FY16 net profit of RM54.6m (-14.5% YoY) was within our expectation (at 97.0% of forecast). FY16 DPS of 30.0sen was below expectation. No changes were made to our FY17E earnings assumptions and we introduce FY18E earnings assumptions of RM72.5m. We maintain MARKET PERFORM with unchanged TP of RM8.04 as we believed the market has factored in the decline in earnings as well as dividend.

Within expectation. FY16 net profit of RM54.6m (-14.5% YoY) was within our expectation by accounting for 97% of our forecast. Consensus comparison is not available as the stock is not widely tracked. 4th interim DPS of 5.0sen and special DPS of 10sen was declared, lifting FY16 DPS to 30.0sen (vs FY15: 45.0sen), below our expectation.

YoY, FY16 revenue grew 6.6% to RM1087.5m thanks to positive sales momentum driven by 40th anniversary sales and marketing programmes as well as a price increase by an average of 9.3%. The price increase was carried out in two stages in Feb 2016 and April 2016 while the pre-price increase buying had also contributed to the top-line growth. FY16 gross profit only inched up by 6.1% to RM272.0m as gross margin narrowed by 0.1ppt due to higher import costs on the back of a weaker MYR. Meanwhile, FY16 PBT was 18.3% lower at RM73.0m due to higher operating expenses and incentive arising from the 40th anniversary programmes. As a result, 12M16 net profit fell 14.5% to RM54.6m.

QoQ, 4Q16 revenue declined marginally by 4.1% to RM251.0m as 3Q16 was aided by strong Amway Business Owner (ABO) momentum in response to the 40th anniversary programmes for ABO which concluded in 3Q16. With no major promotional event for 4Q16, PBT decreased by 38.2% to RM14.6m, hampered by the lower sales, high import costs and high operating expenses. These further reduced 4Q16 net profit by 39.2% to RM11.5m.

Earnings forecast unchanged. We made no changes to our FY17E earnings assumptions. Meanwhile, we introduce our assumptions for FY18E with net earnings of RM72.5m on anticipation of marginal increase in the numbers of Amway Business Owner (ABO).

We maintain MARKET PERFORM with unchanged Target Price of RM8.04. We maintain our MARKET PERFORM rating with unchanged TP of RM8.04 based on unchanged 19x PER FY17E, which is in line with -0.5 SD over the 5-year mean. We believed that the market has factored in the decline in earnings as well as dividend. The recent sharp depreciation of MYR against USD may have raised concerns on the medium-term outlook of the company, but it could have been overplayed as we believe the company is able to pass on the additional costs if the forex turns unfavourable and the impact is too much for it to bear in view of its strong brand name and steady distributor base.

Source: Kenanga Research - 23 Feb 2017