• The demand for Amway’s products has been boosted since the Covid-19 pandemic as nutrient & wellness products become a mean to stay healthy.
• We expect the sales momentum to continue at 9.8% CAGR for FY21- 23F mainly due to overwhelming demand within its immunity-boosting products, aided by higher revenue per distributor contributions.
• We resume our coverage on Amway with Hold recommendation and DCF-derived Target Price of RM5.70 given its healthy balancesheet and net cash position as well as market leader in direct selling industry.

Impressive revenue growth

Despite implementation of total lockdown in July-August 2021, Amway’s 9MFY21 revenue grew 31% yoy to RM1.1bn vs. RM837m in 9MFY20. We foresee that the spread of the Covid-19 pandemic coupled with the re-imposition of containment measures, MCO, has benefited Amway, as consumersturned to immunity-boosting products to stay nourished. We estimate Amway’s top-line to grow 15% yoy to RM1.3bn in FY21, in view of a well-mixed of nutrient & wellness supplements, air treatment systems and home appliances introduced in FY20-FY21, which have been well received since pandemic, aided by ABO-centric initiatives.

Amway Business Owner (ABO) record a better growth ahead

Following its FY20 ABO performance, we expect number and revenue per distributor to grow 4.5% and 10% respectively for this year, given the company has taken aggressive ABO-centric initiatives i.e., new incentives plan to support its sales growth. In addition, with lockdowns and restricted movements has becoming the norm, a new e-commerce platform together with enhanced backend systems to improve the ABO shopping experience, warehouse infrastructure, a video recording studio, and office upgrades is expected to elevate ABO modus operandi.

Fundamental remain steadfast, amid increase in cost

We saw the COGS and operation cost continued to weigh on Amway’s EBITDA margin in the past 10 years, owing to high import cost. Additionally, the new incentive plan introduced has led towards higher ABO incentives and development of ABO activities i.e., lowering of ABO sign-up fee has increased the overall cost to Amway. As such, EBITDA margin level has dropped from 17% to 6% over the FY11-FY20 period. Nonetheless, Amway’s cash pile remains strong, recorded at RM173.7m in FY20 and it has distributed more than 90% as dividend for the year to shareholders. For FY20, Amway paid a gross DPS of 27.5sen (FY19: 27.5sen) representing a dividend yield of 5.1% at current price.

Hold call with TP of RM5.70.

HOLD call on the stock with DCF-derived TP of RM5.70, based on WACC of 7.5% and terminal growth of 1%. Our TP implies FY21F PE of 19.5x.

Source: BIMB Securities Research - 10 Dec 2021