Best World International (BEST SP) - DBS Research 2017-11-09: Growth Momentum Hits Pause Tab In 3Q17

Best World International (BEST SP) - DBS Vickers 2017-11-09: Growth Momentum Hits Pause Tab In 3Q17 BEST WORLD INTERNATIONAL LTD CGN.SI

Best World International (BEST SP) - Growth Momentum Hits Pause Tab In 3Q17

  • Best World International's net profit of S$12m for 3Q17 was essentially flat q-o-q, largely in line with expectations.
  • China export sales was also flat q-o-q; Taiwan underwhelms following strategy change.
  • Member pool continues to grow firmly, but sudden drop-off in active distributors warrants greater attention.
  • Maintain HOLD with TP of S$1.45.



What’s New 


Net profit flat q-o-q, largely in line with expectations.

  • Earnings momentum eased in 3Q17 as Best World delivered net profit of S$12m, while revenues declined 15% q-o-q to S$46.8m on weakness in Taiwan. 
  • 9M17 profit of c.S$33.7m was in largely line with our expectations as we anticipate weaker sales in selected markets in the upcoming 4Q.

China export sales moderated in 3Q, resulting in flat q-o-q performance. 

  • Export sales in China moderated slightly from S$25.3m in 2Q17 to S$25.1m in 3Q, but remained the key revenue and earnings contributor for the group. Despite the launch of China’s State Administration for Industry & Commerce’s (SAIC) three-month campaign against illegal pyramid schemes in mid-Aug, Best World’s China business held up fairly well.
  • However, we believe that it is still too early to tell, and opine that it will likely take several more quarters before we can truly ascertain its impact on local consumer sentiment.

Underwhelming performance in Taiwan following strategy change. 

  • Sales in Taiwan fell 35.6% q-o-q to a two-year low of S$14.9m, which management attributes to a change in strategy as the company sought to eradicate unhealthy online discounting practices among an isolated group of distributors after receiving substantial discounts on bulk purchases during promotional events.
  • Best World has thus shifted away from pricing discounts to a gift-with-purchase approach for its periodic sales events, but this has yet to bear fruit.

Mixed performance across remaining markets

  • Mixed performance across remaining markets with positive q-o-q growth in Singapore and Indonesia, but declines in the Philippines and Thailand.

Member pool continues to grow, but drop-off in active distributors warrants greater attention. 

  • While Best World’s membership pool continued to grow firmly, +2.3% q-o-q to 479,366 members as at end 3Q17, the substantial 23.7% decline in active distributors (members who have received commission for at least 6 months over the last 12 months) from 51,533 in 2Q17 to 39,308 in 3Q could be a cause for concern.

Maintain HOLD with TP of S$1.45, based on 17x FY18F PE (at a discount to global peers’ 21x.) 

  • We continue to monitor the impact of possible spillover effects from SAIC’s campaign against illegal pyramid schemes, which could affect consumer sentiment and cause the pace of membership and sales growth to slow.




Carmen TAY DBS Vickers | Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2017-11-09
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.450 Same 1.450



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