INNATURE BERHAD
 

Background:
InNature Berhad is an investment holding company. The company, through its subsidiaries, is principally involved in the retailing and distribution of The Body Shop products in Malaysia, Vietnam and Cambodia. The company has been operating The Body Shop franchise business for more than 35 years.


ANALYSIS
Some housekeeping rules. The whole purpose of my Blog is to keep ideas simple. I will avoid using complex terminologies, fancy graphs and overly aggressive mathematical analysis. There is no reason to have a complicated analysis when sometimes it does not improve accuracy in decision-making. I will continue to keep my blog in this simple format for better readability.


Pros:
1) Profitable for every quarter since the pandemic began despite series of lockdowns. Profitability has been improving in recent quarters and will continue to do well due to strong growth in Vietnam and increasing traffic from online sales. 

2) Strong growth potential in Vietnam. A country with large population and rising income groups are indications of powerful consumer spending. Pandemic situation in Vietnam is also within control, hence foot traffic is back to normal.

3) This is a surprising one. Profit margin is extremely high although Bodyshop is not considered to be a luxury body care product. Pulling data from it's latest earnings report, Gross Profit margin is at 64.9% and Profit Before Tax margin is at 22.4%. 

4) Cashflows are healthy and gearing is close to zero. Loans and borrowings as of Dec'20 is only approx RM340k. Cash and fixed deposits stands at RM54mil. These funds were mainly generated from IPO proceeds and steady quarterly business profits. Innature has earmarked these funds to open more stores locally and overseas. In summary, no concerns for cash flows mismanagement or overnight right issues call.

5) ESG factor. If you are looking for "Environmental, Social and Governance" compliant company, this is for you. The entire supply chain and resulting products are ESG compliant. Read more in their website.

6) Looking at the Bursa announcement, the key management personnel, CEO, CFO, CRO, COO have been buying back shares from the market. Even the management finds the company undervalued.

7) Finally, like what all strong supporters of AirAsia, GENM, AEON always say, "the worst is over". Infact, the worst has been over for Innature two quarters ago based on the results. 2 out of the 3 companies mentioned above were still loss-making but their share prices have rocketed. Innature in contrast, has been profitable and has never registered a losing quarter, even in the time of the most severe lockdown in 2020.


Cons:
Don't worry, I will not omit this. No stock should be all rosy without thorns.

1) Not gonna miss this. Innature's new brand, Natura is still struggling for profitability. This is normal since every new brand takes time to penetrate the market. However, the loss from this brand is insiginificant at approx RM769k in Q4. Positive to note the loss is reducing every quarter and hopefully, it'll turnaround.

Not a dealbreaker as the brand is proven to be already successful, being the largest cosmectic company in Latin America. You can visit their store in Mid Valley. I bet not many people know this: https://www.forbes.com/sites/andersonantunes/2014/12/16/brazils-natura-the-largest-cosmetics-maker-in-latin-america-becomes-a-b-corp/?sh=57bf05e025a2

2) Not business related but a fair point to make. Innature lacks retail participation. Daily average volume is low and what surprises me is that, so many people has never heard of this stock (even the most experienced investors from my circle). Also, not one Investment Bank has ever covered this stock.

It's hard to blame why the share price has not been performing lately (still close to IPO price at the time of writing), as compared to the likes of other heavily particpated consumer stocks (eg: MRDIY, AEON, Optimax).


Conclusion:
There you have it. I hope you didn't take too long to read. That is the whole intention. Although the share price of Innature has somewhat recovered from it's low in the height of pandemic, it's still undervalued considering it's steady consistent profits and growth potential. You would think that this stock should worth more when you compare with the likes of "others", of which are still in the red.