Analysts: Strong emphasis on Amway special dividend, despite decent results

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KUCHING: Amidst decent performance for the current nine-month period, the announcement of larger special dividends by Amway Malaysia Holdings Bhd (Amway) should bode well with its shareholders, highlighted analysts.

For the first nine months of the year, the company’s net profit rose by seven per cent to RM60 million.

The notable news, however, was the group’s declaration on Monday of a third interim dividend of nine sen, and a special dividend of 30 sen during the third quarter, according to RHB Research Institute Sdn Bhd (RHB Research).

“This brings the total dividend year-to-date to 57 sen, which is already beyond our full year expectation of 54 sen,” observed RHB Research analyst Hoe Lee Leng in her research note yesterday.

“The special dividend declared was 50 per cent more than last year’s third quarter dividend of 20 sen. Thus, we are increasing this year’s dividend assumption to 63 sen from 54 sen previously, as we expect another nine sen interim dividend in the final quarter that will translate into a net payout of 125 per cent. Throughout 2011-2012, we are maintaining our dividend assumptions of 56 and 58 sen, respectively – translating to a net payout of 104 per cent and 109 per cent, respectively.”

Margin-wise, Amway’s third quarter earnings before interest and tax (EBIT) had narrowed to 15 per cent from 16.2 per cent in the corresponding quarter the previous year, resulting in a slightly lower EBIT margin of 15.2 per cent in the nine-month period this year against 15.6 per cent in the same period last year.

“While the EBIT margin for the first half was flat, we believe it would remain stable,” according to analysts from investment bank-backed OSK Research Sdn Bhd.

“In addition, higher A&P spending would help to boost sales and help the group achieve further economies of scale,” the analysts further confirmed.

Reflecting this, Amway’s nine-month revenues had been in line with consensus’ forecast, driven by an increase in distributors’ productivity amidst increased sales and marketing programmes implemented during the period.

“We believe Amway’s concept stores are gaining traction, thanks to increased accessibility of products. We are positive on the concept stores as we see limited growth in the MLM (multi-level marketing) sector going forward,” opined analyst Farhana Hamzah from TA Securities Holdings Bhd.

Furthermore, the analyst said the weakening of the US dollar would have a positive impact on the group’s earnings next year, underlining that “85 per cent of Amway’s purchases are made in US dollars.”

On the dividends’ outlook, she added, “We revise our target price as we adjust our 2010-2012 dividend payout ratio assumptions higher to 110-130 per cent, from 100 per cent to 110 per cent previously.

“Maintaining a ‘hold’ call on

Amway, our new DDM (dividend discount model)-based target price is now RM8.65 per share.”