Review

• AMWAY’s 1QFY24 core earnings increased by 39.5% YoY to RM32.2mn, representing 33% and 30% of our and consensus’ full-year estimate. We deem the results to be in line with our expectations, as we are expecting weaker quarters ahead, along with a rise in product costs and soften demand.

• 1QFY24 revenue reduced by 13.6% YoY to RM322.1mn, mainly due to softened consumer demand and peak home appliance purchases in 1QFY23 ahead of price increases. The increase in core net profit mainly attributed to reduced incentives payout to Amway Business Owners (ABOs) in tandem with lower recorded revenue.

• The group declared a first single tier interim dividend of 5.0sen/share (1QFY23: 5.0sen/share).

Impact

• No change to our earnings estimates.

Outlook

• We expect Amway’s FY24 revenue to decrease by 2.3% YoY to RM1.4bn due to the challenging business environment, persistent inflationary pressure and weaker consumer sentiment. Note that, Amway’s sales per ABO force decreased by 4.4% YoY to RM4,442.5/ABO in FY23.

• In addition, the rising in product cost and targeted investments in ABOcentric programs are expected to exert pressure on margins moving forward. With that, we expect FY24 PBT margin to decline by 1.5%-pts to 9.3%

• The group launched an average of 20 new items in FY23 and plans to continue with innovative product launches in 2024, with health and wellness products remaining a key value proposition.

Valuation

• YTD, Amway share price has surged by approximately 25%. We believe that much of the positive news has already been priced into the share price. Due to limited upside, we downgrad Amway to SELL from Hold with an unchanged TP of RM7.70/share, based on DDM valuation approach (k: 9.8%, g: 1.0%).

Source: TA Research - 24 May 2024