AMWAY’s 1HFY22 results met expectations. We expect 2HFY22 to be challenging given the current trend of MYR/USD exchange rates. A weak MYR against the USD does not augur well for AMWAY given that it generally procures in USD and sells in MYR. We maintain our forecasts but trim our TP by 2% to RM5.20 (from RM5.30) for house-keeping purposes. Maintain MARKET PERFORM.

Within expectations. AMWAY’s 1HFY22 net profit came in at 59% of our, and 64% of consensus’, full-year earnings. However, we deem the results within expectations as we expect a weaker 2H amidst economic headwinds, particularly inflation that will dampen earnings. The group declared a 5.0 sen interim dividend, bringing the total dividend up to 10.0 sen. This is in-line with our full-year forecast of 27.0 sen as the group normally pays out a larger dividend in 4Q.

1HFY22 results highlights. Revenue grew 5.1% as the group saw better sales growth in its health and wellness products, though partially offset by a drop in home appliance sales. Sign-up and renewal fees grew marginally (5%) as their Amway Business Owner (ABO) sales agent base remained relatively flat. Its overall earnings grew 26.1% as its net profit margin improved due to the better sales volume as well as a consolidation of costs for their ABO incentive programs.

Outlook. Looking forward, we expect 2HFY22 to be challenging for the group. Given their business model of importing goods for sale, global supply chain disruptions and heightened cost of freight could see costs rising for the group. Coupled with the current high inflationary pressure eating into demand, we foresee some compression in their margins moving forward. Current MYR/USD exchange rates are also a concern. The group’s performance is highly sensitive to changes in forex, given that it predominantly procures in USD but sells in MYR. A weaker MYR could mean higher procurement costs for the group, further eroding their margins.

Forecasts. Maintained.

Maintain MARKET PERFORM but reduce our TP for house keeping reasons by 2% to RM5.20 (from RM5.30) based on 15x FY23F PER, in line the stock’s average historical forward PER of 15x during the low cycle of MYR/USD exchange rate (vs. 25x during the high cycle of MYR/USD exchange rate). AMWAY’s earnings and hence valuations are highly sensitive to the forex movements (see chart on Page 2).There is no adjustment to our TP based ESG on a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) stronger MYR/USD exchange rate resulting in lower operating expenses, (ii) weaker sales volume on the back of sustained high inflation.

Source: Kenanga Research - 25 Aug 2022