• We like Nova Wellness (Nova) for its (i) integrated business model from product development through manufacturing and sales, (ii) strong in-house R&D capability, and (iii) expansion in local retail distributorship and global market footprint.

• Nova offers a product line-up exceeding 200 stock keeping units (SKU), and has established a nationwide presence through partnerships with over 1000 independent retail pharmacies.

• While Nova does not have a formal dividend policy, based on our earnings projection and an assumed dividend payout of 68%, we anticipate a FY24 net DPS of 3.5 sen, resulting in an average yield of 5.7%.

• We are initiating coverage on Nova Wellness with a BUY call and a target price (TP) of RM0.74.

Supported by Diverse Range of Products and R&D Strength

Nova stands out with its diverse range of nutraceutical and personal care products, encompassing natural supplements for all ages, functional foods, medical nutrition, aromatherapy, and personal care items. The company has successfully developed and marketed over 100 products to independent retail pharmacies, clinics, and hospitals across Malaysia. Positioned to capitalize on the rising demand for health and wellness solutions, especially post-pandemic, Nova is anticipated to benefit from increased awareness driven by the recent surge in Covid- 19 cases in Malaysia. The diversified product range minimizes risks associated with changing consumer preferences. Nova's subsidiary, Nova Laboratories Sdn. Bhd., specializes in creating, manufacturing, and selling nutraceutical and skincare products, while the in-house R&D team, led by Nova Lab's pharmacists, ensures continuous innovation in product development. The company's R&D capabilities not only facilitate science-based formulations but also enhance its competitive edge, positioning Nova for sustained growth in the healthoriented products market.

Anticipate Nova to Maintain More than 60% Dividend Payout Ratio

While Nova does not has a formal dividend policy, it consistently maintained a dividend payout ratio of 63-70% over the last 3 years. In FY23, the company declared a dividend of 3.3 sen, equating to a substantial 70% payout ratio and a 5.3% yield based on the current price. Projecting forward, considering our earnings estimate and assuming a 68% dividend payout, we anticipate a net DPS of 3.5 sen in FY24, reflecting an average yield of 5.7%.

Initiate with a BUY and TP of RM0.74

We initiate coverage on Nova with a BUY recommendation and TP of RM0.74, based on Nova’s FY24F EPS of 5.2sen, pegged to a PER of 14.3x (-0.5SD its 5-year historical forward PE as this approach reflects our conservative valuation strategy).

Source: BIMB Securities Research - 22 Dec 2023