Amway’s 1Q23 net profit of RM19.6mn was in line with our full year expectations or at 30% respectively. Net profit slipped by 14.8% QoQ and 3% YoY however mainly driven by slower demand for Amway products. Amway declared first single-tier interim DPS of 5 sen and we estimate a total DPS of 33 sen for FY23, translating into an attractive yield of 6%. Outlook for FY23 remains challenging given prevailing inflationary risk and expected higher operating cost which could add pressure on margin. Maintain a HOLD call with a DDM-derived TP of RM5.20 (WACC: 8.5% and TG: 1%).

• Within expectations. 1Q23 net profit of RM19.6mn (QoQ: -14.8%, YoY: -3.0%) was in line with our expectations, accounting 30% of full year forecast.

• Dividend. Amway declared a first single-tier interim DPS of 5 sen for FYE23. We estimate a total DPS of 33 sen for FY23, translating into a yield of 6%.

• QoQ. Amway’s 1QFY23 revenue slipped by 6.1% due to slower demand as well as higher base in 4QFY22 on account of good respond to new products launching such as XS Ignite and Artistry Vitamin C+HA3 serum. Net profit fell further or by 14.8% mainly attributed to lower sales coupled with overall higher operating expenses. In addition, cost was lower in previous quarter due to the reversal of incentives trip provisions as a result of trip cancellation.

• YoY/ YTD. Revenue and net profit decreased by 4.7% and 3% YoY respectively, mainly due to lower sales. The drop in sales was mostly due to demand normalizing as compared to preceding quarter where there was a strong surge in demand for the health & wellness and home appliances products ahead of a price increase.

• Outlook. Amway’s outlook remains challenging given inflationary risk that is still prevalent which could dampen consumer spending ability, a bane particularly for premium products. Higher operating cost and unfavourable USD/MYR forex rate could add pressure on margin in subsequent quarters.

• Our call. Reiterate a HOLD call recommendation with a DDM-derived TP of RM5.20 (WACC: 8.5% and TG: 1%), which implies 13x FY23F PER. Amway balance sheet remains healthy with a net cash of RM201mn as at 1Q23.

• Upside risk to our call. i) higher-than-expected sales and ii) lower-than-expected import cost

Source: BIMB Securities Research - 25 May 2023