Best World International continues to shineBy Benjamin Cher
SINGAPORE (27 Sept): CIMB is maintaining its “add” call for Best World International and raising its target price to $2.05 from $1.56, on the back of strong growth.
The company’s growth has been driven by
Taiwan, where sales have grown 276% year-on-year in 1H16, notes analyst Jonathan Seow in a Sunday report.
Key drivers for this growth include a
new lifestyle centre in Kaohsiung, increased product acceptance, and its new online store.
“Based on 1H16’s results, Best World International is poised to be among the
top ten direct selling companies in Taiwan,” says Seow.
While investors have concerns about channel stocking, Seow notes that there is no incentive for distributors to do so, as the product is paid in cash. Furthermore, with no price discrimination among members, it reduces the possibility of distributors stocking up for arbitrage.
Best World International is also looking to maintain its own manufacturing facility in Singapore by the second half of 2016, with sales reaching the appropriate economies of scale, Seow highlights. This would allow the company to better manage back-end supply and quality.
The facility will be fully automated, which qualifies it for government schemes, Seow notes. Best World International also has a
net cash of $46 million, more than adequate to cover the capital expense of about $15 million in building up the facility.
“It is important to note that the facility is located in Singapore and not a cheaper low-cost country as its internal studies show that consumers rank Singapore highly on quality perception,” says Seow.
The company’s direct-selling plans in China appear to be on track, according to Seow. The company is on schedule to set up the requisite nine service centres in Hangzhou city by end of 2016, after which the current export model will be converted to a direct selling model.
“
Taiwan currently makes up 68% of the group’s revenue but we expect China to eventually overtake Taiwan,” says Seow.
Seow notes that there are still key risks with regulatory changes and a drop in sales in key markets that might dampen the share price.
Best World International shares closed flat at $1.54 on Tuesday.
Source: The Edge
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