Best World International Ltd - CGS-CIMB Research 2019-02-27: 4Q18 Results ~ Growth Priced In For Now


Best World International Ltd - 4Q18 Results: Growth Priced In For Now

  • Best World’s FY18 core net profit of S$64.0m was in-line at 103.9% of our FY18 forecast (S$62m) but marginally ahead of the consensus number (S$60.6m).
  • China is expected to be the key net profit driver for FY19-20F; but at 15.7x CY20F P/E we believe this growth has already been priced-in.
  • Downgrade to REDUCE from Hold as our new Target Price of S$2.43 now on 14.9x CY20F P/E (c.1.5 s.d. above its 2-year average), features downside risks.

China franchise contribution spurs revenue growth

  • Revenue grew to S$127.7m in 4Q18 (+78.6% y-o-y/+38.7% q-o-q) as BEST WORLD INTERNATIONAL LTD (SGX:CGN) completed the transition of its China business to a franchise model and started recognising revenues.
  • China contributed 62.7% of 4Q18 revenue, Taiwan contributed 28.5%.
  • 12M18 revenue grew 24% y-o-y (vs. 12M17:S$214.1m) with China and Taiwan contributing 54.4% and 32.3% of total revenue respectively.

12M18 net profit jumped, driven by China business

  • Topline growth lifted 4Q18 core net profit to S$29.2m, up 33.8% y-o-y (vs. 4Q17: $21.8m). 12M18 core net profit came in at S$64.0m (excluding one-off trademark royalty fee received from its China agent in 3Q18 of S$9m), with a net profit margin of 24%.
  • Most of the growth was fuelled by China given Taiwan’s 12M18 revenue grew by just 4.4% y-o-y.

Final and special DPS of 5.0Scts

  • Best World announced a final and special dividend of 4.2Scts and 0.8Scts respectively; taking FY18 DPS to 7.4Scts (55.8% payout ratio).
  • Previously, Best World had guided that it was committed to a payout ratio of not less than 40%, which is featured in our forecasts.

China is the key growth driver in the near-term

  • Management is cautiously optimistic that it will achieve revenue and net profit growth in FY19F, driven mainly by continued sales growth from its China franchise business. Taiwan and Indonesia are also secondary contributors.
  • We lift our FY19F and FY20F net profits by 5.5% and 7.5% respectively on higher revenue growth, especially from China.
  • We also introduce FY21F EPS of 17Scts which features a 2.9% y-o-y growth.

Downgrade to REDUCE, forward growth likely priced in

  • We raise our Target Price to S$2.43 as we raise our P/E to 14.9x on unchanged CY20F (previously 12.5x) as we lift our valuations to c.1.5 s.d. above its 2-year historical average in light of the strong growth in FY19-20F. However, with Best World currently valued at 15.7x FY20F we believe most of the forward growth has been priced in. Hence, we downgrade our call on the stock.
  • Upside risks to our call include a quicker-than-expected turnaround in Taiwan and better-than-expected growth in China.
  • Downside risks include weaker-than-expected sales in Taiwan or China.

Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-27
SGX Stock Analyst Report REDUCE MAINTAIN HOLD 2.43 UP 1.900