, and thereafter the company will evaluate the situation before deciding on its pricing strategy,” the research house said.

       All three research houses – Maybank IB, AmInvestment and RHB – have “buy” calls on the counter with target prices of RM4.20, RM4.45 and RM4.59, respectively.

       Maybank IB expects earnings growth in FY’22 to be strong as economic activities pick up and lockdown restrictions gradually ease. It raised its FY’22 and FY’23 earnings estimates by 6% per annum after adjusting for higher same store sales growth of 15% and 2% versus 9% and 2% previously, to reflect the group’s current run rates.