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:
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Site visit: growth in China has only just begun
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Magnitude of sales growth ...
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 “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)
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■ 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.
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Best World
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Share price:
$1.35
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Target:
$1.70
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While the group’s phenomenal earnings growth of more than 100% p.a. in FY15 and FY16 was led by Taiwan, we expect China to provide the next phase of expansion, driven by increased product acceptance and distributor penetration.
China’s 1Q17 sales grew by a robust 103% yoy and we believe China can continue to deliver that magnitude of growth for at least the next 1-2 years.
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Peer comparison
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Company
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Price
(local currency)
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Market Сар (US$' m)
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P/E (x)
CY17F CY18F
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Best World International
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1.35
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544
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17.7
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14.2
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Amway Malaysia
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7.32
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281
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23.1
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20.3
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Herbalife
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73.34
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6,842
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15.9
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13.0
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Nu Skin Enterprises
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63.06
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3,332
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20.2
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18.0
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Tupperware Brands
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69.50
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3,525
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14.8
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13.8
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Avon Products
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3.64
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1,601
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17.6
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10.2
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USANA Health Sciences
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63.65
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1,561
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15.7
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13.4
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Simple average
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17.9
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14.8
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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.
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Full 11-page report here.
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