• Maintain HOLD (TP: RM6.80). Amway's 9MFY24 net profit of RM90.2mn was above both ours and consensus expectations, accounting for 85% and 86% respectively. A third interim DPS of 5 sen was declared, bringing the YTD DPS to 15sen (vs 9MFY23: 15sen). Amway’s 3QFY24 revenue declined by 10.1% YoY, mainly due to a softer consumer demand for home appliances and health and wellness products. Similarly, net profit declined by 28.8% YoY, primarily due to the lower sales volume and higher product costs. Moving forward, we anticipate that Amway’s sales to continue to be deteriorating as long as there is no plan to revise ABO incentives provision. We have raised our FY24-FY25F earnings forecast by 8-9.5% to reflect lower costs. Hence, we maintain a HOLD call with a higher TP of RM6.80 (from RM6.40), based on a DDM valuation (WACC: 8.8% and TG: 1%). We expect Amway to pay an attractive total DPS of 56sen, translating into dividend yield of 8.1%.

• Key highlights. On a QoQ basis, both revenue and net profit surged by 1.1% and 34.0% respectively, primarily due to the newly-launched water treatment system and the lower ABO incentive provision.

• Earnings Revision. We have raised our FY24F/FY25F earnings forecast by 9.5%/8.0% as we reduced our higher-than-expected cost assumptions.

• Outlook. In the long-term perspective, we expect sales to remain subdued due to the soft consumer demand on premium products and reduced provision for ABO incentives. Eventually, the drop in sales volume is likely to align with the savings from lower ABO incentives. Moreover, operating costs may rise due to ABO-centric programmes and higher product costs. Despite these hardships, Amway is anticipated to continue delivering consistent dividend payments.

Source: BIMB Securities Research - 21 Nov 2024