Key takeaways from Amway’s analyst briefing: i) headwinds in 1H24, ii) no price adjustments in the near term and iii) shifting into limited risk distributor. No change to our earnings estimates, reiterate Hold with a TP of RM7.70/share based on DDM valuation (k: 8.0%; g: 1.0%). At current price, the stock offers a decent dividend yield of 8.5%-9.5% for FY24-FY26F.

FY23 Review

To recap, FY23 net profit increased by 50.8% to RM115.9mn, despite weaker sales of RM1.4bn, down 7.0%. The better performance was attributed to lower sales incentives to Amway Business Owner (ABO). Meanwhile, the weaker demand for health supplements and home appliances contributed to the lower sales.

Headwinds in 1HFY24

Management guided that 1H24 will be challenging due to weak market sentiment and uncertainty surrounding the subsidy rationalism, which may further dampen consumer spending. In terms of pricing, Amway shared that the group are unlikely to make any price adjustments in the near future after 2 rounds of price adjustments in FY23. To mitigate the challenging market condition, Amway plans to launch 18 new SKUs in FY24.

In all, we expect Amway’s FY24 sales to decline by 2.3% YoY to RM1.37bn. Meanwhile, we believe the GP margin would hover at c.24% to 25% levels on the back of effective cost measures (no changes to recent sales and marketing plans, shifting towards digitalisation to reduce operating expenses and mix products launch).

Shifting Into Limited Risk Distributor From Direct Imports

To recap, the fluctuations of USD/RM impacted Amway more significantly previously (if ringgit continued its downtrend consistently), as the group imported directly from Amway Global (supplier) back in 2020. Thus, hedging was conducted previously to minimize currency fluctuations. Note that 80% of Amway’s COGS are in USD terms.

Positively, management shared that Amway had changed its mechanism to a Limited Risk Distributor (Amway Global is the principal while Amway Malaysia is the distributor of Amway’s products) from direct imports mechanism. Under the Limited Risk Distributor mechanism, the impact on USD fluctuations would be borne by Amway Global. Hence, we foresee that the recent weakening of Ringgit will be insignificant to its costs. Coupled with the recent revisions in ASP, we believe Amway will be able to cope with the expected headwinds in 1H24.

Valuation

No Change to Our Earnings Projections for FY24-FY26F.

Valuation

Reiterate Hold with a higher TP of RM7.70/share based on DDM valuation (k: 8.0%; g: 1.0%). At current price, the stock offers a decent dividend yield of 8.5%- 9.5% for FY24-FY26F.

Source: TA Research - 1 Mar 2024