Best World

[JanQuin]

Hi Chia,

Thanks for the info below. Appreciate it a lot.

"Simply because Dr Secrets strong hold is currently at Changsha, Wenzhou, Harbin and Zhongshan."

[si.ab]

MBKE lifted the target price by 50% to $3.53. Expecting a rally once market open?

[Boon]

Taiwan sales recorded when delivered, China (export model) sales recorded when shipped. Maybe when looking at the China (export) sales, we may compare two month moving average to have a better view of the trend?

“Revenue from China grew 102.7% in 1Q2017 vis-à-vis the same period last year, driven by larger shipments during this reporting quarter to fulfil back orders generated in 4Q2016. 
 
On top of that, the larger shipments were also necessary so that sufficient inventory is held for the current and following quarter, as Management foresee further increase in repeat consumption amongst existing users as well as the number of new users for DR’s Secret line of skincare solutions.”
 
There seems to be different understandings and interpretations to the above statements.
 
Larger shipments during this reporting quarter (1Q2017) served 2 purposes
1)  to fulfill backorders, worth “X” amount of Export revenue, generated in 4Q2016.
2)    So that sufficent “inventory”, worth “Y” amount of Export revenue, is held for the current (1Q2017) and following quarter (2Q2017)
 
@ grandslam:
 
What do you mean by “recorded” ? Do you mean “recognized”?
 
Export revenue, “X” , has been recognized in 1Q2017, for sure.  
 
Do you imply that “Y” has also been recognized in 1Q2017?
                                                                                                         
What do others think? squirrel, chialc88, JanQuin.............
 
Is 2) considered an act of stockpiling on the part of “distributors” ?
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[Squirrel]

Hey Boon

My guess is the following

In 4Q16, Taiwan had booming sales, and since they are direct sales, they were satisfied as far as possible, the remaining production capacity then went to China, hence a drop in revenue in 4Q. The unsatisfied orders in China, X, is then left outstanding.

In 1Q17, Taiwan's sales always dip during the CNY quarter. And assuming that maximum production capacity of their supplies is more than 1Q Taiwan sales + China exports + X, what do they do with the excess capacity? This excess capacity became Y, stocks that stockpiled for coming quarters. Given gross margins of more than 70%, it feels highly logical to do so. So before their Tuas factory is up, if they ever go into a situation whereby the demand outstrips supply in the coming quarters, they can dip into this stockpile (e.g. If 4Q17 is a blowout again like 4Q16). This all works fine if direct sales in Taiwan does not drop, else sooner or later they will have to realize a quarter of declining revenues as not that much inventory is needed as backup.

Makes sense?

[Boon]

Simply because Dr Secrets strong hold is currently at
Changsha, Wenzhou, Harbin and Zhongshan.

It's clear that they are stocking up inventories in anticipation that
export model will be converted to direct selling model.

HZ strength is in Aurigen products and manufacturing plants.
At this moment, I'm not able to see whether Dr Secrets is going to generate momentum there.

Agreed – it makes sense to set up a RC in Changsha first.
 
Changsha is the strongest hold.
 
Best World (Hunan) Health Sciences Co., Ltd (no longer exist), formerly operated as a subsidiary of Best World International Ltd, was incorporated in 2007 and was based in Changsha.
 
It was set-up to operate as a distributor of skin care and health-related products. This venture didn’t work out but valuable lessons and experiences gained, including connections/contacts.
 
BWI’s accomplishment in China todate did not happen overnight.
 
Changsha is the “export base” under the current China “export model”.
 
Why not Hangzhou ?
 
May be later.
May not need one, if BWZ could provide supports there.
May not need one, if there is going to be one in Shanghai which could render supports.
 
Do not agree on stockpilling “to convert”

Export model will be converted to direct selling model upon granting of a DS permit in that city, no one know when a DS license would be granted, hence, don’t you think it is too early to stockpile NOW, as the anticipation for a DS license could be a long one…………………..
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[JanQuin]

I take it that demand is high. Have not relook at the report but I am thinking if part of Y is for Q2, then there should be an increase in trade receivable that should be reflected in the cash flow report?

[grandslam]

Taiwan sales recorded when delivered, China (export model) sales recorded when shipped. Maybe when looking at the China (export) sales, we may compare two month moving average to have a better view of the trend?

“Revenue from China grew 102.7% in 1Q2017 vis-à-vis the same period last year, driven by larger shipments during this reporting quarter to fulfil back orders generated in 4Q2016. 
 
On top of that, the larger shipments were also necessary so that sufficient inventory is held for the current and following quarter, as Management foresee further increase in repeat consumption amongst existing users as well as the number of new users for DR’s Secret line of skincare solutions.”
 
There seems to be different understandings and interpretations to the above statements.
 
Larger shipments during this reporting quarter (1Q2017) served 2 purposes
1)  to fulfill backorders, worth “X” amount of Export revenue, generated in 4Q2016.
2)    So that sufficent “inventory”, worth “Y” amount of Export revenue, is held for the current (1Q2017) and following quarter (2Q2017)
 
@ grandslam:
 
What do you mean by “recorded” ? Do you mean “recognized”?
 
Export revenue, “X” , has been recognized in 1Q2017, for sure.  
 
Do you imply that “Y” has also been recognized in 1Q2017?
                                                                                                         
What do others think? squirrel, chialc88, JanQuin.............
 
Is 2) considered an act of stockpiling on the part of “distributors” ?
______________________________________________________________________________________________________________________

Hi Boon,
Yes, X and Y both recognized in Q1, once they were shipped out from Singapore.

I think it can be considered as stockpiling partially, just like they keep inventory in the Taiwan. But it is necessary, otherwise the lead time will be too much if the order is only shipped out when order in China is received and not cost effective. I think the actual stockpiling may not be significant as COO mentioned in AGM that it would take around 3 years to fully convert China export to direct sales model. A bit too early to stockpile.

[chialc88]

I think....
I am thinking of basic POA aka just theory first.
And, then from the theory, derive what D2/HBC did.

BTW, sidetrack a little bit.
2007 $1m experiments by D2 turn out to be an excellent investment - beyond my imagination.
Thank you HBC.
Thanks for your hardwork...
  and lots of drinking and singing session I imagine.

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1. inventory - can not be recognise as revenue

2. shipment (standalone) - could be 
2.1 - trigger due to sales order by customers, or
2.2 - no sales order yet, just ship to keep as inventory (aka stock piling. no sales and can't recognise as revenue).

3. Export model revenue recognition - upon shipment refers to #2.1 (aka not #2.2)

4. Q1FY17 Export sales to China is about $6m more than Q4FY16
4.1 I derived that $6m of DR's Secret was sold 
4.2 $6m of Dr's Secret includes back order, stock piling by Export agent 

5. Increase in inventory of about $0.8 in Q1FY17 is not part of #4
5.1 Increase in inventory for expected higher demand from both Export agent and subsidiaries.

(Side tracked)
6. Out of $6m Export sales, about $5m is kept as receivable

7. Export sales for 2QFY17 will be similar if not better result than 1QFY17.

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Good morning valuebuddies.

Yet another beautiful day started with birds chirping happily.



I'm still learning.
Enjoy a relaxing weekend.

[Squirrel]

@Boon

I don't think the stockpiling is for conversion to direct selling. The stockpiling is purely to meet upcoming demand in later quarters that might not be satisfied due to production limitations (Similar to 4Q16)

@chialc88

I don't think export revenue for Q2 will be higher than Q1. There is a reason why they put in such commentary for Q1 results. By the time Q1 results are announced, two thirds of Q2 is gone already so they would have a pretty good idea of Q2 export revenue figures. Normalizing to the seasonality of orders, it will not be a surprise that Q2 is lower as Q1 was really a bumper harvest.

Just curious, anyone here a millionaire because of Best World? 15 bagger for the really early birds and no one seems to have offloaded.

[Boon]

On Revenue Recognition:
 
(Revenue recognition – page 73 of AR2016)
“The revenue amount is the fair value of the consideration received or receivable from the gross inflow of economic benefits during the reporting year arising from the course of the activities of the entity and it is shown net of any related sales taxes, returns and rebates. Revenue from the sale of goods is recognised when significant risks and rewards of ownership are transferred to the buyer, there is neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue from rendering of services that are not significant transactions is recognised as the services are provided or when the significant acts have been completed. “
 
Agree with “grandslam” that both “X” and “Y” have been recognized in 1Q2017. For the Export model, revenue is recognized once the products are “shipped”)
 
On “Stockpiling”:
 
Stockpiling for conversion to DS model  in a small scale is not a concern.
Stockpiling to meet increasing demand is not a concern.
Channel stuffing is a concern. – not suggesting this is happening
 
80% of FY2016 group revenue = sales of DR’s Secret brand of products
Inventories of SGD 43.8 m is at all time high as at 1Q2017
43.8 m worth of inventories could potentially turn into 146 m of sales, based on gross profit margin of 70%.
Seems like lots of inventories to me now.
 
Pace and number of DS license granted to BabyCare after being acquired by Usana in 2010:
 
It is going to be a long jurney I reckon………………..
 
For BWI/BWL/BWZ, the journey has yet to begin
 
When is BWI going to report its first China DS revenue ?
 
August 2010:
Usana acquires BabyCare Ltd (come with a DS license for Beijing)
 
Feb 2013:
Additional 3 DS license granted for Jiangsu province, Shanxi province and Tianjin
 
May 2016:
Additional 8 DS lincense granted for Liaoning Province, Shandong Province, Shanxi Province, Sichuan Province, Guangdong Province, Dalian City, Qingdao City, and Shenzhen City.
 
USANA Health Sciences Acquires BabyCare Ltd, a Direct Selling Company in China 
http://www.usana.com/UPLOADS/usana/2010/...1_QAA.html
 
USANA Health Sciences’ China Subsidiary BabyCare Ltd. Receives Approval for Three Additional Direct Selling Licenses in Mainland China
http://phx.corporate-ir.net/phoenix.zhtm...&highlight=

USANA Receives Approval for 8 Additional Licenses in China
https://www.businessforhome.org/2016/05/...-in-china/
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