Review

• Amway reported weak 3QFY24 results, with core earnings declining by 28.6% YoY to RM33.8mn, due to lower turnover and higher product costs. However, the results still exceeded expectations, primarily driven by reduced distribution, selling, and administration expenses.

• Revenue in 3QFY24 slid by 10.1% YoY to RM299.8mn, mainly due to weaker demand for home appliances, healthcare and wellness products.

• Cumulatively, 9MFY24 core net profit of RM89.1mn (-1.6% YoY) came in above ours and consensus’ full-year forecasts at 91% and 85%, respectively. Sales declined by 12.5% YoY to RM918.3mn, primarily due to a high base effect from customers stocking up ahead of a price hike.

• The board declared a third single-tier interim dividend of 5.0sen/share (3QFY23: 5.0sen/share) for the quarter under review, bringing its YTD dividend to 15.0sen/share (9MFY23: 15.0sen/share).

Impact

• We have raised our core earnings forecasts by 10.1% to 11.1% for FY24- 26, following a reduction in selling and administrative expenses by 6% to 6.5% for FY24-26. This adjustment reflects lower ABO incentive payouts and improved cost management following the price adjustment.

Outlook

• Heading into 4QFY24, we forecast lower core earnings of RM20.1mn, compared to RM32.4mn in 4QFY23, due to normalised demand and higher ABO incentive provisions in the upcoming quarter.

• In terms of asset quality, Amway net cash and investments stood at RM308.7mn, representing 27.2% of its market cap. Hence, we expect the dividend yield to remain attractive, ranging from 6.5% to 7.2% for FY24- 26F.

Valuation

• We raise our TP to RM7.40/share (previously: RM7.30/share), based on DDM valuation approach (k: 9.6%, g: 2.0%), following the earnings revision. Upgraded Amway from Sell to HOLD, following the recent decline in its share price, which now offers more upside potential.

Source: TA Research - 21 Nov 2024