Best World

[Jamesbond008]

Some updates on Taiwan sales. For Apr & May (ytd) sales is approaching TWD600m (estimate SGD24M). Q2 16 looks sets to beat Q4 15 Taiwan revenue of SGD27.6m.

I believe it is safe to assume that FY2016 NPAT should exceed S$20 million. If that is the case, we are talking about 10x FY2016, for a Company growing 100% for 2 consecutive years. PEG is 0.1

Many funds under-owned this stock. As more and more analysts start to cover this stock, the instit funds will be compelled to load up on this stock. 

The S$1.00 is just tip of the iceberg. I believe more investors will start to load up on this stock.

[Boon]

In FY2015, Export revenue of SGD 14.433 m (representing 14.2% of total group revenue) contributed SGD 7.055 m towards group PBT (representing 41.5% of total group PBT). This was made possible due to the high PBT margin of 48.9% achieved by the Export segment (driven primarily by exports to China).

"In 1Q2016, the Group recorded a 242.2% increase in its revenue from China, primarily due to higher export orders from our China agent. In line with Management’s expectation, there is an increase demand for our skin care line of products in China. Management remains cautiously optimistic about the growing demands for the Group’s brands by Chinese consumers for the next few quarters." 

Assuming that this margin could be maintained (if not improved) prior to (or without) a DS license in China being granted, continuous growth in the export market to China alone would contribute significantly towards the group PBT (hence NPAT) going forward even if the Taiwanese market stops growing ……………………………
 
Exports Revenue to China (SGD million) ó PBT (SGD million) @ 48.9% margin :
Revenue = 14.433 m ó PBT = 7.055 m (FY2015 figures)
Revenue = 25 m ó PBT = 12 m
Revenue = 50 m ó PBT = 24 m
Revenue = 75 m ó PBT = 37 m
Revenue = 100 m ó PBT = 49m
Revenue = 125 m ó PBT = 61 m
Revenue = 150 m ó PBT = 73 m
Revenue = 175 m ó PBT = 86 m
Revenue = 200 m ó PBT = 98 m
………………………………………………
 
Point is export revenue of SGD 14.433 m in FY2015 is tiny compared to the size of China market.
 
With or without a China DS license, either way, it seems that the China growth story has only just begun as far as BWI is concerned.
 
Here is a possible scenario projection for FY2016 and FY2017, as always, an analysis is only as good as its underlying assumptions.
 
[Image: 25ilqwj.jpg]

[Boon]

The sales growth of BWL Taiwan has been phenomenal. 

But if BWL Taiwan were to emulate the success of market leader, Amway Taiwan, it seems that there is still a long way to go............

I would not be surprise if 1H2016 revenue for BWL Taiwan exceed (or is not far from) the FY2015 figure.

Question is how close could it get near Amway Taiwan over the next few years?

Sources:
 
http://www.amwaywiki.com/Amway_Taiwan
 
http://info.beauty.hc360.com/2007/03/19090527048.shtml
 
Assumed SGD = 24 TWD = 24 NT

[Image: iq8sk7.jpg]


[Image: 2wdc8x3.jpg]

[Boon]

Some updates on Taiwan sales. For Apr & May (ytd) sales is approaching TWD600m (estimate SGD24M). Q2 16 looks sets to beat Q4 15 Taiwan revenue of SGD27.6m.

I believe it is safe to assume that FY2016 NPAT should exceed S$20 million. If that is the case, we are talking about 10x FY2016, for a Company growing 100% for 2 consecutive years. PEG is 0.1

Many funds under-owned this stock. As more and more analysts start to cover this stock, the instit funds will be compelled to load up on this stock. 

The S$1.00 is just tip of the iceberg. I believe more investors will start to load up on this stock.

Major Shareholders/Insiders
D2 Investment                   =       77,115,000    (35.02%)
Dora Hoan                        =        12,352,000    (  5.61%)
Doreen Tan                        =      12,352,000     (  5.61%)
Huang Ban Chin (COO)    =         9,200,000    (  4.18%)
D2 Siblings                        =            200,000    (  0.09%)
Sub-total                            =     111,219,000    ( 50.51%)     
Free float                           =      108,964,864   ( 49.49%)
Total No: of issued shares =     220,183,864    (100.00%)
 
Market Cap = SGD 242 m @ 1.10 per share
5% = 0.05 x 242 m = SGD 12.1 m (11 m shares)
____________________________________________________________________________________________________________________

With its relatively small market cap and small “free-float”, it could not possibly support even one investment from big institution fund that could invest in hundreds of millions.
 
At most, it could possibly support only a handful of smaller funds/investors that could invest up to 10 m each.
 
Or about 100 funds/investors that could invest up to 1 m each.
 
Or about 1,000 retail investors that could invest up to 100,000 each.

Look at the shareholding statistics in AR2015, 78% of the shares were in the hands of top 22 shareholders…………..

Most funds would not invest if they could not get a sizeable bite
 
So far, no new SSH has emerged…………………that possibly explains.......................
__________________________________________________________________________________________ 

[Boon]

Some updates on Taiwan sales. For Apr & May (ytd) sales is approaching TWD600m (estimate SGD24M). Q2 16 looks sets to beat Q4 15 Taiwan revenue of SGD27.6m.

I believe it is safe to assume that FY2016 NPAT should exceed S$20 million. If that is the case, we are talking about 10x FY2016, for a Company growing 100% for 2 consecutive years. PEG is 0.1

Many funds under-owned this stock. As more and more analysts start to cover this stock, the instit funds will be compelled to load up on this stock. 

The S$1.00 is just tip of the iceberg. I believe more investors will start to load up on this stock.

Major Shareholders/Insiders
D2 Investment                   =       77,115,000    (35.02%)
Dora Hoan                        =        12,352,000    (  5.61%)
Doreen Tan                        =      12,352,000     (  5.61%)
Huang Ban Chin (COO)    =         9,200,000    (  4.18%)
D2 Siblings                        =            200,000    (  0.09%)
Sub-total                            =     111,219,000    ( 50.51%)     
Free float                           =      108,964,864   ( 49.49%)
Total No: of issued shares =     220,183,864    (100.00%)
 
Market Cap = SGD 242 m @ 1.10 per share
5% = 0.05 x 242 m = SGD 12.1 m (11 m shares)
____________________________________________________________________________________________________________________

With its relatively small market cap and small “free-float”, it could not possibly support even one investment from big institution fund that could invest in hundreds of millions.
 
At most, it could possibly support only a handful of smaller funds/investors that could invest up to 10 m each.
 
Or about 100 funds/investors that could invest up to 1 m each.
 
Or about 1,000 retail investors that could invest up to 100,000 each.

Look at the shareholding statistics in AR2015, 78% of the shares were in the hands of top 22 shareholders…………..

Most funds would not invest if they could not get a sizeable bite
 
So far, no new SSH has emerged…………………that possibly explains.......................
__________________________________________________________________________________________ 

NPAT (SGD, million)
FY2013 =   1.429
FY2014 =   4.054 (Up 183%)
FY2015 = 10.104 (Up 149%)
FY2016 = 20.208 (Up 100%) = Projection of 100% earning growth is highly likely to be achieved. 
FY2017 = 40.416 (Up 100%) = Projection of 100% earning growth is harder to achieve but not impossible
 
Y-o-Y NPAT growth over the past two years (FY2014 & FY2015) had been more than 100%.
 
For FY2016, based on current sales momentum, it seems highly likely that NPAT growth would exceed 100% as well.
 
A one-year projection is much easier to predict than say a 5-year projection.
 
It is of anybody’s guess as to whether it is going to be low growth, moderate growth, high growth or super-growth or even no growth, over the next 5 years. 
 
Beyond FY2016, earning growth of 100% p.a. would be harder to achieve simply because of the fact that the base is getting bigger…………..
 
But as long as earning growth of at least 20% p.a. could be maintained over the next five years, valuation based on a PEG ratio of 0.6 (and below) still looks undemanding, IMO.
 
Of course, the downside risks are “negative growth”.
 
But what are the probabilities of these downside risks materialised over the next 5 years, given that:
1)  The growth story for China has just begun (even without a DS license being granted) – exports to China are growing and the PBT margin is good.
2)  The growth momentum in Taiwan is getting stronger
3)  The Indonesia market is bouncing back
_____________________________________________________________________________________________

PE Ratio:
FY2016 NPAT (projected) = 20 m
FY2016 EPS (projected) = 9 cents per share
Current share price = 1.085
=> Forward PE = 1.085 / 0.09 = 12  (less than peer PE of 17)
 
PEG Ratio (Based on expected future earning growth of 20% over the next 5-year)
ðForward PEG = 12/20 = 0.6
 
PEG Ratio (Based on expected future earning growth of 25% over the next 5-year)
ðForward PEG = 12/25 = 0.5
 
PEG Ratio (Based on expected future earning growth of 50% over the next 5-year)
ðForward PEG = 12/50 = 0.24
 
PEG Ratio (Based on expected future earning growth of 100% over the next 5-year)
ðForward PEG = 12/100 = 0.12
_____________________________________________________________________________________________________________________

[CityFarmer]

Thanks Boon for the detail projection. Let's apply another basic reality test on the China projection. 

One disadvantage, of existing Export model, is difficult to scale up. You need to engage Saloon owner/Distributor, directly by company. It should be a pretty safe assumption, that Export model is less able to scale-up, comparing with DS model.

Export model, increased >80% from 2014-2015, while DS model increased +33% in the same period. The PRC revenue alone increased >50% over the same period. The export model revenue almost double in 2013-2014, but it was due to acquisition. IIRC, only organic growth in 2014-2105. We also have seen, huge growth in export model and PRC revenue, based on 1Q2016 report.

Why the discrepancy? One possible thesis of mine, is the excessive inventory at distributor level, with an anticipation of the up-coming DS license award. If the distributors in China, are expecting less favorable compensation once DS license awarded, than massive stock-up is a logical move.

Boon's projection, is too optimistic, IMO. What do you all think?

(not vested)

[Boon]

Thanks Boon for the detail projection. Let's apply another basic reality test on the China projection. 

One disadvantage, of existing Export model, is difficult to scale up. You need to engage Saloon owner/Distributor, directly by company. It should be a pretty safe assumption, that Export model is less able to scale-up, comparing with DS model.

Export model, increased >80% from 2014-2015, while DS model increased +33% in the same period. The PRC revenue alone increased >50% over the same period. The export model revenue almost double in 2013-2014, but it was due to acquisition. IIRC, only organic growth in 2014-2105. We also have seen, huge growth in export model and PRC revenue, based on 1Q2016 report.

Why the discrepancy? One possible thesis of mine, is the excessive inventory at distributor level, with an anticipation of the up-coming DS license award. If the distributors in China, are expecting less favorable compensation once DS license awarded, than massive stock-up is a logical move.

Boon's projection, is too optimistic, IMO. What do you all think?

(not vested)

Export to China (SGD million)
FY2014 =   5.912
FY2015 = 13.077 (+ 121%)
1Q2016 =   9.836
FY2016 (projection) = 4 x 1Q2016 = 4 x 9.836 = 39.334 (projected growth = 201%)
FY2017 (projection) = 1.25 x FY2016 (projection) = 1.25 x 39.334 = 49.168 (projected growth = 25%)
____________________________________________________________________________________________________________________
 
Hi CF,
 
Export to China actually grew 121% in FY2015.
 
My FY2016 projection is simply based on annualizing 1Q2016 number, taking into consideration of the following comment from the management:
 
"In 1Q2016, the Group recorded a 242.2% increase in its revenue from China, primarily due to higher export orders from our China agent. In line with Management’s expectation, there is an increase demand for our skin care line of products in China. Management remains cautiously optimistic about the growing demands for the Group’s brands by Chinese consumers for the next few quarters." 
 
My FY2017 growth projection is 25%.
 
I guess 2Q2016 results would give a better indication on how realistic my projections are.
 
BTW, acquisition of Solid Gold (subsequently renamed BWZ) did not add to any of the export revenue.
 
BWZ has a GMP plant which produce the Aurigen line of products distributed and accounted for under the MW (Manufacturing/Wholesale model). So far, the MW model has contributed little to the bottom line. In order to qualify to apply for a DS in China, one must own a GMP manufacturing plant in China. That was the main reason behind the acquisition of BWZ – cheaper than building a new GMP plant.
 
Exports to China are BWL’s own line of products. BWI sell them to its China agents and have no control on who they ultimately sell to and at what price.
 
Basically, BWI’s core competent is still in DS which they are good at. Ultimately, what they want in China is still the DS business and not the export or MW business.
 
Demand in China for BWL’s line of products has been good, what could the company do before they are allow to operate any DS business ? Export !
______________________________________________________________________________________________________________________

[CityFarmer]

I am not sure what has gone wrong. Based on AR2014/15, the figures are

FY2015 (Export Rev) = 14.4m
FY2014 (Export Rev) = 7.9m, thus +82%

Anyway, precision isn't the key point here, both are very high growth rate, and better than the company core biz, DS revenue growth.

What are your views on the followings
1. The potential stock-up of China distributors, before the DS license approval? I reckon, based on your projection, they are definitely motivated to stock-up, before the selling model changes.

2. If the Export model has done better than DS model in growth, why the need to change?

(not vested, and the questions are for Boon)

[Boon]

I am not sure what has went wrong. Based on AR2014/15, the figures are

FY2015 (Export Rev) = 14.4m
FY2014 (Export Rev) = 7.9m, thus +82%

Anyway, the precision isn't the key point here, both are very high growth rate, and better than the company core biz, DS revenue growth.

What are your views on the followings
1. The potential stock-up of China distributors, before the DS license approval? I reckon, based on your projection, they are definitely motivated to stock-up, before the selling model changes.

2. If the Export model has done better than DS model in growth, why the need to change?

(not vested, and the questions are for Boon)

Hi CF,
 
Group export segment revenue = China export revenue + Myanmar export revenue
 
China revenue = Group MW segment revenue + China export revenue
 
Solving the above two equations, one should be able to work out the following numbers:
 
Group Export Segment Revenue (SGD million):
FY2014 =   7.936
FY2015 = 14.433 (+82%)
1Q2016 =  9.836
 
China Export Revenue (SGD million):
FY2014 =   5.912
FY2015 = 13.077 (+121%)
1Q2016 =  9.609
 
Myanmar Export Revenue (SGD million):
FY2014 = 2.024
FY2015 = 1.356 (-33%)
1Q2016 = 0.227
 
Export revenue to China in absolute term is still tiny compared to the size of China market. Because of this low base, growth rate in the order of 100th % is possible in the early phase of the growth cycle.
 
Export growth to China could be attributable to genuine demand for BWL’s line of products as guided by the management in the 1Q2016 results.
 
Stock-up by China agents in anticipation of DS license approval could possibly have boosted demand but its existence and impacts would likely to be short-lived IMO, as no one knows exactly when a DS license would be granted or if it would be granted. 
 
Essentially, BWI is in the business of DS, that’s what they are good at and what they want to do, including in China. As you have mentioned in your previous post, the scalability of DS model is far more superior than the export model.
 
In the long run, the absolute profit quantum would be higher under the DS model, which would be driven by higher volume/lower margin rather than higher margin / lower volume as in the case under the export model now.
 
DS profit = (lower DS margin) x (higher DS volume) > Export profit = (higher export margin) x (lower export volume)
 
Until a DS is being granted, it appears that the Export model is the best alternative to have – could be more lucrative in short to medium terms.
_____________________________________________________________________________

[JanQuin]

I am not sure what has went wrong. Based on AR2014/15, the figures are

FY2015 (Export Rev) = 14.4m
FY2014 (Export Rev) = 7.9m, thus +82%

Anyway, the precision isn't the key point here, both are very high growth rate, and better than the company core biz, DS revenue growth.

What are your views on the followings
1. The potential stock-up of China distributors, before the DS license approval? I reckon, based on your projection, they are definitely motivated to stock-up, before the selling model changes.

2. If the Export model has done better than DS model in growth, why the need to change?

(not vested, and the questions are for Boon)

Hi CF,
 
Group export segment revenue = China export revenue + Myanmar export revenue
 
China revenue = Group MW segment revenue + China export revenue
 
Solving the above two equations, one should be able to work out the following numbers:
 
Group Export Segment Revenue (SGD million):
FY2014 =   7.936
FY2015 = 14.433 (+82%)
1Q2016 =  9.836
 
China Export Revenue (SGD million):
FY2014 =   5.912
FY2015 = 13.077 (+121%)
1Q2016 =  9.609
 
Myanmar Export Revenue (SGD million):
FY2014 = 2.024
FY2015 = 1.356 (-33%)
1Q2016 = 0.227
 
Export revenue to China in absolute term is still tiny compared to the size of China market. Because of this low base, growth rate in the order of 100th % is possible in the early phase of the growth cycle.
 
Export growth to China could be attributable to genuine demand for BWL’s line of products as guided by the management in the 1Q2016 results.
 
Stock-up by China agents in anticipation of DS license approval could possibly have boosted demand but its existence and impacts would likely to be short-lived IMO, as no one knows exactly when a DS license would be granted or if it would be granted. 
 
Essentially, BWI is in the business of DS, that’s what they are good at and what they want to do, including in China. As you have mentioned in your previous post, the scalability of DS model is far more superior than the export model.
 
In the long run, the absolute profit quantum would be higher under the DS model, which would be driven by higher volume/lower margin rather than higher margin / lower volume as in the case under the export model now.
 
DS profit = (lower DS margin) x (higher DS volume) > Export profit = (higher export margin) x (lower export volume)
 
Until a DS is being granted, it appears that the Export model is the best alternative to have – could be more lucrative in short to medium terms.
_____________________________________________________________________________
Hi Boon,

Thank you so much for your explanation on the 2 models.
Would also like to thank you for your detailed analysis on Best World for the longest time.
Really appreciate your effort.

(Vested)