Maintain BUY

2Q22 results were within our expectations. With inflationary cost pressures expected to suppress consumer spending in the near-term, INNATURE’s 3Q22 earnings may be subdued before it stages an uptick during the year-end festive season in 4Q22. Our earnings estimates are unchanged. Maintain BUY with TP of MYR0.65 (20x FY23 PER).

Results were In-line

INNATURE’s 2Q22 net profit of MYR6m (+290% YoY, +24% QoQ) brought 1H22 net profit to MYR10m (+55% YoY), within expectations at 51%/47% of our/consensus full-year earnings estimates. An interim dividend of 1sen/shr (2Q21: Nil) was also declared.

Improved contributions in Msia, Viet & Cambodia

In tandem with eased movement restrictions and higher store footfall, 2Q22 group revenue grew +42% YoY driven by stronger sales in Malaysia (+49% YoY), Vietnam (+18% YoY) and Cambodia (+32% YoY). Pre-tax profit also increased by 285% YoY with the resumption of full store operations post-pandemic. On a QoQ basis, 2Q22 revenue grew 17% QoQ mainly due to seasonally higher sales during the Hari Raya festive season in Malaysia. As at end-2Q22, the group has a total of 116 stores (Malaysia: 77 stores, Vietnam: 37 stores, Cambodia: 2 stores).

No change in earnings estimates

Sequential earnings growth could be muted in absence of festive-driven sales momentum but we expect earnings momentum to pick up during the Christmas and school holiday period in 4Q22. Operating margins should also remain stable in 2H22 with the group’s recent product price hikes of 10-15% mitigating rising input costs (eg. packaging). We make no changes to our earnings estimates.

Source: Maybank Research - 18 Aug 2022