Maintain BUY with unchanged TP of MYR0.80

InNature’s 1Q22 results undershot expectations on lower-than-expected sales volume. That said, we believe that sales growth should pick up in 2Q22 resulting from strong sales momentum during the Hari Raya Aidilfitri celebrations and reopening of international borders. As such, we make no changes to our earnings estimates, BUY call and TP of MYR0.80 (20x FY23E PER) pending its analyst briefing today.

Results were below expectations

InNature’s 1Q22 core net profit of MYR4.5m (-11% YoY, -42% QoQ) came in below expectations at 19%/16% of our/consensus full-year earnings estimates. The earnings disappointment was mainly due to adverse sales impact from the spike in COVID-19 cases during the quarter.

Weaker topline in all its operations

1Q22 revenue fell 11% YoY as all its countries of operations underperformed (Malaysia: -9% YoY, Vietnam: -18% YoY, Cambodia: -8% YoY). Store footfall softened given rampant spikes in COVID-19 cases (Omicron wave) but easing movement restrictions may have also diverted consumer spending away from health & beauty products, we suspect. Similarly, 1Q22 net profit was dragged by weaker contributions from Vietnam (-86% YoY) and Cambodia (-36% YoY) operations despite better performance in Malaysia (+5% YoY) on lower A&P and other expenses.

Will sales growth pick up?

We expect sequential earnings to improve in light of stronger sales momentum during the Hari Raya Aidilfitri celebrations. As Malaysia has transitioned to an endemic phase and international borders have reopened, this will also bode well for sales growth in 2Q22. Hence, we make no changes to our earnings estimates for now.

Source: Maybank Research - 27 May 2022