SINGAPORE (Feb 23): CIMB is maintaining its “add” on Best World International with higher target price of $2.97, bullish about the group’s prospects in China, the second-largest direct-selling market in the world.
CIMB says the excitement surrounding the stock’s earnings growth over FY17-19 has mostly been on further penetration into China upon full conversion to a direct-selling model. In 4Q and FY16, sales in China grew a strong 143% and 193% y-o-y respectively.
To recap, the distributor of cosmetics and health supplements via the direct-selling method, exceeded expectations in every quarter in FY16. 4Q16’s net profit grew 231% y-o-y, bringing FY16’s net profit to a new record high of $34.6 million. The earnings beat was mostly driven by higher sales, thanks to higher demand for its DR’s Secret skincare range, and helped further by operating leverage.
Meanwhile, Taiwan continues to do well. Management had intentionally withheld major promotions in 3Q to gear up for anniversary promotions and celebrations in 4Q, and sales did not disappoint as 4Q16 sales rose 45% y-o-y and 45% q-o-q.
Best World is recommending a final dividend of 3.0 cents as well as a 2-for-1 share split.
“We estimate Best World’s FY16 performance puts it among the top 10 direct selling companies in Taiwan (from top 15 in 2015). We think Best World International’s strong product acceptance puts the company in a strong position to reach the top 5 in the next two years,” says CIMB analyst Jonathan Seow in its Wednesday report.
Shares of Best World are up 6 cents at $1.98.
