InsiderAsia has highlighted several defensive investment ideas over the past few weeks. In view of the prevailing global uncertainties, we believe that many investors will remain cautious pending greater clarity. As such, today we take a look at another cash-rich company offering attractive yields.
Amway (M) Holdings Bhd’s shares fared quite well last year, gaining almost 20% (including dividends) against the FBM KLCI’s 0.8% advance. Persistent uncertainties for the broader market may continue to provide support to its share price. Having said that, expectations for more challenging operating conditions in 2012 may limit gains. Still, investors can count on the stock to continue giving higher than market average dividend yields.
Sitting on surplus cash
Amway has net cash totalling some RM185.1 million as at end-September 2011. This will be pared to an estimated RM140 million or so by end-2011, after taking into account the payment of a third interim and special dividends totalling 39 sen per share in December 2011.
We expect the company to declare a final dividend of nine sen per share next month, which would bring total dividends for last year to 66 sen per share, the same as 2010. The total dividend distribution would be equivalent to about 128% of our estimated net profit for 2011.
The company reported a good set of results for 3QFY11. Turnover was up 10.5% year-on-year (y-o-y) to RM211.5 million, bolstered by more aggressive sales and marketing programmes. Net profit grew an outsized 19.8% y-o-y to RM25.8 million. On top of higher sales, margins were lifted by a stronger ringgit during the quarter. Earnings for the first nine months of the year totalled RM65.1 million, up 8.5% from the previous corresponding period.
We do, however, expect earnings to pare back in the last quarter compared with 3QFY11. This is due in part to the recent strengthening of the greenback. For the full-year, we estimate net profit totalling roughly RM84.5 million, up 7.9% from RM78.3 million in 2010. We are also cautious on the earnings outlook for this year.
Possible pressure on margins
While consumer spending has stayed fairly robust through the global financial crisis and subsequent recovery, there are still many uncertainties that could dampen future consumption.
On a positive note, we expect Amway’s sales to stay relatively resilient taking into account its distributor base of 221,000 people and wide product range. Its current range of consumer goods includes personal care, nutrition and wellness, skin care, home tech and home care products, totalling over 250 items.
There are plans to launch several new products this year. The company is also expected to roll out incentive programmes and product promotions through the year to drive demand.
As at end-2011, the company has 16 Amway shops that are aimed at boosting its physical presence in key locations. The higher visibility will act as a platform to attract more people to join its ranks. Additionally, they provide greater convenience and easier access for existing distributors.
To support longer-term growth, Amway is targeting younger distributor recruits (age 35 and below) as well as enhancing its presence in the still comparatively untapped Malay market to widen its addressable customer base.
On balance, we expect the company will continue to register low single-digit sales growth this year. A weaker ringgit against the US dollar, however, will hurt margins as the bulk of Amway’s products are imported. It is also likely that prices for products sourced from its US-based parent company will be slightly higher after the annual review. In view of the prevailing uncertainties, Amway has no plans at present to raise selling prices to consumers.
Net yield estimated at 7%
We forecast net profit will decline by about 6% to RM79.4 million on the back of narrower margins despite expectations for better sales. This is assuming the ringgit-US dollar exchange rate remains around current levels. Nevertheless, we do believe that the company will maintain its dividends in 2012 based on its surplus cash position.
With cash, and zero borrowing, on its balance sheet and no major capital expansion plans for the foreseeable future, Amway would be inclined to distribute surplus cash back to shareholders.
Following the completion of the new RM100 million Amway headquarters in Petaling Jaya, with the bulk of capital expenditure (capex) in 2008/09, capex is expected to be minimal in the next few years. Plans to convert all nine existing regional distribution centres into Amway shops are estimated to cost less than RM5 million or so in total over 2012 to 2014.
With surplus cash and minimal capex, Amway is well able to maintain its current level of dividend payout. Assuming dividends remain at 66 sen per share, shareholders will earn an attractive net yield of 7% at the prevailing price of RM9.48.
Looking slightly further ahead, we forecast earnings will improve in 2013, on the back of continued top line growth and assumption of a selling price hike, after holding prices in 2011/12. Net profit is estimated to rise to RM85.2 million. Based on our earnings forecast, the stock appears fairly valued at a forward price-earnings ratio of 19.6 times, which will drop to about 18.3 times in 2013.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, January 11, 2012.
Amway (M) Holdings Bhd’s shares fared quite well last year, gaining almost 20% (including dividends) against the FBM KLCI’s 0.8% advance. Persistent uncertainties for the broader market may continue to provide support to its share price. Having said that, expectations for more challenging operating conditions in 2012 may limit gains. Still, investors can count on the stock to continue giving higher than market average dividend yields.
Sitting on surplus cash
Amway has net cash totalling some RM185.1 million as at end-September 2011. This will be pared to an estimated RM140 million or so by end-2011, after taking into account the payment of a third interim and special dividends totalling 39 sen per share in December 2011.
We expect the company to declare a final dividend of nine sen per share next month, which would bring total dividends for last year to 66 sen per share, the same as 2010. The total dividend distribution would be equivalent to about 128% of our estimated net profit for 2011.
The company reported a good set of results for 3QFY11. Turnover was up 10.5% year-on-year (y-o-y) to RM211.5 million, bolstered by more aggressive sales and marketing programmes. Net profit grew an outsized 19.8% y-o-y to RM25.8 million. On top of higher sales, margins were lifted by a stronger ringgit during the quarter. Earnings for the first nine months of the year totalled RM65.1 million, up 8.5% from the previous corresponding period.
We do, however, expect earnings to pare back in the last quarter compared with 3QFY11. This is due in part to the recent strengthening of the greenback. For the full-year, we estimate net profit totalling roughly RM84.5 million, up 7.9% from RM78.3 million in 2010. We are also cautious on the earnings outlook for this year.
Possible pressure on margins
While consumer spending has stayed fairly robust through the global financial crisis and subsequent recovery, there are still many uncertainties that could dampen future consumption.
On a positive note, we expect Amway’s sales to stay relatively resilient taking into account its distributor base of 221,000 people and wide product range. Its current range of consumer goods includes personal care, nutrition and wellness, skin care, home tech and home care products, totalling over 250 items.
There are plans to launch several new products this year. The company is also expected to roll out incentive programmes and product promotions through the year to drive demand.
As at end-2011, the company has 16 Amway shops that are aimed at boosting its physical presence in key locations. The higher visibility will act as a platform to attract more people to join its ranks. Additionally, they provide greater convenience and easier access for existing distributors.
To support longer-term growth, Amway is targeting younger distributor recruits (age 35 and below) as well as enhancing its presence in the still comparatively untapped Malay market to widen its addressable customer base.
On balance, we expect the company will continue to register low single-digit sales growth this year. A weaker ringgit against the US dollar, however, will hurt margins as the bulk of Amway’s products are imported. It is also likely that prices for products sourced from its US-based parent company will be slightly higher after the annual review. In view of the prevailing uncertainties, Amway has no plans at present to raise selling prices to consumers.
Net yield estimated at 7%
We forecast net profit will decline by about 6% to RM79.4 million on the back of narrower margins despite expectations for better sales. This is assuming the ringgit-US dollar exchange rate remains around current levels. Nevertheless, we do believe that the company will maintain its dividends in 2012 based on its surplus cash position.
With cash, and zero borrowing, on its balance sheet and no major capital expansion plans for the foreseeable future, Amway would be inclined to distribute surplus cash back to shareholders.
Following the completion of the new RM100 million Amway headquarters in Petaling Jaya, with the bulk of capital expenditure (capex) in 2008/09, capex is expected to be minimal in the next few years. Plans to convert all nine existing regional distribution centres into Amway shops are estimated to cost less than RM5 million or so in total over 2012 to 2014.
With surplus cash and minimal capex, Amway is well able to maintain its current level of dividend payout. Assuming dividends remain at 66 sen per share, shareholders will earn an attractive net yield of 7% at the prevailing price of RM9.48.
Looking slightly further ahead, we forecast earnings will improve in 2013, on the back of continued top line growth and assumption of a selling price hike, after holding prices in 2011/12. Net profit is estimated to rise to RM85.2 million. Based on our earnings forecast, the stock appears fairly valued at a forward price-earnings ratio of 19.6 times, which will drop to about 18.3 times in 2013.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, January 11, 2012.
