Initiate with a BUY and MYR0.80 TP

We initiate coverage on InNature with a BUY and MYR0.80 target price premised on 20x FY23E PER, with FY23 being an earnings recovery year, continuing on from FY22. We forecast a +60% YoY rebound in core net profit in FY22E, and a more gradual +16% in FY23E and +10% in FY24E as sales at its physical stores recover from the pandemic impact, and as it continues on its new store openings in Malaysia, Vietnam and Cambodia.

International border reopening as near-term driver

InNature has an extensive The Body Shop (TBS) store network in Malaysia (77 end-2021) and Vietnam (39), primely located in major shopping malls and high-streets; the brand also has an established online presence (since 2012). The full reopening of international borders should further help revive sales as inbound tourists return; TBS stores located in high tourist traffic areas had previously contributed c.15% to total revenue. Vietnam and Cambodia meanwhile are long-term growth drivers due to the former’s population size and their tourism offerings.

ESG across all levels of operations

Besides sustainability embedded in its products (natural + eco-friendly + sustainably sourced), InNature also integrates ESG into all levels of its operations. It aims for ‘net zero’ by 2030, in-line with its franchisor’s commitment. It has also been very visible on its ethical stance. In terms of diversity, 4 (out of 5, or 80%) of its Board members are women. The company’s Code of Conduct and Business Ethics was updated in Feb 2020.

Run-away costs, FX fluctuation are some key risks

High commodity prices have a knock-on effect on production and logistic costs. Run-away costs and high inflation will impact not just pricing for InNature’s products, the latter may also affect demand. The sourcing of its product inventories from the UK (denominated in GBP) and Brazil (in USD), alongside its operations in Vietnam and Cambodia mean that InNature is exposed to currency fluctuation which may impact product pricing and/or profit margins, and reporting currency FX losses/gains.

Source: Maybank Research - 7 Apr 2022