To recap, Nova Wellness Group (NOVA)’s 3Q23 core net profit declined 39.8% YoY to RM2.9m, bringing 9M23 core net profit to RM10.9m.
“The results were below expectations and key deviations were mainly attributed to a lower-than-expected contribution from the House Brand segment and higher cost of sales, admin costs as well as other operating expenses. Overall, core net profit margin shrank from 40.7% to 26.6% YoY,” said Malacca Securities in the recent Stock Digest.
QoQ, core net profit plummeted 20.1%, resulting primarily from the decrease in sales order for the House Brand products, and increase in admin and operating expenses.
The ongoing construction of Phase 2 of NOVA’s new plant is underway and it will serve as an expansion to its current supplement and skin care manufacturing.
For the skincare manufacturing, it will introduce a fresh lineup of products including cream, balms, ointment, and shampoos. Since this will involve a new product range and brand, it is expected to take at least 2-3 years for it to establish a strong presence in the market.
“Still, we expect a slower growth on NOVA’s performance as the group navigates the challenging post-Covid-19 landscape and global economic uncertainties and we believe NOVA’s target outlets of 1,200 may be tough to achieve in CY23,” said Malacca Securities.
Nonetheless, NOVA remains committed to expand on the product portfolio and its market presence while striving for enhanced production efficiencies. Additionally, the group is working on introducing new programmes for its partners. Malacca Securities Suggests a Target Price of RM0.73 and upgrades the stock from Sell to Hold.
Risks to Malacca Securities’ recommendation include the possibility of supply chain disruptions, both domestically and internationally, which may impact the availability of raw materials.
“Besides, the group is exposed to foreign currency risk relating to USD as a significant portion of its raw material purchases from abroad are denominated in USD,” said Malacca Securities.
Any depreciation in ringgit against USD will result in increased costs for raw materials and packaging materials, potentially affecting the group’s margin.
