Amway (AMW)’s 9M13 results were within consensus but slightly above our expectations. Sales and earnings were higher by 7.5% and 9% y-o-y, mainly  underpinned  by  a  stronger  topline.  We  bump  up  our  FV  to MYR12.20 from MYR11.75 after  incorporating  higher sales growth into our forecasts.  The group declared an interim  single-tier dividend of 10 sen/share this quarter. Maintain NEUTRAL.

• Strong 3Q. AMW’s 9M13 sales and net profit increased by 7.5% and 9% y-o-y respectively, thanks to  the  positive impact of sales and marketing programmes  implemented  during  the  period.  Revenue  grew  to MYR636.8m  from  MYR592.1m  y-o-y,  while  earnings  were  higher  at MYR80.1m from MYR73.5m. Its 3Q13  top-  and bottomlines climbed  6% and 24.9% y-o-y respectively.
• Higher net margin.  The company’s GPM dipped  slightly to 31.9% from 32% y-o-y due to higher cost of sales (+7.8% y-o-y). Nonetheless, pretax and  net  margins  were  better  by  0.5%  and  0.2%  y-o-y,  on  the  back  of lower  selling  and  administrative  expenses  ( -1.5%  y-o-y)  and  stronger revenue.
• Changing  our  forecasts.  We  are  revising  up  our  FY13  and  FY14 earnings  estimates  by  4-5%  due  to  the  stronger  sales  numbers.  Key investment  risks  are:  i)  a  decline  in  consumer  spending  power,  ii) intensifying competition,  iii)  an unfavourable forex rate (USD:MYR) in  its annual  pricing  review,  and  iv)  an  inability  to  pass  on  higher  costs  to consumers.
• Maintain NEUTRAL.  We still like AMW  for  its strong market presence and prominent brand names. Our FV is revised higher to MYR12.20 from MYR11.75, based on a DDM valuation.  We maintain a NEUTRAL  rating on the stock, as it is trading at a forward P/E of 20x, which is on par with its three-year historical  P/E of 18x. Its dividend yield remains decent at ~5%.

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Amway is a leading multi-level marketing company in Malaysia.

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Source: RHB