AMWAY (M) Holdings - 9M12 results in line

Period    3Q12 / 9M12

Actual vs.  Expectations  The 9M12 net profit (NP) of RM73.5m was in line with the street’s estimate and our forecast of RM97m (75.6%) and RM100m (73.5%), respectively.  

Dividends   A single tier dividend of 10 sen per share has been declared, bringing first nine-month total dividend to 30 sen per share.

 We are expecting another 28 sen dividend in the coming quarter, implying a full-year NDPS of 58 sen or a net dividend yield of 4.9%.

Key Result Highlights   As mentioned earlier in our report dated 29 Aug 2012, we still believe in a stronger set of 2H results although the management had re-emphasised in the last briefing that the 2H profitability would be tougher than the 1H with only an internal projection of a single-digit growth rate for the year. As it turned out, the overall 9M results were still in line with our belief. 

 QoQ, the revenue increased substantially by 18.8%. This was attributable to a higher distributor productivity driven by the sales and marketing programs implemented in the quarter. However, due to higher cost of goods sold, NP was up only by 5.2% QoQ. Nevertheless, the NP of RM26.6m was still the highest among all quarters of 2012. 

 YoY, the 3Q12 and 9M12 revenue improved by 6.0% and 7.0% respectively on the back of higher demand for its products driven by the successfully executed sales and marketing programs. The 3Q12 and 9M12 NP meanwhile increased 3.3% and 13.0% due to better sales and lower selling and administrative expenses (the expenses-to-sales ratio came down 1.2 ppts to 11.5%).

Outlook   A 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 the higher distributor productivity driven by its sales and marketing programs.  

Rating    Downgrade to MARKET PERFORM

Valuation   Maintaining our TP of RM11.68, based on an unchanged 18.0x forward PER (which is a +2SD above the 5-year average PER) on FY13 EPS of RM0.64. However, due to the smaller upside potential now (with div. yield at 5.2%), we are downgrading the rating on Amway from an OUTPERFORM to a MARKET PERFORM. 

Risks   A slowdown in the global economy, which will cut the purchasing power of consumers. Low liquidity of the stock may also limit its upside prospect.  

Source: Kenanga