InNature to see stronger sales recovery in 4Q

by ANIS HAZIM / pic source:

INNATURE Bhd plans to increase its selling prices in the calendar year of 2022 (CY22F) in a bid to protect margins in an operating environment with rising commodity prices and freight costs.

CGS-CIMB Securities Sdn Bhd’s analysts Khoo Zhen Ye and Walter Aw estimated that more than 60% to 70% of InNature’s sales are made by repeat customers.

“Given the strong brand equity of ‘The Body Shop’ and its sizable loyal customer base of 273,000 members as of Sept 30, 2021, we believe InNature can pass on the higher input costs with ease,” the analysts wrote in a research note on the lifestyle retailer yesterday.

They view InNature as one of the few major cosmetics and personal care retailers that remained profitable from 2020 to 2021.

“This can be attributed to its early investments in beefing up its omnichannel distribution system, which helped to shore up sales despite the various lockdowns, store closures, and prudent cost management (negotiated better rental rebates and shuttered seven non-performing stores),” they wrote.

The analysts also noted that InNature experienced a smaller decline in revenue than the personal care retail sub-sector.

They believe InNature will adopt a more careful approach to in-store expansion while consolidating its store network.

“The group closed two stores in Malaysia and opened one new store in Vietnam during the fourth quarter of 2021 (4Q21F).

“InNature aims to expand its remote selling channels, which have been instrumental to ensuring profitability,” they said.

CGS-CIMB Securities is positive about InNature move as it could cater to shifting consumer behaviours by offering multiple non-physical purchase options.

“We expect the group to post stronger results from 4QFY21F onwards due to strong recovery in mall footfall post reopening on Oct 11, majority of its store base resuming full operation across its three operating countries and its ability to capitalise on major festive sales,” they added.

InNature’s valuation is attractive with the recent retracement of its share price over the past three months from its high of 86 sen (-24%).

The group’s valuation at 16 times CY23F price-earnings (P/E), is at a 11% discount to the weighted average CY23F P/E of small-cap consumer discretionary names of 18 times and 29% discount to InNature’s historical average of 22.6 times since listing.

“Our target price is raised to 84 sen (20 times CY23F P/E) as we ascribe a 10% environmental, social and governance (ESG) premium for InNature as it is a leading ESG player in Malaysia,” the analysts further said.