NOVA 0201 NOVA WELLNESS GROUP BERHAD set for record earnings growth, says Kenanga Research
Kenanga Research has initiated coverage on Nova Wellness Group Bhd with an "Outperform" call.
KUALA LUMPUR: Kenanga Research has initiated coverage on Nova Wellness Group Bhd with an "Outperform" call and a target price of RM1.09 as the company is poised to record earnings growth driven by its new plants.
The firm liked the stock for its integrated business model which encompassed the entire spectrum of the pharmaceutical value chain from product conceptualisation starting from research and development (R&D) to manufacturing and sales.
It also favoured the stock for its superior margins due to its original brand manufacturer business model and earnings growth driven by capacity expansion, a widening distribution network and penetration into local public hospitals.
"The group's business model encompasses the entire spectrum of the pharmaceutical value chain from product conceptualisation starting from R&D to manufacturing and sales.
"The stage is set for an explosive growth for Nova over the next three years.
"Amplifying the growth potential is the surge in demand for supplement products, as consumers take a more proactive stance towards their health and well-being, especially following the Covid-19 pandemic," Kenanga Research said in a note.
As an indication, the firm said Nova had seen doubling of distributors to about 900 with a target to increase this to 1,200 by financial year 2025 (FY25).
In tandem with the increase in distributors, average transaction by consumers has risen 60 per cent since FY20.
Nova has over the past 12 months started penetrating into the local public hospitals.
It is looking to include more hospitals which presently accounts for less than five per cent of revenue for its nutritional products.
"The two plants completed in 2020 and 2022 totallef about 169,000 square feet.
"For illustration purposes, if we extrapolate the two plants which is five times the size of the original plant completed in year 2004, its incremental revenue is expected to rise from an average of RM30 million in FY19 to RM120 million-RM150 million per annum," it added.
According to market research, in the long term, the global dietary supplements market is projected to grow at a compound annual growth rate of nine per cent.
"In tandem with industry sector growth, we forecast 17 per cent/18 per cent net profit growth for FY23/FY24.
"The earnings are expected to be driven by 18 per cent revenue growth each in FY23 and FY24; average selling price and volume growth of two per cent and 16 per cent respectively and marginally lower EBITDA margin of 48 per cent," it said.
https://www.nst.com.my/business/2022/07/814574/nova-wellness-set-record-earnings-growth-says-kenanga-research
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