Period  2Q13/1H13

Actual vs. Expectations  At 44% of both the street and our FY13 forecasts, the 1H13 net NP of RM46.8m is broadly in line with expectations. Seasonally, the 1H usually contributes 43-49% of the full year earnings.

Dividends  Second interim single tier dividend of 10 sen per share has been declared, similar to last year. We expect FY13E NDPS of 62.5 sen, translating into dividend yield of 5.2%.

Key Result Highlights  YoY, 1H13 revenue improved by 8.5% buoyed by the positive response from sales and marketing programs and frontloading activities in 1Q13, resulting from higher selling prices effective on 1 Feb and 1 Apr 2013. Nevertheless, 1H13 NP was flat due to higher marketing expenses which resulted in a 1.5ppt GP margin compression to 31.3%.

 YoY, despite a 3.5% increase in revenue, NP in 2Q13 was 6.1% YoY lower. This was mainly due to similar reason as mentioned above, which caused GP margin declined by 1.6ppt YoY.

 On a QoQ basis, the revenue declined marginally by 4.2% as distributor productivity had been driven by accelerated purchasing before the price increase in 1Q13 as mentioned above. However, NP improved by 3.1% QoQ on lower sales and marketing program expense.

Outlook  We continue to remain neutral on AMWAY on the back of: (i) management’s earlier view of softening demand in the local market; and (ii) strengthening USD.

Change to Forecasts  We are maintaining our net profit estimates of RM106.9m and RM111.3m for FY13 and FY14 for now.

Rating   Maintain MARKET PERFORM

Valuation  Maintained TP of RM12.20 based on an unchanged 18.0x forward PER.

Risks  A slowdown in the global economy, which will cut the purchasing power of consumers.

 Low liquidity of the stock may also limit its upside prospect.

 Strengthening USD may cause higher cost of stocks.

Source: Kenanga