Amway’s 1HFY23 net profit of RM37.3mn was in line with ours and consensus full year expectations accounting for 56% and 52% respectively. 2QFY23 net profit slipped by 9% QoQ mainly driven by slower demand for Amway products. Amway has declared 2 nd interim DPS of 5 sen and we estimate a total DPS of 33 sen for FY23, translating into an attractive dividend yield of 5.9%. The outlook for FY23 remains challenging due to the expected slowdown in demand for Amway’s products and increase in operating costs could further pressure its margin. We have rolled over our valuation to FY24F and derived higher TP of RM5.60 (from RM5.20) based on DDM methodology (WACC: 8.6% and TG: 1%). Maintain HOLD recommendation.

• Within expectations. 1HFY23 net profit of RM37.3mn (+6.1%YoY) was in line with ours and consensus expectations, accounting for 56% and 52% respectively.

• Dividend. Declared a 2nd interim DPS of 5 sen, bringing YTD DPS to 10 sen (1H22: 10 sen). We estimate a total DPS of 32 sen for FY23F, translating into an attractive dividend yield of 5.9%.

• QoQ. Amway’s 2QFY23 revenue and net profit decreased to RM343.7mn (-7.8% QoQ) and RM17.7mn (-9.3% QoQ) respectively, mainly due to lower sales. The drop in sales was mostly attributed to demand normalization compared to the preceding quarter, during which there was a significant surge in demand for durable products ahead of a price increase.

• YoY. Revenue slipped by 3.1% YoY, mainly due to lower demand for health and wellness products, despite being partially mitigated by an increase in selling prices. Nevertheless, net profit jumped by 18.5% YoY, and the margin improved by 0.9 percentage points as the company is benefiting from price increases and lower operating expenses, mainly due to reduced Amway Business Owner (ABO) sales incentives.

• Outlook. Amway’s outlook remains challenging amid persistent inflationary risk and a global economic slowdown, which affects consumers’ ability and willingness to spend, especially on premiumpriced products. Additionally, post COVID-19 pandemic situation could lead to a softer demand for Amway's health supplements. Margins are expected to be under pressure moving forward as we anticipate operating costs associated with business investments and marketing to increase.

• Our call. Reiterate a HOLD call recommendation with higher TP of RM5.60 (from RM5.20) after rolling over to FY24F figures. Valuation is based on DDM methodology (WACC: 8.6% and TG: 1%), which implies 13x FY24F PER. Amway balance sheet remain healthy with a net cash of RM265.4mn as at 2Q23 and offer an attractive DY of 5.6%.

Source: BIMB Securities Research - 24 Aug 2023