KUALA LUMPUR (June 26): MR DIY Group (M) Bhd’s (KL:MRDIY) same-store sales growth appears to be stabilising and margins are expected to remain above last year, although its KKV lifestyle retail business continues to incur losses, according to UOB Kay Hian.

In a note dated Wednesday (June 24), the research house said MR DIY’s gross margin is expected to ease from the record level achieved in the first quarter, partly due to the price-lock campaign, but should remain above the corresponding period last year.

The retailer’s price-lock campaign, launched in May, initially saw a slow response but gained traction in subsequent weeks.

Management is still assessing whether the campaign can generate enough additional sales to justify extending it beyond June.

With sales momentum broadly stable, UOB Kay Hian expects second-quarter earnings growth to track the 10.3% year-on-year increase recorded in the first quarter.

Supply-chain risks also remain manageable despite the Middle East conflict, supported by MR DIY’s inventory buffers and its sourcing base in China, which accounts for about 70% of supplies.

Freight costs, which rose temporarily in March, have since normalised, while price increases from suppliers remain limited, the research house said.

However, the group’s KKV lifestyle retail format remains a drag on earnings, with its current 39-store network still loss-making at the earnings before interest, taxes, depreciation and amortisation level.

UOB Kay Hian said KKV continues to face weak product-market fit, limited localisation and higher third-party logistics costs, raising doubts over whether its planned expansion can be sustained over the medium term.

In contrast, MR DIY’s core store format offers clearer growth prospects, particularly through its Plus stores, outlet refurbishments and expansion in East Malaysia.

The research house said refurbished outlets have recorded sales increases of between 5% and 10%, while some stores in East Malaysia are performing at up to twice the normal level due to lower competition and market underpenetration.

MR DIY is targeting around 120 new core stores and about 25 KKV outlets, although UOB Kay Hian expects the group to add 155 net new stores this year, based on its history of exceeding expansion targets.

The research house maintained its “buy” call and target price of RM2.30, implying an upside of nearly 39% from the prevailing share price of RM1.66.

It expects net profit to rise about 14% to RM724 million in 2026, supported by store expansion, stable margins and foreign-exchange gains.

However, UOB Kay Hian cautioned that a weaker ringgit against the renminbi could weigh on 2027 earnings, as MR DIY does not hedge its purchases and sources a large share of its goods from China.

The research house estimated that every 1% depreciation of the ringgit against the renminbi could reduce 2027 earnings by about 2.2%.