Best World

[grandslam]

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There is quite substantial Q&A on the low export sales in 1Q2018(ref : pg 12/13 AR), but basically the reason is as per given in the AR.

.........(truncated)

"There is quite substantial Q&A on the low export sales in 1Q2018(ref : pg 12/13 AR), but basically the reason is as per given in the AR."

Hi Dreamybear,

The reason given in 4Q/FY2017 results is: 

“As Export Agent had placed their orders for the next three to six months in 4Q2017, there is a possibility that 1Q2018 may be weaker than 1Q2017”.

whereas reason given in AR2017 (page 12/13) is "the conversion from Export Model to China Wholesale Model".

Why the inconsistency ?

Hi Boon,

Some shareholders were worried abt the possible drop in share price because of this low export in 1Q2018, so during the AGM, they wanted to clarify with HBC.

I think it is the “manner” in which it is written. BW is currently shifting from

Existing Export Agent(EA) model : BW > EA > Beauty/Hair Salons > Members/Customers  

to

New China wholesale model : Subsidiary BW China Pharmaceutical Co. (BWCP) > Exp Center(converted fr Beauty/Hair Salons) > Members/Customers.

Because there is a change in company(from EA to BWCP) importing products into China, there are additional paperwork to be approved by the Chinese govt. During this transition period, mgmt wants to factor in any delays which may arise from obtaining the necessary approvals. Hence in 4Q2017, BW deliberately imported more goods(i.e. 3 – 6 months worth) through EA, in case all the paperwork for BWCP hasn’t been sorted out by 1Q2018. This wil ensure ample supply for goods in China throughout 1Q2018.

So for 1Q2018, the revenue in the Export segment will be minimal(since already acct for in 4Q2017 revenue as additional supply were imported as a buffer). I guess in the event that the additional supply of goods imported through EA during 4Q2017 are not exhausted by 1Q2018,  the 2Q2018 overall revenue figures will be compacted too. (once BWCP is in operation, revenue will be captured under China Wholesale category.)  

------------

On a separate note(welcome views from all forumers) , since mgmt mentioned China Direct Selling regulation to be “3 levels 2 layers”(translated from Chinese), does it mean the following structure :

BWCP (level 1)

      | (Layer1)

Exp Center (EC) / Distributors  (level 2)     < earn DS commission >

     | (Layer 2)

Customers (level 3)

If this is the case, does it mean
1.  Since only 1 level of commission is allowed, each BW China distributor has to work harder than traditional MLM because he/she cannot leverage off the network effect ? 
2.  Unless a person has the capital to open a EC, he/she cannot be a distributor ?

Would be grateful if anyone who is currently a China DS can share some insights.

There is nothing stopping both EA and BWCP from importing products into China at the SAME time, is there?
 
Why must EA stop importing BEFORE BWCP starts importing? (or why must BWI stop exporting to EA BEFORE it starts exporting its own products to its China subsidiary, BWCP ?)
 
Logically, to assure “continuity” of supply in China, BWI must ensure that BWCP would have imported enough stocks into China BEFORE stopping supplying to EA (through exporting). And this is the pre-condition that could be planned way ahead.
 
If BWCP failed to import any products into China, BWI would just have to keep exporting through to EA, wouldn't it ? 
 
Therefore, the argument that “BW deliberately imported more goods(i.e. 3 – 6 months worth) through EA, in case all the paperwork for BWCP hasn’t been sorted out by 1Q2018. This wil ensure ample supply for goods in China throughout 1Q2018” doesn’t make sense to me.

I believe there are questions on why there is a need in the first place to pre order 6 months of goods for a conversion. And would that mean that last year's profit has been artificially bumped up by multiples? It won't be a straight 1.5x of profit for 6 months of goods, but rather a higher multiple on that with the fixed cost associated with the firm. How should last year's China export figures be interpreted?

In the 1Q report, its troubling to see Taiwan's revenue continue to spiral down. A 35% drop Y-O-Y with Q12017 already registering circa 8% drop Y-O-Y from 2016. As per previous concerns, will it follow down the path to being included as "Others" like the other prominent markets it used to have? It will be interesting to track Taiwan progress in order to gauge their staying power in a market, which up till now does not have a good track record.

Let me do some assumption to arrive a simple estimation for China actual sales
1. Receivable all coming from China sales. (Of course not true, but mostly from China export should hold)
2. There is no product shortage at the end of the quarter.

What is receivable in China? they are products shipped to China, recorded, not yet sold. So this is as good as inventory.
Previous quarter Receivable+ current quarter China export - current quarter Receivable = Current Quarter sales in China

Do correct me if my thinking is at fault

[Boon]

https://www.nextinsight.net/story-archiv...-in-2h2017

Best World's chief operating officer, Huang Ban Chin, didn't overstate things when he said in an interview with Business Times last week: “The company is on track to hit analyst targets of S$41 million to S$44 million of net profit for 2017. This translates to a 20-30 per cent improvement from 2016.” 

What drove profit growth in 1H2017 was demand for Best World’s DR’s Secret skincare range of products in China. This will continue to be the thrust in 2H2017, as Best World widens its outreach to Chinese consumers.

Seems like BWI is not affected by the crackdown in China and they are on track to achieve $41mm to $44m NPAT in line with analyst estimates. A company that continue to deliver value to both its customer and to society will continue to thrive and do well. BWI stock price is also starting to recover from the crash.

Without the “illegal multi-level-compensation structure”, how would the “real” demand be? How would the “real” sales figure be? “The COO didn’t overstate things”, it got to be kidding, I reckon.

Boon,

I'm wondering what caused you to change your view on Best World.

In May 2017, you were bullish:

Share price closed at 2.81 (post-bonus) or 3.51 (pre-bonus)  – another new all time high record. 

  Based on  0.24 (pre-bonus) a share, it is inching closer to 15-bagger now

https://www.valuebuddies.com/thread-1033-page-44.html


But in Sep 2017, you doubted and wrote:

Without the “illegal multi-level-compensation structure”, how would the “real” demand be? How would the “real” sales figure be? “The COO didn’t overstate things”, it got to be kidding, I reckon.

https://www.valuebuddies.com/thread-1033-page-76.html

Ha-ha ! Seems to me that you are asking the "obvious"................Without the “illegal multi-level-compensation structure”, how would the “real” demand be?

Hi Boon,

Would you be able to provide us with your insights to why you changed your mind?

Also, what are you referring to that is "obvious"?

Put it this way to make it more interesting:

Where do you get your "insights" that I have changed my mind in the first place ? Was it "obvious" to you ?

[Squirrel]

The company seem to be buying back shares actively. The management buying shares is a good vote of confidence for the company. But share buybacks by the company itself though is not really my cup of tea. If it was a planned buyback to improve shareholder value thats fine but this just looks like an attempt to shore up the traded price of the shares on the market.

[moneyspinner]

This is not a good sign. How much cash does the company has to shore up their share price? The proper way to improve the share price is to improve their business prospects. They should stabilise their Taiwan market and resolve whatever issues they have with their conversion to the wholesale model asap!

[Boon]

Taiwan Revenue (SGD million)
1Q2014 =   2.418   (= 11% of FY2014 Revenue)
2Q2014 =   4.157   (= 18% of FY2014 Revenue)
3Q2014 =   4.940   (= 22% of FY2014 Revenue) 
4Q2014 = 11.196   (= 49% of FY2014 Revenue) 
(FY2014  = 22.711)
1Q2015 = 4.465     (=   8% of FY2015 Revenue)
2Q2015 = 10.244   (= 18% of FY2015 Revenue)
3Q2015 = 14.125   (=  25% of FY2015 Revenue) 
4Q2015 = 27.559   (=  49% of FY2015 Revenue) 
(FY2015  = 56.393)
1Q2016 = 20.221   (= 16% of FY2016 Revenue)
2Q2016 = 35.056   (= 29% of FY2016 Revenue)
3Q2016 = 27.602   (= 22% of FY2016 Revenue)
4Q2016 = 40.048   (= 33% of FY2016 Revenue)
(FY2016 = 122.959)
1Q2017 = 18.685   (= 21% of FY2017 Revenue)
2Q2017 = 23.115   (= 26% of FY2017 Revenue)
3Q2017 = 14.890   (= 17% of FY2017 Revenue)
4Q2017 = 31.271   (= 36% of FY2017 Revenue)
(FY2017 =87.961)
1Q2018 = 12.091
 
Taiwan peaked in FY2016 and has been declining since………

China Revenue (SGD million) = Export Revenue + MW Revenue:
1Q2014 =  2.195 
2Q2014 =  3.296 
3Q2014 =  3.117 
4Q2014 =  4.372  
(FY2014  =12.980) (Export=5.912 ; MW= 7.068)
1Q2015 =  3.088 
2Q2015 =  5.366
3Q2015 =  4.805
4Q2015 =  6.512  
(FY2015  =19.771) (Export = 13.077 ; MW = 6.694)
1Q2016 =10.566  (Export = 9.609 ; MW= 0.957)
2Q2016 =11.813  (Export =10.777 ;MW =1.036)
3Q2016 =19.641  (Export =18.563 ; MW=1.078) 
4Q2016 =15.841  (Export =14.249 ; MW =1.592)
(FY2016 = 57.861) (Export= 53.198 ; MW = 4.663)
1Q2017= 21.417  (Export = 20.555 ; MW = 0.862)
2Q2017= 26.552  (Export = 25.307 ; MW = 1.245)
3Q2017= 26.187  (Export = 24.051 ; MW = 1.068)
4Q2017= 36.305  (Export = 34.945 ; MW = 1.360)
(FY2017=110.462) (Export = 105.927; MW = 4.535)
1Q2018 = 6.809    (Export =   6.005 ; MW = 0.804)
 
For China Export in 4Q2017 and 1Q2018, if we adopt an average Export revenue of (34.945 + 6.005) /2 = 20.475 for each quarter, it looks as though China  Export revenue has not been growing  over the past 4 to 5 quarters………..ha-ha !

What would be the likely OVERALL FY2018 results ?

[Wonderful Wang]

Without the “illegal multi-level-compensation structure”, how would the “real” demand be? How would the “real” sales figure be? “The COO didn’t overstate things”, it got to be kidding, I reckon.

Boon,

I'm wondering what caused you to change your view on Best World.

In May 2017, you were bullish:

Share price closed at 2.81 (post-bonus) or 3.51 (pre-bonus)  – another new all time high record. 

  Based on  0.24 (pre-bonus) a share, it is inching closer to 15-bagger now

https://www.valuebuddies.com/thread-1033-page-44.html


But in Sep 2017, you doubted and wrote:

Without the “illegal multi-level-compensation structure”, how would the “real” demand be? How would the “real” sales figure be? “The COO didn’t overstate things”, it got to be kidding, I reckon.

https://www.valuebuddies.com/thread-1033-page-76.html

Ha-ha ! Seems to me that you are asking the "obvious"................Without the “illegal multi-level-compensation structure”, how would the “real” demand be?

Hi Boon,

Would you be able to provide us with your insights to why you changed your mind?

Also, what are you referring to that is "obvious"?

Put it this way to make it more interesting:

Where do you get your "insights" that I have changed my mind in the first place ? Was it "obvious" to you ?

Were you not cheering Best World on 22-2-2017: 


Comments:
1)  Excellent set of record-breaking results in many respects – within my expectation though.
2)  2-for-1 share split is a bit of a surprise after the recent bonus issues – but it would be good for market liquidity though. 
3)  Management believes that China will be its fastest growing market for at least the next three to five years, barring any unforeseen circumstances. 
4)  Mangement is still bullish on Taiwan
5) As the saying goes: "the best is yet to be…………….." 

https://www.valuebuddies.com/thread-1033-page-42.html

[Boon]

Boon,

I'm wondering what caused you to change your view on Best World.

In May 2017, you were bullish:

Share price closed at 2.81 (post-bonus) or 3.51 (pre-bonus)  – another new all time high record. 

  Based on  0.24 (pre-bonus) a share, it is inching closer to 15-bagger now

https://www.valuebuddies.com/thread-1033-page-44.html


But in Sep 2017, you doubted and wrote:

Without the “illegal multi-level-compensation structure”, how would the “real” demand be? How would the “real” sales figure be? “The COO didn’t overstate things”, it got to be kidding, I reckon.

https://www.valuebuddies.com/thread-1033-page-76.html

Ha-ha ! Seems to me that you are asking the "obvious"................Without the “illegal multi-level-compensation structure”, how would the “real” demand be?

Hi Boon,

Would you be able to provide us with your insights to why you changed your mind?

Also, what are you referring to that is "obvious"?

Put it this way to make it more interesting:

Where do you get your "insights" that I have changed my mind in the first place ? Was it "obvious" to you ?

Were you not cheering Best World on 22-2-2017: 


Comments:
1)  Excellent set of record-breaking results in many respects – within my expectation though.
2)  2-for-1 share split is a bit of a surprise after the recent bonus issues – but it would be good for market liquidity though. 
3)  Management believes that China will be its fastest growing market for at least the next three to five years, barring any unforeseen circumstances. 
4)  Mangement is still bullish on Taiwan
5) As the saying goes: "the best is yet to be…………….." 

https://www.valuebuddies.com/thread-1033-page-42.html

1)  FY2016 was the best ever record at that time – nothing could change my views on that
2)   Bonus plus share split has certainly improved market liquidity IMO - my view has not changed on that.
3)  That was management’s view at that time - my views have certainly changed.
4)  That was management’s view at that point in time – how bullish is the management on Taiwan now? How bullish are investors on Taiwan now? How bullish are you on Taiwan now?
5)  Nothing wrong with that statement at that time as FY2017 results turned out to be even better than FY2016.
 
Overall,
time has changed,
growth momentum has changed,
underlying assumptions in my analysis have changed
fundamental of the company has changed,
share price has changed,
valuation has changed,
risk has changed
risk and return profile of BWI has changed…………………………………..
 
Should I be as bullish on BWI as when the share price was still at 24 cents (pre-bonus, pre-split) ?

[Wonderful Wang]

Ha-ha ! Seems to me that you are asking the "obvious"................Without the “illegal multi-level-compensation structure”, how would the “real” demand be?

Hi Boon,

Would you be able to provide us with your insights to why you changed your mind?

Also, what are you referring to that is "obvious"?

Put it this way to make it more interesting:

Where do you get your "insights" that I have changed my mind in the first place ? Was it "obvious" to you ?

Were you not cheering Best World on 22-2-2017: 


Comments:
1)  Excellent set of record-breaking results in many respects – within my expectation though.
2)  2-for-1 share split is a bit of a surprise after the recent bonus issues – but it would be good for market liquidity though. 
3)  Management believes that China will be its fastest growing market for at least the next three to five years, barring any unforeseen circumstances. 
4)  Mangement is still bullish on Taiwan
5) As the saying goes: "the best is yet to be…………….." 

https://www.valuebuddies.com/thread-1033-page-42.html

1)  FY2016 was the best ever record at that time – nothing could change my views on that
2)   Bonus plus share split has certainly improved market liquidity IMO - my view has not changed on that.
3)  That was management’s view at that time - my views have certainly changed.
4)  That was management’s view at that point in time – how bullish is the management on Taiwan now? How bullish are investors on Taiwan now? How bullish are you on Taiwan now?
5)  Nothing wrong with that statement at that time as FY2017 results turned out to be even better than FY2016.
 
Overall,
time has changed,
growth momentum has changed,
underlying assumptions in my analysis have changed
fundamental of the company has changed,
share price has changed,
valuation has changed,
risk has changed
risk and return profile of BWI has changed…………………………………..
 
Should I be as bullish on BWI as when the share price was still at 24 cents (pre-bonus, pre-split) ?

Thank you for confirming that you were bullish on Best World before, but has now changed your mind.

Did it not occur to you earlier that the business model of the company is not sustainable?

At recruitment sessions, the usual tactic is to excite prospective distributors by getting them to scream and stomp.  

In you post of 15 Feb 2017, you were hopeful of Best World setting new records in Taiwan in 2017.

相信今年45億目標，我們將肯定達成

2017 Revenue target for BWL Taiwan has been set at TWD 4,500 million (which is > SGD 200 m). Wow !!!!!!!!!!!!!!

https://www.valuebuddies.com/thread-1033-page-42.html

[Boon]

Good morning Boon and valuebuddies.

Wish everyone a blessed and blissed Vesak Day in advanced.

I really wanted to thanks all our valuebuddies for the information.

Boon's initiation post at midnight 26 Feb 2012 was an excellent example of how I make use and benefited from valuebuddies.com.
link

Life was very easy.

Yes, boon was vested in 5ER.

Thou I am not vested in CGN now, I still keen in her development.

I have a strange feeling that our D2/HBC is trying to do the right things but facing tremendous problems in execution.

I guess... like what other sifu mentioned...(fill in the blank yourselves).

In any case, my google home page is still pointing at bwl's execution plan  

Good morning chialc88,

BWCP is replacing EA for importing BWL lines of products into China…………………..
 
From “China Export Model” to “China Wholesale Model”……………….to me, it remains as “DS with multi-level compensation structure in disguise”……….
 
Under the Export model, non of BWI’s legal entity was involved in the domestic distribution of its products in China……………..
 
However, under the China Wholesale model, BWCP would be involved as a "Wholesaler" and that’s a bigger risk to BWI…………………..
 
There is nothing “magical” about replacing “China Export revenue” with “China Wholesale revenue”…..
 
Question remains: when could BWI deliver its FIRST China DS revenue ?

[chialc88]

Good morning Boon and other valuebuddies.
Enjoy a nice and cool day ahead.

Dear Boon,
Exactly my points too.
Oh, BTW, my home page still locked at BWI initiatives 
and got good, got bad.
Good is - I hope one day when things change, I might be the first one to catch the alert.
Bad is -  it's waning off my patients every time I fire up my browser.

Back to your question and I couldn't agree more with you.

So, just add a few of my thinking process for your considerations:
1. Best World (China) Pharmaceutical Co. Ltd. "BWCP" is definitely not given THE direct selling license (DS outside HZ or for imported goods).
2. If BWCP practising DS outside HZ or for imported goods in China, then aiyo... that's the reason why I sold all my CGN on 11th July 2017, in a single day.
3. So, if BWCP is not DS outside HZ or for imported goods, then what is it? 
4. And, of course, what's the impact to BWI?

My understanding is BWCP is simply replacing previous agent as the NEW sole importing agent in China.
The changing of business model from Export to Wholesale 
simply the way products are imported into China
and of course, impacted how revenue is recognised too.
It's definitely not DS outside HZ or for imported goods (yet).
I think this is just one step for D2/HBC to realised their vision in China.

After successful conversion, we will expects:
1. higher revenue and gross profit
    due to higher rev recognition at a price higher than export price
2. lower net profits due to increase in operating expenses (e.g. mgt & staff cost)
3. impact cash / cashflow is not very clear to me 
4. risk can be negative as BWCP is a BWI's subsidiary
    but could be positive as this could give D2/HBC a little bit more control of China's promotional activities.

Thanks for reading and thank you, Boon, once again for sharing such a wonderful opportunity.