Maintain BUY

We believe that INNATURE could see lower sales volume in the near-term alongside consumer inflationary pressures but we are comforted that higher input costs have been successfully passed on to consumers and this will aid in keeping operational margins stable in 2H22. At 16x FY23E PER, INNATURE currently trades at below -1SD to mean. Maintain BUY with a TP of MYR0.65 based on unchanged 20x FY23E PER, -0.5SD and moderate DY of 3.8%. We have also highlighted key efforts on ESG by management in this report, in page 3.

Recovery across all markets

INNATURE’s 2Q22 revenue grew 42% YoY due to solid SSSG in Malaysia (+54% YoY), Vietnam (+9% YoY) and Cambodia (+23% YoY) following lesser post-pandemic restrictions and increased store footfall. With in-store operations having resumed in full, digital and remote revenue contribution fell to 14% of total revenue (from 31% in 2Q21).

2023 store openings to focus in Vietnam

As at end-2Q22, INNATURE has 116 stores across Malaysia, Vietnam and Cambodia (116 end-2021) and it plans to open 1 new store in each country of operations in 2H22 (total: +3 stores). In 2023, new store opening targets in Malaysia and Cambodia will be moderate at c.+1 or +2 stores each but the group plans to be more aggressive in Vietnam, with +6 new stores.

Sales volume remains intact despite price hikes

Management shared that group sales has not experienced any adverse impact in response to product price adjustments (existing products: c.+7%, new products: c.+20%) implemented YTD. With The Body Shop members contributing to >70% of revenue, INNATURE will continue to roll-out new products and promotional campaigns in order to drive sales going forward. However, sequential earnings are likely to soften in absence of festive sales momentum. Earnings recovery to pre-pandemic levels may also be gradual until international tourism significantly increases, particular from China and the Middle East, which previously contributed to c.15% of sales.

Source: Maybank Research - 22 Aug 2022