InNature’s 4QFY22 core net profit fell by 18% YoY to RM6.2m, due to the lower sales volume in all countries of operations, dragged by macroeconomic uncertainties while being distracted by events such as the Malaysian General Election which affected retail footfall. After adjusting for non-core items, full-year FY22 core net profit of RM20.7m was below our but in-line with consensus estimates, accounting for 93% and 97% respectively. The discrepancy in our forecasts was mainly due to the weaker-than-expected sales. Our earnings forecasts are currently under review, pending our meeting with management. Hence, no change in our FY23-24F estimates for now. We maintain our Outperform call with an unchanged TP of RM0.66 based on 18x FY23F EPS.

• 4QFY22 revenue decreased by 6.5% YoY to RM40.8m. InNature saw weaker sales in Malaysia (-5.9% YoY), Vietnam (-1.6% YoY) and Cambodia (-5.2% YoY), given the high base effect in 4QFY21 where the economy had just reopened while macroeconomic uncertainties affecting consumer spending. Additionally, retail footfall in Malaysia was affected by events like the GE-15 that was held in November. On a QoQ basis, InNature’s sales grew by 15.7%, driven by major festive sales (Christmas).

• 4QFY22 core net profit declined by 18% YoY to RM6.2m. InNature’s GP margin expanded by 3.7ppts YoY to 66.9%, thanks to the price adjustments via new product launches in 3QFY22. However, operating profit margin fell by 4.2ppts on the absence of rental rebate, wage subsidy and contribution from Natura.

• Dividend. InNature declared a final dividend of 2sen, bringing the total dividend declared for FY22 to 3sen, translating to an attractive dividend yield of 5.0%.

• Outlook. We expect InNature to post stronger earnings going forward as we think that demand for beauty and personal care products will continue to be healthy despite the inflationary pressure. This is mainly due to the affordable pricing of The Body Shop (TBS) products, which is still seen as somewhat luxurious with its positioning at the masstige (mass and prestige) level likely to remain strong. We also think that InNature should benefit from the down-trading from consumers given its more affordable price tag. Furthermore, the reopening of international borders, especially China should be a boon to InNature as historically, tourists spending accounts for c.10-15% of InNature’s sales.

Source: PublicInvest Research - 24 Feb 2023