AMWAY’s 9MFY22 results came in above expectations as improved product mix carried earnings growth. Overall, despite only a minor increase in revenue, earnings grew 50.7% as lower operating costs and better product mix expanded margins. Post results, we raise FY22F/FY23F earnings by 16.5%/8.1% and TP to RM5.65, and upgrade AMWAY to OUTPERFORM from MARKET PERFORM.
Above expectations. 9MFY22 PATAMI beat both our and consensus expectations, accounting for 90.2% and 96.8% of respective full-year forecasts. We believe the positive deviation came from better-than-expected margin resilience from cost consolidation and better product mix. The announced dividend of 5.0 sen brings the total up to 15.0 sen, in line with our expectations as the group normally pays out a larger dividend at the year-end.
YoY. 9MFY22 revenue grew marginally by 2.2%. Sales of consumer products grew 2.1% YoY while sign-up fees grew 9.4%. However, EBITDA (+26.4% YoY) and EBIT (+48% YoY) both saw much better improvements mainly from the standardisation of the Amway Business Owner (ABO) incentives and a price increase across their product offerings. We also believe this is due to better product mix from increased demand for supplements and personal care products. Overall, PATAMI grew by 50.7% as earnings benefitted from the improved margins.
QoQ. 3QFY22 revenue increased by 4.8% following new product bundle launches during the quarter. Consumer product sales grew 4.9% QoQ while sign-up fees remained relatively flat. Overall, earnings grew 22.3% mainly due to better sales volume and the adjustment of sales incentives for their agents.
Outlook. Looking forward, the group remains cautiously optimistic in maintaining its top-line around FY21 level. However, we remain wary of the elevated MYR/USD exchange rate eating into earnings. While performance so far has been encouraging, but if the effect of the poor exchange rate is lagged due to hedging, there may be a window of weakness during 1HFY23. Conversely, global supply chain disruptions are expected to ease going into FY23. This could spell out lower costs for the group which imports its products from its United States headquarters.
Post results. We raise our FY22F/FY23F earnings by 16.5%/8.1% largely to reflect the improved sales volume and better margins after their cost consolidation.
Upgrade to OUTPERFORM. We upgrade AMWAY to OUTPERFORM from MARKET PERFORM as we increase our TP by 8.6% from RM5.20 to RM5.65 based on an unchanged 15x FY23F PER, in line with the stocks historical forward PER during times of MYR/USD weakness (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 given a 3-star rating as appraised by us (see Page 4).
We like AMWAY for: (i) it being part of a well-established and highly successful international multi-level marketing (MLM) franchise; (ii) its unique product offering of supplements, personal care products and home appliances such as humidifiers and water purifiers; and (iii) its efforts to mitigate elevated procurement cost (largely denominated in USD) via optimisation of sales incentives to Amway Business Owners (ABOs) and a better product mix skewed towards the high-margin supplement bundles and personal care products.
Risks to our call include: (i) weaker MYR/USD exchange rate resulting in higher procurement expenses, (ii) weaker sales volume on the back of sustained high inflation and (iii) increased competition from other MLM franchises eating into the customer base.
Source: Kenanga Research - 17 Nov 2022
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