• Amway’s FY17 net profit of RM52.6m was in-line with our estimates at 99.7% but slightly below consensus at 94.8%.

• Net profit for FY17 dropped 3.7% yoy in tandem with lower sales (- 9.5%) due to strong buy-up ahead of price increases in 2016. Additionally higher import costs resulted from weaker ringgit and higher product prices also contributed to lower earnings.

• Amway declared a slightly lower total DPS for FY17 of 27.5sen (86% payout) vs FY16 DPS of 30sen (90% payout).

• Maintain our TP of RM7.40 based on DCF methodology with WACC of 7.5%. Maintain Hold.

Impacted by lower sales and higher import costs

Amway’s FY17 revenue declined 9.5% yoy to RM984.2m due to high base effect in 2016 resulting from i) strong buy up ahead of price hikes in Feb and April 2016 and ii) higher Amway Business Owner (ABO) momentum towards 40th Anniversary sales and marketing programme. Net profit fell 3.7% yoy to RM52.6m due to the lower sales as well as higher import costs from weaker ringgit and higher product prices. However, net margin improved slightly by 0.3ppts as the decline in revenue was partially offset by lower provisions for sales incentives, as well as lower operating expenses.

QoQ earnings dropped due to higher operating expenses

On qoq basis, revenue increased 3.2% due to favorable response for new products launches. However, net profit dropped by 9.9% qoq to RM13.5m due to higher operating expenses in the quarter, which had resulted in EBIT margin dropping by 0.9ppts.

Slightly disappointing dividend

A 4th interim dividend of 5sen and a special interim dividend of 7.5sen was declared for this quarter, resulting in a lower total FY17 DPS of 27.5sen (vs FY16: 30sen) – slightly disappointing in our view as we had estimated total dividend to be unchanged at 30 sen. This translates to dividend yield of 3.6%.

Stabilized outlook for FY18

Moving forward, sales is expected to stabilize in 2018 in conjunction with Amway Headquarters’ 60 years anniversary programme. Additionally, a strengthening ringgit against the USD would help reduce its import costs (c.90% of its products costs are in USD), as well as offsetting anticipated higher promotion and marketing expenses.

Maintain Hold with TP of RM7.40

We maintain our FY18 and FY19 earnings forecast at this juncture. Our TP remain at RM7.40 based on DCF methodology with WACC of 7.5%. Maintain Hold.

Source: BIMB Securities Research - 28 Feb 2018