Wednesday, May 18, 2016
Amway: A One-off Earning Rebounce
For QE31/13/2016, Amway's net profit increased by 255% q-o-q to RM18 million while turnover increased by 14% q-o-q to RM306 million. When compared to last year, net profit dropped by 51% while revenue slipped by 5%.
Revenue increased q-o-q mainly due to a pre-price increase buy up in Q1 2016 and continued strong momentum from the Group’s 40th Anniversary activities and incentives throughout 2016. Profit before tax increased by 164% q-o-q, due mainly to higher incentive provisions and other operating expenses in the preceding quarter.
Despite the positive spin, the y-o-y changes indicate that Amway is likely to have a weaker performance in FY2016 due to higher prices (as a result of stronger USD) and poorer consumer sentiment.
Table: Amway's last 8 quarterly results
From the Chart 1 below, we can see that profit margins are way below the historical level. As a result of this weaker performance, dividend payment has been slashed by as much as 50%.
Chart 1: Amway's P&L, Profit Margins & Dividend Payout last 35 quarterly results
Amway (closed at RM9.20 yesterday) is trading at a trailing PER of 34 times (based on last 4 quarters' EPS of 27 sen). Dividend yield remains strong at 4.3%. If earnings continue to be weak, PER will rise and DY will drop further.
Amway is still in a long-term uptrend line with support at RM8.00. Immediate support is not far from its current price; it will come from the horizontal line at RM9.00.
Chart 2: Amway's monthly chart as at May 17, 2016 (Source: ShareInvestor.com)
Based on weaker financial performance and demanding valuation, Amway is rated a REDUCE for now. That rating will turn to SELL if the share price were to breach the uptrend line support at RM8.00.
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Amway.