The growth will be driven by strong recovery in mall traffic and footfall into its outlets 

by S BIRRUNTHA / pic source: innature.com.my

CGS-CIMB Securities Sdn Bhd Research expects InNature Bhd’s earnings momentum to be solid moving forward into the financial year 2022 (FY22). 

Analysts Khoo Zhen Ye and Walter Aw said the positive earnings prospects for the holding company of The Body Shop will be mainly driven by strong recovery in mall traffic and footfall into its outlets, and majority of its store base resuming full operations across its three operating countries. 

They added that the group’s ability to capture all major festive sales demand throughout the year, and product price hikes will also be a key driver for its earnings. 

“We retain our ‘Add’ call with a target price of 84 sen for the group. 

“We like InNature, as its valuation has turned attractive, as well as due to its sturdy The Body Shop brand name and a play on retail sales recovery and on the environmental, social and governance theme in Malaysia,” the analysts said in a note yesterday. 

For its fourth quarter ended Dec 31, 2021 (4Q21), InNature’s net profit rose marginally 0.56% to RM7.76 million from RM7.72 million registered in 4Q20. 

The group’s revenue dipped slightly to RM43.68 million from RM44.85 million due to muted contributions from its overseas operations, according to its filing to Bursa Malaysia. 

Meanwhile, InNature’s full-year profit for FY21 declined 25.58% to RM15.02 million from RM20.18 million in FY20. 

Annual revenue fell 15.1% to RM131.9 million from RM155.36 million, with its businesses in Malaysia, Vietnam and Cambodia seeing topline declines of 14.8%, 17.7% and 2.2%, respectively. 

Khoo and Aw said the group’s FY21 earnings were commendable despite various lockdowns and store closures, mainly due to the strong 4Q21 results. 

They noted that this was within the research house’s expectation, making up 105% of its full-year forecast. 

“We believe that the group’s FY21 revenue decline of 15.1% year-on-year (YoY) to RM131.9 million was possibly smaller than its Malaysian peers in the personal care retail sub-sector as well. 

“This is thanks to its extensive omnichannel distribution system, which enabled revenue contribution from remote selling channels for the group to jump by 2.6 times to 28.6%, partially mitigating the drop in physical in-store sales,” they said. 

The analysts also said they understand that the group closed seven non-performing stores in Malaysia and opened two new stores in Vietnam in FY21, bringing total store count to 118 as at end of December 2021. 

They added that as a result, the group managed to lower its employee and marketing expenses by 12.9% YoY and 25.8% YoY, respectively. 

On a quarter-to-quarter basis, InNature recorded a strong rebound in 4Q21 revenue of RM43.7 million, owing to robust recovery in mall footfall post lifting of lockdown measures on Oct 11 last year, which allowed for interstate travel. 

This coincided with the major festivals such as Christmas and year-end sales, which the group was able to capitalise on. 

With this, coupled with proactive cost control, InNature saw its 4Q21 core net profit rise to RM7.76 million from RM722,000 in 3Q21, almost back to pre-pandemic levels. 

During the quarter, businesses in its three operating countries namely, Malaysia, Vietnam and Cambodia were profitable, with two non-performing store closures in Malaysia and one new opening in Vietnam. 

On prospects, InNature is expecting an improving YoY performance in FY22 as long as businesses are allowed to operate unfettered. 

The group will continue to invest in enhancing its systems and processes supporting both its physical and remote selling channels.