Best World

[MOV]

Hi Boon,

1. For next five years for Taiwan market to grow PAT at 15% per year is highly possible in my opinion. Comparing Amway Taiwan with BWL shows there is still a lot of room for BWL to grow in Taiwan alone:

FY2015:
Amway: TWD11.76b, 360k members and 12 centres
BWL: TWD1.28b, 3 centres and 412k members globally (taiwan members number not available)

Therefore based on projected Taiwan growth and only China exports alone, the earnings growth in my DCF model suggest current valuations can be sustained.

2. Interestingly, if you compare Jumbo Group with Best World, both share similar equity base and profits for latest quarter (Jumbo: PAT-$5.8m, Equity-$58.5m, Best World: PAT-$5.9m, Equity-$68.8m). However, Jumbo is trading at P/NAV = 6.3, much higher valuations than BWL. It will be very interesting to study both companies and their growth trajectories especially in China and see which will grow faster and how the market responds.

3. I concur with earlier threads that the China licence effect may be causing the distributors to 'stock' up some inventory in anticipation and this could explain the large increase in the export sales. We may not know the extent but I reckon this will continue. Therefore we are likely to see continued strong export sales going forward.

[Boon]

Hi Boon

My forecast for this stock is relatively simpler.
1Q/2016, EPS=2.7ct and this is typically the slowest qtr.
Just annualising it will give 10.8ct conservatively.
Singapore market PE is around 12.
So IMO,price at current levels is deemed reasonable to me.

The fact that Taiwan is going extremely well is as added buffer to my estimates. China DS is just another catalyst that I do not factor in since it is still an unsure thing. Even with current export model, I am also happy with the results they are achieving.

Happily vested.

Hi mislee888,
 
Your conclusion “So IMO, price at current levels is deemed reasonable to me.” does not sound “reasonable” or consistent to me.
 
PE ratio is one of the most frequently used metrics when it comes to valuing stocks. It is simple to calculate but not that easy to interpret actually.
 
PE ratio is only useful when comparing companies if they are in the same industry.
 
PE ratio should also takes into account market expectations for company's growth.
 
If BWI/BWL is expected to grow at a much faster rate than the average Singapore companies (with an average PE ratio of 12) and also faster than its peers (with an average PE ratio of 17, as per CIMB report), this should be reflected in its market price and PE ratio as well.
 
In another words, other things being equal, by concluding that pricing of BWI share at PE of 12 is reasonable (or fair), you are expecting the earning prospects of BWI to be worse than its peers but only as good as an average Singapore company – this is inconsistent with your views that BWI is a super growth company that analysts would soon do an earning upgrade. 
 
Eliminating ‘”fair value”, there could only be “over-valued” or “under-valued”.
 
Other things being equal, to be “over-valued” PE needs to be higher than peers, which is not the case. What's left?
 
That said, there are many other explanations as to why a company has a low or high P/E. Don't base any buy or sell decision on the PE multiple alone.

Also, there are always downside risks that actual growth might fall short of expected growth.

______________________________________________________________________________________________________________________

[Boon]

Hi Boon,

1. For next five years for Taiwan market to grow PAT at 15% per year is highly possible in my opinion. Comparing Amway Taiwan with BWL shows there is still a lot of room for BWL to grow in Taiwan alone:

FY2015:
Amway: TWD11.76b, 360k members and 12 centres
BWL: TWD1.28b, 3 centres and 412k members globally (taiwan members number not available)

Therefore based on projected Taiwan growth and only China exports alone, the earnings growth in my DCF model suggest current valuations can be sustained.

2. Interestingly, if you compare Jumbo Group with Best World, both share similar equity base and profits for latest quarter (Jumbo: PAT-$5.8m, Equity-$58.5m, Best World: PAT-$5.9m, Equity-$68.8m). However, Jumbo is trading at P/NAV = 6.3, much higher valuations than BWL. It will be very interesting to study both companies and their growth trajectories especially in China and see which will grow faster and how the market responds.

3. I concur with earlier threads that the China licence effect may be causing the distributors to 'stock' up some inventory in anticipation and this could explain the large increase in the export sales. We may not know the extent but I reckon this will continue. Therefore we are likely to see continued strong export sales going forward.

Hi MOV,
 
https://127f15f3-a-62cb3a1a-s-sites.goog...edirects=0
 
Some numbers on BWL Taiwan membership (see page 5, fig 10) of the above report which also mentioned some agents stocking up on inventory in anticipate of the DS license approval.
 
BWL Taiwan (FY2014):
Revenue = TWD 530 m
Number of members = 17,758
Average sales per member = TWD 29,845 
 
Amway Taiwan (FY2015):
Revenue = TWD 11,760 m
Number of members = 360,000
Average sales per member = TWD 32,667
 
http://bestworld.listedcompany.com/newsr...tation.pdf
 
This presentation contains Taiwan top 10 DS companies with revenue for 2015.
 
It also shows that export price is a fraction of members’ price.
__________________________________________________________________________________________________________________

[MOV]

Hi Boon,

1. For next five years for Taiwan market to grow PAT at 15% per year is highly possible in my opinion. Comparing Amway Taiwan with BWL shows there is still a lot of room for BWL to grow in Taiwan alone:

FY2015:
Amway: TWD11.76b, 360k members and 12 centres
BWL: TWD1.28b, 3 centres and 412k members globally (taiwan members number not available)

Therefore based on projected Taiwan growth and only China exports alone, the earnings growth in my DCF model suggest current valuations can be sustained.

2. Interestingly, if you compare Jumbo Group with Best World, both share similar equity base and profits for latest quarter (Jumbo: PAT-$5.8m, Equity-$58.5m, Best World: PAT-$5.9m, Equity-$68.8m). However, Jumbo is trading at P/NAV = 6.3, much higher valuations than BWL. It will be very interesting to study both companies and their growth trajectories especially in China and see which will grow faster and how the market responds.

3. I concur with earlier threads that the China licence effect may be causing the distributors to 'stock' up some inventory in anticipation and this could explain the large increase in the export sales. We may not know the extent but I reckon this will continue. Therefore we are likely to see continued strong export sales going forward.

Hi MOV,
 
https://127f15f3-a-62cb3a1a-s-sites.goog...edirects=0
 
Some numbers on BWL Taiwan membership (see page 5, fig 10) of the above report which also mentioned some agents stocking up on inventory in anticipate of the DS license approval.
 
BWL Taiwan (FY2014):
Revenue = TWD 530 m
Number of members = 17,758
Average sales per member = TWD 29,845 
 
Amway Taiwan (FY2015):
Revenue = TWD 11,760 m
Number of members = 360,000
Average sales per member = TWD 32,667
 
http://bestworld.listedcompany.com/newsr...tation.pdf
 
This presentation contains Taiwan top 10 DS companies with revenue for 2015.
 
It also shows that export price is a fraction of members’ price.
__________________________________________________________________________________________________________________

Thanks Boon, great info!

Hopefully the 'east wind' come soon... 

[Boon]

Here is my rough preliminary assessment on the proposed state-of-art skincare manufacturing facility in Tuas.
 
PROPOSED ACQUISITION OF FACTORY FACILITY
http://bestworld.listedcompany.com/newsr...9XGU.1.pdf
 
Rationale:
The Company is of the view that the Proposed Acquisition is in line with the Group’s strategy to set up a skincare manufacturing facility in Singapore, in order to tap into the value chain of manufacturing activities and to achieve better control over the production and quality of the Group’s skincare products. The Property will be occupied by the Group and will facilitate the growth of its operations.
 
From AR2015:
“In line with our strategy to tap into the value chain of upstream manufacturing activities, to take control of product quality and to cater to the high demand from the growing China and Taiwan markets in the coming years, we are in preparation to set up a state-of-art skincare manufacturing facility in Tuas. Slated for completion next year, this centralized manufacturing facility will enable us to achieve higher economy of scale, contribute to cost savings in freight charges and possibly improve our gross margins. “
 
Consideration:
Purchase Price = SGD 10 million
 
Funding:
The Proposed Acquisition will be funded through a combination of internal resources and bank borrowings.
 
Vendor:
AM Automotive Services Pte. Ltd.
 
Address:
1 Tuas Basin Link 
 
Street Views:
https://www.google.com/maps/@1.3192205,1...56!6m1!1e1
 
https://www.google.com/maps/@1.3192205,1...56!6m1!1e1
 
_____________________________________________________
 
Total Investment = ???????
Land + existing premises = 10 m
Costs of modification/alteration of existing premises = ??????
Costs of state-of-the-art robotic equipment with high degree of automation= ?????
 
(Note: Management guided that they may get some kind of grant or tax concession/incentive from government if labour dependency could be minimized with robotic equipment).
 
Benefits:
 
GPM (Gross Profit Margin):
FY2004 = 77.8%
FY2005 = 77.9%
FY2006 = 77.7%
FY2007 = 76.2%
FY2008 = 76.7%
FY2009 = 73.9%
FY2010 = 77.2%
FY2011 = 79.1%
FY2012 = 77.2%
FY2013 = 77.4%
FY2014 = 74.4%
FY2015 = 75.6%
 
To improve GPM = to reduce COGS
COGS/revenue = 100% - GPM = 20%+
Skincare products ~ 70% of group sales.
For every 100 m of group sales,
1% reduction in COGS/Revenue of skincare products => 0.7 m of EBITDA
2% <=> 1.4 m of EBITDA
3% <=> 2.1 m …………….
4% <=> 2.8 m ……………
5% <=> 3.5 m ……………
 
Assuming total Investment cost = 20 m
Funding = borrow 100%
Borrowing cost = 3% p.a.
Interest cost = 0.6 m
 
Interest cost of 0.6 m could be covered if at least 1% reduction in COGS/revenue could be achieved with minimum group sales (economy of scale) of 100 m in a year.
 
The facility is slated to be completed next year and based on my preliminary assessment above, this seems like a positive NPV investment project in the making that would likely be contributing positively to the bottom line of the group. Will look into it in more detail when more info is disclosed by the company.
_____________________________________________________________________________________________________________________

[Boon]

Interesting articles,

But without hindsight benefit, who knows? Only time will tell................................

____________________________________________________________________________________________________
VALUING GROWTH STOCKS:
REVISITING THE NIFTY FIFTY
By Jeremy Siegel
https://www.aaii.com/journal/article/val...ifty-fifty
 
The lofty levels reached by the Nifty Fifty in the early ‘70s is often held up as an example of unwarranted speculation. But a glance in the rearview mirror indicates investors were right to predict that the growth of these firms would eventually justify their prices. 
______________________________________________________________________________________________________________________

http://www.quantumleapnewsletter.co.uk/h..._stock.php

“Great growth stocks typically look very expensive on a one-year view and unbelievably cheap on a 10-year view” but you have to be a believer. 
____________________________________________________________________________________________________

[Boon]

http://www.wfdsa.org/files/pdf/global-st...1-2016.pdf

https://directselling.org/2015/08/13/faqs/
 
Some interesting 2015 figures there:
 
China is the second biggest market in the world after USA and likely to surpass USA anytime. However, the number of licensed operator is still less than 80 todate (as compared to approximately 1,400 companies in USA)
 
If a China DS license is transferrable and tradable, I wonder what would its market price be?

USA (2015): World No:1
Sales = USD 36,120 m
Number DS companies ~ 1,400
Average size of pie per company = USD 26 m
% Sales Change (YOY) in Constant 2015 USD = 19%
 
China (2015): World NO:2
Sales = USD 35,456 m
Number licensed DS companies ~ less than 80 as at end of 2015
Average size of pie per company = USD 443 m
% Sales Change (YOY) in Constant 2015 USD = 4.8%
 
Korea market is 5 times that of Taiwan.
 
Malaysia market size is also bigger than Taiwan.
 
Sales per direct seller is pretty high in Taiwan and very low in Indonesia.
 
3-year CAGR (2012-15) is high in China and Vietnam.
 
It is obvious, the no:1 priority market is still China  
___________________________________________________________________________________________________________________

[Boon]

SGX is "zooming in" on BWI with more queries...............some interesting responses there from BWI............
_____________________________________________________________________________________________________________________

http://infopub.sgx.com/FileOpen/2016%200...eID=408261

RESPONSE TO SGX-ST QUERIES ON FINANCIAL STATEMENTS AND RELATED ANNOUNCEMENT FOR THE 3 MONTHS ENDED 31 MARCH 2016 
_____________________________________________________________________________________________________________________

[Boon]

What’s going on in China?
Article by: Jana Bangerter
May 24, 2016

Expanding into a new country means adapting your commissions and operations to suit the market. Sometimes the adaptations you’ll need to make are small; sometimes they’re big. Entering China means big changes, but their direct selling market is on the rise, so let’s break down their business landscape.

China has a long history of conflict with the direct sales and multilevel marketing industry. In 1998, China banned direct selling. They lifted the ban in 2005, with a few stringent regulations. The most influential of these regulation prevent companies from paying commissions on more than one level and set the legal, single-level commission at 30%. This is lower than the usual overall payout of US companies (approximately 40%), but much higher than the individual commissions distributor’s make on volume generated in their organizations.

Restricting multilevel commissions takes a pretty big bite out of the motivation that we usually see driving distributors. Getting paid for multiple levels means having the ability to steadily grow your income by changing your efforts toward leadership rather than constantly upping the amount of time you put into personally making sales. Chinese distributors admittedly get a bigger chunk of each sale they make, but they have to make each of those sales personally. Furthermore, if we look at this equation from a corporate perspective, a company’s ability to craft compensation strategies which incentivize specific, desired distributor behaviors, is nil under these restrictions.

These seem like the kinds of restrictions that could kill a new venture in the crib, but the sales numbers tell a different story. Despite the restrictions, the World Federation of Direct Selling Associations reported more than 30.2 billion dollars (USD) retail sales in China (2014). That’s 18.6% up from 2013. China is now second only to the United States in retail direct sales.

Several sources are reporting that distributors in China—working for companies which have not officially moved into China—make multilevel commissions by signing up using addresses in Taiwan or Hong Kong. MLMs are not restricted in either of the two, so enrolling as though you operate there allows you to circumvent China’s MLM ban. In fact, it seems that some companies which do have official presences in China have distributors operating this way.

This kind of activity is obviously not ideal for the companies whose products are being sold illegally—it’s a compliance nightmare—but it’s not the whole story in China. Sales made in this unscrupulous fashion are not included in the retail sales figure quoted above, so more than 30 billion US dollars’ worth of product was sold in China legally in 2014. So, again, why is China experiencing such amazing growth? Further, why is it so worthwhile for distributors to sell illegally in China?

Reporting in Bloomberg in 2015, Adam Minter put it plainly. The Chinese prefer doing business with people they already know and trust. The reason is simple: “consumer rights in China, even when they have a basis in law, are weak, since the country’s court system is mostly inaccessible for people of modest means. As a result, some manufacturers cut corners because they know Chinese consumers have few ways to hold them accountable for selling shoddy products” (Minter). If you buy products from someone within your social network, your chances of being burnt go way down. Many of the products that thrive in the direct selling model are consumables—products which can be harmful to your health if toxic or impure. In a culture where you can’t expect the government to protect you, turning to your community makes the most sense.

The process of obtaining a Chinese business license and modifying your company’s commission and operations structures to comply with the regulations is a feat, but several companies have accomplished it. So far these have been large direct selling companies (Amway, Avon, Herbalife, Nu Skin, Mary Kay…) but the number of licensed companies (foreign and native) is growing. Consider how well your company could adapt to single-level compensation; if you can make it work and avoid legal scandal, the rewards could be staggering.


http://mlm.com/whats-going-on-in-china/
_____________________________________________________________________________________________________________________

[mslee888]

As Reported in the Straits Times today...

http://www.straitstimes.com/business/com...s-from-sgx