• Maintain HOLD (TP: RM6.40). Amway's FY23 net profit of RM115.9mn (+50.8% YoY) surpassed both our and consensus expectations, accounting for 118% and 107% respectively. The deviation from our projections was primarily attributed to lower-than-expected ABO incentives costs and reduced COGS. In 4QFY23, Amway's net profit surged to RM32.4mn (+41% YoY), mainly due to lower Opex resulting from significantly reduced sales incentives payouts, which were aligned with lower sales volumes. Looking ahead to FY24, we anticipate sustained lower sales due to reduced demand for premium products amidst expected inflationary pressures, lower consumer sentiment and rising competition from other platform offering affordable price. We are revising our FY24f earnings upward by 10.3% to reflect the lower ABO payouts structure. Maintaining a HOLD call with a higher TP of RM6.40 (from RM5.70), based on a new DDM valuation with a WACC of 8.7% and TG of 1%. Amway has declared a 4th interim DPS of 5 sen and a special DPS of 40 sen. The YTD FY23 DPS is 60sen, translating into a 9% DY.

• Key highlights. Amway's 4QFY23 revenue declined to RM358.3mn (-9.8% YoY), impacted by weakened demand for health and wellness products, as well as home appliances. Conversely, net profit rose to RM32.4mn (+41% YoY), primarily due to lower Opex resulting from significantly reduced sales incentive payouts in line with the decreased sales. On a QoQ basis, net profit fell by -29.9% QoQ, with a margin compressing to 9% (-4.8 ppts QoQ), mainly due to higher overall operating expenses.

• Earnings Revision. We raise higher our FY24f earnings by 10.3% to reflect lower ABO payouts structure.

• Outlook. Looking ahead to FY24, Amway's sales outlook remains challenging due to lower consumer sentiment and expected inflationary pressures that could impact demand for premium-priced products. Additionally, rising competition from other platforms offering more affordable prices poses a significant challenge. The post-COVID-19 pandemic situation also indicates a softer demand for Amway's health supplements, which were previously top sellers. We are also concerned on costs moving forward, as we anticipate increased input costs as well as higher spending on advertising and promotion, which could offset the benefits of lower ABO incentive costs.

Source: BIMB Securities Research - 29 Feb 2024