26-07-2014, 01:26 PM
If Best World can go back to their glory days of pre-2010, then this might look interesting.
I am trying to figure out the details behind their cost structure. High gross margins looks to be the spread between buying the supplies and re-selling them. I don't think there is any manufacturing going on? Selling expenses would be the agents' commissions and base fees. From the historical trend, it looks like the business has a lot of fixed cost, making them susceptible to heavy operating leverage. Over the years, GPM has remained the same, ranging around the 70s% range yet EBIT margin post 2010 looks terrible from anywhere between 6.5% to a loss of -0.6%. Prior that, they were able to enjoyed high teens %.
It does seem that the contributing factor was the drop in revenue (or sales volume). Yet, general & admin expenses remained stubbornly flat which caused the drop in EBIT margins.
If historical record is of any reliability, a double in revenue may see margins triple. This means the China expansion could be the catalyst for a strong turnaround. As Boon said, the acquisition of BWZ looks more as a means to getting the licenses. Given the Shi's only sold their business for a net S$2.6mln, I don't think their 36 dietary supplement licenses or their distribution network is worth much. No doubt, the China market is big but it is going to be competitive as well.
I think the key lies in whether Best World's existing product portfolio can be a success in China. With the recent insider buying, insider management seems to think so. But with a gross S$311K spent by D2 Investments Pte Ltd, this is only 19% of Dora's and Doreen's annual remunerations (btw, both their remunerations are more than last year's profits).
I am trying to figure out the details behind their cost structure. High gross margins looks to be the spread between buying the supplies and re-selling them. I don't think there is any manufacturing going on? Selling expenses would be the agents' commissions and base fees. From the historical trend, it looks like the business has a lot of fixed cost, making them susceptible to heavy operating leverage. Over the years, GPM has remained the same, ranging around the 70s% range yet EBIT margin post 2010 looks terrible from anywhere between 6.5% to a loss of -0.6%. Prior that, they were able to enjoyed high teens %.
It does seem that the contributing factor was the drop in revenue (or sales volume). Yet, general & admin expenses remained stubbornly flat which caused the drop in EBIT margins.
If historical record is of any reliability, a double in revenue may see margins triple. This means the China expansion could be the catalyst for a strong turnaround. As Boon said, the acquisition of BWZ looks more as a means to getting the licenses. Given the Shi's only sold their business for a net S$2.6mln, I don't think their 36 dietary supplement licenses or their distribution network is worth much. No doubt, the China market is big but it is going to be competitive as well.
I think the key lies in whether Best World's existing product portfolio can be a success in China. With the recent insider buying, insider management seems to think so. But with a gross S$311K spent by D2 Investments Pte Ltd, this is only 19% of Dora's and Doreen's annual remunerations (btw, both their remunerations are more than last year's profits).
"Criticism is the fertilizer of learning." - Sir John Templeton