Review

• AMWAY’s 9MFY23 core earnings of RM90.6mn beat our expectations, accounting for 128% and 124% of ours and consensus’ full-year estimates, respectively. The strong earnings were largely driven by lower COGS and reduced Amway Business Owner (ABO) incentive payout.

• The group declared a third interim dividend of 5.0sen/share (3QFY22: 5.0sen/share), bringing the YTD dividend to 15.0sen/share in line with same corresponding period last year.

• YoY, the group’s 9MFY23 revenue reduced by 6.4% YoY, which attributed to weakened demand for health and wellness products as well as home appliances. However, the adjusted EBIT jumped substantially by 49.9% as a result of lower COGS and lesser ABO payouts in tandem with decline in sales revenue.

• QoQ, the quarterly revenue slid marginally by 3.0% due to lower turnover in health supplement products in the post-pandemic phase and intensifying competitions. That said, the adjusted EBIT nearly tripled to RM59.4mn (+140.8% QoQ), credited to the same reasons as stated above.

Impact

• We adjust our FY23-25F earnings higher by 65.2%/30.5%/29.3%, respectively, to reflect lower COGS and ABO payout structure.

Outlook

• We maintain our cautious stance on the group’s prospect given the growing concern over the reducing ABO payouts, which could possibly suggest the weakened sales force and deceleration of sales growth momentum. Furthermore, we are also inclined to believe that the MLM space has been saturated and clouded by rising competition from other platforms, which provide similar product offerings at a more affordable price point.

• Nonetheless, we expect the group will focus on improving ABO-centric programs, including higher advertising and promotion mix to stimulate higher demand and inject new trajectory momentum to the sales force amidst ongoing digitalisation endeavours.

Valuation

• We reiterate Hold with a lower target price of RM5.80/share based on DDM valuation approach (k: 8.4%, g: 1.0%) with a higher discount rate of 9.8%. That said, Amway remains as an attractive dividend play, offering a lucrative dividend yield of 8.1%-9.5% in FY23-FY25F.

Source: TA Research - 16 Nov 2023