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Best World unfazed by pyramid crackdown in China but strategy change in Taiwan pulls it down

Samantha Chiew
Samantha Chiew11/10/2017 11:07 AM GMT+08  • 4 min read
Best World unfazed by pyramid crackdown in China but strategy change in Taiwan pulls it down
SINGAPORE (Nov 10): Best World on Wednesday announced its 3Q17 earnings increased 36.4% to $12.2 million from $8.9 million a year ago, on lower expenses.
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SINGAPORE (Nov 10): Best World on Wednesday announced its 3Q17 earnings increased 36.4% to $12.2 million from $8.9 million a year ago, on lower expenses.

Revenue for the quarter was 10.3% lower at $46.8 million from $52.5 million last year, due to lower contribution from Taiwan and on the back of sustained export growth to China.

The group introduced a strategy change to eradicate unhealthy online discounting practices in Taiwan, which has led to a 35.6% q-o-q drop in the region’s sales.

Administrative expenses dropped 24.2% to $8.2 million from $10.8 million a year ago, due to lower professional fees incurred during the period.


See: Best World posts 36.4% growth in 3Q earnings to $12.2 mil on lower expenses

Following the announcement, DBS is maintaining its “hold” call on Best World International with a target price of $1.45.

In a Thursday report, analyst Carmen Tay says that the group’s earnings were in line with expectations and she anticipates weaker sales in selected market in the upcoming 4Q17.

China export sales remain the group’s key revenue and earnings contribution, but it was down slightly to $25.1 million in 3Q17 compared to $25.3 million a year ago.

“Despite the launch of China’s State Administration for Industry & Commerce’s (SAIC) three-month campaign against illegal pyramid schemes in mid-Aug, Best World’s China business held up fairly well,” says Tay.


See: Best World says pyramid scheme crackdown has little to no impact on China business

However, the analyst feels that it is still too early to tell and opines that it will likely take several more quarters before its impact on local consumer sentiment can be truly ascertained.

Although the group’s membership pool continues to grow firmly, there has been a 23.7% decline in active distributors (members who have received commission for at least 6 months over the last year), which Tay says is a cause for concern.

On the other hand, CIMB is downgrading its call on Best World to “hold” from “add” previously with a lowered target price of $1.40.

Despite the pyramid scheme crackdown in China, the group’s business is still gaining traction as revenue in the region for 3Q17 was up 44% to $26.2 million from last year.

The management still plans to begin the conversion of its China export business to a direct selling model by 1Q18, and targets to implement the shift in phases over the course of two years given the size of the Chinese market.

Over in Taiwan, the management says that its business in Taiwan is normalising.

However, in a Thursday report, analyst Cezzane See believes the business may not stabilise until FY18.

“We are taking a more cautious approach towards the company’s future prospects, at least until revenue headwinds dissipate,” says See.

On the other hand, Maybank Kim Eng is maintaining its “buy” call on Best World with a target rpice of $1.88.

In a Thursday report, analyst John Cheong believes that the group’s strong sales in China is able to more than offset the revenue slowdown from Taiwan.

He expects China to lead growth for the group from continued geographical expansion, improved service quality and better brand confidence, while Taiwan should start to recover in 2018.

The group’s application for direct selling license beyond Hangzhou City has already started and should include at least 7 provinces by end-2018.

Best World is also eyeing Indonesia as the next growth market, as it recorded healthy sales growth in 3Q17, due to a switch in strategy from weight management to skin care products, which could transform into a key growth market as BEST taps into the Halal market in 2019, after the opening of its factory.

As at 11.10am, shares in Best World are trading 3 cents higher at $1.29 or 6.8 times FY17 book value with a dividend yield of 2.1%.

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