Summary

• Nova Wellness Group Bhd’s (NOVA) 2Q23 core net profit declined 16.6% YoY to RM3.7m, bringing 6M23 core net profit to RM8.0m (-17.3% vs. 6M22). The results came in below expectations, amounting to 39.8% of our previous full year forecast of RM20.1m and 37.7% of the consensus forecast of RM21.2m. Key deviation was mainly due to the lower-than-expected contribution from the House Brand segment. Meanwhile, an interim dividend of 0.85 sen per share and a special dividend of 1.2 sen per share, both payable on 16th March 2023 were declared.

• YoY, core net profit fell 16.6% YoY to RM3.7m, primarily resulted from (i) lower contribution from OEM segment that outweighed the slight increase contribution from House Brand segment, (ii) increase in administrative expenses resulting from annual bonus provisions and employee benefit expenses for share options, and (iii) increase in amortisation of research and development cost as a result of new products launched.

• Meanwhile, NOVA booked a gain on disposal of land and building located at Mukim Rantau, Seremban which amounted to RM0.6m in 2Q23. Adjusted, NOVA’s core net profit dropped 13.9% QoQ. No disposal was made in the preceding quarter.

• House brand segment remained as its main contributor, making up 94.9% of its total revenue for the current quarter, while the OEM segment contributed the remaining 5.1%. Revenue from OEM witnessed a decline of 25.1% QoQ as NOVA focused more on selling House Brand products.

• Production facilities wise, the construction of Phase 2 of its new plant is in progress as the group is looking forward to expand its production facilities for skincare products.

• We expect a slower growth on NOVA’s performance as compared to the previous years during the Covid-19 outbreak that has boosted demand for NOVA’s nutraceutical products. However, we believe the earlier plans to expand its product portfolio as well as increasing the number of outlets will remain intact as the group is eyeing 1,200 outlets towards FY25.

Source: Mplus Research - 22 Feb 2023