BEST WORLD INTERNATIONAL LTD
5ER.SI
Best World International Ltd - Heading towards another record year
- Best World’s (BWL) 3Q16 net profit of S$8.9m (+121% yoy, +21% qoq) was above our expectation. 9M16 came in at 81% of our FY16 forecast.
- Sales in China (+309% yoy) far exceeded our expectations, driven by strong product acceptance and demand for their DR’s Secret skincare products.
- Verification of the requisite service centres has been completed. This is in line with expectations and we expect transition to direct selling to take place in early 2017.
- We lift our FY16-18 EPS forecasts on higher sales, mostly from China.
- Our EPS upgrade lifts our target price to S$2.21. Maintain Add.
Earnings beat from China
- BWL delivered stellar net profit of S$8.9m in 3Q, up 121% yoy on the back of strong revenue growth (+99% yoy).
- The star markets were again Taiwan and China. Taiwan’s strong sales growth (+95% yoy) was slightly ahead of our estimate, while China (+309% yoy) far exceeded our expectations on the back of strong demand for their DR’s Secret skincare line.
- We lift our FY16 EPS forecast mostly on better than expected sales in China. 9M16 was above our estimate at 81% of our FY16F.
Higher export sales dragged down GPM, but lifted OPM
- 3Q’s lower gross margins of 71.6% (2Q16: 74.8%, 3Q15: 77.1%) merely reflected the higher mix of export sales to China. This is not a concern. Instead, the higher export sales also translated into lower distribution expenses (since export sales do not incur distributor commissions).
- Together with better operating leverage, BWL’s PBT margins were lifted to a record high of 26.5% (2Q16: 21.5%, 3Q15: 17.7%).
Taiwan’s qoq drop not a concern, 4Q likely to be a record quarter
- Taiwan had a strong quarter yoy (+95% yoy) as it continued to see growth from its online store and Kaohsiung RC (opened 1Q16), but sales did drop 21% qoq. That said, the silver lining is that management intentionally withheld major promotions this 3Q in anticipation of anniversary promotions and celebrations in 4Q.
- Our channel checks suggest sales did particularly well in the month of Oct.
Growth drivers in 2017
- Earnings growth will mostly come from penetration into China and full conversion to a direct selling model. The group has already completed the verification process of the requisite nine service centres in Hangzhou city.
- In addition, BWL’s biggest market Taiwan (60% of 9M16 revenue) is also poised for growth, backed by a growing membership base. Indonesia has also done well and could surprise positively, although it is still currently a small contributor (3% of 9M16).
Maintain Add with a higher TP of S$2.21
- FY16F will be a record year as 9M16 net profit (S$22m) already exceeded FY15’s S$10m. We believe that FY17F will again prove to be another record year.
- We lift our target price to S$2.21 (still based on 16.1x CY17 P/E, 2 s.d. above mean). This is in line with the 15-18x historical trading band during its last earnings upcycle. Peers are trading at 16x forward.
- Maintain Add. Key risks include poor execution in China.
Jonathan SEOW
CIMB Research
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http://research.itradecimb.com/
2016-11-04
CIMB Research
SGX Stock
Analyst Report
2.21
Up
2.050
