Best World

[Boon]

BTW,

Page 19 of FY2017 results:

1. "For 1H2018, exports to China may be categorised as China Wholesale as we will be importing China orders through our China subsidiary, Best World (China) Pharmaceutical Co., Ltd (formerly known as Best World (Zhejiang) Pharmaceutical Co., Ltd.)" 

Best World (Zhejiang) Pharmaceutical Co., Ltd.) became BWCP.

BWCP has DS license for 6 Aurigen products and in Hangzhou only but not for BWL line of products. 

[chialc88]

Roger, mate.
=substitute(thisThread->post#810, "DS", "DS outside HZ or for imported goods", 5)

[Boon]

Page 19 of 4Q2017 results:
“As previously announced, conversion of the Export business to Direct Selling shall be implemented in phases. Management expects first phase conversion to commence during the first half of FY2018. Revenue from the Export Segment may decline during the course of conversion, as the Group will concurrently export to the Export Agent and our China subsidiary”.
 
Page 12 of AR2017:
“During the transition from Export to China Wholesale, Group revenue in 1Q2018 from Export segment is expected to be minimal as the Group will be importing into China through its wholly owned subsidiary, Best World (China) Pharmaceutical Co., Ltd. (“BWCP”). All exports under this arrangement will not be captured as “export revenue” as the inventory is still within the Group. When specific stock keeping unit (“SKU”) on the agent’s side are depleted, all China distributors’ orders for the specific SKU will then be fulfilled by BWCP. The revenue from these orders will then be captured under China Wholesale. We expect revenue from this segment to commence in 2Q2018 and will reach full conversion when the inventory on agent’s side is completely depleted. In other words, low export sales in 1Q 2018 does not reflect the true market demand.”
 
page 13 of 1Q2018 results:
“In line with the last results announcement, the Group took its first step in converting the Export segment into the new segment of China Wholesale in 1Q2018. During the transition, some stock keeping units (SKU) of the Group’s brands were imported into China with the Group’s subsidiary Best World (China) Pharmaceutical (BWCP), replacing the previous agent as the new sole importing agent. As these exports are through the Group’s subsidiary BWCP, no export revenue or profit can be recognized until such point that the products are sold to BWL Experience Centres. 
Taking the above into consideration and because the Export Agent had already received their inventory for 1H2018 in 4Q2017, technically, no Export should be required for 1Q2018. However, due to strong market demand in 1Q2018 resulting in stock shortages for some SKUs on the Agent’s side, $8.0 million of Export were still required in 1Q2018. “
 
Page 15 of 1Q2018 results :
“The conversion of Export to the new China Wholesale segment is expected to extend into 2Q2018 as export agent continues to deplete its inventory. Revenue from the Export Segment in 2Q2018 is also expected to be lower than that of 2Q2017. The Group’s China subsidiary BWCP may be able to register its first revenue contribution for the China Wholesale segment in 2H2018”
_________________________________________________________________________________________________________________
 
1Q2018:
China Export revenue = 6.005 m (vs 20.555 m in 1Q2017)
China Wholesale revenue = 0
 
2Q2018:
Expect China Export revenue to be lower than 2Q2017 ( 25.307 m)
How much lower?
China Wholesale revenue = Expected to be zero.
 
2H2018:
China Export Revenue would be trending towards zero as EA’s SKU is being fully depleted.
The Group’s China subsidiary BWCP may be able to register its first revenue contribution for the China Wholesale segment in 2H2018”
 
FY2018:
Taiwan revenue keeps declining and is expected to be lower compared to FY2017…
It looks like China Export revenue is expected to substantially lower as well, compared to FY2017.
Would China Wholesale revenue, which could kick in only in 2H2018 be enough to make up for lower Taiwan and China Export revenue throughout the whole year to make FY2018 results better than FY2017? Only time will tell…….but it doesn’t look good does it?……………….
 
Question:
Why is it going to take so long to register the FIRST China Wholesale revenue?
This was expected to happen in 2Q2018, but now it may only happen in 2H2018 ………..
If demand is so good, stock turnover should be quick, EA’s inventory would be depleted rather quickly, resulting in earlier commencement of China Wholesale revenue recognition………but this doesn’t appear to be the case………………. 

The only answer I could think of is EA has been sitting on too much inventory which means demand is not that good after all…

[Coco]

Boon, thanks for yr sharing and detailed numbers.

Regarding yr forecast "2Q2018: China Wholesale revenue = Expected to be zero."
This is highly unlikely to be the case. I reason that with fast sales in 1Q18 and 2Q18, the export agent's inventory of many SKUs will be depleted in 2Q and thus China Wholesale revenue will kick in. How much China Wholesale will be in 2Q18 is anyone's guess but it is highly unlikely to be zero as you wrote.

As you quoted (Page 12 of AR2017), Best World has said : "We expect revenue from this segment to commence in 2Q2018 and will reach full conversion when the inventory on agent’s side is completely depleted."

[Boon]

Boon, thanks for yr sharing and detailed numbers.

Regarding yr forecast "2Q2018: China Wholesale revenue = Expected to be zero."
This is highly unlikely to be the case. I reason that with fast sales in 1Q18 and 2Q18, the export agent's inventory of many SKUs will be depleted in 2Q and thus China Wholesale revenue will kick in. How much China Wholesale will be in 2Q18 is anyone's guess but it is highly unlikely to be zero as you wrote.

As you quoted (Page 12 of AR2017), Best World has said : "We expect revenue from this segment to commence in 2Q2018 and will reach full conversion when the inventory on agent’s side is completely depleted."

Hi Coco,

I also quoted:

Page 15 of 1Q2018 results :
“The conversion of Export to the new China Wholesale segment is expected to extend into 2Q2018 as export agent continues to deplete its inventory. Revenue from the Export Segment in 2Q2018 is also expected to be lower than that of 2Q2017. The Group’s China subsidiary BWCP may be able to register its first revenue contribution for the China Wholesale segment in 2H2018”

In AR2017, Management guided that FIRST revenue contribution for China Wholesale segment would commence in 2Q2018. Subsequently (in 1Q2018 results announcement), the timeline has been changed to 2H2018.

If demand is so good, why is it going to take so long to register its FIRST China Wholesale revenue?

From the perspective of "inventory turnover" it means slow "stock turnover, which means sales has been slow. This is "inconsistent" with the Management's claim that demand has been high..................................

[Millionfaith]

Boon, thanks for yr sharing and detailed numbers.

Regarding yr forecast "2Q2018: China Wholesale revenue = Expected to be zero."
This is highly unlikely to be the case. I reason that with fast sales in 1Q18 and 2Q18, the export agent's inventory of many SKUs will be depleted in 2Q and thus China Wholesale revenue will kick in. How much China Wholesale will be in 2Q18 is anyone's guess but it is highly unlikely to be zero as you wrote.

As you quoted (Page 12 of AR2017), Best World has said : "We expect revenue from this segment to commence in 2Q2018 and will reach full conversion when the inventory on agent’s side is completely depleted."

@Coco,

If I am correct, the recognition of revenue under wholesale revenue is different. Unlike export revenue, when shipment is out, it is recorded as revenue. Under wholesale revenue, it is recorded as revenue when the order is consumed by its consumers in the lifestyle centers. The stocks under export model must be fully depleted before wholesales stocks kick in.

According to my understanding, demand is strong (actual demand is stronger than before). However, with several months of additional inventory (upto 6 months) loaded earlier via the export model in anticipation of the custom held up due to unforeseen reasons, for an outsider like myself, it is difficult to have a good interpretation on the actual consumption. Mgmt highlighted the need to stocked up is because once the transition for a particular SKU starts, the "export route" for that SKU will be ceased officially and it cannot be reverted back. Hence mgmt is rather caution to ensure enough stocks are on the shelves. For products on the daily use routine (& esp on women face), shortage for long period means fatal!

I expect 2q 2018 to be slow because of the transition (and hopefully not because of actual consumption). But let's see

[dreamybear]

Company Announcement - Best World 28th Annual International Convention: A New Milestone
Jul 03, 2018

▪ First convention held by Group in mainland China and the largest for the Group to date
▪ New Franchise Wholesale segment announced for China from 2H2018, replacing the China Export model
▪ Group remains cautiously optimistic about profit growth for FY2018 compared to FY2017

......................................

Opening the convention with a heartening address, Co-Chairman and Group CEO of Best World, Dr Dora Hoan spoke in depth about the business direction of the Group while also taking the opportunity to announce to China distributors and customers present at the event, the official launch of the Group’s new franchise business model for China from 2H2018 onwards. This comes in pursuant to the Group’s receipt of its Commercial Franchise Certificate (商业特许经营证书) from the Ministry of Commerce in April this year, which is an extension of the Group’s current strategy to establish its presence throughout mainland China using mainly distributors operated outlets  .....................

Commenting at the convention, Executive Director and Group Chief Operating Officer, Mr Huang Ban Chin, said, “China continues to represent a high growth market for the Group. With actual demand for our brand offerings in 1H2018 stronger than that of prior corresponding period, coupled with the completion of our business model conversion into what will be known as Franchise Wholesale, we expect 2H2018 to be a strong second half for the Group. As of date, we have signed 27 franchisees for key cities of Hunan, Guangdong, Zhejiang and Heilongjiang provinces. In line with what we had previously announced, we remain cautiously optimistic of being able to achieve profit growth for the Group in FY2018, as compared to FY2017.”

The full English and Chinese pdf attachments can be found in http://bestworld.listedcompany.com/news.html/id/668153

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

Hmmmm, it seems that other than Direct Selling(for Aurigen products in Hangzhou), BWI's other new China expansion plan is the franchise model(replacing export model).... and the latter seems to be the focus for China moving forward(presumably for the selling of all BWI products).

[Boon]

Company Announcement - Best World 28th Annual International Convention: A New Milestone
Jul 03, 2018

▪ First convention held by Group in mainland China and the largest for the Group to date
▪ New Franchise Wholesale segment announced for China from 2H2018, replacing the China Export model
▪ Group remains cautiously optimistic about profit growth for FY2018 compared to FY2017

......................................

Opening the convention with a heartening address, Co-Chairman and Group CEO of Best World, Dr Dora Hoan spoke in depth about the business direction of the Group while also taking the opportunity to announce to China distributors and customers present at the event, the official launch of the Group’s new franchise business model for China from 2H2018 onwards. This comes in pursuant to the Group’s receipt of its Commercial Franchise Certificate (商业特许经营证书) from the Ministry of Commerce in April this year, which is an extension of the Group’s current strategy to establish its presence throughout mainland China using mainly distributors operated outlets  .....................

Commenting at the convention, Executive Director and Group Chief Operating Officer, Mr Huang Ban Chin, said, “China continues to represent a high growth market for the Group. With actual demand for our brand offerings in 1H2018 stronger than that of prior corresponding period, coupled with the completion of our business model conversion into what will be known as Franchise Wholesale, we expect 2H2018 to be a strong second half for the Group. As of date, we have signed 27 franchisees for key cities of Hunan, Guangdong, Zhejiang and Heilongjiang provinces. In line with what we had previously announced, we remain cautiously optimistic of being able to achieve profit growth for the Group in FY2018, as compared to FY2017.”

The full English and Chinese pdf attachments can be found in http://bestworld.listedcompany.com/news.html/id/668153

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

Hmmmm, it seems that other than Direct Selling(for Aurigen products in Hangzhou), BWI's other new China expansion plan is the franchise model(replacing export model).... and the latter seems to be the focus for China moving forward(presumably for the selling of all BWI products).

Ha-ha !
 
From China Export model to China Wholesale model, now it has become China Franchise Wholesale model.
 
China Franchise Wholesale is a completely different model from the China DS model. 
 
Has BWI decided to abandon the pursue of its China DS model for its BWL lines of product in China? Why ?
 
The Commercial Franchise Certificate (商业特许经营证书) from the Ministry of Commerce in April this yearwas obtained in April, but disclosure has just been made…………..

[Millionfaith]

Company Announcement - Best World 28th Annual International Convention: A New Milestone
Jul 03, 2018

▪ First convention held by Group in mainland China and the largest for the Group to date
▪ New Franchise Wholesale segment announced for China from 2H2018, replacing the China Export model
▪ Group remains cautiously optimistic about profit growth for FY2018 compared to FY2017

......................................

Opening the convention with a heartening address, Co-Chairman and Group CEO of Best World, Dr Dora Hoan spoke in depth about the business direction of the Group while also taking the opportunity to announce to China distributors and customers present at the event, the official launch of the Group’s new franchise business model for China from 2H2018 onwards. This comes in pursuant to the Group’s receipt of its Commercial Franchise Certificate (商业特许经营证书) from the Ministry of Commerce in April this year, which is an extension of the Group’s current strategy to establish its presence throughout mainland China using mainly distributors operated outlets  .....................

Commenting at the convention, Executive Director and Group Chief Operating Officer, Mr Huang Ban Chin, said, “China continues to represent a high growth market for the Group. With actual demand for our brand offerings in 1H2018 stronger than that of prior corresponding period, coupled with the completion of our business model conversion into what will be known as Franchise Wholesale, we expect 2H2018 to be a strong second half for the Group. As of date, we have signed 27 franchisees for key cities of Hunan, Guangdong, Zhejiang and Heilongjiang provinces. In line with what we had previously announced, we remain cautiously optimistic of being able to achieve profit growth for the Group in FY2018, as compared to FY2017.”

The full English and Chinese pdf attachments can be found in http://bestworld.listedcompany.com/news.html/id/668153

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

Hmmmm, it seems that other than Direct Selling(for Aurigen products in Hangzhou), BWI's other new China expansion plan is the franchise model(replacing export model).... and the latter seems to be the focus for China moving forward(presumably for the selling of all BWI products).

Ha-ha !
 
From China Export model to China Wholesale model, now it has become China Franchise Wholesale model.
 
China Franchise Wholesale is a completely different model from the China DS model. 
 
Has BWI decided to abandon the pursue of its China DS model for its BWL lines of product in China? Why ?
 
The Commercial Franchise Certificate (商业特许经营证书) from the Ministry of Commerce in April this yearwas obtained in April, but disclosure has just been made…………..

To me, DS model, export model, franchise model are all marketing strategies. Important to me is that the model chosen must be able to conduct its business without much legality, regulatory, risk issues and at the same time, the model is sustainable with reasonable profit margin to the company. With that, I actually think this is better for investors for now.

The fact/truth is BW has already selling its products in China, and so far the sales seems picking speed. Without the risk of DS agents recruiting in an "undisciplined" manner, tarnishing the business, I actually feel more at ease.

[Boon]

Company Announcement - Best World 28th Annual International Convention: A New Milestone
Jul 03, 2018

▪ First convention held by Group in mainland China and the largest for the Group to date
▪ New Franchise Wholesale segment announced for China from 2H2018, replacing the China Export model
▪ Group remains cautiously optimistic about profit growth for FY2018 compared to FY2017

......................................

Opening the convention with a heartening address, Co-Chairman and Group CEO of Best World, Dr Dora Hoan spoke in depth about the business direction of the Group while also taking the opportunity to announce to China distributors and customers present at the event, the official launch of the Group’s new franchise business model for China from 2H2018 onwards. This comes in pursuant to the Group’s receipt of its Commercial Franchise Certificate (商业特许经营证书) from the Ministry of Commerce in April this year, which is an extension of the Group’s current strategy to establish its presence throughout mainland China using mainly distributors operated outlets  .....................

Commenting at the convention, Executive Director and Group Chief Operating Officer, Mr Huang Ban Chin, said, “China continues to represent a high growth market for the Group. With actual demand for our brand offerings in 1H2018 stronger than that of prior corresponding period, coupled with the completion of our business model conversion into what will be known as Franchise Wholesale, we expect 2H2018 to be a strong second half for the Group. As of date, we have signed 27 franchisees for key cities of Hunan, Guangdong, Zhejiang and Heilongjiang provinces. In line with what we had previously announced, we remain cautiously optimistic of being able to achieve profit growth for the Group in FY2018, as compared to FY2017.”

The full English and Chinese pdf attachments can be found in http://bestworld.listedcompany.com/news.html/id/668153

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

Hmmmm, it seems that other than Direct Selling(for Aurigen products in Hangzhou), BWI's other new China expansion plan is the franchise model(replacing export model).... and the latter seems to be the focus for China moving forward(presumably for the selling of all BWI products).

Ha-ha !
 
From China Export model to China Wholesale model, now it has become China Franchise Wholesale model.
 
China Franchise Wholesale is a completely different model from the China DS model. 
 
Has BWI decided to abandon the pursue of its China DS model for its BWL lines of product in China? Why ?
 
The Commercial Franchise Certificate (商业特许经营证书) from the Ministry of Commerce in April this yearwas obtained in April, but disclosure has just been made…………..

To me, DS model, export model, franchise model are all marketing strategies. Important to me is that the model chosen must be able to conduct its business without much legality, regulatory, risk issues and at the same time, the model is sustainable with reasonable profit margin to the company. With that, I actually think this is better for investors for now.

The fact/truth is BW has already selling its products in China, and so far the sales seems picking speed. Without the risk of DS agents recruiting in an "undisciplined" manner, tarnishing the business, I actually feel more at ease.

(Product) marketing strategies are “strategies”.
 
“Advertising” could be a marketing strategy to promote brand awareness and to increase sales.
 
“Price discounting” could be marketing strategy to increase sales and capture more market shares  
 
Business models are “structures”.
 
DS, franchising, brick-and-mortar, click-and-mortar etc. are different types of business models. 
 
“Structures” are not  “strategies” – "Business models" are not “marketing strategies”, IMO.
 
Depending on the products, certain marketing strategies are more suited for certain business models than others. For example, advertising is a commonly adopted marketing strategy in franchising (like KFC, Macdonald etc.) for promoting brand awareness and drive sales - whereas DS companies don’t spend any dollar on advertising, it relies on “words of mouths”
 
In other words, the suitability of the business model is important, so is the fit (or lack of fit) between product market strategy and business model as how they interact would have wide implications on the performance of the company.
 
So, what makes you think this “franchise wholesale model” is better for investors for now?
 
The risk of recruiting in an "undisciplined" manner, tarnishing the business could still exist, couldn’t it? If the DS agent could do it, so could the franchisee?
 
Page 12 of AR2017:
“For FY2018, while the Group’s China management continue to work with our distributors to set up more BWL Experience Centres (全美世界体验馆) in various cities located throughout China where we already have established good market presence, we will also progressively convert our current export model in China to a new business segment, otherwise known as China Wholesale. Given that direct selling business model in China is unique to the country, we deliberately created this segment to differentiate it from the Direct Selling we practice in all other markets.”
 
What is so unique about DS business model in China compared to BWI’s other DS markets?
 
Call it “Export model”, Wholesale model” or “Franchise wholesale model”, or whatever...............................questions remain : without the incentive of “illegal multi-level-compensation structure”, how motivated are these “franchisees” going to drive sales?