Amway's net profit increased by 36% q-o-q or 20% y-o-y to RM26 million while turnover increased by 25% q-o-q or 10% y-o-y to RM212 million. The higher net profit was due to higher sales, which in turn was attributed to higher distributor productivity driven by sales & marketing program implemented previously.
Table: Amway's last 8 quarterly results
There are a few things to note:
1) The 3rd Quarter is seasonally the best quarter for Amway (see Chart 1).
2) Amway's profit margin has been sliding for the past 3 years, due probably to competition from other MLM operators (see Chart 2).
3) Amway which sources some of its products from the US muat have benefited from the favorable trend for USD-MYR cross rate. As USD-MYR has now reversed, Amway's imported products would have to be adjusted higher. How would this impact Amway?
Chart 1: Amway's last 17 quarterly results
Chart 2: Amway's profit for the last 17 quarterly results
Bumper Dividend announced as expected in my previous post.
Chart 3: Amway's dividend payout for the last 17 quarterly results
Valuation
Amway (traded at RM9.21 as at 10.00am) is trading at a trailing PE of 18 times (based on last 4 quarters' EPS of 51 sen). At this PE multiple, Amway is deemed expensive. However, Amway has a good dividend payout which gives a yield of 7.2% (earlier incorrectly stated as 10.7%).
(Note: Hat tip to reader, Chong Kong Hui for highlighting the error in the computation of the Dividend Yield.)
Technical Outlook
Amway broke above its medium-term downtrend line at RM9.00 yesterday. Its next resistance is at RM9.20. Thereafter it may re-test its recent high at RM9.65-9.66.
Chart 4: Amway's daily chart as at Nov 17, 2011_9.30am (Source: Quickcharts)
Conclusion
Based on good financial performance & high dividend yield, Amway is a good stock for long-term investment, especially for income purpose. However, the stock's upside potential is limited as it is now trading at a trailing PE of 18 times. As such, I would rate Amway a 'Sell into strength' as it approach the RM9.50-9.60 mark.
8 comments:
Hi Alex
Can you comment on Cheetah prospect? its is small cap stock but have two strong institutional investor backing: LT Haji (7.5%) and Felda (6.1%).
Cheetah have dividend policy to payout 30% earning and is in net cash position, 11 sen/share. Cheetah currently trade cum dividend of 2.7sen, giving rise to yield of 5.6%.
Based on fundamental/technical view, what is fair price for cheetah?
Hi Alex.
Those who had followed you on selling Harvest, and not touching it again are so happy.
Look at Harvest now.. It is just going to be another 30% slash for tomorrow, yet again.
How do you get DY 10.7%?
Hi, I am Amway distributor and I believe the sliding of profit margin is most probably due to opening of total 13 new shops all over Malaysia.
Hi yiyi96
The opening of total 13 new shops all over Malaysia would have an impact. When were these shops opened? From which month to which month? Are they more to be opened?
Please kindly check it out from http://www.amway2u.com/community/amcommunityrdc.jsp
I remember the first Amway shop openned exactly around 3 years before. In fact Amway Malaysia planned to open more shops but due to poor performance of some shops in non-big city areas. They decided to hold first.
And one more reason of sliding profit is due to opening of new HQ 1-2 years before. The new HQ cost 100 million.
I remember during one of my attendance of a major functions couple years ago. Amway2u has a goal to reach 1 billion sales at 2015.
Hi yiyi96
To achieve an annual sale of RM1 billion, Amway2u would have to rake in RM250 million each quarter. Amway is now raking in quarterly sale of only RM160-200 million. Look like Amway2u wasn't very successful.
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