Best World

[Boon]

What a coincidence. Posted the same thing as Boon.

Ha-ha ! And we made the same observations on its cost structure.

(vested)

[kelvesy]

Under Adminstrative Expense (AE), there are two costs.

For Employee Benefits Expenses | Rental of Premises:
2013: 9,455 - 7.5% increment | 2,954 - negative 24.3% drop
2012: 8,793 - 5.2% increment | 3,901 - 14.8% increment
2011: 8,362 - 1.6% increment | 3,397 - 16.6% increment
2010: 8,227 | 2,914

There seem to be some attempts to control Administrative Expenses, such as relocation of their Singapore subsidiary to its Market Street office. It still remains high due to the one-off professional fees incurred for the acquistion of SolidGold. Perhaps, we are able to see a lower AE cost in the coming quarters.

[CityFarmer]

What a coincidence. Posted the same thing as Boon.

Ha-ha ! And we made the same observations on its cost structure.

(vested)

"Great minds think alike"?

[Boon]

Under Adminstrative Expense (AE), there are two costs.

For Employee Benefits Expenses | Rental of Premises:
2013: 9,455 - 7.5% increment | 2,954 - negative 24.3% drop
2012: 8,793 - 5.2% increment | 3,901 - 14.8% increment
2011: 8,362 - 1.6% increment | 3,397 - 16.6% increment
2010: 8,227 | 2,914

There seem to be some attempts to control Administrative Expenses, such as relocation of their Singapore subsidiary to its Market Street office. It still remains high due to the one-off professional fees incurred for the acquistion of SolidGold. Perhaps, we are able to see a lower AE cost in the coming quarters.

Hi Kelvesy,

In the coming quarters, AE in absolute terms would increase rather than decrease, IMO, as a result of the consolidation of accounts of the newly acquired China subsidiary into the Group. Of course, BWZ would also add to the top and bottom line (if it could stay profitable) of the Group.

Going forward, it is important to be able to contain if not reduce AE - but there are limits as to how much it could be reduced – unless D&D are willing to take a BIG pay cut – Ha-ha !

More importantly, BWI must grow its revenue in order increase profitability – and that should be the main focus.

[Boon]

Hi Kelvesy，

Distribution Costs (which I assume include commission) is not a problem.

The problem with BWI is its HIGH overhead fixed cost in the form of Administrative Expenses (AE) in relation to its revenue.

See Charts:

Gross Profit Margin (GPM = Revenue – Cost of Goods) has been pretty stable from 74% to 79% - this is not a problem

Distribution Costs as % of Revenue have been between 34.9% to 40.3% - and is trending down slightly of late – this is not a problem.

Administrative Expenses stayed around SGD 17 plus million – This Fixed Cost as a % of revenue has been staying HIGH (revenue staying low) – this has been the PROBLEM.

Revenue at about SGD 40 million plus is roughly at breakeven point.

To propel it to the next level of profitibility, BWI just needs to grow its revenues - be able to obtain its direct selling license in China would certainly be crucial, I reckon.

(vested)

[Image: 2znwiok.jpg]

[Image: azauza.jpg]

Having analyzed its cost structure, let’s explore BWI’s profitability under such cost structure:

Profitability of BWI : Simplified Model

Assumptions:
- Ignoring depreciation, impairment, FX effects, other charges etc.
- Ignoring minor costs – consider key major costs only:
Costs of Goods Sold = COGS
Distribution Costs = DC
Distribution Costs = AE

EBIT = Revenue – (COGS + DC + AE) = Revenue {1 – (COGS/Revenue + DC/Revenue + AE/Revenue)}

For 2013 : COGS/Revenue = 23% ; DC/revenue = 35% and AE = SGD 18.0 million. And assuming BWI could control these costs at these levels.

Then,

EBIT = Revenue { 1 - (0.23 + 0.35 + AE/Revenue)}
EBIT = Revenue {0.42 - AE/Revenue}
EBIT =0.42 x Revenue – AE

At breakeven:
EBIT = 0 = 0.42 x Revenue – AE
Revenue (at breakeven) = AE/0.42 = SGD18 million/0.42 = SGD 43 million

If BWI could double its revenue to SGD 86 million with the same cost structure,

EBIT (Revenue = 86 million) = 0.42 x 86 – 18 = SGD 18 million

As always, an analysis is only as good as its underlying assumptions.

Questions: Why couldn’t BWI grow its revenue over the last 3 years under the same cost structure? What if DC/Revenue is increased from 35% to 40% (i.e. increase commission by 5%) ?

(vested)

[dzwm87]

I reckon BWI's products are not attractive at all. In terms of brands, there are only 6 and a quick google search doesn't give meaningful reviews on it.

On its geographical revenue breakdown, sales have been falling in every market except for Taiwan (but Taiwan alone is insufficient to offset the other declines). This trend has been happening for the past 7 years. Clearly, their products are not selling enough to win market shares and it seems management's solution to grow overall sales is to move into new markets (i.e. Myanmar and lately China).

Unless we are looking at an extraordinary product portfolio by BWZ, sustainable revenue growth could be tough. Perhaps, the thesis is for a one-off spike in revenue growth from China for operating leverage to work.

[Boon]

I reckon BWI's products are not attractive at all. In terms of brands, there are only 6 and a quick google search doesn't give meaningful reviews on it.

On its geographical revenue breakdown, sales have been falling in every market except for Taiwan (but Taiwan alone is insufficient to offset the other declines). This trend has been happening for the past 7 years. Clearly, their products are not selling enough to win market shares and it seems management's solution to grow overall sales is to move into new markets (i.e. Myanmar and lately China).

Unless we are looking at an extraordinary product portfolio by BWZ, sustainable revenue growth could be tough. Perhaps, the thesis is for a one-off spike in revenue growth from China for operating leverage to work.

True, on geographical revenue breakdown, sales have been falling in most of the “older” markets like Singapore, Malaysia, Indonesia, and Thailand – but the rate of decline has been slower over the past three years, I reckon.

Taiwan and Philippine seem to be doing well.

Korea is a failure.

Myanmar is an “Export” market” - (“Export business model”) - so is China

The newly acquired subsidiary BWZ is operating under the “Manufacturing/Wholesale model”.

If BWI could obtain Direct Selling license in China, it would have 3 different business models operating in China.

Let’s put the “Export model” and “Manufacturing/Wholesale model” aside for another day.

On its Direct Selling business segment, so far, it seems like for every market in which BWI could grow and capture market share in the first place – sales have eventually declined – I do not know if it could be attributable to “unattractive products”.

Nevertheless, it is too early to conclude if the decline in sales in these markets would be a permanent one – if sales could eventually stabilize and mature – and if BWI could have say 20 of these mature market with an average annual market share of SGD 5 million each – that would still add up to SGD 100 million of revenue per annum.

If decline in sales in these markets are permanent, then growing new market shares in new markets to offset revenue loss in ‘older -markets” would be absolutely critical.

China has 22 provinces (excluding Taiwan), 4 municipalities (Beijing, Tianjin, Shanghai, Chongqing), and 5 autonomous regions (Guangxi, Inner Mongolia, Tibet, Ningxia, Xinjiang).

From AR2013 of Hang Lung Properties:
“With 85 cities having a population of five million or more and another 91 with three to five million, the market seems unlimited.” This is China market in the eyes of its Chairman.

To many, China is one huge country made up of many smaller countries – China is one huge market made up of many sizeable sub-markets.

For a new entrant into China, who is eying for say only 50 of the sub-markets, it would be highly unlikely that one would aim to conquer all 50 sub-markets at once in year one.

It would be more likely and realistic to target say 5 sub-markets per year over 10 years or 10 sub-markets over 5 years.

If BWI could obtain its Direct Selling license in China and could elevate and sustain its overall annual revenue to say SGD 100 million and above, by capturing 5 to 10 of these sub-markets per year over a time frame of 5 to 10 year – there would still be sizable amount of profits to be made over these periods - even if market share in each sub-market were to decline eventually on permanent basis.

One-off spike in revenue is unlikely to happen, IMO.

(vested)

[MOV]

What are the 'rules' regarding quoting from valuebuddies? I'm assuming they have the consent of forumers below?

http://www.nextinsight.net/index.php/sto...turnaround

[Boon]

How long does it take to obtain Direct Selling license in China ?

Well, according to the Ministry of Commerce website, 3 new DS licenses have been issued so far this year – approval time varied from about 4 to 8 months.

宝丽（中国）美容有限公司
Application date: 13-Dec-2013
Approval date: 03-April-2014
Approval time : Less than 4 months

理想科技集团:
Applied on 08-July-2013
Approved on 07-Jan-2014
Approval time = 6 months

康美药业股份有限公司
Application date: 22-May-2013
Approval date: 07-Jan-2014
Approval time : Less than 8 months

http://zxgl.mofcom.gov.cn/pages/corp/Rel...html?sp=S1

(vested)

[kelvesy]

Seems like they are all under 1 year time frame.

Since it is going to be almost one year since Best World acquired SolidGold, can we expect good news on the status of their Direct Selling license - is Mr Shi Jinyu & Best World able to do so? Could the latest share puchases by Doreen and Dora a sign of this positive news? I genuinely hope so.

2QFY2014 results may be released on 13 August 2014 - same as last year's.

I reviewed the terms and conditions of the acqusition carefully and found that Best World management was very smart in protecting their own interests and aligning Mr Shi Jinyu's interests with the company's.

Mr Shi Jinyu is no stranger to Best World as they have been acquainted since 2010.

(vested)

Profile of Mr. Shi Jinyu
SJY is an reputable entrepreneur with substantial experience, extensive network and in-depth industry knowledge of the dietary supplements business in the PRC. SJY is also a member of the Zhejiang Committee of the China People’s Political Consultative Conference. Given SJY’s shareholding interests in the Company following the completion of the Proposed Acquisition and the Proposed Subscription, the Group will be able to tap on his network and experience to expand and strengthen its foothold in the dietary supplement business for the growing PRC market.

The Proposed Subscription would further align the interests of SJY with the interests of the Group following completion of the Proposed Acquisition, which in the short and medium term, will be invaluable for the Group's application for a direct selling license in the PRC through SolidGold.

Profile of SolidGold
SolidGold is a company incorporated in Hangzhou City, Zhejiang Province, PRC on 30 September 2000 and is principally engaged in the business of the development, manufacture and distribution of dietary supplements in the PRC. SolidGold has a track record of about 13 years in the dietary supplements business and as at the Latest Practicable Date, holds about 35 healthcare product permits and 3 patents with its proprietary brand of products distributed through 236 agents and drugstore chains throughout 31 provinces in the PRC. The SolidGold brand of dietary supplements include fish oils and calcium and vitamin supplements, amongst other products which are widely recognised in the PRC.

SolidGold currently leases three floors, having an aggregate gross floor area of approximately 7,573 square metres, at Building 1, 48 Jiuhuan Road, Jiubao Town, Jianggan District, Hangzhou City for its manufacturing plant, office and warehouse, at a monthly rental of RMB149,000 and such lease will expire on 30 June 2015.

SolidGold’s manufacturing plant, which has a gross floor area of approximately 3,030 square metres, has been in operation in the abovementioned premises since late 2006. As at the Latest Practicable Date, the manufacturing plant has an annual production capacity of 500 million soft capsules, 500 million tablets, 200 million hard capsules and 100 million bags of powder, which accounts for approximately 94% of SolidGold’s products based on its FY2012 sales volume. The remaining approximately 6% of SolidGold’s products, which comprise SolidGold’s fish oil products, are produced by a third party manufacturer, Fu-Hai Biotechnology Co. Ltd (广东富海生物科技有限 公司). As at the Latest Practicable Date, SolidGold employs about 80 staff in its Hangzhou office serving multiple functions such as marketing, finance, administration, research and development and production. SolidGold has received many awards and accolades in its 13-year history, including
“保健食品安全信用优

source: http://infopub.sgx.com/FileOpen/Libra_13...leID=35445
http://infopub.sgx.com/FileOpen/Best%20W...leID=19763