Best World

[Jamesbond008]

Best World 1H2016 net profit surged 466.1% to S$13.3 million.

Interim Dividend of 2.0 cents per share

1-for-4 Bonus Share

Probably one of the best performing SGX company in this weak business environment

[Boon]

Valuation using PER:
 
EPS (BWI): SGD cents
1Q2015= 0.11
2Q2015= 0.96
3Q2015= 1.83
4Q2015= 1.69  (FY2015 = 4.59)
1Q2016= 2.71 
2Q2016 =3.35  (1H2016 = 6.05)
Trailing Twelve Months  (TTM) EPS = 1.83 + 1.69 +2.71 +3.35 = 9.58
 
FY2016 EPS projection = Assumed 2 x 1H2016 = 2 x 6.05 = 12.1
 
Price = 166 cents
 
PE (TTM) = 166 / 9.58 = 17.3
 
Forward PE (FY2016) = 166 / 12.1 = 13.7
 
If 2H2016 EPS > 1H2016 EPS of 6.05 cents => Forward PE (FY2016) would be lower than 13.7
 
Forward PE of 13.7 is undemanding, considering the potential and growth opportunities lying ahead for the company…especially in China with the approval of the DS license………
 
Group’s Co-Chairman and President, Dr. Doreen Tan commented, “We are encouraged by the growth momentum in our key markets, which reflects the success of our strategies and the strong foundation which we have laid over the years. We shall continue to drive both top and bottom line growth through consistent improvements in our operations and offer more products & services in our key markets. For the other markets, we shall also step up our marketing efforts to improve our performance. In addition, to achieve better control over inventory lead time, product quality and to cater to the anticipated increasing demands from our skin care line, we are in the process of setting up a state-of art skin care manufacturing facility in Tuas, slated to be completed in 3Q2017.
 
Group CEO, Dr. Dora Hoan added, “Looking ahead, the approval of our direct selling license in China marks another exciting chapter for the Group. Leveraging on our proven business model and management experience in the market, we are confident to be able to tap into the mammoth market potential of China, setting the stage for further growth for at least the next five years.”
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[Boon]

It is worth noting that inventory and other assets (mainly being deposits paid to suppliers for increased orders) of SGD 15.8 million and 16.4million respectively as at 30 June 2016, were at all time high – in anticipating of higher demand from China (via export) and Taiwan in 2H2016.
 
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Financial Position and Cash Flow
Non-current assets of the Group decreased from $17.8 million as at 31 December 2015 to
$16.7 million as at 30 June 2016, mainly due to depreciation of Property, Plant and Equipment
as well as amortisation of Intangible Assets.
 
Inventory increased from $11.5 million as at 31 December 2015 to $15.8 million as at 30 June
2016 in anticipation of higher orders from our export agent. In addition, one of our subsidiary
saw an increase in Inventory as a result of stock shortage mitigating measures in the second
half of the year.
 
In line with higher revenue generated, Trade and Other Receivables increased to $15.9 million
as at 30 June 2016.
 
Other Assets increased from $7.3 million as at 31 December 2015 to $16.4 million as at 30
June 2016 mainly due to higher deposits paid to suppliers due to increased orders as well as
deposits paid for the newly acquired factory facility in 1 Tuas Basin Link.
 
Trade and Other Payables increased from $24.5 million as at 31 December 2015 to $29.5
million as at 30 June 2016 due to higher accruals of freelance commissions and higher
accruals for management and staff costs during the period.
 
Total Other Financial Liabilities increased to $2.5 million as at 30 June 2016 was due to short
term borrowings for operating needs.
 
Other Liabilities were maintained at $1.0 million as at 30 June 2016 vis-à-vis 31 December 2015.
In line with higher profits experienced by the Company and certain subsidiaries of the Group,
Income Tax Payable increased from $4.6 million as at 31 December 2015 to $7.4 million as at
30 June 2016.
 
Net cash flows from operating activities of $2.3 million in 1H2016 is mainly attributable to the
Group’s net profit before tax in 1H2016 amounting to $18.7 million. As a result, Cash and Cash
Equivalents in the consolidated statement of cash flows increased to $42.2 million as at 30
June 2016.
 
As at 30 June 2016, the Group maintained a strong balance sheet and working capital position,
with approximately $48.3 million of cash and cash equivalents.
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[d.o.g.]

There seems to be a lot of interest in Best World now. But it should be remembered that ultimately it operates in a competitive market. It is not that the products do not work - if they don't work consumers would soon stop buying. But are they good value for money? Because the consumer can choose from many brands of skincare products, from the famous ones like Shiseido or Amorepacific to obscure ones that few have heard of.

I looked at the direct selling business model, and the sales trends suggest that it tends to be a fad - sales grow steadily then peak and taper off. Some companies get a second wind, but many others go into slow decline.

This grow-peak-decline pattern is visible in the last 10 years in large companies (sales over USD 1bn) such as Avon, Herbalife, Tupperware, Nu Skin and Oriflame.

Among smaller companies (sales below USD 1bn) there is no clear pattern. Some have clearly peaked, with flat sales for the last few years. Others have been in decline for several years. A few show meteoric sales increases with clearly unsustainable growth rates.

Best World seems to be on its second wind, but it is not clear how long this can last. This may not be a concern to short-term investors looking to trade on news, but the long-term investor would do well to be cautious. Taiwan is the current star market for Best World, but if Taiwan peaks soon and China doesn't take off, it's game over. It is true that the Chinese market is enormous. But it is also intensely competitive for both the principals and their distributors. It is not clear whether Best World will be able to maintain prices or commissions in China.

As usual, YMMV.

[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]

 
“If Taiwan peaks soon and China doesn't take off, it's game over”.
 
That’s the downside risk – the same old concern of revenue “concentration risk” 
 
“If BWL Taiwan could emulate the success of Amway Taiwan and achieve its 2020 revenue target of TWD 10,000 m” – that’s a lot of value to be created – under such a scenario, China can wait…………….
 
“If Taiwan peaks soon and decline quickly but if China could take over as new engine of growth” – then it is fine………
 
“If China could take off quickly and grow concurrently together with Taiwan for the next 5 years – even more value would be created”

These are the upside risks.

What are the probabilities of these risks (upside and downside risks) happening?
 
Regardless of products or business models, some companies didn’t even have a chance to make it into the growth phase.
 
For those that did manage to grow, which companies could ultimately avoid the grow-peak-decline pattern – regardless of types of products and business models?

Question is:
How long is the growth phase?
What is the magnitude of peaK?
What pattern of decline follows? 
Can it bounce back?
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[CityFarmer]

Direct Selling biz model's revenue trend, should tally with membership trend, IMO. Members are getting size-able discount, thus it is reasonable to assume, consumers are highly motivated to become members.

Overall, in the last four quarters, DS membership grew from 375K (2Q15) to 421K (2Q16) or +12%, while DS revenue grew +57% from $25 million to $40 million. Few of the probably reasons, are higher proportion of active members (especially in Taiwan), and each members stocked-up more goods. The growth isn't sustainable, without similar growth in membership, IMO.

One dilemma of Direct Selling, is members are not employees of the company, but the company is accountable to their biz conduct. A high growth in membership, without a proper training and control processes, is a sure path to regulatory issues.

The Nu Skin recent regulatory issue, might due to an explosive growth of >100% in membership and revenue (Greater China) in 2013 alone, which has taken the company 2-3 years to rectify, and back to its slow recovery path in 2016.

(not vested, and sharing a view)

[Boon]

http://estock.marbo.com.tw/Report/Report.asp?ID=113398
 
According to this report, as at 1Q2016, Taiwanese membership accounted for only 10% of total group memberships.  
 
FY2015:
Group members ~ 400,000
Taiwan members ~ 40,000 (assumed 10%)
Taiwan revenue ~ TWD 1,280 m
Taiwan revenue/Taiwan member ~ TWD 32,000 per member per year
 
1H2016:
Group members ~ 420,000 (= an increase of 20,000)
If all the new 20,000 members is in Taiwan, then Taiwanese membership would have increased by 50% in 6 months, which is consistent with the sales growth in Taiwan……………..   
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[Boon]

http://www.pictaram.com/user/nanacat1112/1943294864

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According to the above link: currently Taiwan membership is increasing at an average rate of about 3,000 members per month which is pretty close to the 20,000 increase in 6 months of 1H2016

BWL Taiwan needs to have over 300,000 members by 2020 to achieve sales of TWD 10,000 m, based on average sale per member per year of TWD 33,000
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[Boon]

Direct Selling biz model's revenue trend, should tally with membership trend, IMO. Members are getting size-able discount, thus it is reasonable to assume, consumers are highly motivated to become members.

Overall, in the last four quarters, DS membership grew from 375K (2Q15) to 421K (2Q16) or +12%, while DS revenue grew +57% from $25 million to $40 million. Few of the probably reasons, are higher proportion of active members (especially in Taiwan), and each members stocked-up more goods. The growth isn't sustainable, without similar growth in membership, IMO.

One dilemma of Direct Selling, is members are not employees of the company, but the company is accountable to their biz conduct. A high growth in membership, without a proper training and control processes, is a sure path to regulatory issues.

The Nu Skin recent regulatory issue, might due to an explosive growth of >100% in membership and revenue (Greater China) in 2013 alone, which has taken the company 2-3 years to rectify, and back to its slow recovery path in 2016.

(not vested, and sharing a view)

I would have thought DS companies only sell their products to members – do they sell to non-members? If they do, then non-members consumption trends have to be accounted for as well...................
 
Group revenue trend = + 57%
Group membership trend = +12%
 
Purchasing power (consuming power) and consumer behavior in each market (country) is vastly different – hence country specific membership trend could have disproportionate influence on group revenue/membership  trends……………
 
Taiwan members formed a small portion of group members ~ but are more active, have higher purchasing power and are consuming more compared to other members of the group – these are the causes rather than the outcome of the group trends.
 
The +57% group revenue trend is dominated and driven primarily by a country specific revenue trend of Taiwan.
 
The revenue trend of a specific country could only be driven or influenced by country specific membership trend of the same country – and not by membership trends of other countries.
 
If group revenue trend is dominated by a country specific (Taiwan) revenue trend, then to examine the sustainability of this group revenue trend (which basically has been reduced to a country specific revenue trend) in terms of membership trend, the appropriate membership trend to look at is the corresponding country specific (Taiwan) membership trend, and not the the +12% group membership trend.
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[Boon]

Seems like BWL Taiwan is very determined in achieving FY2016 revenue target of TWD 3,000 million.