InNature’s 2QFY24 core net profit declined by 31.4% YoY to RM1.3m, as the group’s business continues to be affected by sluggish consumer spending on nonessential products. Cumulative 1HFY24 core net profit of RM3.3m were below our and consensus estimates, accounting for 33% of our full-year forecast. The discrepancy in our numbers was mainly due to the weaker-than-expected sales and higher-than-expected operating costs. We are ceasing our coverage on InNature due to absence of re-rating catalyst in light of softer consumer consumption on discretionary products, completion of our commitments under Bursa RISE as well as redeployment of resources to broaden our coverage on other sectors. Our last call is Neutral with a sum-of-parts based TP of RM0.28.

• Results review. InNature’s 2QFY24 revenue fell by 7.2% YoY to RM31.3m, as all 3 operating markets reported weaker sales, mainly dragged by the ongoing inflation concerns and cautious consumer sentiment. InNature’s core net profit decreased by 31.8% YoY to RM1.3m, on higher A&P cost, cost of goods sold as well as a weaker MYR. As a result, InNature’s operating profit margin fell by 1.9 ppts to 5.4%.

• Outlook. We foresee InNature’s outlook to remain challenging, mainly due to the subdued demand for consumer discretionary products. Furthermore, recent fears of a US economy slowdown will likely have a negative impact on the global economy, which is expected to aggravate the already soft consumer consumption. While the acquisition of Burger & Lobster is earnings accretive to InNature, we believe that the positive contribution is insufficient to offset the weaker sales from The Body Shop given the challenging retail environment. Therefore, given the lack of re-rating catalyst, we are ceasing coverage on InNature.

Source: PublicInvest Research - 28 Aug 2024