SINGAPORE (Feb 27): Maybank Kim Eng is maintaining its “buy” call on Best World International with a 10% higher price target of $2.06 compared to $1.88 previously after raising FY18-19 earnings per share (EPS) estimates on expectations of stronger China and Taiwan sales.
The revised target price is based on 17 times FY18E EPS, after ascribing a 20% discount to the price/earnings to growth (PEG) of 1 times for regulatory risks and competition.
This comes after the direct selling firm on Monday posted a 61% rise in FY17 earnings which beat the research house’s and consensus estimates by 26%, led by higher sales in China from better demand for the group’s proprietary range of DR’s Secret skincare products.
See: Best World sees near doubling of 4Q earnings to $21.8 mil on higher revenue
In a Tuesday report, analyst John Cheong says he foresees China’s strong growth momentum to sustain well into 2018 following its strong performance in FY17.
While the first phase of Best World’s conversion from an export business to a direct selling may risk temporary disruption of the group’s export revenue, Cheong says the group’s export agent has stocked up sufficiently to ensure minimal disruption to consumers.
Moving forward, he also believes the performance of Best World’s Taiwan market should remain stable despite expectations of more focus on China.
“After its stellar FY17 results, our revised EPS implies that Best World is only trading at 11/9 times FY18E/19E EPS, a 35-40% discount to its peer group average. [The stock] also trades at a PEG of 0.5 times vs the peer average of 1.7 times,” comments Cheong on the counter’s current valuations.
“Moreover, Best World is backed by a FY17 net cash position of $75 million (10% of market cap) and free cash flow yield of 7-12% for FY18-20,” he adds.
As at 12.16pm, shares in Best World are trading 8 cents higher at $1.45, or 4.7 times FY18 book.
