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 ...
|
|
 “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.