Nova Wellness Group Bhd ("Nova Wellness") which is making its debut on the ACE Market, is expected to see solid earnings growth boosted by higher capacity from its upcoming Good Manufacturing Practice (GMP) compliant production factory. We have a BUY on Nova Wellness with a target price of RM0.71 in line with its closest related peers premised on 16x PER FY19. 

Nova Wellness led by MD and Chief Research Officer Mr Phang Nyie Lin whom is also a pharmacist, has successfully developed and produced a wide range of nutraceutical and skin care products under their own brands. Over the last 21 years, the Company has developed 144 product formulations encompassing dietary supplements, functional food products and skincare products under their own brand 'Nova', LActivmax% `Sustinex', `Novavis' and SP8" .

Nova Wellness has an extensive distribution network across Malaysia with over 227 independent retail pharmacies where 107 of them has signed up contract with off-take agreements on agreed monthly sales. This unique proposition under Nova Wellness Partnership Programme ("NWPP") would grant the retail pharmacies exclusive territorial coverage coupled with higher margins. 

About 37% of the IPO proceeds has been allocated for construction of GMP compliant production facility. This will expand their production capacity by 4 times over a period of 3-5 years. Meanwhile, 26% or RM11.6m will be used for R&D activities and clinical trials for their Hepar-P as liver protection agent. Another RM5m will be used for expansion of its retail presence targeting 40-50 new sign upsof NWPP in 2018 and 2019 which will further increase their market share of nutraceutical and skin care penetration. 

Post listing Nova Wellness balance sheet remains sound with a net cash position. It has a 30% dividend policy which translates to about 2.7% dividend yield in FY19. Net profit margins remain much higher than peers at over 40% and their earnings is expected to continue to expand by 19% in FY19 and beyond FY20 as it ramps up production on their GMP production facility by 2019. 

Source: Rakuten Research - 20 Jul 2018