• Maintain HOLD (TP: RM5.70). Amway’s 9MFY23 Net Profit of RM83.5mn (+54.9% YoY) was above ours and consensus expectations, accounting for 126% and 115% respectively. The deviation against ours was mainly due to lower-than-expected ABO incentives costs. In 3QFY23, Amway’s net profit surged to RM46.2mn (+160% QoQ, +146% YoY) mainly due to lower Opex resulting from significantly reduced sales incentives payouts, which were aligned with lower sales. Moving forward, we anticipate sustained lower sales due to reduced demand for premium products amid inflationary pressures and a slowdown in demand for health supplements in the endemic phase. Consequently, we are revising our FY23f/FY24f earnings upward by 49%/35% as we adjust our cost assumptions and lowering sales estimates for FY24. Maintain a HOLD call with a higher TP of RM5.70 (from RM5.50), based on a new DDM valuation with a WACC of 8.7% and lower TG of 1%. Amway has declared a 3rd interim DPS of 5sen (YTD: 15sen) and we estimate a total FY23F DPS of 42 sen, translating into 8% DY.

• Key highlights. Amway’s 3QFY23, revenue decline to RM333.5mn (-3% QoQ, -10% YoY), affected by weakened demand for health and wellness products, as well as home appliances. On the positive side, net profit rose to RM46.2mn (+160% QoQ, +146% YoY), thanks to lower Opex resulting from significantly reduced sales incentive payouts to ABOs in line with the decreased sales. Notably, the profit margin saw a substantial improvement of 8.7 ppts QoQ, reaching 13.9%.

• Earnings Revision. We raise higher our FY23f/FY24f earnings by 49%/35% as we lower our cost assumptions and adjust our projected sales for FY24.

• Outlook. In 4QFY23, Amway’s sales are expected to be muted accompanied by slightly higher costs due to year-end sales promotions Looking ahead to FY24, the sales outlook for Amway remains challenging amid inflationary pressures that impact consumers' ability and willingness to spend, especially on premium-priced products. Additionally, post COVID-19 pandemic situation could lead to a softer demand for Amway's health supplements. Despite the expectation of lower ABO incentives cost, profit margins could be under pressure from current higher level, as we anticipate increased operating costs associated with business investments and marketing.

Source: BIMB Securities Research - 16 Nov 2023