Maintain BUY with unchanged TP of MYR0.65

INNATURE’s 3Q22 results met expectations. Our earnings estimates are unchanged as we expect stronger sequential earnings to materialise with year-end festivities and school holidays driving store footfall and in-store sales. Maintain BUY with an unchanged TP of MYR0.65 (20x FY23E PER).

Within expectations

INNATURE’s 3Q22 net profit of MYR5m (+531% YoY, -19% QoQ) brought 9M22 net profit to MYR15m (+103% YoY). The latter accounted for 74%/70% of our/consensus full-year earnings estimates. No dividend was declared this quarter (3Q21: Nil, 2Q22: 1sen/shr).

Earnings stronger YoY but eased QoQ

3Q22 revenue grew 58% YoY given the normalisation in store operations upon the lifting of lockdown restrictions. Improved earnings performance in Malaysia, Vietnam and Cambodia subsequently resulted in stronger group net profit by +531% YoY. Note that online sales (e-commerce, conversational and social commerce) accounted for 15% of group sales in 3Q22 (9M22: 15%). On a QoQ basis, slower group topline growth of -11% QoQ was mainly due to the higher base in 2Q22 where Hari Raya festivity spurred sales in Malaysia. Group net profit declined 19% QoQ with lower contributions across its countries of operations with Vietnam notably falling back into a marginal loss of MYR0.1m.

No change to earnings estimates

We anticipate stronger sequential earnings on the back of higher consumer spending and store footfall during the year-end Christmas festivity and school holidays. Operating margins may also increase with better product mix as consumers purchase higher margin products (eg. Christmas product bundles). As such, we keep our earnings estimates unchanged, projecting for FY22E/FY23E/FY24E earnings growth of 32%/17%/10%.

Source: Maybank Research - 30 Nov 2022