InNature’s 3QFY22 core net profit surged 411.6% YoY to RM4.4m, given the higher footfall from the absence of Covid-19 related movement restrictions, lesser write-down of inventories as well as higher reimbursements from Natura. While cumulative 9MFY22 core net profit of RM14.5m accounts for 65% and 68% of our and consensus estimates, we keep our earnings forecast unchanged as we are expecting stronger results in 4QFY22 due to seasonality. We are also expecting a stable operating margins as sales remain unaffected despite its recent price hike to pass on higher cost to customers. We maintain our Outperform call with an unchanged TP of RM0.66 based on 18x FY23F EPS.

• 3QFY22 revenue grew by 58.1% YoY to RM35.3m, as all countries of operations recorded better YoY performance (Malaysia +51%, Vietnam +110% and Cambodia +14%), thanks to the absence of Covid-19 related movement restrictions saw an increase in footfall to retail outlets. On a QoQ basis, InNature’s revenue slipped by 10.9% as spending normalized post Hari Raya festive season.

• All operating markets showed better performance. The stronger set of results was mainly underpinned by lesser write-down of inventories, higher reimbursements from Natura as well as stronger footfall. Vietnam operations recorded narrower losses from RM500k in 3QFY21 to RM50k, amid stronger topline growth.

• Outlook. We are expecting stronger QoQ results in 4QFY22F, mainly driven by seasonality. While sales volume could be weaker in the near-term given the slower-than-expected recovery from tourism related sales (Tourist from China and Middle East) and inflationary pressures, we are of the view that the recent price adjustment will be able to maintain its operating profit margins. Nevertheless, we are still optimistic on InNature’s future outlook, on new store openings and resilient demand for beauty products as we think that consumers will continue to spend on small indulgences instead of big ticket items during inflation. InNature plans to open 3 more new stores, bringing the total store count to 116.

Source: PublicInvest Research - 30 Nov 2022