You are on page 1of 3

PP 7767/09/2010(025354)

Malaysia Corporate Highlights RHB Research


Institute Sdn Bhd
A member of the
RHB Banking Group
R e su l ts N o t e Company No: 233327 -M

25 February 2010
MARKET DATELINE

Amway (M) Holdings Share Price


Fair Value
:
:
RM7.36
RM8.45
Look Forward To 2010 Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (AMWAY; Code: 6351) Bloomberg: AMW MK


Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA Gearing ROE NDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (%) (%) (%)
2009a 663.0 72.5 44.1 -23.7 16.7 - 5.1 Net cash 30.7 6.5
2010f 697.9 89.6 54.5 23.6 13.6 55.0 5.0 Net cash 37.1 6.8
2011f 722.5 92.8 56.5 3.5 13.1 59.0 4.8 Net cash 37.3 7.0
2012f 748.0 96.1 58.4 3.5 12.6 - 4.7 Net cash 37.5 7.3
Main Market Listing / Trustee Stock / Syariah Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Below expectations. Amway’s FY12/09 net profit of RM72.5m was below RHBRI Vs. Consensus
our but in line with consensus expectations, accounting for 88% and 95% of Above
our and consensus forecasts respectively. However, Amway’s gross profit In Line
level was in line with our expectations (accounting for 99%). The key Below
variances were mainly due to higher-than-expected distribution cost and
selling and administrative expenses in 4Q09, which we believe was Issued Capital (m shares) 164.4
attributable to the opening of the new headquarters. Qoq, distribution cost Market Cap(RMm) 1209.9
and selling and administrative expenses jumped by 21% and 14% Daily Trading Vol (m shs) 0.04
respectively. Meanwhile, effective tax rate remains high at 26.6%, due to 52wk Price Range (RM) 6.60-7.40
certain expenses being disallowed for tax purposes. During the quarter, Major Shareholders: (%)

Amway declared a final single-tier dividend of 7 sen, bringing full year FY09 Amway Global 51.7
net dividend to 48 sen or net dividend payout of 109%, which is in line with Skim Amanah Saham 16.9
our forecast of 48 sen, translating to net yield of 6.5%. EPF 5.7

♦ Higher cost and unfavourable exchange rate. Unfavourable exchange


EPS chg (%)
FYE Dec FY10
(3.3)
FY11
(2.9)
FY12
0.0
rate movements coupled with higher distribution cost and selling and
Var to Cons (%) (0.9) (4.3) 0.0
administrative expenses led to Amway’s net profit drop of 23.7% yoy despite
a 2.9% increase in turnover. In FY09, Amway’s imported purchases (which PE Band Chart
make up of c.88% of costs) were acquired at an average US$ against RM of
RM3.60/US$ vs. RM3.40/US$ in FY08. For every 1% appreciation in US$
PER = 20x
against RM, this would lead to a 0.2-0.4%-pt loss in gross profit margin for PER = 16x
Amway. PER = 12x

♦ Better outlook ahead. We expect Amway’s outlook to remain favourable


given: 1) improving consumer sentiment from better economic outlook; 2)
weaker US$ against ringgit; and 3) Amway’s growth plans through higher
compensation scheme for distributors, new product offerings, increase in
pricing and more aggressive A&P activities. We remain confident in Amway’s Relative Performance To FBM KLCI
ability to continue paying its attractive dividend.

♦ Forecasts. We reduced our FY10-11 forecasts by 2.9-3.3% after adjusting FBM KLCI
for FY09 results. We have introduced our FY12 forecasts with the following
assumptions: 1) 2% growth in CDF yoy; 2) 1.5% growth in turnover per
distributor given its more saturated market position; and 3) exchange rate
assumption of RM3.30/US$. Amway

♦ Risks. The risks include: 1) decline in consumer spending power; and 2)


intensifying competition.
Hoe Lee Leng
♦ Investment case. We expect Amway to continue its net dividend payout of
(603) 92802239
90-95%, translating to a respectable net dividend yield of c.7% for FY10-12.
hoe.lee.leng@rhb.com.my
Our DCF-derived fair value is reduced to RM8.45 (from RM8.50) using an
unchanged WACC of 8.1%. Maintain our Outperform recommendation on
the stock.

Please read important disclosures at the end of this report. Page 1 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
25 February 2010

Table 2. Earnings Review (YoY)


FYE Dec 2008 2009 2009 %QoQ % YoY 2008 2009 % YoY Comments
(RMm) 4Q 3Q 4Q Chg Chg FY FY Chg
Revenue 171.8 174.9 171.9 (1.7) 0.0 645.5 663.9 2.9 The increase was underpinned by
higher distributor productivity
driven by enhanced sales and
marketing programmes
implemented; together with 5%
increase in ASP of selected
product lines in Nov 08 (or
+1.9% on an absolute basis).

EBIT 28.1 27.2 21.3 (21.7) (24.2) 120.9 94.2 (22.1) Due to lower EBIT margin.

Finance income 2.2 1.1 1.0 (8.8) (52.9) 8.3 4.7 (43.6) Lower net cash by RM63.9m yoy.

PBT 30.3 28.3 22.3 (21.2) (26.3) 129.2 98.9 (23.5)


Taxation (8.4) (7.9) (6.0) (24.3) (29.1) (34.2) (26.3) (22.9)
Net profit 21.9 20.5 16.4 (20.0) (25.2) 95.1 72.5 (23.7) Filtered down from PBT.
EPS (sen) 13.3 12.5 10.0 (20.1) (25.2) 57.9 44.1 (23.7)
Net dividend (sen) 7.0 27.0 7.0 (74.1) 0.0 41.8 48.0 14.9 Amway declared a fourth interim
single-tier dividend of 7 sen in
4Q09.

EBIT margin (%) 16.4 15.6 12.4 (3.2) (4.0) 18.7 14.2 (4.5) Lower EBIT margin due to
stronger US$ against RM, higher
A&P expenses and higher
investment in consumer access
driven strategies.

PBT margin (%) 17.6 16.2 13.0 (3.2) (4.6) 20.0 14.9 (5.1)
Net profit margin 12.7 11.7 9.5 (2.2) (3.2) 14.7 10.9 (3.8)
(%)
Effective tax rate 27.7 27.7 26.7 (1.1) (1.1) 26.4 26.6 0.2 Higher than statutory tax rate
(%) due to certain expenses being
disallowed for tax purposes.

Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions


FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 663.0 697.9 722.5 748.0 Increase in CDF (ooo) 4 4 4


Turnover growth (%) 2.7 5.3 3.5 3.5 Growth in distributor productivity (%) 2 2 2

Cost of Sales (471.5) (477.3) (494.0) (511.3)


Gross Profit 192.4 220.6 228.5 236.8

EBITDA 105.8 122.1 126.4 130.9


EBITDA margin (%) 16.0 17.5 17.5 17.5

Depr&Amor (2.5) (5.1) (5.4) (5.7)


Net Interest 4.7 3.5 2.6 4.2

Pretax Profit 98.9 122.1 126.4 130.9


Tax (26.3) (32.5) (33.6) (34.8)
Net Profit 72.5 89.6 92.8 96.1
Source: Company data, RHBRI estimates

Page 2 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

Page 3 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com