Best World International - DBS Research 2017-02-24: Best performance yet

Best World International - DBS Vickers 2017-02-24: Best performance yet BEST WORLD INTERNATIONAL LTD 5ER.SI

Best World International - Best performance yet

  • Best World triples earnings to a record-high S$34.4m in 2016.
  • Surge in sales to S$200.8m (+97.5%) led by remarkable growth in key markets of Taiwan and China.
  • Final dividend of 3 Scts (or total DPS of 5 Scts) for FY16 and 2-for-1 share split proposed.
  • Maintain BUY with higher TP of S$2.44.



Maintain BUY with higher TP of S$2.44

  • Maintain BUY with higher TP of S$2.44; earnings raised by 4% for FY17F and FY18F on expectations of higher sales in Taiwan and greater operating leverage for the group. 
  • Best World continued to demonstrate the strength and scalability of its direct selling model – growing FY16 earnings threefold to S$33.4m (vs S$10.1m in FY15), as sales doubled.
  • Encouraged by the robust growth in Taiwan (Best World’s largest market by revenue) and higher operating leverage displayed in FY16, we lift Taiwan sales and operating margin assumptions slightly, resulting in higher FY17F/18F PATMI of S$42.1m/S$50m and TP of S$2.44.


Continues to enjoy great success in Taiwan. 

  • Best World’s flagship Dr’s Secret range of premium skincare, which represents nearly 70% of the group’s sales, has been immensely successful in Taiwan. Operations in Taiwan have already achieved a decent scale but still hold more potential. 
  • Looking ahead, we believe that strong earnings momentum will likely be sustained by further cultivation of existing networks in its stronghold in Central and Southern Taiwan, and plans to leapfrog into the Northern region.


Attainment of a direct selling licence in China, a market over 50x larger than Taiwan, should underpin years of firm growth.

  • Best World hopes to emulate its success in China, where the cosmetics sector is forecasted to grow at a 12.9% CAGR into 2019. 
  • With much of the groundwork already laid in the PRC, MOFCOM’s indirect endorsement through the recent award of its rare direct selling licence provides Best World with the credibility and platform needed to gain scale in the world’s most populous nation and second-largest direct selling market.
  • Stronger participation rates at Best World’s post-licence recruitment events also confirm this.


Valuation

  • Maintain BUY with higher TP of S$2.44, based on 16x FY17F PE. 
  • As Best World enters a period of firm growth, we opine that it should trade at 16x FY17F earnings (at a smaller discount to global peers’ 19x). 
  • At current prices, a prospective 3.5% yield is also on offer.


Key Risks to Our View

  • Key risks include lack of control over individual distributor’s selling process and impact of unanticipated changes in local regulations and restrictions.




Paul YONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-02-24
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.44 Up 2.360



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