SINGAPORE (Feb 28): CIMB is upgrading its call on Best World to “add” from “hold” previously with an increased target price of $1.70.

This came on the back of the group announcing that its 4Q17 earnings almost doubled to $21.8 million from $12.3 million in 4Q16 on higher revenue.

Revenue was 19.8% higher y-o-y at $74.1 million from $61.8 million previously, mainly due to improved sales from China, with Chinese export agents pre-stocking three to six months worth of orders ahead of the long Chinese New Year holidays.

Revenue for FY17 on the hand was up by 10% y-o-y to $220.9 million as the group’s largest direct selling business in Taiwan narrowed by 28.5% fur to stiffer market competition, which capped the gains on the China market that grew by 90.9%.

See: Best World sees near doubling of 4Q earnings to $21.8 mil on higher revenue

Focusing on the group’s China business, the conversion of its China export business to a direct selling model is expected to commence in phases during 1H18.

The group’s efforts in widening the coverage of its direct selling license beyond Hangzhou to other cities are proceeding as planned and it expects approvals for key cities in seven provinces to be obtained by end-FY18.

On the other hand, the group’s guided for stable FY18 sales in Taiwan, boosted by events and campaigns to be held in 2H18.

In a Tuesday report, analyst Cezzane See says, “We lift our FY18-19F net profit by 2.2-16.2%, largely due to lower tax expense provisions. We introduce FY20F net profit of $73.8 million. We also lift our FY18-19F DPS to 4.5-4.9 cents (from 2.8-3.5 cents previously).”

According to the analyst, the stock offers high recurring ROE, along with a strong balance sheet, which then enables the group to pursue M&A opportunities for inorganic growth.

As at 11.50am, shares in Best World are trading 4 cents higher at $1.48 or 4.5 times FY18 book with a dividend yield of 3.25%.