D/G to HOLD with a lower TP of MYR0.30

1Q24 results disappointed on soft sales momentum and higher-than- expected operating expenses. INNATURE’s FY24E is challenging with subdued consumer spending continuing to hinder sales volume recovery. Our FY24E-FY26E earnings estimates have been decreased by 14%-30%. Rolling forward valuation, our TP is lowered to MYR0.30 based on an unchanged 16x FY25E PER, about -1SD to mean.

1Q24 made up only 16% of ours/consensus FY est.

1Q24 net profit of MYR2m (-21% YoY, -49% QoQ) came in below expectations at only 16% of both ours and consensus full-year earnings estimates. The earnings shortfall was largely due to weak sales and higher- than-expected operating expenses.

Weaker sales YoY across all countries of operations

INNATURE’s 1Q24 revenue contracted 3% YoY due to sales under- performance in its Malaysia (-3% YoY), Vietnam (-2% YoY) and Cambodia (- 6% YoY) stores. We believe the weak sales arose from a general slowdown in consumer spending alongside an earlier commencement of Ramadan, which affected domestic store footfall. The group’s 1Q24 pre-tax profit declined by a wider 23% YoY predominantly due to weaker product mix (1Q24 GP margin: -1.6ppts YoY) and higher net interest expenses.

Revising earnings estimates downwards

Factoring in the weak set of results, our FY24E/FY25E/FY26E earnings estimates are lowered by 30%/14%/14%. Sequential earnings may continue to be weak given the absence of festivities to drive sales until an expected uptick in 4Q24 spending from year-end festivities and school holidays. Increases in inbound tourist arrivals throughout FY24 may however cushion the impact. As at end-1Q24, INNATURE has a total of 120 stores (incl. 6 pop-up stores, +1 store YoY) of which 76 are located in Malaysia, 41 in Vietnam and 3 in Cambodia.

Source: Maybank Research - 28 May 2024