Amway

Its net profit fluctuated within a narrow range over the past few years going from rm88 million in 2007 to a high of rm96 million in 2008 before falling back to rm73 million in 2009. Since then, it has done better with earnings rising to rm79 million in 2010 and rm90 million in 2011.

 

Turnover on the hand, has been on a steady uptrend, growing from rm584 million in 2007 to rm736 million in 2011. This indicates a degree of volatility in its operating margins, likely due to exchange rate fluctuations, which affected its cost given that the bulk of Amway’s products and the company’s unwillingness to raise selling prices amid competitive market conditions.

 

Nonetheless, it is more cautious on the outlook for 2H2012. Although the second half of the year is traditionally stronger half, this may not the case in the current (2012) year given the strong earnings reported in 1HFY2012.

 

Do not expect any further lift from currency exchange for the next 12 months from Oct 2012. Amway has locked in the ringgit-US dollar rate for its purchases from its parent company effectively taking out all foreign exchange exposure. Additionally product costs have been raised by 3.5% since July 2012. On the other hand, the company is not planning any corresponding increase in its selling prices. Its last price increase was back in March 2010.

 

As such expect slightly weak earnings in 2HFY2012 compared with the first six months of the year and only modest growth in 2013.

 

Amway has a strong balance sheet and is sitting on net cash totaling rm158 million as at end June 2012. With no major capex planned for the foreseeable future, it can maintain a high dividend payout ratio.

 

However future dividends will be capped by its limited retained earnings reserves. Having paid out more than its annual net profits in the past three years (2009-2011), reserves have been whittled down to some rm26 million as at end 2011.

 

Dividends going forward will be capped to its annual net profit. The company indicated that it has no intention of undertaking any capital management exercise, such as capital reduction, to return excess cash to shareholders.

 

Its current range of consumer goods include personal care, nutrition and wellness, beauty and skin care, home tech and home care, totaling 250 products. There are plans to launch several new products each year.