Best World International (BEST SP) - Maybank Kim Eng 2016-11-18: A new growth chapter in China

Best World International (BEST SP) - Maybank Kim Eng 2016-11-18: A new growth chapter in China BEST WORLD INTERNATIONAL LTD 5ER.SI

Best World International (BEST SP) - A new growth chapter in China

Approved China license could lift growth profile 

  • BEST announced that its long awaited China’s direct selling license has been approved and China’s Ministry of Commerce has recognised BEST as the latest addition to the list of direct selling companies in China. 
  • China is the second largest direct selling market in the world and it could accelerate BEST’s future growth. In near term, this positive development will enable BEST to scale up via massive recruitment and marketing of its products. 
  • We expect China’s sales to grow 150% YoY in FY16E and there could be upside to our 30% YoY sales growth in FY17-18E. 
  • Maintain BUY and TP of SGD2.16 based on peer group average 16x FY17E EPS.

Expanding quicker in a huge, fast-growing market 

  • The direct selling license will allow BEST to scale up its business and capture more opportunities in China. As of 2015, China was the second largest direct selling market in the world, with a market size of RMB220b and 19% YoY growth. 
  • BEST has established a good foundation in China since 2013 and has completed the registration for all its products. Previously, it operated under an export model, distributing its products to members through a network of beauty salons, nail & hair salons, and spas all over China. BEST will gradually convert its existing network of spas and salons into distributors and service centres over several phases.

Aiming high in China 

  • BEST targets to reach a top-20 position by 2020 based on revenues in China. To achieve this, its sales in China need to reach RMB2.0b or SGD400m, which is more than 8x our FY16E China sales of SGD49m.
  • Growth momentum in China started to accelerate even before the approval of the direct selling license, with 9M16 sales rising more than 400% YoY. We expect 150% YoY sales growth in FY16E and 30% growth during FY17-18E. 
  • There could be potential upside to our estimates if the expansion is faster than expected. 
  • Risks to our call are competition, regulatory changes, and reputational risks.

John Cheong CFA Maybank Kim Eng | 2016-11-18
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.16 Same 2.16