• 1QFY19 net profit of RM10.6m increased 33% yoy on stronger sales and lower import costs. It trailed ours and consensus estimates at 22% and 19% respectively.

• Revenue for the quarter was +5.2% yoy to RM247.5 coming in from positive sales response and product stocking up prior to price increase in mid-March.

• A first interim DPS of 5sen was declared (1QFY18: 5sen)

• Maintain Hold with DCF-derived TP of RM6.00 with WACC of 7%.

Profit boosted by stronger sales and low import cost

Amway’s 1QFY19 revenue increased 5.2% to RM247.5m attributed to positive response towards sales and marketing plan driven by its goal to improve performance for FY19 and stocking up products before price increase in mid-March. Its PBT was also higher at RM14m (+31% yoy) attributed to increase in sales and lower import cost due to favourable exchange rate. The higher profit growth can also be explained by efficiency in cost management, which resulted in EBITDA margin rising to 6.2% compared to 4.8% yoy. Overall, 1QFY19 net profit of RM10.6m is slightly below our and consensus estimates at 22% and 19% respectively.

QoQ performance nosedived on high cost

On qoq basis, revenue declined marginally by 0.6%. However, its PBT and net profit eroded 61% and 52% respectively partly due to higher cost of sales due to less favourable forex exchange in the current quarter.

Dividend declared unchanged vs previous year

A first interim dividend of 5sen (1QFY18: 5sen). We estimate a total of 27.5sen DPS to be paid, translating into dividend yield of 4.7%.

Challenges ahead

The 1QFY19 net profit provides a promising beginning compared to the past 2 years. However, its business model is still facing greater competition as revenue growth continues to remain sluggish. It has increased its products prices by an average 2% this year. We believe however, the hike will only help to stabilise rather than improve its profit, due to a more cautious consumer spending. Amway’s various incentives and marketing initiatives to support its Amway Business Owners may add pressure on its operation costs, in our view.

Maintain Hold with unchanged TP of RM6.00

We maintain our Hold recommendation with an unchanged DCF derived RM6.00 TP. This based on a 7% WACC and long-term terminal growth of 1% which implies 21x FY19PE. Amway share price has been range-bound this year and we expect this to continue as earnings outlook remains unexciting.

Source: BIMB Securities Research - 30 May 2019