Journey to Wealth
AMWAY (M) Holdings - OUTPERFORM - 31 May 2012
Period 1Q12
Actual vs. Expectations
The 1Q12 net profit (NP) of RM21.6m was broadly in line with the street's estimate and our forecast of RM93.8m (23%) and RM100m (22%) respectively.
Dividends Single tier dividend of 10 sen per share has been declared. This payout is 11% higher than normal as the company previously had been paying a consistent interim dividend of 9 sen for all the quarters in the past two years.
As such, we are adjusting our payout forecast higher to a total of 70 sen for the full year (66 sen previously), which translates into a high dividend yield of 7.2%. We believe this 10 sen dividend is sustainable for the remaining quarters on the back of its payout track records as well as its strong net cash position of RM143m.
Key Result Highlights
Revenue YoY improved slightly by 4% on the back of higher demand of its products driven by the success of its sales and marketing programs.
NP YoY increased 6% due to better sales and operating efficiency (the operating expenses-tosales ratio dropped 0.8ppt to 16.3%).
On a QoQ basis, the revenue declined marginally by 2%. This is because there was absent of sales and marketing program in 1Q12. Such program in 4Q11 had resulted in higher distributor productivity.
NP meanwhile dropped by 13% QoQ due to lower sales and higher promotional expenses.
Outlook Better earnings prospect is expected on the back of an increase in the number of distributors (we are anticipating a 5.1% and 5.0% YoY growth rate for FY12 and FY13) and a continued rise in its revenue per distributor driven by the rise in private spending.
Change to Forecasts
We are maintaining our earnings estimates of RM100.0m and RM106.4m for FY12-13E for Amway as we foresee better earnings in 2H12 due to seasonal factors.
Rating MAINTAIN OUTPERFORM
Valuation We believe Amway deserves our TP of RM10.94, based on 18.0X forward PER over its FY12 EPS of RM0.608. This is due to its strong track records in growing its sales consistently, as well as its attractive net dividend yield of 7.2%.
Risks A slowdown in the global economy, which would cut the purchasing power of consumers.
Low liquidity of the stock may limit its capital appreciation prospect.
Source: Kenanga
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
