InNature’s 1QFY24 core net profit fell by 31% YoY to RM2.1m, due to lower sales and higher advertising and promotion (A&P) costs. Results were below our and consensus estimates, accounting for 14% and 15% respectively. We slash our earnings forecast for FY24-26F by 19-23%, mainly to account for the challenging retail environment and higher operating costs.We remain waryon InNature’s future prospects, given the subdued retail environment on softer consumer spending. Our Neutral call on InNature is maintained, with a higher TP of RM0.31, as we roll over our valuation base year to 15x FY25F EPS.

• 1QFY24 revenue declined by 2.9% YoY to RM31.5m, as its operations in Malaysia (-3% YoY), Vietnam (-2% YoY) and Cambodia (-6% YoY) recorded lower sales. The weaker set of numbers was mainly dragged by the challenging operating environmentgiven the cautious consumer spending and the news on its brand principal. Recall that The Body Shop International (TBSI) UK has entered into restructuring previously, although we gather that it is unlikely to have a negative impact on InNature’s operations and stocks supply. On a QoQ basis, InNature saw its sales declined by 15.2%, given the absence of festive spending.

• 1QFY24 core net profit decreased by 31.2% YoY to RM2.1m, in tandem with a lower topline and higher operating cost, especially A&P cost. We understand that as 2024 is the group’s 40thyear in business, InNature is looking to increase its marketing activities to attract more customers. As a result, InNature’s operating profit margin fell by 1.1 ppts to 9.3%.

• Outlook. While the increase in tourism activities may help to lift sales, we remain cautious on InNature’s future prospects as we believe that the overall retail environment will remain subdued, in light of the softer consumer sentiment.In addition, we expect InNature to post weaker earnings on a QoQ basis, given the absence of festive sales in Malaysia and Vietnam. InNature will continue to re-optimize its retail store network while focusing on growing its digital channels to remain prudent.

Source: PublicInvest Research - 28 May 2024