• Upgrade to HOLD (TP: RM6.40). Amway's 1HFY24 net profit of RM57.3mn was inline with both our and consensus full year forecast, accounting for 54% and 55% respectively. A second interim DPS of 5sen was declared, bringing the YTD DPS to 10sen (vs 1HFY23: 10sen). Amway’s 2QFY24, revenue declined by -13.7% YoY, primarily due to a high base comparison from preprice increase buying in 2QFY23. Meanwhile, net profit surged by +38.3% YoY, largely due to the lower ABO incentives provision in line with the lesser sales. Prospectively, we anticipate that Amway’s sales to continue to be impacted as long as there is no plan to revise ABO incentives provision. We are maintaining our earnings forecast and TP of RM6.40, based on a DDM valuation (WACC: 8.7% and TG: 1%). Upgrade the stock to HOLD from SELL due to the recent decline in share price and Amway also expected to pay an attractive total DPS of 51sen, translating into dividend yield of 7.3%.

• Key highlights. In 2QFY24, revenue declined by -13.7% YoY due to the high base comparison. However, net profit increased by +38.3% YoY, thanks to the lower ABO incentives provision. On a QoQ basis, both revenue and net profit decreased, reflecting lower sales volume in health & wellness and home appliances products, exacerbated by unattractive ABO incentives and higher product costs squeezing its margins.

• Earnings Revision. No changes.

• Outlook. In the long-run, we anticipate sales to remain subdued due to the reduced provision for ABO incentives. The decline in operating costs, influenced by this reduction, has already begun to have a less significant impact on Amway’s earnings this quarter. Looking ahead, the reduced sales volume is likely to align with the savings from lower ABO incentives. Additionally, operating costs may rise due to ABO-centric programmes, higher product costs, and ongoing product innovation. Despite these challenges, Amway is expected to continue delivering consistent dividend payments.

Source: BIMB Securities Research - 22 Aug 2024