Best World International Ltd - CIMB Research 2016-08-05: Fever-like performance from Taiwan

Best World International Ltd - CIMB Research 2016-08-05: Fever-like performance from Taiwan BEST WORLD INTERNATIONAL LTD 5ER.SI

Best World International Ltd - Fever-like performance from Taiwan

  • Best World continues to exceed expectations on the back of another strong showing in Taiwan and China. 2Q/1H net profit formed 38/68% of our FY16F.
  • Indonesia also shows promise, but is still not yet a significant contributor.
  • Interim dividend of 2.0 Scts declared. 1-for-4 bonus issue proposed.
  • We raise our FY16-18F EPS on continued momentum in Taiwan. Our current EPS and TP do not yet account for the proposed bonus issue.
  • Maintain Add. Our TP is raised as we lift our EPS.

Earnings beat mostly from Taiwan

  • The group’s strong sales momentum shows no signs of slowing down. 
  • The group is on a new growth trajectory and 2Q16 was by far the group’s best quarterly showing since its listing. 2Q16 revenue (+145% yoy) was mostly driven by Taiwan (+242%) and China (+120%). 
  • 2Q net profit was up an even stronger 250% yoy as positive operating leverage kicked in, resulting in a big earnings beat. 
  • 1H16 net profit formed 68% of our full-year forecast, even though the 1H is seasonally weaker.

Key market Taiwan showing no signs of slowing down

  • Taiwan is undeniably the standout market for the group this year. Taiwan’s 2Q16 revenue grew by 242% yoy. The launch of the online store and opening of the third lifestyle centre in Kaohsiung in 1Q16 were the key reasons for the strong showing. 
  • Taiwan now makes up 68% of group revenue.

China doing well; direct selling licence targeted by year-end

  • China also continues to do well, predominantly driven by export sales (+188% yoy). Although contribution from China is currently somewhat dwarfed by Taiwan, we expect this to change going forward. 
  • We understand that management is currently in the process of setting up the requisite 9 service centres in Hangzhou city and aims to complete the necessary regulatory verification by end-16.

Indonesia up but other markets unexciting

  • The other bright spot in this set of results is Indonesia, recording a 75% yoy sales growth in 2Q. The increase is mainly due to its success in attracting new distributors through successful marketing campaigns and increased demand for its skin care line of products. However, Indonesia is currently still a small contributor, making up just 3% of group revenue. 
  • Other ASEAN markets are also insignificant.

Interim dividend above expectations

  • The group declared an interim dividend of 2.0 Scts (1H15: 0.5 Scts), translating to a 34.9 33% payout ratio. This is ahead of our expectations of an interim DPS of 1 Scts. 
  • The group is also proposing a one-for-four bonus issue, subject to regulatory approval.

Maintain Add

  • We lift our FY16-18F EPS by 9-42% mostly on the back of strong sales momentum in Taiwan. This lifts our TP to S$1.98 (based on 12.4x CY17 P/E, 1s.d. above mean). 
  • We keep our Add rating. 
  • Key risks include a sudden drop in sales in key markets.

Jonathan SEOW CIMB Research | Roy CHENCFA CIMB Research | http://research.itradecimb.com/ 2016-08-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.98 Up 1.610