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

20 May 2010
MARKET DATELINE

Amway (M) Holdings Share Price

Fair Value
:
:
RM7.36
RM8.45
Attractive Yield 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 51.0 5.1 Net cash 37.6 7.3
2011f 722.5 92.8 56.5 3.5 13.1 55.0 5.1 Net cash 38.8 7.6
2012f 748.0 96.1 58.4 3.5 12.6 56.0 5.1 Net cash 40.1 7.8
Main Market Listing / Trustee Stock / Syariah Approved Stock By The SC * Consensus Based On IBES Estimates

♦ In line. Amway’s 1QFY12/10 net profit of RM16.7m (-13.7% yoy) was in

RHBRI Vs. Consensus
Above
line with our and consensus expectations, accounting for 18% and 20% of
In Line
our and consensus earnings forecasts respectively. We consider this to be Below
in line as we expect stronger earnings ahead due to the effect from
weakening US$ against RM, which has already depreciated by 6% on a qoq Issued Capital (m shares) 164.4
basis. For every 1% depreciation in US$ against RM, this would lead to a Market Cap(RMm) 1224.7
Daily Trading Vol (m shs) 0.02
0.2-0.4%-pt gain in gross profit margin for Amway.
52wk Price Range (RM) 6.79-7.50
Major Shareholders: (%)
♦ 9 sen first interim dividend. In 1Q10, Amway declared a first single tier Amway Global 51.7
interim dividend of 9 sen, which was above our expectations of 8 sen. As Skim Amanah Saham 16.9
such, we revised up our net dividend assumption to 54 sen (from 51 sen) EPF 5.7
which represents a net payout of 99% and net yield of 7% in FY10.
FYE Dec FY10 FY11 FY12
EPS chg (%) - - -
♦ Better outlook ahead? We expect Amway’s outlook to remain favourable Var to Cons (%) 6.9 2.6 4.4
given: 1) weaker US$ against ringgit; and 2) Amway’s growth plans
through higher compensation scheme for distributors, new product PE Band Chart
offerings, increase in pricing and more aggressive A&P activities. We
remain confident in Amway’s ability to continue paying its attractive PER = 20x
PER = 16x
dividend. PER = 12x

♦ Forecasts. No changes to our earnings forecasts.

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

intensifying competition.
Relative Performance To FBM KLCI

♦ Investment case. We expect Amway to continue its net dividend payout FBM KLCI

of 90-100%, translating to an attractive net dividend yield of 7-8% for

FY10-12. Our DCF-derived fair value is unchanged at RM8.45 using an
unchanged WACC of 8.1%. Maintain our Outperform recommendation on
Amway
the stock.

Hoe Lee Leng

Please read important disclosures at the end of this report.
(603) 92802239
hoe.lee.leng@rhb.com.my

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 20 May 2010

Table 2. Earnings Review (YoY)

FYE Dec 2009 2009 2010 %QoQ % YoY Comments
(RMm) 1Q 4Q 1Q Chg Chg
Revenue 163.8 171.9 175.5 2.1 7.1 The increase was underpinned by stocking activities ahead of the
increase in distributor price w.e.f. 1 Mar 10.

EBIT 24.5 21.3 21.6 1.5 (11.8) Refer to EBIT margin.

Finance income 1.5 1.0 0.7 (29.0) (50.6) Lower net cash yoy (1Q10: RM180m vs. 1Q09: RM236m).

PBT 26.0 22.3 22.4 0.1 (14.0)

Taxation (6.6) (6.0) (5.6) (5.5) (14.7)
Net profit 19.4 16.4 16.7 2.2 (13.7) Filtered down from PBT.
EPS (sen) 11.8 10.0 10.2 2.2 (13.7)
Net dividend (sen) 7.0 7.0 9.0 28.6 28.6 Amway declared a first interim single-tier dividend of 9 sen in 1Q10.

EBIT margin (%) 15.0 12.4 12.3 (0.1) (2.6) Lower EBIT margin due higher A&P expenses and higher investment
in consumer access driven strategies, brand building initiatives and
higher purchase price of products, offset against favourable forex
movements.

PBT margin (%) 15.9 13.0 12.7 (0.3) (3.1)

Net profit margin 11.8 9.5 9.5 0.0 (2.3)
(%)
Effective tax rate 25.4 26.7 25.1 (1.5) (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

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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
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“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.

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securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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