Best World

[mslee888]

A bullish report from Maybank Kim Eng....DYODD..

Best World International - The Best is Still Ahead (BUY, TP SGD2.63, BEST SP, Consumer Disc.)

BEST is a multi-channel distributor of skincare & wellness products in 12 Asian countries. Offers attractive growth as BEST scales up in the fastest-growing markets. Expect FY16E earnings to grow by a record 180% YoY. Strong growth in BEST’s largest market, Taiwan, should continue. Recent China licence approval will support rapid expansion. BEST is trading at 45% discount to peers’ FY17E P/E despite having the highest EPS growth. Initiate BUY, TP SGD2.63

[Boon]

A bullish report from Maybank Kim Eng....DYODD..

Best World International - The Best is Still Ahead (BUY, TP SGD2.63, BEST SP, Consumer Disc.)

BEST is a multi-channel distributor of skincare & wellness products in 12 Asian countries. Offers attractive growth as BEST scales up in the fastest-growing markets. Expect FY16E earnings to grow by a record 180% YoY. Strong growth in BEST’s largest market, Taiwan, should continue. Recent China licence approval will support rapid expansion. BEST is trading at 45% discount to peers’ FY17E P/E despite having the highest EPS growth. Initiate BUY, TP SGD2.63

Bullish but not the most bullish................yet to factor in.....................

Street-high TP.........................but there is still plenty of upside from structural growth............. 
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Attractive valuation, high EPS growth and consistent dividends
Our Street-high TP of SGD2.63 is based on 16x FY17 P/E, pegged to its peers’average and implies 0.5SD above the stock’s 5-year P/E of 13x. Although the stock has risen >700% in the past 12 months, there is still plenty of upside from structural growth which could drive earnings surprise and multiple expansions. Pegging a 16x peer P/E to FY18E EPS provides TP of SGD3.20 (83% upside). There is room for P/E expansion from: 1) strong EPS growth profile with 3-year EPS CAGR of 63% in FY15-18E; 2) exciting growth potential in China, with a market size of USD30b at c.20% annual growth vs. BEST’s sales of <USD100m; and 3) robust balance sheet with SGD46m net cash (12% of its mkt cap) for expansion. We note that it has consistently paid out >40% of its earnings as dividends since 2007. Risks to our call are competition, regulatory changes, reputational risks and economic shocks.

7. Forecasts & assumptions
7.1 Taiwan and China to drive growth
We forecast revenue will increase by 88%/28%/20% for FY16E/17E/18E, mainly driven by 120%/30%/20% growth in Taiwan and 110%/40%/30% growth in China. Flowing down to the bottom, we expect earnings growth to outperform revenue, due to operating leverage and greater expansion in wealthier markets which tend to have higher demand for higher margin skincare products. We estimate earnings will increase by 180%/28%/21% for FY16E/17E/18E.

Our forecasts have not included the full impact of the China license. We expect its China sales to roughly double as BEST will be able to capture the direct selling revenue, on top of its export revenue. But this will only add marginally to the bottom line due to lower net margin of the direct selling revenue. Assuming 1% net margin, the additional revenue will add 1.6% earnings for FY17E.

More importantly, we have yet to factor in BEST’s ability to scale up quickly as it will be able to recruit new members at a quicker pace via large scale events, seminars and educational classes.................. 
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[Boon]

Another interesting DS company to compare with BWI is Usana Health Sciences which currently operates in 20 countries (vs 12 countries for BWI)…………………
 
Usana entered Taiwan in 2002.
 
BWI entered Taiwan in 2006 – four years later than Usana.
 
Usana obtained its China DS license in 2010 via the acquisition of Babycare Ltd (that came with DS license).
 
BWI obtained its China DS license in 2016 – six years later than Usana.
 
Post acquisition, Usana’s greater China revenue has been growing at a growth rate of at least 15% or higher, driven mainly by China growth.
 
(Note: Usana does not report its China or Taiwan revenue separately. Also, HK revenue is very small for both Usana and BWI).
 
5 years after the acquisition, Usana’s 2015 greater China revenue has grown into 2.9 times that of 2010 revenue. 
 
What is the probability of BWI achieving worse, better, or similar success in its first 5 years of DS business operations in China?
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Usana’s Greater China (PRC, Taiwan & HK) Revenue:
2009 =  USD  81.455           
2010 = USD 152.280   (+87%) Entered into China by acquiring Babycare Ltd.
2011 = USD 204.822   (+35%)     
2012 = USD 235.626   (+15%)
2013 = USD 271.812   (+15%)     
2014 = USD 326.134   (+20%)
2015 = USD 441.284   (+35%)   2015 Revenue = 2.90 times 2010 Revenue
 
(Note: 2015 greater China revenue = 48% of Usana’s 2015 group revenue - concentrated but not as bad as BWI )
 
BWI’s Greater China (PRC, Taiwan & HK) Revenue Projection (Assuming 2021 Revenue = 2.90 x 2016 Revenue) :
2016 = SGD 155   (Assuming = 2 x 1H2016)
2017…………………
2018…………………..
2019…………………
2010…………………
2021 = SGD 450 = 2.90 times 2016 Revenue
 
BWI’s Greater China (PRC, Taiwan & HK) Revenue Projection (Assuming 15% annual growth rate) :
2016 = SGD 155   (Assuming = 2 x 1H2016)
2017 = SGD 178   (+15%)
2018 = SGD 205   (+15%)
2019 = SGD 235   (+15%)
2020 = SGD 271   (+15%)
2021 = SGD 311   (+15%)
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[CityFarmer]

Interesting post from Boon. I took some time to go thru the Usana reports.

There are distinctly differences between two China entries, IMO.

Usana, has acquired it, and left it alone for years, without major integration exercises. The growth path has un-disturbed, and extra support from parent company for the last 5 years' growth.

BWI, needs to move the existing model, to the new DS model, which will take time. The company, need to re-train members, and re-org especially the incentive model. The move will be bumpy, and takes time. It might take years, if not done right, IMO.

(not vested, but monitoring)

[Boon]

Interesting post from Boon. I took some time to go thru the Usana reports.

There are distinctly differences between two China entry, IMO.

Usana, has acquired it, and left it alone for years, without major integration exercises. The growth path has un-disturbed, and extra support from parent company for the last 5 years growth.

BWI, needs to move the existing model, to the new DS model, which will take time. The company, need to re-train members, and re-org especially the incentive model. The move will be bumpy, and take time. It might take years, if not done right, IMO.

(not vested, but monitoring)

BabyCare was acquired indirectly by Usana (offshore transaction) - whereas Solid Gold (subsequently renamed BWZ) was acquired directly by BWI (onshore transaction).
 
BabyCare was acquired with a DS license for Beijing City (Usana paid high premium for a certainty of a DS license – whereas Solid Gold was acquired without a certainty of obtaining a DS license, but it was much cheaper.
 
Having obtained the first DS license, the route to growth is basically the same.
 
Usana has grown BabyCare by introducing more Usana product lines + obtaining more DS permits in other cities + recruiting more distributors.
 
Similarly, BWI would have to grow BWZ by introducing BWL line of products into the China DS channels + applying for more DS permits in other cities + recruiting more distributors
 
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BabyCare Ltd:
-      Founded in Beijing in 1999, with a GMP manufacturing plant.
-      Principally engaged in developing, manufacturing and selling nutritional products for the entire family, with an emphasis on infant nutrition.
-      Has its own BabyCare line of nutritional products distributed through a chain of retail centres.
-      For fiscal 2009, BabyCare produced annual net sales of approximately $15 million and had total assets of $19 million. Historically, BabyCare has not been profitable under its retail-based model.
-      Was granted its first DS license in for the city of Beijing in 2009 for its BabyCare line of products.
-      Was acquired indirectly by Usana in 2010 for USD 62.716 million.
-      Usana line of products was first introduced in 2011.
-      Subsequently, more Usana products were added and more DS permits were granted.
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As described in more detail below, on August 16, 2010, USANA Health Sciences, Inc., a Utah corporation (the “Company” or “USANA”), indirectly acquired BabyCare Ltd. (“BabyCare”), a limited liability company incorporated under the laws of the People’s Republic of China (“PRC” or “China”).  BabyCare is a direct selling company in China that is principally engaged in developing, manufacturing and selling nutritional products for the entire family, with an emphasis on infant nutrition, through both a distributor sales force and a chain of retail centers.  BabyCare has received a license from the Chinese government to engage in direct selling activities in the municipality of Beijing and is working to obtain similar licenses in other Chinese provinces.  This direct selling license allows BabyCare to engage non-employee distributors to sell BabyCare’s products away from fixed retail locations.
 
BabyCare was founded in 1999 and is headquartered in Beijing, China. It has operations in 21 cities and 16 provinces. For fiscal 2009, BabyCare produced annual net sales of approximately $15 million and had total assets of $19 million. Historically, BabyCare has not been profitable under its retail-based model, but is in the process of transitioning to operate under its direct selling license. The Company believes that this acquisition of BabyCare is the most effective way for the Company to enter the direct selling market in China………….
 
The aggregate purchase price for the Shares is $62,716,000…..
 
https://www.sec.gov/Archives/edgar/data/...94_18k.htm

https://www.baoying.com
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[CityFarmer]

It is a long post from Boon. Let me summaries it into few key points

Usana got it offshore, and BWI got it onshore with no DS license. (BTW, as far as I know, DS license isn't transferable in China, thus can not be bought directly without approval). It is cheaper for BWI, for good reasons. BWI need to build it up, rather than starts from a good base. Usana got a good start, but paid a premium.

BWI has already a team of distributors, with product knowledge, but without DS experience. I reckon, Boon will not dispute the need to re-train. Is it an option or can it be compromised? IMO, NO, it is a compulsory compliance requirement, otherwise it might end-up as BSI in private banking sector.

BWI current China biz model, and the upcoming DS model have different incentives. The "switch" could be painful to both company and distributors at first, since money is involved. I don't assume it is a breeze.

"Having obtained the first DS license, the route to growth is basically the same.". As we all know, new product/service, starts with an introduction phase, before a growth phase. We need critical mass for sustaining growth. Usana started from growth phase in China, while BWI will start from probably half way in introduction phase. They are not the same, IMO. BWI might has similar growth after a successful start in China.

(not vested, but optimistic on mid/long term outlook, and looking for a good entry price)

[Boon]

https://www.sec.gov/Archives/edgar/data/...94_18k.htm
 

As described in more detail below, on August 16, 2010, USANA Health Sciences, Inc., a Utah corporation (the “Company” or “USANA”), indirectly acquired BabyCare Ltd. (“BabyCare”), a limited liability company incorporated under the laws of the People’s Republic of China (“PRC” or “China”).  BabyCare is a direct selling company in China that is principally engaged in developing, manufacturing and selling nutritional products for the entire family, with an emphasis on infant nutrition, through both a distributor sales force and a chain of retail centers.  BabyCare has received a license from the Chinese government to engage in direct selling activities in the municipality of Beijing and is working to obtain similar licenses in other Chinese provinces.  This direct selling license allows BabyCare to engage non-employee distributors to sell BabyCare’s products away from fixed retail locations.

 

BabyCare was founded in 1999 and is headquartered in Beijing, China. It has operations in 21 cities and 16 provinces. For fiscal 2009, BabyCare produced annual net sales of approximately $15 million and had total assets of $19 million. Historically, BabyCare has not been profitable under its retail-based model, but is in the process of transitioning to operate under its direct selling license. The Company believes that this acquisition of BabyCare is the most effective way for the Company to enter the direct selling market in China.

 

This acquisition was accomplished in the following simultaneous transactions.  The Company acquired Pet Lane, Inc., a Delaware corporation (“Pet Lane”), which is the record owner of BabyCare in China. Simultaneously, the Company entered into and closed a share purchase agreement (the “Purchase Agreement”) by and among the Company and the following parties: Pet Lane; Yaolan Ltd., an exempted company organized under the laws of the Cayman Islands (“Yaolan”); and BabyCare Holdings, Ltd., an exempted company organized under the laws of the Cayman Islands (“BabyCare Holdings”).  Pursuant to the Purchase Agreement, the Company, through its acquisition entity Pet Lane, acquired all of the issued and outstanding shares of BabyCare Holdings (the “Shares”) from Yaolan.  BabyCare Holdings is the beneficial owner of BabyCare. As a result of its acquisition of Pet Lane and BabyCare Holdings, the Company, indirectly, has acquired both record and beneficial ownership of BabyCare.

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True, DS license is not transferrable but I don’t see why the acquisition of a company that owns a DS license by another company should not be allowed – be it “directly” or “indirectly”

 

“BabyCare” (a PRC incorporated company) was owned by a Delaware corporation (“Pet Lane Inc.” - the record owner) and Cayman Islands incorporated company (“BabyCare Holdings” – the beneficial owner).

 

Usana did not buy “BabyCare” directly, but instead indirectly bought the “overseas entities” that own BabyCare – hence “offshore transaction”. Many PRC properties had been transacted in similar ways.

 

As for BWI, it “directly” bought a PRC incorporated company (Solid Gold, subsequently renamed “BWZ”) that did not have a DS license – but has the qualification or eligibility to apply for one.

 

“For fiscal 2009, BabyCare produced annual net sales of approximately $15 million and had total assets of $19 million. Historically, BabyCare has not been profitable under its retail-based model, but is in the process of transitioning to operate under its direct selling license. The Company believes that this acquisition of BabyCare is the most effective way for the Company to enter the direct selling market in China.”

 

BabyCare had been operating under its retail model before 2010, which historically has not been profitable.

 

For fiscal 2009, its net sales ~ USD 15 million - but still not profitable.

 

It obtained its first DS license for Beijing city in 2009.

 

At the time it was acquired indirectly by Usana, it was still in the process of transitioning to operate under its direct selling license. In another words, Usana did not buy into a “DS ready business” though it had paid high premium for it.

 

BabyCare was going through the “transitioning” or “switch” process that every first time DS license recipient had to go through.

 

Having obtained its first DS license for Hangzhou this year, BWZ has to go through the similar “transitioning or switching” process that BabyCare had gone through………………………

 

In short,

 

Usana did not buy into a growing business (2009 sales of USD 15 m and not profitable.)

 

Usana did not buy into a “DS ready business” – in transitioning mode - though it had paid high premium for it.

 

Usana’s products were first introduced in BabyCare’s DS channels only in 2011.

 

But post acquisition, Usana’s greater China’s results have been looking impressive. What could possibly explain this?

 

 Usana/BabyCare could possibly have done a good job in “switching” OR  “switching”, after all, could be just an easy process.

 More sales = more DS permits + introduction of more Usana products + more recruitment of distributors.   

 

With so much works already been carried out by BWI/BWZ in preparation for the “switch”, what is the probability that its DS business in China would fail to take off? Pretty low, I reckon.

 

Dora reckons China would overtake Taiwan to become BWI's largest market within the next two to three years................will see......
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[CityFarmer]

It is always a need of summary on Boon's post. 

In summary, Boon's assessment is, it is easy to "switch" the current BWI export model, to DS model. (similar as Usana/Babycare model).

Let's see. I might be wrong. I have to believe my own assessment, and bet accordingly.

(not vested, but monitoring)

[Boon]

Chance upon this job ad from BWI.
 
Good to see initiatives being taken by the management to beef up capabilities in the areas of governance, risk and compliance (GRC) to better meet business objectives.
 
No doubt, administrative expenses would increase, but the consequences of non-compliance as in the case of Nu Skin China as pointed out earlier by CF could be even more costly……………
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Senior/ Risk & Compliance Specialist
Best World International Ltd
http://www.jobstreet.com.sg/en/job/5414058?fr=j
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[Boon]

PROPOSED BONUS ISSUE – NOTICE OF BOOKS CLOSURE DATE 

http://bestworld.listedcompany.com/newsr...4KA4.1.pdf
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