AMWAY: Cost Efficiencies Drive Earnings Outperformance Amidst Demand Headwinds
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM5.03 (+2.0%) |
| Last Traded | RM4.93 |
| Recommendation |
A consumer company reported third-quarter FY25 results that significantly exceeded market expectations, largely propelled by better-than-anticipated EBIT margins. Core earnings for the nine-month period stood at RM30.5 million, reaching 97% of the investment bank’s full-year projections and 99% of consensus estimates.
Performance Review
Quarter-on-quarter, core earnings saw a nearly fivefold surge to RM14.7 million. This robust improvement was attributed to the successful launch of a new cellular health product, an enhanced operating margin of 6.3% achieved through pricing adjustments implemented in July 2025, and a favorable decrease in the effective tax rate to 20.3%.
However, year-on-year performance presented a different picture, with 3QFY25 core earnings declining 55.1%. This was primarily due to softer demand for health and wellness products, escalated product costs, and increased provisions for ABO incentives. For the first nine months of FY25, core net profit decreased by 65.4% YoY, while revenue dipped 8.9% to RM836.5 million. The group declared a third single-tier interim dividend of 5.0 sen per share for the quarter, consistent with the previous year’s payout.
Outlook and Challenges
Looking ahead to the fourth quarter, the company anticipates stronger demand for home care products, bolstered by an average price increase of 6.4% slated for January 2026. Despite the positive outlook for certain segments, the overall operating environment is expected to remain challenging. Heightened competition from new market entrants and a persistent consumer shift towards essential goods are contributing to a normalization in sales volumes. Furthermore, profitability is likely to face additional pressure from provisions for sales incentives payable to ABOs, which are typically reconciled and adjusted in the fourth quarter.
Following the stronger-than-expected 3Q results, the investment bank revised its core earnings forecasts upwards for FY25, FY26, and FY27 to RM39.0 million, RM43.3 million, and RM47.1 million, respectively, reflecting higher EBIT margin assumptions.
Investment Recommendation
Despite the recent outperformance, TA SECURITIES maintained its “Sell” recommendation for the company. The target price was revised marginally upwards to RM5.03 per share (from RM5.00), based on a Dividend Discount Model (DDM) valuation.
