Main opinion: We launched the Amway In-depth Report in 2021. This time, we launched the second in-depth report series, which is mainly based on: (1) the company reached an inflection point in the second half of '23 thanks to the volume of automobile customers; considering that sports customers ushered in an inflection point, the improvement trend is expected to continue in 24; (2) we further analyzed and sorted out the company's four major downstream areas by segmenting the industry space, competitive landscape, and growth drivers.

We judge that (1) the 24Q1 boom is expected to continue the recovery since the second half of '23. Not only is the automobile business growing at a high rate, but the sports category has basically ended inventory removal and is expected to usher in an inflection point in inventory; (2) the increase in the share of high-margin products such as overseas customers, automobiles, and electronics will continue to improve the company's net interest rate; (3) the remaining 2 production lines in Vietnam are expected to be put into operation this year, and it is expected that losses will be reversed in 24. The 23-25 revenue forecast was maintained at 20.00/24.60/2,933 billion yuan; the 23-25 net profit was 0.772/2.01/264 million yuan, corresponding to the 23-25 EPS0.33/0.93/1.22 yuan, and the closing price of 10.15 yuan on February 2, 2024 corresponds to PE 30.59/10.95/8.33X. We are still optimistic about the improvement in customer structure and profitability brought about by water-based solvent-free products in the medium to long term, and maintain the “buy” rating.

PU in automotive interiors: environmentally friendly, driven by price advantages

According to the 100 advice strategy, we estimate that the current penetration rate of PU leather for automotive interiors is about 10%. Driven by the continued high growth in sales of new energy vehicles and the penetration rate of PU leather, we estimate that the size of the automotive interior PU leather industry is expected to reach 6 billion yuan in the long term. Amway's advantage lies in the advantages of Anhui's new energy vehicle industry chain, and has improved alcohol resistance, stain resistance, odor, and environmental performance on the product side. We expect the automobile business revenue to reach 300 million yuan in 24 years.

PU, a material for sports shoes: expected to reach an inflection point in inventory replenishment in 24

PU is used in sports shoes and has the characteristics of high water resistance, acid resistance, alkali resistance, and low cost. We estimate that the PU sports shoe material market space is about 10.8 billion yuan. Amway's advantage lies in its new material research and development reserves, so it has passed factory inspections by major overseas customers. The short-term drive comes from NIKE volume+inventory replenishment inflection point+TPU growth, and the long-term drive comes from increased customer share+new customer expansion opportunities. The sports business revenue is expected to reach 1.4 billion yuan in 24 years.

Sofa home PU: real estate stabilization+increase in PU penetration

Due to advantages such as rich color, leather texture, low price, and environmental protection, the penetration rate of PU in homes has increased in recent years. Among them, sofa households use a lot of PU (the amount of PU used per sofa unit is 5-8 meters). The company covers many domestic and American sofa home furnishing brands, has extensive customer resources at home and abroad, and there is room to increase its share in the future.

Electronic product PU: Focus on Apple's growth

The increase in the electronic penetration rate of PU is mainly due to being more skin-friendly, resistant to falling, and strong signal interference resistance; although electronic products do not use much PU, they are less sensitive to price and have a high gross margin. According to the company's investor exchange minutes, Amway has now cooperated with Apple, Samsung, Beats, etc.

Risk warning

Customer expansion falls short of expectations; capacity expansion falls short of expectations; systemic risk.