AMWAY (M) Holdings 1H12 results in line

OUTPERFORM
Target Price: RM11.68

Period 
2Q12

Actual vs. Expectations
1H12 net profit (NP) of RM25.3m was broadly in line with street’s estimates and our forecast of RM97.2m (26%) and RM100m (25%) respectively.

Dividends 

• A single tier dividend of 10 sen per share has been declared, amounting to a total dividend of 20 sen for the year. 
• We are expecting another 50 sen for the year, implying FY12E NDPS of 70 sen (6% higher than NDPS of 66 sen for last year) which translates to total payout of 115%, which has been maintained at similar levels over the last 3 years. 
• Given its high net cash position, we are optimistic that the company will distribute 70 sen for the year, which translates into a high net dividend yield of 6.4%. 

Key Result Highlights

• 2Q12 and 1H12 revenue YoY improved by 11.5% and 7.6% respectively on the back of higher demand of its products driven by successfully executed sales and marketing programs. 
• Meanwhile, its 2Q12 and 1H12 NP YoY increased 33.3% and 17.4% respectively due to better sales and lower cost of sales (the cost of sales to sales ratio for the six months dropped 1.5 ppt to 67.3%). 
• On a QoQ basis, the revenue increased marginally by 5.3%. This is because of the higher distributor productivity driven by the sales and marketing program implemented in the quarter. 
• NP was also up by 17.4% QoQ due mainly to higher sales and lower operating costs. 

Outlook 
Better earnings prospect is expected on the back of an increase in the number of distributors (we are anticipating FY12-13E YoY growth rate of 5.1%- 5.0%) and a continued rise in its revenue per distributor driven by the rise in private spending.

Change to Forecasts 
We are maintaining our earnings estimates of RM100.0m and RM106.4m for FY12-13E mainly supported by higher distributor productivity driven by sales and marketing program.

Rating 
MAINTAIN OUTPERFORM

Valuation 
We believe Amway deserves our TP of RM11.65, based on 18.0X forward PER over its FY13 EPS of RM0.647. This is due to its strong track records in growing its sales consistently as well as its attractive net dividend yield of 6.4%.

Risks 

• A slowdown in the global economy, which would cut the purchasing power of consumers. 
• Low liquidity of the stock may limit its capital appreciation prospect.

Source: Kenaga