BEST WORLD INTERNATIONAL LTD
5ER.SI
Best World International Ltd - Licence obtained earlier than expected
- Best World announced that it has been granted a direct selling licence in China. This much anticipated event has come in earlier than expected.
- The next milestone includes the setting up of requisite service centres. The timeline is for completion by Dec 16 and we expect to see direct sales in China in FY17.
- Capex is minimal and we do not anticipate a long gestation period as the company already has proven product acceptance in China.
- We lift our FY17-18F EPS by 23-47% on the new potential in China.
- Our TP rises on this news. Reiterate Add.
Eagerly awaited direct selling licence obtained ahead of schedule
- Best World has just announced that it has been granted a direct selling licence in China by the country’s Ministry of Commerce. This comes earlier than our expectations and management’s initial guidance of 4Q16-1H17.
What is the next milestone?
- Pursuant to the granting of the direct selling licence, the next milestone for the company is to set up the requisite service centres in Hangzhou by Dec 16, after which the company can then commence direct selling.
- We expect the company to gradually transition away from its current export model, with full direct selling in 1H17.
Focus will now be on execution
- With the granting of the licence, we think the focus will now be on execution. We are comforted that the company has
- already registered all of its products,
- an established network via export agents, and
- a network of Taiwanese distributors that will form the first level in China.
- Further, capex is expected to be minimal – mostly only renovation of service centres. The group’s new factory facility in Singapore should also support supply chain management. We therefore do not expect a long gestation period.
Licence makes China an even more important market
- China already formed a significant 30% of the group’s 1Q16 revenue. Sales to China is made up of exports (91%) and manufacturing/wholesale (9%). Obtaining a direct selling licence has no impact on the manufacturing business, but the potential comes from converting the exports to sales under a direct selling model, which could double sales in China as selling prices to distributors are significantly higher than export prices.
Higher EPS as we factor in the direct selling licence
- Overall, we raise our FY17-18F EPS by 23-47%, after factoring in the higher ASPs under a direct selling model, mitigated by additional distributor commissions and admin costs.
Reiterate Add with a higher TP
- We are positive on the news as this was always going to be a major catalyst for the stock.
- Our TP rises to S$1.61 (now based on 12.4x CY17 P/E, 1s.d. above mean) as we factor in the positives of the direct selling licence in China.
- The focus will surely now be on execution. The downside risk to our rating is a sudden drop in sales in key market Taiwan.
Jonathan SEOW
CIMB Securities
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Roy CHEN
CIMB Securities
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http://research.itradecimb.com/
2016-07-01
CIMB Securities
SGX Stock
Analyst Report
1.61
Up
1.12
