Amway’s 9MFY12 earnings were in line with consensus and our forecasts. Turnover and net profit rose 7% and 12.9% y-o-y respectively, mainly driven by higher sales as a result of aggressive sales and marketing programmes coupled with prudent cost management. Meanwhile, EBIT and net margins widened by 90bps and 70bps respectively. The company has declared a third interim singletier dividend of 10 sen. Downgrade to NEUTRAL due to the limited price upside, with an FV of RM11.45.
Solid as a rock. 9MFY12 revenue inched up 7% y-o-y to RM592.1m from RM553.4m, boosted by aggressive sales and marketing programmes. Consequently, net profit went up from RM65.1m to RM73.5m (+12.9% y-o-y) on the back of better sales and lower operating expenses (-2.3% y-o-y). Vis-à-vis the preceding quarter, revenue and earnings grew by 18.8% and 5.1% y-o-y respectively, largely due to the sales and marketing programmes implemented in the quarter under review.
Keeping costs low. Gross margin was flattish y-o-y but EBIT margin expanded by 90bps to 16.7% due to lower overhead expenses. Similarly, net margin improved to 12.4% from 11.7% y-o-y. A third interim single-tier dividend of 10 sen per share was declared, bringing the YTD DPS to 30 sen per share. We expect the company to distribute more dividends in the final quarter to reward its shareholders.
Downgrade to NEUTRAL. Given the limited share price upside, we are downgrading the stock to a NEUTRAL, with our FV unchanged at RM11.45, based on a DDM valuation. However, note that Amway’s dividend yield remains decent at 5.3%, based on its last closing price.
Source: OSK
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