Review

• Amway’s FY16 results came in within ours but below consensus expectations. FY16 core earnings recorded a decline of 17.9% to RM52.6mn as compared to FY15. Despite revenue improved by 6.6% YoY to RM1.1bn from higher sales volume and increase in selling price, adjusted PBT dropped by 20.7% to RM70.9mn due to high import costs. Furthermore, there were higher operating expenses from the 40th anniversary programmes. This led to margin contraction of 1.4p.p. YoY.

• 4QFY16 revenue declined by 6.4% YoY to RM251.0mn due to less sales volume. Comparatively, 4QFY15 had a new launch of the Nutrilite programme, which provided better sales momentum from the ABO (Amway Business Owner) during that period. Despite lower revenue, Amway achieved higher adjusted PBT by 21.9% to RM12.6mn due to lower provisions for incentives. Bottomline, the core profit increased at faster pace by 58.7% to RM9.5mn, aided by lower effective tax rate.

• QoQ, Amway recorded a decline in revenue by 4.1% as the 40th anniversary programme ended in the previous quarter hence leading to a slower ABO momentum in sales. The adjusted PBT and core profit declined by 46.4% and 49.4% QoQ attributable to i) lower sales, ii) higher operating expenses and iii) higher import costs.

• The board declared its fourth interim dividend of 15 sen/share, bringing the total dividend for FY16 to 30 sen/share. This was lower than FY15 of 45 sen/share.

Impact

• No changes to our earnings forecast pending analyst briefing tomorrow.

Outlook

• Management guided that FY17 outlook remains cautious due to softer economic condition and weakening Ringgit against US Dollar. Note that around 80%-90% of products sold by Amway are imported mainly from the US.

Valuation

• We maintain Amway’s DDM valuation at RM8.00/share. Maintain Sell on Amway as FY17 earnings are prone to ringgit weakness.

Source: TA Research - 23 Feb 2017