Research houses are divided on the outlook for Nova Wellness Group Bhd (Nova) as its recent FY24 results came below expectations.
Malacca Securities Sdn Bhd said Nova started FY24 on a weaker tone, registering a core PATMI of RM2.6 million in 1Q24.
“The core PATMI was down 26% QoQ, and 38.2% YoY. It was below our expectation of RM16.6m for FY24f, accounting for only 16%, while
13% versus consensus estimate of RM20.4 million.
“The key deviations were mainly due to the higher cost of sales that was incurred during the quarter, coupled with the provisions made for stock obsolescence,” it said in its Stock Digest today (Nov 7).
“Meanwhile, core PATMI fell 38% year-on-year (YoY), due to higher costs of sales and increased other expenses due to stronger USD and provisions made for the stock obsolescence,” it said.
The research house revise Nova’s core PATMI downwards by -21.2% to 21.8% from between RM16.6 and 17.8 million for FY24-25f to between RM13 and 14 million, respectively.
This has taken into account the softer contribution from the OEM segment, coupled with higher operating costs environment.
With the downward revision in our earnings forecasts, the research house downgrade to SELL call from HOLD, with TP of 57 sen from 73 sen pegged to FY24f forecasted earnings.
“The target price is derived by ascribing a P/E of 14.0 times to FY24f EPS. Meanwhile, Nova has a dividend policy of distributing not less than 30% of its annual net profit after tax,” it said.
Aside from that, it said that it noticed that the raw material costs have spiked up in tandem with the stronger USD environment in the previous quarters.
“Despite the recent weakening of USD against ringgit, overall post-Covid-19 landscape and global economic uncertainties with the slowdown in China will be challenging for Nova to achieve a target outlets of 1,200 by end-2023.
“Hence, it may stretch into 2024 for that objective. Nonetheless, Nova remains committed to expand its product portfolio market presence while striving for enhanced production efficiencies,” added Malacca Securities.
Its risks to its call include potential supply chain disruptions, which may impact the availability of raw materials, foreign currency risk relating to USD and any depreciation in ringgit.
Meanwhile, Kenanga Research has a more optimistic view of Nova as it is still upbeat on its prospects driven by the gradual production ramp-up at its new plant and full-year impact from the introduction of 35 new SKUs in FY22, compared to 15 in FY21.
In its Results Note today, the research house reiterate our OUTPERFORM call but cuts its FY24 and FY25F net profit by 13 and 12%, respectively corresponding to moderation of sales volume growth assumptions from between 15% and 18% to between 8 and 11%.
It also reduced its TP by 13% to 84 sen from 96 sen based on 15x FY24F EPS, in line with closest comparable peers, with no adjustment to its TP based on 3-star ESG rating.
“Nova 1QFY24 results missed our expectation, we believe, as consumers held back purchases after having overstocked right upon
the economy reopening. Its 1QFY24 core net profit of RM4 million is below expectation for only 20% of our full-year forecast.
However, we are still upbeat on its prospects,” it added.
Meanwhile, risks to Kenanga’s call include intense competition from existing or new and local or foreign players and product safety and regulatory risks, among others.
