AMWAY’s 6MFY21 results came within expectations on account of sustainable demand for health & home products. While gross margin was stable, EBIT margin was dampened. We raised the TP to RM6.20 pegged to FY22E PER on its 5-year mean, expecting normalized operations in CY22 given the progress of the vaccination rate. Reiterate OUTPERFORM.

Within expectations. 6MFY21 PATAMI of RM28m came in within expectations at 45% of both our/consensus’ estimates as top-line growth continued to be exceptional. DPS of 5.0 sen was declared for the quarter bringing YTD DPS to 10.0 sen (in line).

Unprecedented demand. YoY, 6MFY21 top-line surged 40% to RM710m due to continuous high demand for nutrition & wellness products and home appliances. The launching of the new customer segment - Amway Privileged Customer (APC) in January 2021 further solidified the revenue path. Gross margin was stable at 20% but EBIT margin declined 2ppt to 5% coming from lower transfer pricing impact, offset by higher ABO sales incentives and higher operating expenses in line with higher sales. With no significant change in ETR, PATAMI ended at RM28m (+3%).

QoQ, in comparison from the preceding quarter, top-line growth was marginal coming from a higher base in the preceding quarter. Gross margin remained resilient at 19% but EBIT margin fell 5ppt due to higher sales and Amway Business Owners (ABO) related expenses.

No let-up in growth as pandemic prevails. Given the prolonged pandemic, we believe the group’s top-line should continue to be supported by the growing demand for health supplements and home care products following the shift in consumer shopping patterns brought by the global pandemic. While higher incentive for ABO was an immediate dampener, we expect less incentives will be given in 2HFY21 as the recovery momentum builds up. Nonetheless, the higher import costs from an unfavourable USD/MYR forex rate are likely to exert pressure on margin, leading to poorer profitability. As top-line hit unprecedented level due to the pandemic, the gradual reopening of the economy will likely moderate FY22 earnings as margins and growth revert back to pre-pandemic levels.

Post results, there is no change to our FY21E/FY22E earnings of RM63m/RM54m as we view growth to normalize in FY22.

OUTPERFORM with a higher TP of RM6.20 (from RM5.90) pegged to FY22E PER of 19x (5-year mean) from 18x previously. The higher PER is justified given its pre-pandemic PER trading levels of between 18x to 20x coupled with its net cash position of RM222m providing ample room for a higher dividend payout. Reiterate OUTPERFORM.

Risks to our call include: (i) lower-than-expected sales, and (ii) higher-than-expected import costs.

Source: Kenanga Research - 26 Aug 2021