CIMB analyst Jonathan Seow, after returning from attending Best World's sales convention in Changsha, China, shared insights into the company's business. In particular, in a report today, he signalled his confidence that China would do very well and -- for the first time -- that Best World could be on the prowl for a direct-selling company in Japan.

Excerpts of his 11-page report:


Site visit: growth in China has only just begun

Magnitude of sales growth ...

JonathanSeow5.16“Magnitude of sales growth in China could exceed our expectations. Based on management’s target to be one of the top 15 direct-selling companies in China by 2021F, this implies a 5-year sales CAGR of 33% for China. However, we think this timeline may be conservative, given 1Q17’s strong sales growth (+103% yoy).”

-- Jonathan Seow (photo)

■ We reiterate our Add call on Best World (BWL), with the 13% share price decline from its recent peak of S$1.56 on 8 Jun offering an attractive entry price.
■ Its sales in China grew by strong 103% yoy in 1Q17. China is now the group’s largest market. Our on-the-ground checks give us conviction the growth can be sustained.
■ Further upside could come from full conversion from export sales to direct sales in 4Q17F/1Q18F, which is not yet fully reflected in our estimates.
■ We lift our TP, now based on 18x CY18F P/E (global peers’ average) vs. previous 16x.

China is now Best World’s largest market and sales growth driver

China currently accounts for 48% of group sales (as per 1Q17), having just overtaken Taiwan as the group’s largest market.

Best World

Share price:
$1.35

Target: 
$1.70

While the group’s phenomenal earnings growth of more than 100% p.a. in FY15 and FY16 was led by Taiwan, we expect China to provide the next phase of expansion, driven by increased product acceptance and distributor penetration. 

China’s 1Q17 sales grew by a robust 103% yoy and we believe China can continue to deliver that magnitude of growth for at least the next 1-2 years.

Peer comparison

Company

Price
(local currency)

Market Сар (US$' m)

            P/E (x)
CY17F         CY18F           

Best World International

1.35

544

17.7

14.2

Amway Malaysia

7.32

281

23.1

20.3

Herbalife

73.34

6,842

15.9

13.0

Nu Skin Enterprises

63.06

3,332

20.2

18.0

Tupperware Brands

69.50

3,525

14.8

13.8

Avon Products

3.64

1,601

17.6

10.2

USANA Health Sciences

63.65

1,561

15.7

13.4

Simple average

17.9

14.8

 

Secondary catalyst from potential: M&A 
Management highlighted M&A as another potential growth strategy, with direct-selling companies that offer access to new markets being especially attractive.

We are positive on such earnings-accretive M&A developments and think Japan represents a potential new market for the group because apart from China and Korea (markets in which Best World already has a presence),
1) Japan is the next biggest direct-selling market in Asia, and
2) Japan is geographically closer to Best World’s current markets than the US or Germany (two of the five largest direct-selling markets globally in 2016).

The group has net cash of c.S$50m (as at end-1Q17) to seize any M&A opportunities.

 
Full 11-page report here. 


Comments  

0 #1 Potter 2017-07-19 14:26
The target price of $1.70 looks tame. If the 2Q results which wll be released in a few weeks turns out to be very strong, CIMB will surely upgrade the traget to perhaps over $2.00. Let's see
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