Malacca Securities Sdn Bhd upgraded its call to HOLD from SELL for Nova Wellness Group Bhd (Nova) as its share price has declined significantly prior to the release of results for the second quarter ended in 31 December 2023 (2QFY24).
However, it maintained its target price (TP) of RM0.57, where the target price is is derived by ascribing a price-earning ratio (P/E) of 14 times to FY24f earnings per share (EPS) of 4.07 sen.
“We reiterate our core profit after tax and minority interests (PATMI) forecasts. As the core PATMI came in within expectation, we maintained our earnings forecast,” it said in its Stock Digest’s Results Note today (Feb 21).
In the 2QFY24 results that was announced yesterday, Nova’s core PATMI came in at RM3.1 million, an decrease of 62% year-on-year (YoY) and an increase of 17.8% quarter-on-quarter (QoQ), which bring the sum to RM5.7 million for 1FY24.
“The core earnings came in within expectations, despite only amounting to 44% and 33% of ours and consensus estimates of RM13 million and RM17.7 million, respectively as we believe demand should pick up in the second half of 2024 (2H24).
For the first half of the fiscal year of 2024 (1HFY24), the cumulative core PATMI stood at RM5.7 million, which saw a drop of 28.2% YoY, in tandem with the 13.9% YoY drop in revenue.
“The softer profit was due to the weaker demand in the house brand segment, where it dropped 20% to RM18 million compared to RM22.4 million in 1HFY23.
“Meanwhile, other operating expenses and selling and distribution expenses increased slightly, while administrative expenses fell. Core PATMI margin stood at 27.4%,” the independent research house noted.
Year-on-year, revenue declined 14.9% in 4Q23 amid weaker demand for the House Brand segment, decreasing 29% YoY to RM8.1 million while revenue from the OEM segment added more than 250% to RM2.1 million for the quarter.
“We believe Nova will focus on driving demand on the House Brand segment, but we think it will be on a gradual pace. Meanwhile, we expect the overall operating costs could steepen in tandem with the elevated USD environment,” said Malacca Securities.
The risks to its call include potential supply chain disruptions and foreign currency risk relating to USD as a significant portion of its raw material purchases from abroad are denominated in USD.
