Maintain BUY with higher TP of MYR0.70

INNATURE’s 4Q22 results beat our expectations on lower-than-expected interest expense. We believe the group’s outlook remains positive in anticipation of a more consistent sales trends with intermittent boosts in sales during festive periods. The potential return of tourism from China in FY23 may also be a boost to sales. FY23-FY24E earnings estimates are raised by 7%-8% to derive a higher TP of MYR0.70 (based on 20x FY23 PER).

Above expectations

4Q22 net profit of MYR7m (-15% YoY, +45% QoQ) brought FY22 net profit to MYR21m (+42% YoY), reflecting 108%/100% of our/consensus full-year earnings estimates. The outperformance was mainly from lower-than- expected interest expenses. A final DPS of 2sen/shr was also declared which brings FY22 DPS to 3sen/shr (FY21: 2sen/shr).

Earnings weaker YoY but stronger QoQ

INNATURE’s 4Q22 revenue fell 7% YoY (Malaysia: -6% YoY, Vietnam: -2% YoY, Cambodia: -5% YoY) given the higher base in 4Q21, where pent-up demand spurred in-store sales volume. Note that its digital & remote channel sales increased to 17% of revenue in 4Q22 (vs. 15% in 3Q22). On a QoQ basis, revenue (+16% QoQ) and earnings growth (+45% QoQ) were mainly due to added contribution from price hikes and higher consumer spending during the year-end festivities. As at end-Dec 2022, INNATURE has 114 stores (Malaysia: 73, Vietnam: 38, Cambodia: 3).

Lifting FY23E-FY24E earnings estimates by 7%-8%

Factoring in the good results, our FY23E/FY24E earnings estimates are raised by 8%/7% and we introduce our FY25E estimates. We believe sequential earnings will be more stable in FY23 given that production cost increases are being mitigated by INNATURE’s product price hikes in FY22. 2H23 sales contribution could also be boosted by the return of Chinese tourists following eased outbound travelling restrictions in China. Note that tourism accounted for c.15% of group revenue pre-pandemic.

Source: Maybank Research - 24 Feb 2023