Best World

[thefarside]

BWL operates in Taiwan, China, Singapore, Malaysia, Indonesia, Philippines, Vietnam, Korea, HK, Myanmar etc. Revenue could be growing in some markets while declining in others. It would be great if it could grow in leaps and bounds going forward. But even without growth, as long as yearly revenue and net profit margin could be maintained at above SGD 100 m and 10% respectively, there is still plenty of FCF that this business could generate.

Hi Boon, have you looked at the historical performance of their annual revenues before, by geographic segment? From my simplistic look at those trends, there is little there to suggest that their revenues are sustainable in some reasonable manner. The countries you have quoted, they all had their good days in the past. Taiwan had been good for them but so was Philippines the year before 2014 before it vaporised into thin air in 2015.

I don't know enough about MLM so I wonder if this is the nature of the business - it collapses after it runs out of new leads to sell into particularly if the product is a fairly generic one.

But I can see the attractiveness of this stock currently for its earnings/revenue momentum.

[Boon]

BWL operates in Taiwan, China, Singapore, Malaysia, Indonesia, Philippines, Vietnam, Korea, HK, Myanmar etc. Revenue could be growing in some markets while declining in others. It would be great if it could grow in leaps and bounds going forward. But even without growth, as long as yearly revenue and net profit margin could be maintained at above SGD 100 m and 10% respectively, there is still plenty of FCF that this business could generate.

Hi Boon, have you looked at the historical performance of their annual revenues before, by geographic segment?  From my simplistic look at those trends, there is little there to suggest that their revenues are sustainable in some reasonable manner.  The countries you have quoted, they all had their good days in the past.  Taiwan had been good for them but so was Philippines the year before 2014 before it vaporised into thin air in 2015.

I don't know enough about MLM so I wonder if this is the nature of the business - it collapses after it runs out of new leads to sell into particularly if the product is a fairly generic one.

But I can see the attractiveness of this stock currently for its earnings/revenue momentum.

Hi thefarside,

Here are the revenue by geographical markets. Please note that 0.0 revenue does't mean no revenue, it is being included in "other countries". Total revenue was flat for a while at between SGD 40 m and SGD 50m per year from FY2010 to FY2013, but has been recovering from its low since. Will discuss more on revenue sustainability after the FY2015 results announcement tonight.


[Image: 2w4edli.jpg]

[Boon]

FY2015 Results:
 
Revenue (SGD million):
FY2004 =  31.007
FY2005 =  55.098
FY2006 =  77.114
FY2007 =102.180
FY2008 = 96.063
FY2009 = 72.956
FY2010 = 49.549
FY2011 = 41.532
FY2012 = 48.218
FY2013 = 41.081
FY2014 = 75.265
FY2015 =101.672 (+35.1%)
 
Revenue of Taiwanese Market (SGD million):
FY2009 =   4.423
FY2010 =   5.619
FY2011 =   6.458
FY2012 =   9.589
FY2013 = 13.209
FY2014 = 22.710
FY2015 = 59.393  (+148.3%)
 
Revenue of China Market (SGD million):
FY2013 =   2.571
FY2014 = 12.980
FY2015 = 19.771  (+52.3%)
 
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% (+1.2 p.p)
 
NPM (Net Profit Margin):
FY2004 = 17.0%
FY2005 = 15.4%
FY2006 = 15.4%
FY2007 = 13.2%
FY2008 = 11.1%
FY2009 = 13.3%
FY2010 =   4.9%
FY2011 =   0.7%
FY2012 =   3.7%
FY2013 =   3.5%
FY2014 =   5.4%
FY2015 =   9.9% (+4.5p.p ; note: NPM should be much higher - drag down by FY2008 tax liability of Indonesia subsidiary.)

NPAT (SGD, million)
FY2004 =   5.039
FY2005 =   8.464
FY2006 = 11.861
FY2007 = 13.504
FY2008 = 10.626
FY2009 =   9.671
FY2010 =   2.450
FY2011 =   0.274
FY2012 =   1.800
FY2013 =   1.429
FY2014 =   4.054
FY2015 = 10.104 (+149%) ; (note: NPAT should be much higher - drag down by FY2008 tax liability of Indonesia subsidiary.)
 
EPS (SGD, cent)
FY2004 = 4.48
FY2005 = 5.50
FY2006 = 7.19
FY2007 = 6.55
FY2008 = 5.15
FY2009 = 4.79
FY2010 = 1.19
FY2011 = 0.13
FY2012 = 0.88
FY2013 = 0.70
FY2014 = 1.86
FY2015 = 4.59 (+146.8%) ; (; note: EPS should be much higher - drag down by FY2008 tax liability of Indonesia subsidiary.)
 
DPS (SGD, cent) - (Payout as % of NPAT)
FY2004 = 0.8
FY2005 = 2.6      (47%)
FY2006 = 2.5      (35%)
FY2007 = 3.212  (45%)
FY2008 = 2.2      (43%)
FY2009 = 2.2      (47%)
FY2010 = 2.2      (185%)
FY2011 = 0.6      (448%)
FY2012 = 1.2      (135%)
FY2013 = 0.3      (43%)
FY2014 = 0.8      (43%)
FY2015 = 2.0      (43.6%) 
 
OCF – after change in working capital - (SGD million)
FY2004 =   4.822
FY2005 =   5.608
FY2006 = 12.524
FY2007 = 20.491
FY2008 = 11.230
FY2009 =   3.080
FY2010 =   6.049
FY2011 =   0.898
FY2012 =   0.818
FY2013 =   0.712
FY2014 = 11.115
FY2015) =17.097 (+53.8%) ó OCF generated = 7.8 cent per share
 
Cash and Cash Equivalents (SGD million)
FY2004 =   9.319  (Debt = 1.9)
FY2005 = 19.003  (Debt = 1.4)
FY2006 = 21.712  (Debt = 1.0)
FY2007 = 35.323  (Debt = 1.7)
FY2008 = 30.610  (No Debt)
FY2009 = 36.079  (No Debt)
FY2010 = 36.733  (No Debt)
FY2011 = 31.975  (No Debt)
FY2012 = 28.241  (No Debt)
FY2013 = 33.283  (Debt = 3.5)
FY2014 = 40.975  (Debt = 6.0)
FY2015 = 47.247  (Debt = 0.018)
 
NAV per share (SGD Cents)
FY2004 = 11.05
FY2005 = 17.44
FY2006 = 21.77
FY2007 = 22.06
FY2008 = 24.01
FY2009 = 26.18
FY2010 = 24.65
FY2011 = 23.63
FY2012 = 23.27
FY2013 = 24.11
FY2014 = 25.57
FY2015 = 28.93
 
Comments:
1)  Excellent set of results.
2)  FY2015 revenue of 101.672 m is almost on par to the all time high record of 102.180 m achieved in FY2007. This is the second time the Group’s full year revenue exceeded the 100.0 million mark. Increase in revenue was due primarily to strong growth from the Group’s businesses in Taiwan, China and Indonesia.
3)  GPM remains above the 70% mark.
4)  NPM inproved from 5.4% (in FY2014) to 9.9% (in 2015).
5)  NPAT improved from 4.054 m (in FY2014) to 10.104 m (in FY2015).
6)  EPS improved from 1.86 cents (in FY2014) to 4.59 cents (in FY2015).
7)  All NPM, NPAT & EPS should have been much higher if not for the additional FY2008 tax liability incurred by the Indonesia subsidiary.
8)  OCF of 17,097 m generated was the second highest on record which translate to 7.8 cent per share. As a result, even after having paid off nearly the entire 6 m debt, cash level still manage to increase from 40.975 m (in 2014) to 47.247 m (in FY2015). Pretty impressive.
9)  To reward shareholders, DPS has been raised to 2.0 cent for FY2015 from 0.8 cent for FY2014.
10)                Going forward, according to the management:

“We have laid out interesting plans for FY2016 and expect to maintain the current positive momentum and stimulate future demand in these markets by intensifying our marketing campaign and expanding our distribution channels. In addition, we are also starting to cultivate the UAE market with the building of our Dubai Regional Centre. The GCC markets will serve as a launch pad for us to springboard to other nearby markets such as India and Europe markets in the next three to five years.”

“The Group’s business in China continued to exhibit consistent growth in FY2015, with revenue up by 52.3% to hit $19.8 million, due to higher export orders from our China agent. Looking ahead, we will step up our marketing efforts to increase brand awareness and continue to introduce new products for the Manufacturing/Wholesale segment in 2016. Our application for a Direct Selling license in China is proceeding on schedule and we are moving closer to reaching our target of becoming a licensed Direct Selling company to capitalise on the huge market potential.”
_______________________________________________________________________________________________________________

Revenue is back above 100 m mark again.

NPM is back above 10% again (before adjustment of tax liability of Indonesia subsidiary for FY2008).

If revenue and NPM could be maintained at above 100 m and 10% respective, with no debt and low capex (asset-light) business model, there is a lot of FCF to be generated from this business.

Question : how sustainable is revenue at above 100 m level ?

(to be continued)
_______________________________________________________________________________________________________________

[Boon]

BWL operates in Taiwan, China, Singapore, Malaysia, Indonesia, Philippines, Vietnam, Korea, HK, Myanmar etc. Revenue could be growing in some markets while declining in others. It would be great if it could grow in leaps and bounds going forward. But even without growth, as long as yearly revenue and net profit margin could be maintained at above SGD 100 m and 10% respectively, there is still plenty of FCF that this business could generate.

Hi Boon, have you looked at the historical performance of their annual revenues before, by geographic segment?  From my simplistic look at those trends, there is little there to suggest that their revenues are sustainable in some reasonable manner.  The countries you have quoted, they all had their good days in the past.  Taiwan had been good for them but so was Philippines the year before 2014 before it vaporised into thin air in 2015.

I don't know enough about MLM so I wonder if this is the nature of the business - it collapses after it runs out of new leads to sell into particularly if the product is a fairly generic one.

But I can see the attractiveness of this stock currently for its earnings/revenue momentum.

[Image: 33ubad2.jpg]

Hi thefarside,

On geographical revenue breakdown, sales had peaked and declined in “older” markets like Singapore, Malaysia, Indonesia, and Thailand – but the rate of decline has been slow in Singapore.
 
Indonesia is bouncing back and there are signs of recovery in the Malaysia market as well.
 
Korea and Philippines revenue seemed like a one-off spike but I think efforts are being put in to revive these markets.
 
The current strong growth markets are Taiwan and China. Taiwan is still going strong but it is matter of time before it peaks and goes into decline but I believe its decline, when happened, would be a more gradual one like Singapore.
 
China has been growing steadily even without a DS license being granted. The potential of these market consisting 22 provinces (excluding Taiwan), 4 municipalities (Beijing, Tianjin, Shanghai, Chongqing), and 5 autonomous regions (Guangxi, Inner Mongolia, Tibet, Ningxia, Xinjiang) is huge.
 
The Indochina markets have yet to live up to its potential.
 
Now they are starting to cultivate the UAE/GCC markets which will serve as a launch pad to springboard to other nearby markets such as India and Europe markets over the next three to five years.”
 
If decline in sales in some markets are permanent, then growing new market shares in new markets to offset revenue loss in ‘older -markets” would be absolutely critical. But so far, it doesn’t appear to me that any of BWL’s market has been in permanent decline and could not be revived at all. If market like Indonesia could be revived, so could the Korean and the Philippines market, but it takes time and efforts, as in the case of Indonesia, I believe.  
 
Revenue could be growing in some markets while declining in others. And I believe it could more or less stay close to if not exactly above the 100 m mark over the next 5 years, even without a DS license being granted in China.
 
With a DS license being granted in China, we shouldn’t be talking about 100 m, it should be way above that, I reckon.
 
Here is a scenario of my projection. As always, an analysis is only as good as its underlying assumptions.
 

[Image: 28u4l75.jpg]

[thefarside]

Hi Boon

Very impressive set of numbers. Thanks for sharing your thinking.

Cheers!

[Boon]

[Image: 30tj2md.jpg]
______________________________________________________________________________________________________________________________

Hi thefarside,
 
I was once just as skeptical as you are in the revenue sustainability of certain markets in which BWL operates. The recovery of the Indonesia and the Malaysia market helped erased most of my doubts.  
 
Doubts on revenue sustainability are legitimate concerns. In investing it would be unwise to consider only the upside risks without looking at the downside risks
 
The outcome of a another low (revenue, NPM, NPAT and OCF) period like the one happening from FY2011 to FY2013, could not be totally ruled out at all in the future. Though the probability of this happening again, over the next 3 to 5 years, seems low, IMO, given the strong growth momentum in the Taiwan and China markets and the recovery of the Indonesia market; plus efforts are being put in to grow new markets and revive old markets.
 
Revenue ~ 40 m,  => at about breakeven point, no NPAT and OCF.
Revenue ~ 75 m,  => moderate NPAT and OCF
Revenue ~ 100m and above, => good NPAT and OCF
 
Given the current growth momentum, it looks like the next revenue peak (whenever that happens) would likely be higher than the previous peak of 102.180 m (achieved in FY2007) and the next revenue trough (whenever that happens) would unlikely to be lower than the previous low of 41.081 m happened in FY2013.
______________________________________________________________________________________________________________________________________

[Boon]

UPDATE OF CORPORATE INCOME TAX ASSESSMENT OF FISCAL YEAR 2008 FOR PT BEST WORLD INDONESIA (“PT BWI”)

The Board of Directors of the Company (the “Board”) refers to the Contingent Liability amounting to IDR31,361,377,029 (equivalent to S$3,205,374) (the “Disputed FY 2008 Tax Liability”) disclosed in Note 35B(a) of the Company’s 2014 annual report. This pertains to the then potential tax liability for financial year 2008 (“FY2008”) of our Indonesian subsidiary, PT BWI, which was the subject of appeal to the Indonesian Supreme Court.

PT BWI has since been informed that it was not successful in its appeal to the Indonesian Supreme Court. Following the decision of the Indonesian Supreme Court, PT BWI has to pay the full sum of the Disputed FY2008 Tax Liability.

To date, PT BWI has already paid tax instalments totaling IDR23,781,984,649 (equivalent to S$2,430,701), of which IDR21,831,984,649 (equivalent to S$2,231,397) were previously recorded as other assets in the audited consolidated balance sheet of the Company in FY2014. After deducting a tax refund of IDR201,063,000 (equivalent to S$20,550), a balance sum of IDR7,378,329,380 (equivalent to S$754,122) remains payable.

The Disputed FY2008 Tax Liability will be reflected in the Company’s FY2015 consolidated profit and loss statement and will affect the Company’s consolidated net profit for FY2015.

http://infopub.sgx.com/FileOpen/Update%2...eID=382859
___________________________________________________________________________________________________________________

Page 13 of FY2015 results:

“Income Tax Expense was $7.7 million for FY2015 due to certain profitable subsidiaries as well as an unsuccessful appeal of a FY2008 tax liability by our Indonesia subsidiary. As a result, Profit Attributable to Owners of the Parent Company increased from $4.1 million in FY2014 to $10.1 million in FY2015.”

Page 16 of FY2015 results:

“Other Assets decreased from $8.7 million as at 31 December 2014 to $7.3 million as at 31 December 2015 mainly due to unsuccessful appeal of the FY2008 tax liability amounting to IDR 31.4 billion (equivalent to $3.2 million) by our Indonesia subsidiary mentioned above. Consequently, the previously recorded prepaid taxes of IDR 21.8 billion (equivalent to $2.3 million) had been reflected as Income Tax Expense in FY2015.”
____________________________________________________________________________________________________

Additional tax liability incurred in FY2015 = SGD 3.2 m ( ~ SGD 1.45 cent per share )

Additional associated cash outflow incurred in FY2015 = SGD 0.9 m ( ~ SGD 0.4 cent per share )

Without the additional tax liability, the FY2015 results should have been as follow:

NPM = (9.9%) => Should have been 13.1%, if without the additional tax liability.

NPAT = (SGD 10.1 m)   => Should have been SGD 13.3 m, if without the additional tax liability.

EPS = (SGD 4.59 cent)   => Should have been SGD 6.0 cent, if without the additional tax liability.

DPS = (SGD 2.0 cent) => Should have been SGD 2.5 cent, if without the additional tax liability.

OCF = (SGD 17.1 m) or  ( ~ SGD 7.8 cent per share) => should have been SGD 18.0 m ( ~ SGD 8.2 cent), if without the additional tax liability.
 
Based on share price of SGD 39 cent:
 
PE Ratio = (39 / 4.59 = 8.5)  => should have been = 39 / 6.0 = 6.5, if without the additional tax liability    
____________________________________________________________________________________________________________________________________

[Bw2015]

FY2015 Results:
 
Revenue (SGD million):
FY2004 =  31.007
FY2005 =  55.098
FY2006 =  77.114
FY2007 =102.180
FY2008 = 96.063
FY2009 = 72.956
FY2010 = 49.549
FY2011 = 41.532
FY2012 = 48.218
FY2013 = 41.081
FY2014 = 75.265
FY2015 =101.672 (+35.1%)
 
Revenue of Taiwanese Market (SGD million):
FY2009 =   4.423
FY2010 =   5.619
FY2011 =   6.458
FY2012 =   9.589
FY2013 = 13.209
FY2014 = 22.710
FY2015 = 59.393  (+148.3%)
 
Revenue of China Market (SGD million):
FY2013 =   2.571
FY2014 = 12.980
FY2015 = 19.771  (+52.3%)
 
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% (+1.2 p.p)
 
NPM (Net Profit Margin):
FY2004 = 17.0%
FY2005 = 15.4%
FY2006 = 15.4%
FY2007 = 13.2%
FY2008 = 11.1%
FY2009 = 13.3%
FY2010 =   4.9%
FY2011 =   0.7%
FY2012 =   3.7%
FY2013 =   3.5%
FY2014 =   5.4%
FY2015 =   9.9% (+4.5p.p ; note: NPM should be much higher - drag down by FY2008 tax liability of Indonesia subsidiary.)

NPAT (SGD, million)
FY2004 =   5.039
FY2005 =   8.464
FY2006 = 11.861
FY2007 = 13.504
FY2008 = 10.626
FY2009 =   9.671
FY2010 =   2.450
FY2011 =   0.274
FY2012 =   1.800
FY2013 =   1.429
FY2014 =   4.054
FY2015 = 10.104 (+149%) ; (note: NPAT should be much higher - drag down by FY2008 tax liability of Indonesia subsidiary.)
 
EPS (SGD, cent)
FY2004 = 4.48
FY2005 = 5.50
FY2006 = 7.19
FY2007 = 6.55
FY2008 = 5.15
FY2009 = 4.79
FY2010 = 1.19
FY2011 = 0.13
FY2012 = 0.88
FY2013 = 0.70
FY2014 = 1.86
FY2015 = 4.59 (+146.8%) ; (; note: EPS should be much higher - drag down by FY2008 tax liability of Indonesia subsidiary.)
 
DPS (SGD, cent) - (Payout as % of NPAT)
FY2004 = 0.8
FY2005 = 2.6      (47%)
FY2006 = 2.5      (35%)
FY2007 = 3.212  (45%)
FY2008 = 2.2      (43%)
FY2009 = 2.2      (47%)
FY2010 = 2.2      (185%)
FY2011 = 0.6      (448%)
FY2012 = 1.2      (135%)
FY2013 = 0.3      (43%)
FY2014 = 0.8      (43%)
FY2015 = 2.0      (43.6%) 
 
OCF – after change in working capital - (SGD million)
FY2004 =   4.822
FY2005 =   5.608
FY2006 = 12.524
FY2007 = 20.491
FY2008 = 11.230
FY2009 =   3.080
FY2010 =   6.049
FY2011 =   0.898
FY2012 =   0.818
FY2013 =   0.712
FY2014 = 11.115
FY2015) =17.097 (+53.8%) ó OCF generated = 7.8 cent per share
 
Cash and Cash Equivalents (SGD million)
FY2004 =   9.319  (Debt = 1.9)
FY2005 = 19.003  (Debt = 1.4)
FY2006 = 21.712  (Debt = 1.0)
FY2007 = 35.323  (Debt = 1.7)
FY2008 = 30.610  (No Debt)
FY2009 = 36.079  (No Debt)
FY2010 = 36.733  (No Debt)
FY2011 = 31.975  (No Debt)
FY2012 = 28.241  (No Debt)
FY2013 = 33.283  (Debt = 3.5)
FY2014 = 40.975  (Debt = 6.0)
FY2015 = 47.247  (Debt = 0.018)
 
NAV per share (SGD Cents)
FY2004 = 11.05
FY2005 = 17.44
FY2006 = 21.77
FY2007 = 22.06
FY2008 = 24.01
FY2009 = 26.18
FY2010 = 24.65
FY2011 = 23.63
FY2012 = 23.27
FY2013 = 24.11
FY2014 = 25.57
FY2015 = 28.93
 
Comments:
1)  Excellent set of results.
2)  FY2015 revenue of 101.672 m is almost on par to the all time high record of 102.180 m achieved in FY2007. This is the second time the Group’s full year revenue exceeded the 100.0 million mark. Increase in revenue was due primarily to strong growth from the Group’s businesses in Taiwan, China and Indonesia.
3)  GPM remains above the 70% mark.
4)  NPM inproved from 5.4% (in FY2014) to 9.9% (in 2015).
5)  NPAT improved from 4.054 m (in FY2014) to 10.104 m (in FY2015).
6)  EPS improved from 1.86 cents (in FY2014) to 4.59 cents (in FY2015).
7)  All NPM, NPAT & EPS should have been much higher if not for the additional FY2008 tax liability incurred by the Indonesia subsidiary.
8)  OCF of 17,097 m generated was the second highest on record which translate to 7.8 cent per share. As a result, even after having paid off nearly the entire 6 m debt, cash level still manage to increase from 40.975 m (in 2014) to 47.247 m (in FY2015). Pretty impressive.
9)  To reward shareholders, DPS has been raised to 2.0 cent for FY2015 from 0.8 cent for FY2014.
10)                Going forward, according to the management:

“We have laid out interesting plans for FY2016 and expect to maintain the current positive momentum and stimulate future demand in these markets by intensifying our marketing campaign and expanding our distribution channels. In addition, we are also starting to cultivate the UAE market with the building of our Dubai Regional Centre. The GCC markets will serve as a launch pad for us to springboard to other nearby markets such as India and Europe markets in the next three to five years.”

“The Group’s business in China continued to exhibit consistent growth in FY2015, with revenue up by 52.3% to hit $19.8 million, due to higher export orders from our China agent. Looking ahead, we will step up our marketing efforts to increase brand awareness and continue to introduce new products for the Manufacturing/Wholesale segment in 2016. Our application for a Direct Selling license in China is proceeding on schedule and we are moving closer to reaching our target of becoming a licensed Direct Selling company to capitalise on the huge market potential.”
_______________________________________________________________________________________________________________

Revenue is back above 100 m mark again.

NPM is back above 10% again (before adjustment of tax liability of Indonesia subsidiary for FY2008).

If revenue and NPM could be maintained at above 100 m and 10% respective, with no debt and low capex (asset-light) business model, there is a lot of FCF to be generated from this business.

Question : how sustainable is revenue at above 100 m level ?

(to be continued)
_______________________________________________________________________________________________________________




thank you for opening our eyes to this company
i seldom buy s chip. but this company caught my eyes when it was featured in DBS Vickers 50 small company pick - together with Sunningdale.

[Boon]

Best World International Ltd
The Great Bounce Back
NON-RATED NOTE (by Phillip Capital) 
29 Feb 2016
http://internetfileserver.phillip.com.sg...160229.pdf
_______________________________________________________________________________________________________________________________________

[robert]

Boon, what is the fair value of BWL?