Amway (M) Holdings Bhd’s shares have fared quite well in the past few
years, even though the stock typically does not garner too much
attention. The company has been a rather stoic performer earnings-wise.
Net profit has fluctuated within a narrow range over the past few years,
going from RM87.9 million in 2007 to a high of RM95.1 million in 2008
before falling back to RM72.5 million in 2009. Since then, it has done
better with earnings rising to RM78.3 million in 2010 and RM90 million in
2011.
Turnover, on the other hand, has been on a steady uptrend, growing from
RM584 million in 2007 to RM736 million last year.
This indicates a degree of volatility in its operating margins, likely due to
exchange rate fluctuations, which affect its cost given that the bulk of
Amway’s products is imported from its US-based parent and the company’s unwillingness to raise selling prices amid
competitive market conditions.
Case in point, Amway reported a stronger than expected set of earnings results for the first half of the financial year ending Dec
31 (1HFY12). Net profit was up an outsized 19.3% year-on-year to RM46.9 million on the back of 7.6% growth in turnover. The
company attributed the improved margin to lower product costs, thanks to a stronger ringgit against the US dollar during the
period.
Nonetheless, it is more cautious on the outlook for 2H. Although the second half of the year is traditionally the stronger half,
this may not the case in the current year given the strong earnings reported in 1H.
Expect more modest earnings growth
Indeed, we do not expect any further lift from currency exchange for the next 12 months. 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 this year. On the other hand, the company is not planning any corresponding
increase in its selling prices.
We are assuming a selling price increase in mid-2013. The last price increase was back in March 2010, averaging some 4.4%.
This will help cover part of the higher product cost, which will see another 3.5% hike in July 2013.
As such, we estimate slightly weaker earnings in 2H compared with the first six months of the year and only modest growth in
the next year. Net profit is estimated at RM92.7 million for FY12, rising to RM95.5 million in FY13. That would price its shares
at roughly 19.5 times and 18.9 times forward earnings for the two years.
While at a premium to the broader market, its valuations appear fair for a relatively
defensive high yielding stock.
Limited retained earnings will cap future dividends
Amway has a strong balance sheet and is sitting on net cash totalling RM158
million as at end-June 2012. With no major capital expenditure 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 profit in the past three years, reserves
have been whittled down to some RM26 million as at end-2011.

By Amin Iskandar
Assistant News Editor
KUALA LUMPUR, Oct 3 — It only cost RM600,000 to feed the record-setting 130,000 guests who turned up for his son’s wedding last weekend, Malacca Chief Minister Datuk Seri Mohd Ali Rustam has said, rubbishing claims the lavish feast would have set him back between RM1.3 million and RM13 million — far more than he could afford on his public servant salary.
The wedding has come under intense public scrutiny after national news agency Bernama reported on Sunday that 26-year-old Mohd Ridhwan’s marriage to Nur Azieha Mohd Ali, also 26, lasted eight hours, with the number of guests — that included dignitaries like Selangor Sultan Sharafuddin Idris Shah and Malacca Yang Di-Pertua Negeri Tun Mohd Khalil Yaakob — earning a place in the Malaysia Book of Records.
Mohd Ali (picture) told The Malay Mail he had hired 30 chefs for the “Malay wedding with kampung-style cooking” who each cooked up a biryani feast for 2,000 guests each, catering to 60,000 people at RM10 per head.
But each serving could feed three people, the 63-year-old Umno veteran told the English daily, adding that the RM600,000 was enough to feed up to 180,000 guests.
Mohd Ali also told the paper that several corporations such as local snack company, Mamee Sdn Bhd, and beverage firm, Orang Kampung Drinks Sdn Bhd, had advertised their products in the young couple’s wedding souvenir book, suggesting they helped to fund the reception.
“As advertisers, they have to pay the advertisement cost by giving away products, such as 50,000 cans of Kacip Fatimah drinks,” he was reported to have said in a text message.
Pakatan Rakyat (PR) lawmakers have demanded he disclose fully all sponsorship details, saying the revelation of sponsors will spark more questions about the appropriateness of accepting money from businesses to pay for the wedding.
“The chief minister must disclose who sponsored his son’s wedding,” said Betty Chew, the DAP assemblyman for Kota Laksamana.
“He must be transparent, we also want to know why they were sponsoring Mohd Ali’s son’s wedding,” she told The Malaysian Insider.
Chew also mocked Mohd Ali, saying he was now more popular than Datuk Seri Najib Razak as the chief minister could draw 130,000 people to his son’s wedding while the prime minister could only attract a 100,000-strong turnout for his recent Aidilfitri celebration in Putrajaya.
Her DAP colleague, Taiping MP Nga Kor Ming, had previously raised similar questions in his Twitter microblog account.
“Itu duit siapa? (Whose money is it?)” he asked.
DAP parliamentary leader Lim Kit Siang used his Twitter account to speculate further on the cost of the wedding, saying the banquet appeared to cost RM100 a person or potentially RM13 million just for the food.
Malacca PAS information chief, Asyraf Mukhlis Minghat, also alleged that the chief minister had abused his position in using equipment from state government agencies for the wedding festivities.
“We received information that logistics gear such as marquees, chairs and many more were taken from local government councils such as the Alor Gajah Municipal Council, Jasin Municipal Council, hang Tuah Municipal Council and the Malacca City Hall.
The chief minister must disclose who sponsored his son’s wedding. He must be transparent. We also want to know why they were sponsoring (the) wedding. — Betty Chew
“It is an offence to use government property for personal purposes,” Asyraf told The Malaysian Insider.
The controversy over the wedding funding could hurt the ruling Barisan Nasional (BN) government’s chances at the 13th general elections that must be called within six months.
The issue appears to have sparked a firestorm on social media networks with critics panning the state BN leadership and detracting attention away from what ought to have been the young couple’s happiest occasion.
“Seramai 130ribu yang hadir ke majlis perkahwinan anak ketua Menteri Melaka berapa ramaikah yang makan di meja VVIP, berapa ramaikah yang makan di meja VIP dan berapa ramaikah pula yang makan di meja anjing dan kucing dengan menggunakan pingan polyform? Harap2 semua 130ribu tetamu yang hadir di layan sama rata tak kira yg miskin atau yang kaya yang ternama atau tidak bernama. Harap tidak tidak ada orang miskin yang hadir makan menggunakan pinggan pinggan anjing dan kucing,” a Facebok user identified as Abu Nawas wrote in Bahasa Malaysia.
[Translation: “As many as 130,000 attended the wedding of the son of the Malacca chief minister, how many ate at the VVIP table, how many ate at the VIP table and how many ate at the cat-and-dog table using polyform plates? Hope all 130,000 guests were treated equally regardless poor or rich, distinguished guest or non-distinguished guest. Hope no poor person present ate using plates for dogs and cats.”]
Other detractors poured similar scorn on the affair.
A Twitter user identified as safibnrahman wrote on his account, “Majlis perkahwinan anak Ali Rustam di anggarkan RM3 juta. Ingat kawan-kawan. Ini hasil menabung. Jom menanbung. Ptuih! [Ali Rustam’s son’s wedding estimated to have cost RM3 million. Remember friend. This is the result of savings. Let’s save. Ptuih!]”
The Malacca PR want the Malaysian Anti-Corruption Commission (MACC) to investigate the CM for power abuse.
PKR Youth chief, Shamsul Iskandar Md Akin, who is a Malaccan, said the state opposition pact will be marching to the anti-graft body’s state office at 11am tomorrow to pressure them to look into the allegations, following Mohd Ali’s disclosure in The Malay Mail.
The lawyer said it was highly unlikely that Mohd Ali could have funded the reception on his RM15,000 monthly salary, even if he had saved up for it.
He added that while Malay weddings were cheaper than Chinese ones, they would not cost as much as RM600,000.
He said a reasonable amount to spend would be from RM20,000 or up to RM60,000 but the figure Mohd Ali spelled out was too lavish by Malay standards.
“We suspect he is spending beyond his means,” Shamsul Iskandar told The Malaysian Insider.