• Amway’s FY18 net profit of RM54.5m was above our estimates and consensus of 131% and 126% respectively.

• Net profit for 4QFY18 increased 28% yoy due to lower operating costs and favourable foreign exchange, which resulted in PBT margin increasing by 2.8%.

• Amway declared a total DPS for FY18 of 27.5sen similar to FY17, a 61% payout vs 86% (FY17).

• No adjustment was made to our earnings as we are currently reviewing both our forecast and target price.

Stronger FY18 earnings but lower sales registered

Amway’s FY18 net profit rose 3.5% despite a -1.2% shrinkage in revenue yoy. Its PBT was registered lower at RM70.2m (-5% yoy) due to higher operating expenses for sales incentives. However, this was offset by lower import cost due to a stronger ringgit whereby it was stated that its unrealized forex loss declined significantly to RM117m from RM2,084m in FY17. Consequently, its PBT and net profit margin showed marginal increase of 0.06% and 0.26% respectively.

QoQ earnings increased due to lower expenses

On qoq basis, revenue declined by 4.3%. Revenue in the preceding quarter was higher due to positive response towards sales and marketing plan driven by its goal to improve performance for FY18. Meanwhile, net profit grew by 28% due to favourable forex exchange impact that led to lower import cost for the fourth quarter. Additionally, cost efficiency proves resilient for the quarter which resulted in EBITDA margin surging 7.5ppts.

Slightly disappointing dividend

A 4th interim dividend of 5sen was declared and a special interim dividend of 7.5 sen similar to 4Q17. This resulted in a flat DPS of 27.5 sen for FY18. We had estimated a total of 30sen DPS to be paid. The FY18 DPS translates to a dividend yield of 4.6%.

Neutral outlook

Amway’s 4Q18 net profit has increased significantly, the highest since 2Q15. However, its business model is still facing greater competition as revenue continue to remain sluggish. Amway’s various incentives and marketing initiatives to support its ABO’s may add pressure on its operation costs, in our view. Further strengthening of the ringgit may offset escalating import price of the products, however.

Maintain forecast pending review

Both our target price and earnings are under review pending management briefing for the quarter.

Source: BIMB Securities Research - 27 Feb 2019