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PETALING JAYA: Amid weakening sign-ups and renewal fees, Amway (M) Holdings Bhd’s higher sales incentives to its direct sellers are seen as unavoidable.

While analysts said the incentives would raise costs and be an immediate dampener to profitability, it would help attract more direct sellers or Amway Business Owners (ABO) to drive sales.

TA Securities Research analyst Jeff Lye Zhen Xiong described the higher ABO incentives as a “critical investment” to strengthen the company’s fundamentals for better performance.

In a note yesterday, he pointed out that the higher ABO sales incentives had offset the higher sales revenue in the first nine months of financial year (FY) 2021.

As a result, the adjusted profit before tax slipped by 1.9% year-on-year to RM52.9mil.

According to Kenanga Research analyst Ahmad Ramzani Ramli, the higher ABO incentives are unsustainable as economic recovery builds up, leading to moderating growth in the ABOs.

The unfavourable US dollar-ringgit foreign exchange rate is an added pressure to margins, leading to lower profitability in the immediate term.

“As top-line were driven to unprecedented level due to the pandemic, the gradual reopening of the economy and the pandemic moving to the endemic stage will likely see the top-line of financial year 2022 (FY22) weakening on account of moderating ABOs but with earnings maintained due to lower distribution expenses,” he pointed out in a note issued yesterday.

Post the first nine months results, Kenanga Research slashed its FY21 earnings by 11%, with FY22 earnings enhanced by 5% due to Amway’s large ABOs sustaining demand, despite being offset by an unfavourable ringgit.TA Securities Research, on the other hand, made no changes to its forecasts.

“Despite the movement restrictions, we applaud Amway’s continuous delivery of strong revenue.

“For the upcoming fourth quarter of FY21 results performance, the management remains confident of delivering robust top line underpinned by the resiliency of ABO sales, traction over Amway Privileged Customer programme and new product innovations,” said Lye.

Amway remains a solid dividend counter with ability to generate strong cash flow, and has a robust cash position of RM319.8mil.

TA Securities Research has a “buy” call on Amway, with a target price of RM7.05 a share.

Meanwhile, Kenanga Research maintained its “outperform” call, despite lowering its target price to RM6.05 from RM6.20.



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