Period  3Q13/9M13

Actual vs. Expectations The reported 3Q13 net profit (NP) of RM33.3m brought the 9M13 NP to RM80.1m. This is in line with our expectations, accounted for 76.4% and 74.9% of thenstreet’s full-year estimates of RM104.8m and ours at RM106.9m, respectively.

Dividends  As per our expectations, a single tier dividend of 10 sen per share has been declared for the quarter. We expect FY13E NDPS of 62.5 sen, translating into dividend yieldof 5.0%.

Key Result Highlights YoY, the 9M13 revenue grew by 6.0% due to the positive impact of sales and marketing programs implemented. We believe that the 2 sponsoring programmes for new distributors and the seminars/Super Weekend programmes held by the company has now proven to be a successful strategy. The improved productivity of distributors coupled with the price increase at the beginning of the year (1 Feb & 1 April 2013) resulted in a 3.3ppt EBIT margin expansion.

 YoY, net profit improved by 24.9% (from RM26.6m in 3Q12 to RM33.3m in 3Q13), which is attributed to the increase in sales and the margin expansion asmentioned above.

 On the QoQ basis, the 3Q13 revenue jumped 21.6% due to the improved distributors’ productivity and supported by sales and marketing programme. Seasonally, Amway has been experiencing stronger sales in the 2H as compared to 1H in the last five years. Meanwhile, NP improved by 40.0% QoQ on higher sales figures.

Outlook  We believe that our FY13E-FY14E earnings estimates are achievable due to: (i) historically strong 2H sales,

(ii) positive mid-to-long term MLM sector outlook, and (iii) continuous sales & marketing programs coupled with the establishment of Amway shops, which could improve the distributors’ productivity. The group is targeting 25 Amway shops by the end of 2013 vs. 21shops now.

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  We upgrade our TP to RM12.65 (from RM12.20 previously) based on a higher Fwd PER of 18.7x (18.0x previously) over its FY14 EPS of 67.7sen, whilst maintaining our MARKET PERFORM call on the stock. Our ascribed fwd. PER is at a +1.5SD-level above its mean (vs. +1.0SD previously), which is deemed as reasonable as we remain neutral-to-positive on the company’s prospect as well as MLM sector due to the reasons mentioned above. The stock is also well supported by its attractive FY13E-FY14E dividend yield of 5.0%. Hence, interest in MLM stocks should remain strong in the coming months.

Risks to Our Call The implementation of GST could potentially hamper consumer spending.

 Strengthening USD may cause higher cost of stocks.

Source: Kenanga