Maintain HOLD with an unchanged TP of MYR0.23

INNATURE’S ESG score is updated to 63 (out of 100) vs. 64, after reviewing its ESG progress included in its FY23 Annual Report. Its ESG rating remains above average, under our proprietary ESG scoring methodology. Our earnings estimates, HOLD call, and TP of MYR0.23, based on 16x FY25E PER (-1SD to mean), are unchanged.

Improvement in environmental measures

As a beauty retailer, INNATURE’s level of carbon emissions emitted are relatively low. Nevertheless, INNATURE has been consistent in its efforts to minimise its environmental impact through company policies on product recycling, reusability, and energy consumption. In this aspect, we see continued improvement in FY23, with lower total (Scope 1, 2, 3) GHG emissions, and water consumption on a YoY basis. INNATURE has also expanded its scope 3 emissions to include employee commuting and business travel in FY23, versus solely emissions from internal logistics of stock from its warehouse to stores in Malaysia in FY22.

But, weaker ‘S & G’ progression

Our updated ESG score for INNATURE is marginally lower at 63 vs. 64 in our last review mainly due its ‘S’ and ‘G’ metrics; the former relates to lower women participation in management roles at 50% (vs. 83% previously), and the latter relates to increased remuneration levels of CEO/MD and BOD as a % of net profit.

No clear catalyst yet

INNATURE’s 3Q24 earnings may continue to remain lacklustre in absence of festivities, but rising inbound international tourism may help buffer weaker demand from subdued domestic spending. Further, the sharp recovery of MYR, esp. in 3Q24 (MYRGBP: +8.2%) should help defend margins in the upcoming quarters.

Source: Maybank Research - 22 Oct 2024