TA Securities cuts Amway’s earnings and target price; downgrades stock to ‘hold’

KUALA LUMPUR (March 6): TA Securities Research has cut Amway (Malaysia) Holdings Bhd’s earnings forecasts by 16.1%, 19.2% and 18%, for the financial year ending Dec 31, 2023 (FY2023), FY2024 and FY2025 respectively, after changing its assumptions on foreign exchange (forex) rates.

In a note on Monday (March 6), the research house said that Amway has implemented a new transfer pricing method in which products purchased from Amway headquarters are priced in ringgit.

That said, any foreign currency hedging will be carried out by the headquarters, and hence the US dollar’s strength will not be “as important” as previously, according to TA Securities analyst Ong Tze Hern.

“The cost of purchase will be negotiated and there will [be] benchmarking with operating margins of third-party companies in Malaysia,” said the analyst.

TA Securities also downgraded the stock to “hold” from “buy”, with a lower target price (TP) of RM6.30 (from RM6.80). There are two “buy” and two “hold” recommendations with a 12-month TP of RM6.07, Bloomberg data showed.

At the time of writing on Monday, Amway had risen eight sen or 1.39% to RM5.83, with a market capitalisation of RM953.44 million. At market close, the counter rose five sen or 0.87% to RM5.80.

For FY2022, the group’s net profit rose to RM76.88 million from RM36.78 million driven by sales growth, price increase and normalisation of Amway Business Owner (ABO) sales incentives.

Full-year revenue increased to RM1.51 billion from RM1.49 billion, on strong demand in health and wellness and personal care products.

According to Ong, health and wellness products continue to be Amway’s largest category in terms of sales contribution, amid increase in health awareness after the Covid-19 pandemic.

“The group launched various products in 2022, including XS Ignite (weight management) and Artistry Vitamin C+HA3 Serum (facial). With [an] average of 40-60 products or bundles launched every year, Amway plans to continue launching a similar number of products in 2023, with health and wellness products continuing to be the group’s value proposition,” said Ong.

On the other hand, the analyst said Amway has carried out various sustainability initiatives including using recycled packaging (carton and air pillow), carrying out water conservation via low flow faucets, and eliminating all shipping papers.

“Amway plans to continue its sustainability measures in 2023 with sustainable energy investments (solar panels), electric charging stations and elimination of single-use plastic bags,” Ong added.