Amway’s 1Q14 results were in line with consensus and our estimates, as 1H is normally weaker than 2H. Revenue and earnings expanded due to  stronger sales  and lower  operating  costs.  A  first  interim  single-tier dividend  of  10  sen  per  share  was  declared.  Thus,  we  maintain  our NEUTRAL call and MYR11.80 FV.

• Within  estimates.  Amway’s  1Q14  sales  and  earnings  increased  by 4.6% and 10.3% y-o-y  respectively. The growth in revenue was  due to positive impact of sales and marketing programmes.  Net profit improved amid  the  backdrop  of  stronger  turnover  and  lower  operating  costs. Compared  with  4Q13,  revenue  was  up  by  8%  q-o-q,  thanks  to  higher distributor  productivity,  which  was  driven  by  Amway’s  sales  and marketing programmes. However, net profit weakened  by 11.9%  q-o-q,largely due to lower operating expenses recorded in 4Q13.
• Improved  margins.  The  company’s  1Q14  gross  margin  weakenedslightly to  30.7% y-o-y  from 30.8%  while  PBT margin trended higher by 80bps  to  16.1%  y-o-y.  The  latter  was  mainly  attributed  to  lower overheads. Amway declared an interim single-tier dividend of 10 sen per share this quarter, similar to 1Q13.
• Key  risks.  The  key  investment  risks  are:  i)  a  decline  in  consumer spending  power,  ii)  intensifying  competition,  iii)  an  unfavourable  forex exchange rate (ie USD/MYR) during its annual pricing review, and iv) the company’s inability to pass on higher cost to its customers.
• Maintain  NEUTRAL.  We  leave  our  numbers  unchanged,  given  the in line  results.  With  its  strong  market  presence  and  well -known  brand names,  we  believe  Amway  is  on  track  to  deliver  satisfactory  res ults moving  forward.  FV  remains  at  MYR11.80,  based  on  dividend  DDM valuation.  We maintain  our  NEUTRAL  call, as the stock is trading at a forward P/E of  18x, which is  similar  to  its 3-year historical P/E. Amway’s dividend yield is still decent at >5%. 

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

Source: RHB