Maintain BUY with lower TP of MYR0.65

We hosted INNATURE at our Invest ASEAN 2022 (IA2022) Malaysia Corp Week recently. Store sales performances across its countries of operations are improving but the pace of recovery has been slower than expected given subdued tourism contribution. However, INNATURE is still committed to achieve its store opening targets in FY22. Our FY22-FY24 earnings estimates are revised down by 16%-17% to derive a lower TP of MYR0.65 (based on unchanged 20x FY23 PER, about -0.5SD to mean).

Higher tourism needed to boost domestic sales

INNATURE’s sales have seen an uptick in Malaysia, Vietnam and Cambodia stores on a MoM basis since 1Q22. At present, domestic sales have recovered to c.83% of its pre-pandemic levels in 2019, while its Vietnam stores have experienced a faster pace of recovery with c.8% higher sales against 2019 figures. Although international tourism has resumed for Malaysia, large tourist groups from China and the Middle East have not returned yet, which is the main impediment to domestic sales recovery. Note that sales from high tourist traffic areas previously accounted for c.15% of revenue (incl. 5% from airport stores).

Keeping store opening targets

In FY22, the group plans to open 4 new The Body Shop (TBS) stores in Malaysia, 6 stores in Vietnam and 1 store in Cambodia. INNATURE has 118 stores under its belt as at 30 Jun 2022 (Malaysia: 78, Vietnam: 40, Cambodia: 2). The sales performance of its new ‘Activist Makers Workshop’ concept stores (Sunway Pyramid & Mid Valley, SouthKey) have generated c.40% higher in-store sales, on average. Hence, all new stores will be opened in this workshop format going forward.

Lowered FY22-FY24 earnings estimates by 16%-17%

Our FY22/FY23/FY24 earnings estimates are reduced by 17%/16%/17% upon adjusting for a lower SSSG of +42%/+8%/+5% (vs. +62%/+8%/+5% previously) given expectations for muted recovery in tourism-related sales at the groups’ Malaysia stores and cautious consumer spending in 2H22 amid inflation and interest rate headwinds.

Source: Maybank Research - 15 Jul 2022