This article, written by Jennifer Tan (left, Director, Research & Products, Equities & Fixed Income, at the Singapore Exchange), was published on SGX's kopi-C: the Company brew series. The article is republished with permission.
| It was a friendship that spanned three decades and resulted in the founding of the only direct-selling company listed on the Singapore bourse. The bond between the founders of Best World International Ltd - Dora Hoan and Doreen Tan - was forged in 1986, when Hoan was the marketing manager of another direct-selling business, and Tan one of its top distributors. "Over the years, we built a firm friendship, and when I decided to quit due to conflicts within the senior management team, the first person I called was Doreen," recalled Hoan, who was 37 then. "She suggested we resign together and strike out on our own." That proved to be a momentous decision - Best World was established in 1990. "On hindsight, it was the right time for us to set up a company together - we were neither too young nor too old, and had sufficient experience and energy," Hoan added. "We were also a good match because of our different strengths - I'm good in management and marketing, while Doreen has deep knowledge of nutrition and skincare." Hoan, a History graduate from Singapore's then Nanyang University, went on to get her Master in Business Administration from the National University of Singapore, and later, a PhD from the Western Pacific University in the US.
Both hold co-Chairman roles in Best World, whose name reflects the company's twin ambitions of offering top-quality products, while growing its presence globally. "I wanted to provide the best and most effective beauty products to customers who are battling skin problems - that was my dream," said Tan, who was 36 then. Hoan's vision was about scale. "I wanted to put the brand on the world map," she beamed. |
Need, Not Want
Today, Best World specialises in the development, manufacture and distribution of premium skincare, personal care, nutritional and wellness products. It has a network of more than 422,000 independent distributors and members in 12 markets, including Thailand, Taiwan, Indonesia, Malaysia, Vietnam, Hong Kong, China, South Korea, Philippines, Myanmar and UAE.
The company's star product is its DR's Secret skincare, specially formulated for Asian skin, and which accounts for almost 70% of group revenue. Other offerings include its Avance health supplements and Optrimax weight management products.
Listed on the Singapore Exchange in July 2004, Best World has a market capitalisation of S$424 million. Its shares have surged nearly six-fold in the 2016 year-to-date, generating a dividend-inclusive total return of 489.2%. In comparison, the benchmark Straits Times Index (STI) and broader FTSE ST All-Share Index have registered total returns of 2.6% and 4.6% respectively.
The stock has jumped 10-fold in the last three years, and gained more than 12-fold over the past five years.
Best World averaged an annual revenue of S$66.6 million between the financial years ended 31 December 2011 and 2015. It also grew its net attributable profit from S$274,000 to S$10.1 million over the period, reflecting a compounded annual growth rate of 143%.
The company has a strong balance sheet, with S$48.3 million in cash and cash equivalents as at 30 June 2016, and negligible debt. While it has a policy of distributing at least 30% of earnings to shareholders annually as dividends, the company has paid out 43% of net profits as dividends in 2013 and 2014, and 44% in 2015.
Innovation is instrumental to the group's growth, particularly in the area of product formulation, Tan said.
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Best World International |
"Differentiation is critical, and we are focused on developing products that people need, rather than want," she noted.
"We are where we are today because of the purity, efficacy and quality of our products. The direct-selling model relies very much on word-of-mouth - if our products are no good, they will not sell."
Its DR's Secret range has also seen significant improvements since it was launched in 2001. The formula and ingredients have been revamped and upgraded continually over the last 15 years.
"The 10 products under the DR's Secret range can be used for various skin types, and to solve any skin problem, because all of them are highly customisable in terms of application," Tan added.
| ♦ Rosy Outlook | ||||||||||||||
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Initially, venturing into developing markets was fraught with challenges. When Best World set up its Philippine operations, it entered the market with its DR's Secret range, but sales failed to take off. "Because of the country's lower income demographic, it wasn't easy to close sales or recruit distributors. Forced to think out of the box, we revamped our strategy," Hoan recalled.
As at 30 June 2016, Singapore and Indonesia accounted for 3.5% and 3.1% of group revenues respectively, while Taiwan and China contributed 63.7% and 25.8% respectively. "We've built a strong foundation in Taiwan by conducting regular training and sales events, and our distributors now possess the relevant know-how. As a result, sales have jumped from a growth of 20% year-over-year to an increase of 141%," Hoan said. In June, Best World was granted a direct-selling licence in Hangzhou by China's Ministry of Commerce, nearly two years after submitting its application. Prior to this, the company had been readying the market by distributing its DR's Secret products to nail spas, beauty and hair salons. With the award of the licence, these local business operators and their respective customers will be converted to distributors of Best World products. "China offers huge potential for us, and having already built the brand and customer base over the last few years, we're set for robust growth over the next five to eight years," Hoan added. In 2006, China lifted its eight-year ban on direct selling and started issuing licences to businesses. According to data from the World Federation of Direct Selling Associations, China was the world's second-largest direct-selling market behind the US in 2015, with an annual sales volume of US$35.5 billion and a growth rate of 19%. The country is expected to eclipse the US in terms of direct sales volumes by end of 2017, according to Direct Selling News. Chinese consumption will also continue to expand at a rapid clip. Spending is projected to rise 9% annually through 2020 to US$6.5 trillion, even if annual gross domestic product growth cools to around 5%-6%, according to forecasts from The Boston Consulting Group. Key drivers include the importance of e-commerce, a new generation of free-spending, sophisticated consumers, the rise of the upper-middle class, and increasing affluence. |
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| ♦ Glass half-full |
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Given the scale of the company's ambitions, both women say they are nowhere near retirement, unlike their spouses. When Hoan, 63, is not catching up with her 34-year-old daughter, she is strategising for the future.
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| ♦ Outlook & Risks |
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Factors that may impact Group's performance in the next 12 months: • Professional fees/expenses: These costs and other related expenses may be incurred as the Group explores inorganic growth opportunities (including gaining access to new markets, acquiring new distribution channels, attaining exclusivity to new products/services, tapping into synergistic businesses) • Forex risks: A weaker SGD against the USD or any other currencies that the Group frequently trades in may lead to higher cost of goods. Fluctuating currencies of key markets the Group operates in against SGD may impact financial performance • Higher YoY expenses seen: Increased administrative and depreciation costs related to new JV with Prolife Biobank Pte Ltd and depreciation of the newly acquired Tuas property and machinery for the factory facilities • Higher software license fees and implementation costs due to efforts to improve customers' online shopping experience and after-sales services • Other ongoing factors that may affect performance include timeline required for product registration in various markets, natural disasters, local direct selling regulations, product regulations and market competition |
Financial results
| Quarter ended 30 June (S$ '000) | 2Q 2016 | 2Q 2015 | % Change |
| Revenue | 51,568 | 21,029 | 145.2 |
| Gross profit | 38,594 | 15,935 | 142.2 |
| Net attributable profit | 7,369 | 2,106 | 249.9 |
| Year ended 31 Dec (S$ '000) | 2015 | 2014 | 2013 | 2012 |
| Revenue | 101,672 | 75,265 | 41,081 | 48,218 |
| Gross profit | 76,867 | 55,990 | 31,815 | 37,241 |
| Net attributable profit | 10,104 | 4,054 | 1,429 | 1,800 |
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