Initiate with a BUY and MYR0.80 TP
We initiate coverage on InNature with a BUY and MYR0.80 target price
premised on 20x FY23E PER, with FY23 being an earnings recovery year,
continuing on from FY22. We forecast a +60% YoY rebound in core net
profit in FY22E, and a more gradual +16% in FY23E and +10% in FY24E as
sales at its physical stores recover from the pandemic impact, and as it
continues on its new store openings in Malaysia, Vietnam and Cambodia.
International border reopening as near-term driver
InNature has an extensive The Body Shop (TBS) store network in Malaysia
(77 end-2021) and Vietnam (39), primely located in major shopping malls
and high-streets; the brand also has an established online presence
(since 2012). The full reopening of international borders should further
help revive sales as inbound tourists return; TBS stores located in high
tourist traffic areas had previously contributed c.15% to total revenue.
Vietnam and Cambodia meanwhile are long-term growth drivers due to
the former’s population size and their tourism offerings.
ESG across all levels of operations
Besides sustainability embedded in its products (natural + eco-friendly +
sustainably sourced), InNature also integrates ESG into all levels of its
operations. It aims for ‘net zero’ by 2030, in-line with its franchisor’s
commitment. It has also been very visible on its ethical stance. In terms
of diversity, 4 (out of 5, or 80%) of its Board members are women. The
company’s Code of Conduct and Business Ethics was updated in Feb
2020.
Run-away costs, FX fluctuation are some key risks
High commodity prices have a knock-on effect on production and logistic
costs. Run-away costs and high inflation will impact not just pricing for
InNature’s products, the latter may also affect demand. The sourcing of
its product inventories from the UK (denominated in GBP) and Brazil (in
USD), alongside its operations in Vietnam and Cambodia mean that
InNature is exposed to currency fluctuation which may impact product
pricing and/or profit margins, and reporting currency FX losses/gains.