• Maintain BUY (TP: RM0.68). Nova Wellness (Nova)’s 6MFY24 top-line declined by -13.9% YoY on the back of lower revenue from house brand (- 20% YoY). In tandem, the group recorded lower 6MFY24 core net profit of RM5.9mn (-30.9% YoY). The group’s bottom-line was below ours and consensus expectations, accounting for 30.0% and 33.0% respectively. The deviation against our projection was mainly due to lower-than-expected sales volume from both house brand and OEM segment. Maintain a BUY call with a lower TP of RM0.68 (from RM0.74) based on Nova’s FY24F EPS of 4.7sen, pegged to a PER of 14.3x (-0.5SD its 5-year historical forward PE; as this approach reflects our conservative valuation strategy). Note that Nova’s share price has declined by -15.6% YTD.

• Key highlights. Nova's revenue in 2QFY24 saw a decrease of -14.9% YoY, primarily due to a decline in sales volume from the house brand, down by -29.0% YoY. Meanwhile, its core net profit experienced a decline of -28.8% YoY, attributed to subdued market demand, which we believe was influenced by current inflationary pressures.

• Earnings Revision. We revised our FY23-25F earnings forecast lower by - 8.4%, -8.9%, and -9.9% respectively, resulting in a net profit of RM15.1mn, RM18.0mn, and RM20.0mn (Table 2). This revision is due to lower sales volume assumptions for the respective fiscal years.

• Outlook. While we anticipate that Nova's earnings will continue to benefit from its intensified marketing strategy, we expect that demand for nutraceutical products may be dampened due to inflationary pressures and subdued domestic demand. It is noteworthy that our economist has projected the 2024 inflation rate at 2.7%, compared to 2.5% in 2023. Consequently, this is expected to result in lower disposable income and, ultimately, lower demand. Aside to that, Nova’s share price has declined by -42.1% YoY. Hence, we maintain our BUY recommendation based on the price weakness.

Source: BIMB Securities Research - 21 Feb 2024