The Body Shop franchisee InNature's omnichannel strategy vital to keeping sales up amid Covid-19 — CGS-CIMB

TheEdge Mon, Nov 23, 2020 01:12pm - 2 months ago

KUALA LUMPUR (Nov 23): The omnichannel retail strategy of InNature Bhd — the distributor of The Body Shop and Natura brands of personal care items — will be key to holding sales up amid the Covid-19 pandemic, which has battered retail traffic volume, said CGS-CIMB Research.

The research house's analyst Syazwan Aiman Sobri said for the first nine months ended Sept 30, 2020 (9MFY20), the company's e-commerce channel contributed to around 9% of total sales, triple its proportion of sales a year ago.

Meanwhile, its Natura brand saw sales almost double in the third quarter ended Sept 30, 2020 (3QFY20), from the immediate preceding three months, which he believes could largely be due to its social and e-commerce channels.

"With the recent spike in Covid-19 cases, especially in the Klang Valley, the Malaysian government reinstated the conditional movement control order (CMCO). This led to weaker retail footfall, which we think could cause retail sales (over 90% of the company's 9MFY20 revenue) to deteriorate on a [quarter-on-quarter] basis despite a typically seasonally stronger 4Q due to year-end festivities. Nonetheless, we think that InNature will focus on its e-commerce channel to shore up sales in the current challenging physical retail environment," he said.

Meanwhile, Syazwan said InNature's 9MFY20 core net profit was within expectations.

For 9MFY20, the group's net profit declined by 43.95% to RM12.47 million, from RM22.24 million a year ago, accounting for 79.1% of his full-year forecast.

Meanwhile, revenue for the first nine months was down by 20% at RM110.55 million, from RM138.2 million for the previous corresponding period, largely due to store closures.

Cumulative nine-month earnings per share (EPS) declined to 1.8 sen per share from 6.18 sen seen for 9MFY19.

Syazwan maintained his forecasts and "add" rating for the counter. He also kept his target price (TP) at 63 sen, pegged at a forecasted price-earnings ratio (PER) of 14 times for 2022, in line with its consumer discretionary sector universe average.

"We continue to like InNature for: i) its attractive gross margins; ii) the relatively inelastic demand for cosmetic and personal care goods; iii) management’s strong track record; and iv) its successful omnichannel strategy. Downside risks [include] more business lockdowns and a sharp decline in retail spending," he said.

At the noon break, InNature settled three sen or 6% higher at 53 sen, with a market capitalisation of RM374.11 million.

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