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Best World outperforms with robust financials, but risks lurk

Matthew Shim
Matthew Shim3/26/2018 07:30 AM GMT+08  • 7 min read
Best World outperforms with robust financials, but risks lurk
SINGAPORE (Mar 26): Best World International first showed up in our scan for Singapore growth stocks in January. We were interested in finding out more about the company, but were only able to meet its management on Feb 27, after the company reported its
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SINGAPORE (Mar 26): Best World International first showed up in our scan for Singapore growth stocks in January. We were interested in finding out more about the company, but were only able to meet its management on Feb 27, after the company reported its FY2017 results. Within weeks of the results announcement, its share price rose 29% to close at $1.77 on March 22.

The company does not have a particularly deep economic moat, as it does not have a leading position in any market in Asia in which it currently has a presence. Globally, the production of cosmetics and beauty products is controlled by a handful of MNCs such as L’Oréal, Unilever, Procter & Gamble Co, The Estee Lauder Companies and Shiseido Co. In 2016, French cosmetics company L’Oréal was the world’s leading beauty manufacturer, with 10.2% of the market based on its revenues of US$28.6 billion, according to Euromonitor.

In Asia, Dr Jart+, Missha, Laniege and Innisfree have stronger positions than DR’s Secret, Best World’s flagship product. In FY2017, DR’s Secret was sold primarily in China, Taiwan, Indonesia and Singapore (see Table 1). Historically, DR’s Secret has also recorded sales in Malaysia, Thailand, the Philippines and South Korea. According to management, DR’s Secret has 14 stock-keeping unit (SKU) lines that are distributed to end-users through a multi-level marketing (MLM) model, which the company refers to as direct selling, and an export model. Because of the limited product range, retailers and agents do not need to stock a lot of inventory, and thus have lower initial inventory outlay costs than perhaps other brands with multiple product lines.

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