KUALA LUMPUR, May 17 ― MR D.I.Y. Group (M) Bhd's share price on Bursa Malaysia contracted by 3.38 per cent just before noon following its announcement of a lower net profit for the first quarter ended March 31, 2022 (Q1 FY2022).

At 11.35am, the home improvement retailer’s shares fell by 12 sen to RM3.43, with 5.30 million shares traded.

On Friday last week, MR D.I.Y. reported that its net profit for Q1 FY2022 dropped to RM100.50 million from RM124.79 million a year ago despite revenue increasing four per cent to RM905.16 million from RM870.18 million previously.

Most research firms have maintained a "buy” call on MR D.I.Y. as they are optimistic on the company's future earnings.

In a note today, AmInvestment Bank said it continued to like the stock as an inflationary environment would benefit MR D.I.Y. as consumers gravitated towards cheaper options to shop for household essentials.

"The company’s future earnings will be driven by its growing store network and expanding its catchment area while the temporary deterioration in margin may be offset by the average selling price revision.

"We maintain our buy call with a lower discounted cash flow (DCF)-based fair value of RM4.10 (from RM4.45) due to reduced earnings, while no changes to weighted average cost of capital of 6.4 per cent and terminal growth rate of 1.5 per cent in our DCF valuation assumptions,” it added.

RHB Research also kept a "buy” recommendation on MR D.I.Y. with new target price (TP) of RM4.50 from RM4.59.

It said MR D.I.Y.’s Q1 FY2022 results disappointed on weak footfall and gross profit margin pressure, but both factors were expected to wane going forward.

"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 versus large-cap peers should close, premised on the group’s superior earnings growth profile and higher trading liquidity, in our view,” it said in a note.

Maybank Investment Bank said MR D.I.Y's margins were expected to improve in sequential quarters (FY2022 gross profit margin target: 41-42 per cent) as it had already begun passing on costs through product price hikes in April and May 2022.

"Logistics remains a key challenge in the near term given the lockdowns in China from where they import more than 70 per cent of their products.

"To mitigate this risk in future, MR D.I.Y. will lift its buffer stock inventory at stores and central distribution centres,” it said.

The bank said it also had lowered the TP for MR D.I.Y. to RM3.90 from RM4.20.

Meanwhile, CGS-CIMB reiterated its "add” recommendation on MR D.I.Y. with a lower TP of RM4.00, as it expected the company to record stronger quarter-on-quarter results in subsequent quarters from higher revenue and margin expansion.

"In addition to further price hikes, MR D.I.Y. should benefit from increased sales from a pick-up in footfall as Covid-19 cases subside.

"We think MR D.I.Y. will not face a steep drop in sales as it will focus on preserving consumer demand despite upcoming price hikes,” it said in a note today. ― Bernama