PETALING JAYA: Nova Wellness Group Bhd
has missed earnings expectations in the recently concluded quarter as weaker-than-expected sales dragged the pharmaceutical company into a soft patch.
Pointing out that Nova’s core net profit of RM4mil in the first quarter of financial year 2024 (1Q24) was only 20% of its full-year forecast, Kenanga Research also downgraded its sales growth forecast to 8% to 11% for the financial year 2024 (FY24) and FY25.
Previously, it had expected a growth of 15% to 18%. Following the more moderate growth expectations, Kenanga Research cut the net profit assumption by 13% for FY24 and 12% in FY25.
Nova saw weaker-than-expected sales as consumers held back purchases after having overstocked immediately upon the economy reopening.
In 1Q24, the group’s revenue fell by 13% year-on-year (y-o-y). Nova’s core net profit only declined by 6% y-o-y due to a lower effective tax rate.
On a quarter-on-quarter basis, Nova’s 1Q24 turnover was flattish but its core net profit rose 14% in the absence of startup cost at its new plant.
Despite beginning FY24 on a soft footing, Kenanga Research remains upbeat on Nova’s prospects, driven by the gradual production ramp-up at its new plant.
“We expect growth in FY24 to be fuelled by gradual ramp-up of its new plant and full-year impact from the introduction of 35 new stock-keeping units in FY22 (compared to 15 in FY21).
“Activmax and Sustinex are house-brand products developed with embedded vitamins and other nutrients to fulfil consumers’ nutritional needs,” Kenanga Research said in a note.
As a result of reduced net profit expectation, the research house slashed the target price for Nova to 84 sen from 96 sen previously. However, it has maintained its “outperform” call on the stock.
“We continue to like Nova for its integrated business model which encompasses the entire spectrum of the pharmaceutical value chain from product conceptualisation, research and development to manufacturing and sales.
“It also has superior margins due to its original business manufacturing business model and its earnings growth is driven by capacity expansion, a widening distribution network and penetration into local public hospitals,” it said.
Risks to Kenanga Research’s “outperform” call include intense competition, a weak ringgit resulting in high cost and product safety and regulatory risks.
