InNature Bhd (“InNature”), best known for its retail brand “The Body Shop” (“BodyShop”) is making its debut on the Bursa Malaysia’s Main market. Vietnam is the key growth driver, while Malaysia is anchored by its entrenched leadership position plus their emerging growth market in Cambodia makes its an alluring proposition. BUY with a target price of RM0.81 based on 15x PER FY20 as per the closest industry players.

Established track record of 36 years in growing BodyShop, it has gained deep knowledge in retail management and successfully becoming the top beauty retailer in Malaysia with leading market share of 11%. It has the widest coverage in Malaysia with 89 points-of-sales (“POS”) and 34 POS in Vietnam. At present, more than 85% of the sales are derived from Malaysia and the another 15% from Vietnam. BodyShop is well-positioned in the “masstige” market serving mass market with affordable premium products supported by strong customer base both in Malaysia and Vietnam. Body Shop’s “no animal testing” resonates well with naturally inspired products that attracts loyal following where members contribute more than 60% of the total sales.

Bulk of the proceeds (RM34.5m or 68.5%) will be utilised for capital expenditure covering business in Malaysia, Vietnam and Cambodia. Leveraging on its network in Malaysia, InNature is looking to drive same store sales growth via an omnichannel strategy in Malaysia. Management will focus on the new business venture - Natura brand, where the first pop-up store and ecommerce website has been launched in 2019. Tapping on the emergence of middle-income class in Vietnam, store expansion is the key strategy with 18 POS to be opened in next 3 years. InNature opened its first POS in Cambodia back in Nov 2019 and plans to add 5 more POS by 2021. Meanwhile, 11.3% of the funds raised are allocated for business development costs for Natura in Malaysia and 7.5% is for working capital.

InNature FY19 results saw revenue grew 3.91% driven by strong contribution (+37.8%) from Vietnam and Cambodia while Malaysia has seen marginally drop 1.2% amidst challenging retail market condition which saw PAT drop to RM30.1m from RM36.1m last year. Nonetheless it has announced an interim special dividend of 1 sen for FY19. Balance sheet remains healthy with net cash position.

Source: Rakuten Research - 20 Feb 2020