Review

• Amway’s 9MFY19 adjusted net earnings of RM42.5mn (+22.6% YoY) accounted for 69% and 75% of our and consensus full-year estimate respectively. We deem the results to be within expectation as we expect 4QFY19 sales to normalise upward following the launch of new incentive plan in September 2019 that we believe has received positive response.

• The group declared a third single-tier interim dividend of 5.0sen/share bringing 9MFY19 DPS to 15.0sen/share, similar to 9MFY18.

• 9MFY19 revenue declined slightly to RM713.3mn (-1.4% YoY) as sales momentum fiddled away in July and August 2019 prior to the new sales incentive plan launched in September 2019. Adjusted PBT improved to RM55.8mn (+24.6% YoY) due to favourable import costs.

• 3QFY19 against 2QFY19. Despite 1.9% QoQ improvement in revenue, adjusted PBT dropped 40.0% QoQ due to higher ABO bonus and sales incentives in the third quarter.

• The group generated solid operating cash flow (9MFY19: RM55.7mn; 9MFY18: RM42.5mn) in 9MFY19 to support its capex requirements alongside dividend payments.

Impact

• No change to our earnings forecast.

Outlook

• With the new incentive plan being launched in September 2019, management expect sales to regain its momentum in 4QFY19. Besides, the group would continue enhance its infrastructure while being prudent on cost management to maximise the benefit of its dollar spent.

• We expect Amway to be an attractive dividend counter given that the group has robust cash position of RM192.7mn, circa 117.2sen/share as at 3QFY19 and strong operating cash flow.

Valuation

• Maintain Buy with unchanged target price of RM7.76/share based on DDM valuation approach (k: 7.4%, g: 3.0%).

• Downside risks to our call include: i) weaker-than-expected sales, ii) unfavourable sales mix, and iii) higher-than-expected operating expense.

Source: TA Research - 21 Nov 2019