Nova Wellness Group (NOVA) has reported disappointing FY24 results, with a 25% decline in core net profit attributed to reduced sales and lower-than-expected margins. Despite this setback, analysts remain optimistic about the company’s prospects.
Kenanga Stock Broking House maintains an OUTPERFORM call, although the target price (TP) has been revised downward by 10% to RM0.63 from RM0.70.
For FY24, NOVA’s core net profit of RM9.3 million fell short of forecasts by 26%, mainly due to weaker-than-expected sales and a temporary dip in consumer spending. The decrease in profit was exacerbated by higher operating costs, including raw materials, and a higher tax rate resulting from the depletion of deferred tax assets. Revenue for FY24 dropped by 10% year-on-year as consumers reduced spending, while core net profit declined by 23% due to increased operational costs and tax liabilities. The company’s 4QFY24 revenue remained stable, but core net profit fell by 24% from the previous quarter, reflecting ongoing cost pressures and a higher tax rate.
Looking ahead, the outlook for NOVA is more promising. An expected improvement in consumer sentiment throughout the year, driven by greater clarity on subsidy rationalisation—particularly regarding RON95—should boost spending. Additionally, the anticipated 13% salary increase for civil servants from December 2024 and a gradual recovery in the local economy and job market should further support consumer spending. NOVA is also increasing production at its new plant and introducing 15-20 new SKUs in FY23, which includes a range of skincare products, health supplements, and functional foods like plant-based proteins.
Forecasts for FY25 have been adjusted, with a 24% reduction in net profit projections, and FY26 figures have been introduced. The target price has been adjusted to RM0.63, based on a 15x FY25F earnings per share (EPS) valuation, which aligns with the industry average. No changes have been made to the target price based on ESG considerations, given NOVA’s 3-star ESG rating.
