Wednesday, November 11, 2015

Best World

Best World: (S$0.30) Promising growth prospects as 9M15 earnings exceed FY14 record
Best World 3Q15 net profit soared to $4m (+259.3% y/y, +92% q/q) from a low base, on higher revenue of $26.2m (+36.2% y/y, +25% q/q). This brought 9M15 earnings and revenue to $6.4m (+219% y/y) and $60.7m (+21%), respectively.

For the quarter, the health and lifestyle products manufacturer and distributor enjoyed tremendous growth, thanks to a 34.6% rise in direct selling in Taiwan and Indonesia, as well as doubling of export sales (+183%) to China.

Including export sales, Taiwan achieved a 185.9% surge in sales through effective marketing campaigns and product launches, which increased product demand.

With the boost in sales, gross and operating margins expanded to 77.1% (3Q14: 75.5%, 2Q15: 75.8%) and 17.7% (3Q14: 8.8%, 2Q15: 11.9%), respectively.

Operating cash flow swelled to $9.5m compared to a $5.6m in 3Q14. Further, the group's healthy balance sheet is supported by a burgeoning cash pile of $39.9m, its highest ever since listing in '04.

For the final quarter of 2015, management is cautiously optimistic that group will see sustained growth in key markets like Taiwan, China and Indonesia, as its products gain further traction with retailers and consumers.

The group is also awaiting progress for a direct selling license in China, which will grant it access to the second largest direct sales market in the world, after US.

Given its 9M15 performance, Best World has already exceeded FY14's record earnings of $4.1m, putting it in a good position to raise its dividend payout for FY15.

Assuming the group maintains its 44% payout ratio and based on a conservative flat y/y earnings of $2.1m for 4Q15, this would translate to a DPS of 1.26¢, or 4.2% indicative yield for FY15.

At the current price, Best World is trading at an attractive trailing P/E of 7.8x, compared to regional direct distribution peers of 10-21x.

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