Restriction eats into InNature’s 1H net profit

By ANIS HAZIM / Pic Source

INNATURE Bhd’s first-half core earnings of RM6.5 million for the financial year 2021 (1HFY21) were below analysts’ expectations due to tighter movement restrictions. 

CGS-CIMB Securities Sdn Bhd said the group’s 1HFY21 profits made up only 25.1% of its previous FY21F forecast. 

“Its revenue declined by 4.2% year-on-year (YoY), mainly due to weak footfall as a result of increased movement restrictions across all of its operating markets in Malaysia, Vietnam and Cambodia in the second quarter (2Q) of FY21,” CGS-CIMB analyst Syazwan Aiman Sobri wrote in a recent report. 

According to him, InNature’s stores were closed for the whole month of June as Malaysia underwent stricter movement restrictions. 

InNature’s Vietnam and Cambodia business was similarly hit by increased of Covid-19 cases, which resulted in lock-downs and store closures in 2QFY21. 

“The gross profit margin in 1HFY21 fell by 2.4% YoY as we believe InNature undertook more aggressive promotional activities, especially in 2QFY21 to drive sales,” Syazwan noted. 

InNature’s remote selling (e-commerce, click-and-collect, call-and-collect) made up a larger proportion of sales across all its operating markets in 2QFY21. 

“We estimate its Malaysian remote selling revenue grew by 34.4% YoY and accounted for 34.8% of 2QFY21 revenue, versus 22.7% in 2QFY20. Similarly, remote selling accounted for 20.1% of its 2QFY21 revenue (versus 13.3% in 2QFY20) for its Vietnam operations, while surging 400% YoY in its Cambodian operations,” noted Syazwan. 

Syazwan said it was, however, not enough to offset significant weakness in InNature physical retail sales as the group reported the weakest quarterly revenue since the start of the Covid-19 pandemic. 

The analyst expects sales for InNature’s operation in Malaysia to recover quarter-on-quarter (QoQ) in 3Q21 as physical stores reopen in line with the National Recovery Plan. 

“We nonetheless cut our FY21-FY23F earnings per share forecasts by 11.6%-26.1% to account for the earnings miss and gradual recovery,” added Syazwan. 

CGS-CIMB downgraded InNature to “Hold” with a target price of 74 sen based on an update of 18 times its calendar year of 2022 price-to-earnings multiple. 

InNature’s upside risks include better than expected recovery in sales and higher than expected margins, while its downside risks were prolonged movement restrictions and weaker-than-expected recovery in sales.