• Overview. Amway’s 2Q22 revenue declined marginally by 0.4% YoY mostly dragged by lower demand from home appliances despite an increase in buyer base for health & wellness and personal care categories as well as selling price hikes. Nevertheless, net profit jumped 90.7% YoY with margin soaring to 4.2% (+2 ppts YoY) thanks to normalizing costs that associated with Amway Business Owner (ABO) incentives and awards.

• Key highlights. On QoQ basis, net profit dropped by 25.7% mainly attributed to lower sales from i) higher pre-price increase buy-up in previous quarter and ii) timing difference in sales and marketing events. Going forward we expect Amway to experience a softening in demand for its premium products given inflationary environment and prolong weakness in Ringgit which may make its products more expensive.

• Against estimates: Above. 1H22’s net profit of RM35.2mn was above our and consensus forecast, accounting 74% and 64% of full year forecast respectively. The main deviation against our forecast was due to lower-than-expected operating costs that associated with ABO expenses.

• Dividend. Declared a second interim DPS of 5 sen, bringing YTD DPS to 10 sen (1H21: 10 sen). We estimate a total DPS of 29 sen for FY22, translating into a dividend yield of 5.8%.

• Outlook. Amway’s outlook remains challenging given inflationary risk that could dampen consumer spending ability, a bane particularly for premium products. The prolong weakness of Ringgit against the USD could also put margins under pressure as the majority of Amway products are imported from the US.

• Earning revision. We revised higher our FY22F/F23F earnings by 23%/25% after factoring higher margin due to the normalization of ABO incentives and rewards expenses.

• Our call. Maintain a HOLD call recommendation with a higher DDM-derived TP of RM5.20 (from RM4.80) based on WACC of 8.3% and TG of 1%. This implies 15x FY23F PE (close to Amway’s -1.5SD 5-years average forward PE). We believe this is fair considering the inflationary pressures and potential lower sales volume due to premium prices.

Source: BIMB Securities Research - 25 Aug 2022