Amway (Malaysia) Holdings Berhad (AR 2018)

Corporate Profile

• One of the biggest MLM company worldwide. 
• 51% of Amway shares hold by its mother company under GDA B.V where Amway paid a royalty of RM 2.6 million in 2018 which accounts 1% of its gross profit.
• 91% of Amway shares are hold by its top 30 shareholder with EPF holding 6.8%, Amanah Saham holding 20.22%, KWAP holding 9.11%, fund house holding 1.77%. (87% of Amway share are in the hands of government entity and Amway itself)
• Amway has 254,000 Amway Business Owner (ABO) in 2018 compared to 252,000 ABO in 2017.

Financial Highlight

• Revenue decreased 1.21% in 2018 from 2017. 
• Revenue grew at merely CAGR of 2% from 2013 to 2018.
• Gross profit decreased 1.6% in 2018 from 2017 which is in line with the decrease in revenue. 
• Net profit increased by 3.59% in 2018 from 2017 even though its revenue and gross profit decreased. This is due to lower income tax paid as there is an income not subject to tax amounting RM 2.2 million. PBT remain flattish at RM 70 million in both 2017 & 2018. 
• Gross profit margin reduced from 32% in 2013 to 25% in 2018, while net profit margin reduced from 13% in 2013 to 5% in 2018 due to strengthening of USD. 
• Amway has a dividend payout policy of 80% from its profit, thus, the company has been consistently paying out 80 - 90% of its profit from 2013 - 2018.
• Amway has a healthy and strong balance sheet with RM 176 million of cash on hand with no bank borrowings. 
• Amway has been consistently generates positive cash flow from its operating activities over the years and the main reasons for negative cash flow from financing activities is due to dividend payout to shareholders.
• Admin, selling & distribution expenses accounted for 73% of its gross profit in both 2017 & 2018. 
• Inventory in 2018 reduced by 21% as compared to 2017. (not too sure is it because of business slowing down hence holding less stock?)

• From the above comparison between USD/MYR and Amway share price, we can conclude that when USD is at high, Amway share price is at bottom as 90% of Amway import products are paid in USD while the selling price to the consumer is in MYR. This is the main reason that the profit margin of Amway is under pressure. (USD strengthen by 27% from 2013 - 2018, hence their gross profit margin also weaken by 21% from 2013 - 2018)

Future Prospect

• Strive for greater sales revenue growth and continue to seek ways to optimise operational costs towards strengthening earnings going forward.
• Focus on enabling ABOs to achieve their fullest potential and support the growth of their businesses.
• Positive that sales revenue will continue to grow in FY2019 on the back of attractive sales and marketing plans and various growth initiatives that we have implemented to support ABOs in driving their business growth

Strength

• Strong brand name (everyone know and heard of Amway) with stable revenue.
• Strong balance sheet as Amway is a net cash company with net cash per share of RM 1.08.  
• Generous with its dividend payout however their dividend reduced together with its earnings. 

Weakness

• USD staying above RM4 is pain in the ass for Amway. 
• The only way for Amway to return to their glory is through the strengthening of RM (The business growth for Amway is quite limited).
• Inventory reduced in 2018 by 21%, will this means the business will be slower in 2019? or just a better movement on the logistic of its inventory? 
• Slow economic will reduce people from buying more Amway products as Amway product is not cheap. 
• Amway business is limited to Malaysia and Brunei only (however no info were provided on Brunei). 

Peer to Peer Comparison

• The nearest MLM company that is similar to Amway will be Haio. 
• Amway: Market Cap - 1.01B, PE - 18.61, ROE - 13.52, DY - 4.46, NTA - 1.32
• Haio     : Market Cap - 750M, PE - 14.05, ROE - 17.35, DY - 7.97, NTA - 1.03, 

Valuation @ RM 6.17

• At RM 6.17 a share, its current PE is 18.61 which is deemed to be quite fair unless moving forward its profit margin will increase with the strengthening of RM hence boost its earning (I personally think that the fair PE for Amway is around 18 - 20 looking at their previous record) 
• USD has been staying at this level since 2016 (will this means Amway has bottom out?), and share price has dropped 40% from RM 10 in 2013 to the current level of RM 6 in 2019 (the drop in share price is in line with its decrease in net profit which is 50%)
• However if you look at Q3 and Q4 in 2018, its EPS has started to recover with gross profit of 29% in Q4 2018 which is higher than its average gross profit of 25%. (This is something worth taking note)
• Assuming moving forward, Amway is able to maintain this gross profit margin and generates an EPS of 11.5 sen per quarter in 2019 which translates into 46 sen of EPS. AT PE 18, Amway is worth RM8.28 (the calculation is compute by being optimistic that MYR will be below RM4.1 in 2019 and worth taking note that USD is ranging from RM4 - RM 4.1 from Nov 18 to Feb 19 to generate a gross profit of 29%)
• Dividend yield at RM 6.17 is approximately 4.4%.