Tuesday, December 3, 2013

Malaysia’s best MLM stocks: Zhulian and Amway

Please read the disclaimer here:http://greedydragoninvestment.blogspot.com/p/about-greedy-dragon.html. Enjoy the article, bitches!

In this article, I will be analysing the fundamentals of 2 of Malaysia’s best multi-level marketing (MLM) companies: Zhulian and Amway. Most of my friends have some story about some douchebag involved in MLM. I myself have joked at the expense of multi-level marketers (or salesman as I call them). However, deep down I really respect the multi-level marketer that hustled hard to build a network of down-lines that generate good income for him every month. I personally won’t ever consider getting involved in MLM as a distributor because I don’t have the best people skills and it just doesn’t interest me. But I certainly wouldn’t mind investing in a MLM company if I think it will make me money.

Year-to-date annualized return on assets (ROA)
Year-to-date annualized return on equity (ROE)
Compounded annual revenue growth for 2008-2012
Compounded annual PBT growth for 2008-2012

As you can see from the table, both Zhulian and Amway earn really awesome ROE and ROA. I don’t think you can find more than a handful of companies in Malaysia that generate the same level of returns on capital as Amway and Zhulian.

Zhulain has been growing revenue and PBT really well over the 5-year period of 2008-2012. Amway’s revenue growth has been pretty average over the same period. Amway’s PBT growth has been sluggish.

Both Amway and Zhulain have fortress balance sheets.  As at August 31, 2013, Zhulian had RM 124,828 in cash and equivalents and only RM 64,686 in total liabilities. As at September 30, 2013, Amway had RM 180,936 in cash and equivalents and only RM 129,693 in total liabilities.

Zhulian has a price-to-earnings ratio (P/E ratio) of 16.12 which is quite reasonable; Zhulian has a dividend yield of 2.47%. Amway has a P/E ratio of 18.83 which is a bit high; Amway has a dividend yield of 3.28%. Note: P/E ratio and dividend yield data is taken from Bloomberg.com

Based on financial statement analysis alone, I see 2 really excellent companies. If Amway and Zhulian were chicks, I would say that they are on the same level of awesomeness as Max Black and Caroline Channing from the sitcom “2 Broke Girls.” But that’s based on financial statement analysis alone. I haven’t really delved into the annual reports or performed comprehensive research to find out if Amway and Zhulian are really great. Investing based on financial statements alone is like committing to someone just based on looks, it could turn out good or it could really suck if he/she turns out to be a jackass/bitch.

Before I can conclude whether or not I think Zhulian or Amway are really top tier, I need to know the percentage of sales made to non-distributor end-users. If I can’t find this information, I at least need to do some due diligence to make sure that new distributors don’t have to pay large fees or purchase inventory. I also need to make sure that existing distributors are not required to maintain a certain level of inventory. Stability (and preferably growth) in the number of distributors over the long-term is also important.  Amway and Zhulian have long track records and they’re very likely the real deal. However, investing in a stock is a long-term commitment for me and I need to make sure my bases are covered.

From the e-mails I’ve received and comments left on my blog, I can tell that quite a number of competent investors are reading my blog. The MLM industry is new to me, so if any of you guys have knowledge about analysing MLM companies, please drop a comment or e-mail me if there’s something I’m missing out. Thank you for reading. Take care.


  1. Great article, as always.

    I think there is no retailing segment for both Zhulian and Amway as it has no operating segment other than MLM (Hai-O, on the other hand, has a retailing segment).

    In my opinion on MLM companies, nothing is more important than the growth of distributor force. Both Zhulian and Amway enjoyed excellent growth in this metric over the years, and it is likely to continue so.

    However, the quality of distributors should be monitored too. Comparing Zhulian, Amway and Hai-O, the sales per distributor are RM672 (Zhulian), RM3,268 (Amway) and RM1,192 (Hai-O) [latest annual report data]. Evidently, the quality of Zhulian's distributors is below average, but quantity growth is tremendous.

    Zhulian's expansion into Thailand market is a smart move and I believe it will continue to drive growth. Having said all the above, I still think the 16x P/E is a too-late-to-catch boat. The stock was neglected in the past few years but the bargain is now gone forever. I would discourage people to invest at the current price, unless there is really no other opportunity out there anymore.

    Amway, I think it is the Public Bank of MLM industry -- well known, solid performance, strong balance sheet, and fairly valued.

    1. Great insight. I also thought of using sales per distributor as a performance indicator if I were to do in-depth research. However, the lower figure from Zhulian could indicate that the product mix is different as well (among the products Zhulian sells is cosmetic jewellery which is quite cheap). So, while I don't think is apples-to-apples to compare sales per distributor among competitors, it's certainly important to compare sales per distributor in a time series to ensure it's at least keeping pace with inflation.

      Yup, I think the opportunity for super profits from Zhulian has already passed. I really wish I had been paying attention to Malaysian stocks early this year, could have picked up some Zhulian. If the financial results of Zhulian is sustainable (I don't know if it is as I haven't really researched), I think 16 times earnings is reasonable if you hold for the long-term due to its growth rate (you probably won't get few hundred percent gain within 5-years, but I think 8-10% long-term compounded return is possible). But a part of me is thinking that it has shot up so much, so surely some investors will take profit and it will drop soon (I know its irrational, but sometimes that's how I feel).

      But you'r right there are a lot of opportunities out there, and I can analyse a few other sectors better than MLM so I will just stay within my circle of competence. I will put Zhulian on my watchlist though and write Santa a letter telling him that all I want for Xmas is to buy Zhulian at RM 2 per share.

      Thanks for sharing your opinion, I really appreciate it!

    2. Thanks for the reply. I think despite of the difference in product mix, the sales per distributor is still crucial, because at the end of the day, it is about the dollar and cent that each distributor can deliver to the company regardless of whatsoever reason. Having strong ability to hire performing distributors is obviously Amway's strength, which cannot easily be copied by other MLMs.

      The best way to understand the business model of the MLMs is to sit in their talks, if you dare XD

  2. Hi: I opine we cannot compare ROA and ROE of Zhulian and Amway as both are not the same in nature. Zhulian is a half manufacturing and half distribution (MLM) company whereas Amway is a pure distribution (MLM) in nature.

    Comparing to Amway, Zhulian needs to spend much more capital and holding more assets in its manufacturing biz whereas Amway is an asset light company. Comparing both ROE and ROA will mislead us that Amway is more superior that Zhulian.

    The self manufactured products allow Zhulian to earn significant higher margin than Amway.

    The higher revenue of Amway is due to its long history, established brand and wider reach in Malaysia. Zhulian is expanding well in oversea markets; its revenue has very high potential to overtake Amway soon.

    CAGR on PBT is 2.70% only. Can I interpret that its share price grows merely 2.7% per year if the long term valuation (PEx) remains unchanged?

    Thank you.

    1. Hi thanks for your feedback. As I admitted n the article this is pure financial statement analysis so I didn't know about the difference in business model. Thanks for letting me know the difference in business model though.

      Also this article wasn't meant as amway vs. zhulian, but to highlight the profitability of these 2 MLM companies which seems very high based on financial statement analysis. But I get how some people could think Amway is better than Zhulain, that's why I said in the article that we should look deeper than just financial statements and actually understand the business.

      At the rate Zhulian is growing, I certainly won't be surprised if it overtakes Amway in terms of revenue.

      I don't think we should interpret share rice growing 2.7% per year. Amway could introduce new products to grow revenue and PBT faster, it's something we can't predict. But yes, if PE remains unchanged and PBT only grows 2.7% per year long-term, then the share price can't really grow faster than 2.7% a year long-term. But growth is something I can't predict.

      Thank you for your response, I love it when I get a chance to discuss my analysis.

  3. Hi : In annual report of Zhulian, year 2007, it stated dividend policy is minimum 60% of PAT. If we annualize the 9 months eps 23.3sens, the whole year eps is 31.1sen. 31.1sens x 60% DPO=18.7sen. Closing price at RM5.00, dividend yield = 0.187/5=3.74%. 2.47% from Bloomberg is too low lah.

    There are many royal investors on Zhulian enjoying much higher yield based on their low entry price. I am one of them, enjoying 16.5% yield per year and it is still on up trend.

    Recommend you to delve into Zhulian further.

    1. Congratulations on your performance on Zhulian. I wish I was paying attention to Malaysian stocks earlier this year or last year. I could have come across Zhulian when it was trading much lower than today's prices.

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