KUALA LUMPUR (Feb 24): Amway (Malaysia) Holdings Bhd is aiming for moderate topline growth in 2022 and will continue to invest strategically and prudently in certain areas to achieve long-term business growth.

These include Amway Business Owners (ABO)-centric programmes, new product launches such as Nutrilite Botanical Beverage Berries with Lutein and Nutrilite Botanical Beverage Apple, Jujube and Wheat Peptide to improve vision and stomach health, and further enhancements to the digital platform and associated delivery infrastructure.

The wellness company has a core force of more than 274,000 ABOs.

In a virtual press briefing on Thursday (Feb 24), Amway Malaysia, Singapore and Brunei managing director Mike Duong said while the costs associated with these investments will put pressure on the operating margin, the group expects the sales incentive plan introduced in previous years to normalise and improve the operating margin compared to the previous year.

Duong however, declined to comment on whether there are any targets or projections for the top line growth.

“We are focused on delivering sustainable topline growth and improved profitability; growing the entrepreneurial ABO and registered customer force size; expanding our healthy and wellness solutions, community programmes, and loyal customers; and modernising our omnichannel digital experience,” he said.

"I would just say moderate. If I look at the last two years, we have seen such phenomenal and strong growth when most of our sales were online, up from 20% to 25% to 62%.

"With the easing of some Movement Control Order restrictions, we want to make sure that we return to sustainable but moderate growth," Duong said, adding that the group is optimistic about increasing the profitability of its business by 2022.

“We are committed to serving Malaysia’s health and wellness needs. We will continue to introduce safe, high-quality, and relevant products across all categories in an effort to meet customers’ needs while offering fun and engaging communities for achieving a healthy lifestyle,” remarked Duong.

Investment analysts covering the stock said Amway's recent results were below their expectations.

For the full year ended Dec 31, 2021 (FY21), the company's cumulative net profit declined 21.57% year-on-year (y-o-y) to RM36.78 million from RM46.9 million due to the new sales incentive plan introduced at the beginning of the year, as well as true-up adjustment in view of the higher pay-out for the new sales incentives for the ABO performance year ended Aug 31, 2021.

Cumulative revenue increased by 28.82% from RM1.15 billion to RM1.49 billion due to continued strong demand for nutrition and wellness products and the newly launched product (Atmosphere Mini). The higher revenue was also driven by the Amway Privileged Customer (APC) programme and strong sales force momentum motivated by the new sales incentive plan launched in January 2021, the group said in a Feb 23 stock exchange filing.

Cumulatively, the group declared a dividend of 24 sen per share for FY21, less than the 27.5 sen paid in FY20.

“Amway’s FY21 results came below expectations on account of higher-than-expected distribution expenses in the 2HFY21 [second half of financial year 2021] as sales and renewal fees weakened. Final dividend declared was also below at 24 sen (versus our expectation of 35 sen),” said Kenanga Research analyst Ahmad Ramzani Ramli in a note on Thursday (Feb 24).

Following the results announcement, Ahmad Ramzani said Kenanga has lowered its FY22 profit forecast by 6% to RM53 million as high costs and an unfavourable ringgit (MYR) persist.

“The higher sales incentives and provisioning were a surprise but we believe it was unavoidable, as sign-up and renewal fees declined (-24% y-o-y and flattish y-o-y) implying declining growth in ABOs as economic activities gradually reopen.

“The higher incentives were an immediate dampener, and we believe it is unsustainable as economic recovery builds up leading to moderating growth in ABOs. The unfavourable USD/MYR forex rate is an added pressure to margins, leading to lower profitability in the immediate term,” said the analyst.

With sales driven to unprecedented levels by the Covid-19 pandemic, Ahmad Ramzani said the gradual reopening of the economy and the endemic stage will likely lead to a slowdown in sales in FY22 as ABOs decline while revenues should improve due to lower distribution costs.

Kenanga downgraded Amway to “marketperform” from “outperform” call previously.

“We downgraded our call to ‘marketperform’ with a lower target price (TP) of RM5.65 (from RM6.05) pegged to FY22E PER [price-earnings-ratio] of 17.6 times (unchanged) implying 1SD below its five-year means. The lower PER is justified given its pre-pandemic PER trading levels of 18 times when the ringgit started to turn unfavourable,” said the analyst.

Meanwhile, TA Securities Research said Amway's FY21 earnings were below expectations, meeting only 61% of the research firm's estimates and 71% of consensus estimates for the full year.

“We are keen to see how Amway could monetise on the higher sales in FY22 driven by rapid acceleration of ABO counts. Moreover, we expect some downward normalisation in the sales incentive which should provide a profitability boost to the group,” said TA Securities analyst Jeff Lye Zhen Xiong.

However, TA Securities maintained its “buy” recommendation on the stock, with an unchanged TP of RM7.05, and made no changes to its earnings forecasts.