• Downgrade to SELL (TP: RM6.40). Amway's 1QFY24 net profit of RM32.7mn made up 31% of both our and consensus full-year forecasts. The results were considered in line as we anticipate muted sales in the subsequent quarters. Net profit increased by 1% QoQ and 67% YoY, mainly due to lower ABO incentives expenses, which were in line with the declining sales volume. Moving forward, we expect Amway’s sales to be impacted by lower consumer purchasing power for premium products and also increase in other operating costs. Hence, we are maintaining our earnings forecast and downgrading to a SELL call with an unchanged TP of RM6.40, based on a DDM valuation (WACC: 8.7% and TG: 1%). The company declared a first single-tier interim DPS of 5 sen (vs. 1Q23: 5 sen), a payout of 25%.

• Key highlights. Amway's 1QFY24 revenue declined to RM322.1mn (-10.1% QoQ, -13.6% YoY), significantly impacted by growing inflationary pressures that affected consumer spending ability, as well as the higher sales base from the home appliances promotion campaign in the previous quarter. However, net profit rose to RM32.7mn (+1% QoQ, +67.3% YoY), mainly due to lower ABO incentives in line with the reduced sales volume.

• Earnings Revision. No changes.

• Outlook. We anticipate sales to remain muted in the next few quarters due to persistent inflationary pressures and the subsidy rationalisation, which could dampen spending ability, especially on Amway's premium products. Moreover, higher operating costs may incur from investments in ABO-centric programmes, product innovation, infrastructure and technology upgrades, coupled with rising product costs due to inflation, which will impact FY24 earnings growth. However, Amway is expected to consistently deliver their dividend payment.

Source: BIMB Securities Research - 24 May 2024