Earnings accretive acquisition

We are positive on INNATURE’s proposed acquisition of B&L. The group’s diversification into another revenue stream is a welcomed risk mitigation strategy given recent operational challenges facing The Body Shop’s global franchise. No change to our earnings estimates pending completion of the acquisition. BUY with a MYR0.34 TP (16x FY24E PER, c.-1SD to mean).

Acquiring ‘Burger & Lobster’ for MYR21m cash

INNATURE has entered three related party transactions to acquire a 100% equity stake in Blu Restaurant S/B (BRSB) from Aquablu Technologies S/B, Adventuria S/B, and Aquawalk S/B, for MYR21m cash. BRSB has exclusive rights to open and operate Burger & Lobster (B&L) stores in Malaysia (excl. Genting Highlands), Indonesia and Vietnam. INNATURE is seeking share- holders’ approval for its proposed diversification to F&B services, and to use its earlier IPO proceeds to acquire B&L. INNATURE plans to fund this acquisition via IPO proceeds and internal funds. Target completion is 3Q24.

FY24E-FY26E net profit could increase by 4%-11%

The acquisition multiple equates to 8x FY23 PER, below INNATURE’s 24.5x FY23 PER. Based on our estimates, the group’s net profit will be lifted by MYR1.7m p.a., based on an interest cost of 4% and BRSB’s FY23 profit after tax of MYR2.6m (Refer to Fig. 1). Assuming BRSB’s FY23 profit sustain, this will translate to a 4%-11% uplift in INNATURE’s FY24E-FY26E net profit. INNATURE will turn net debt (net cash as at end-FY23) with a proforma net gearing ratio of 7% assuming that the acquisition is fully funded by debt.

Earnings diversification benefits expected

INNATURE’s foray into F&B retail allows the group to diversify its earnings away from its dependence on The Body Shop in the event of further challenges to the brand globally. With international brand recognition and limited outlets worldwide (19 outlets), we believe B&L possesses a unique scarcity appeal to its food products, creating demand from domestic consumers and tourists. INNATURE plans to open another outlet in Malaysia (presently just one at Suria KLCC Mall), and 2 outlets each in Indonesia and Vietnam once the acquisition is completed.

Source: Maybank Research - 13 May 2024