KUALA LUMPUR: Maybank Investment Research said on May 14 although Amway offers a decent forecast gross dividend yield of 7.3% per annum in 2009-11, its earnings growth is more significantly impacted by the ringgit-US dollar exchange rate than any business driver.

“With low trading liquidity and an unexciting earnings outlook, we are ceasing coverage on Amway,” it said in a research note.

It said the first quarter net profit of RM19.4 million (down 7.5% on-year; down 11.4% on-quarter) was within its expectations but lower than consensus forecasts.

Revenue growth of 13% on-year to RM163.8 million arose from the opening of four new Amway shops in 2008, to the current eight.

This change in strategy aided top-line revenue growth but could not stop 1Q09’s earnings before interest and taxation (EBIT) margin slipping by 1.8 percentage points on-year to 16.4% due to the higher cost of goods as a result of the stronger US dollar during the period, as well as the costs of operating twice as many Amway shops within a year.

Maybank Research said the weaker on-quarter net profit performance in 1Q09 was attributed mainly to the unfavourably stronger US dollar as most of its products and materials are sourced and bought from its parent company, Alticor Inc, in US dollars.

Fortunately, the slight recovery of the ringgit in 2Q09-year-to-date YTD suggests that Amway’s higher cost of goods would abate in the rest of 2009.

It added the seven sen interim gross dividend per share which Amway declared was not a surprise as Amway normally paid an interim dividend in each quarter, taking a cue from its first payout for 2009 of 7 sen, declared in February 2009 .

“Amway is expected to top this with a special cash dividend in 3Q09, bringing the full-year dividend pay-out to slightly over 110% of 2009’s net profit,” it said.