InNature should trend higher despite poor results

InNature Bhd has not been doing well in terms of share price. The counter is down 46% in the past year to close at 28 sen on May 29. It hit a 52-week high of 60 sen last July but fell to a low of 28 sen recently.

However, it appears the selling is overdone. After overcoming a negative sloping trendline around mid-Apr this year, InNature looks to be extending its upward trajectory. The ongoing unwinding from the oversold territory and is expected to push the stock higher. Riding on the positive momentum, the stock could climb towards its resistance thresholds of 33 sen and 38 sen.

Fundamentally, InNature is not in a better position. It reported net earnings of RM10.5 million, down 51% YoY in FY Dec 2023. On a quarterly basis, its net profit declined 21% YoY to RM2.4 million in 1QFY24.

Going forward, the group is forecasted to post stronger net earnings of RM12 million in FY24 and RM13.8 million in FY25 according to consensus estimates. This implies prospective price earnings ratio (PER) valuations of 16.8x this year and 14.6x next year.

InNature, which operates The Body Shop franchise, is a leading regional retailer of cosmetics and personal care products. It is serving customers across Malaysia, Vietnam and Cambodia through stores, e-commerce and other remote channels.

Investors are probably disappointed with its share price performance, which has lost more than half its value from its initial public offering price of 64 sen in February 2020. The Body Shop franchisee has been suffering from shrinking margins and sales. Investors were spooked by the news of The Body Shop’s owner — The Body Shop UK — being put under administration by German private equity firm Aurelius to facilitate a restructuring of the business. To allay investors’ concern, InNature has assured that there will be sufficient product supply until past 2025.

Recognizing its bleak future, the company has little choice but to look for alternative source of income. The group announced a food & beverage (F&B) venture — a takeover of Blu Restaurant Sdn Bhd for RM21.25 million cash in a related-party deal. Blu Restaurant, which is controlled by InNature’s husband and wife team. Datuk Simon Foong is the chairman and his wife is managing director Datin Mina Cheah-Foong. The duo has the exclusive rights to open and operate restaurants under the Burger & Lobster brand in Malaysia (excluding the outlet in Genting Highlands), Indonesia and Vietnam. Currently, Blu Restaurant operates a Burger & Lobster outlet in Suria KLCC mall.

Honker, Cheah-Foong is confident that The Body Shop (TBS) brand will persevere despite the restructuring of the business as TBS’ business in Malaysia is not affected. InNature is the franchisee of the business in Malaysia, Vietnam and Cambodia. In most Asian markets, including Malaysia and the Middle East, the business is run by franchisees. InNature gets its products from Aurelius-owned The Body Shop International Ltd.

In Malaysia, the group now has 76 stores, compared with 89 in 2019, and in Vietnam, 36, compared with 34 in 2019. In Cambodia, it has increased to three from just one. Despite the poor results, the stock should continue its upward trajectory. Analysts are expecting positive earnings growth prospects for the group and should see more upside in terms of share price.