Why Are Shares Of Best World International Limited Up By 130% In A Year?

Singapore’s stock market hasn’t done too well over the last 12 months with the Straits Times Index (SGX: ^STI) down by 18% to 2,902 points currently.

But, that doesn’t mean that all stocks have had a bad time over the past year. Best World International Limited (SGX: 5ER) is one good example. In the same time it took for the Straits Times Index to fall by 18%, Best World’s shares are up by 130% to S$0.575 currently.

Founded in 1990, Best World International is a direct-selling company that deals with a wide range of healthcare products. The firm currently has over 400,000 independent distributors and member customers and has operations in 12 countries mainly in Asia. The biggest geographical source of revenue for Best World is Taiwan, which accounted for over 55% of total revenue in 2015

With that, let’s dig into some of the possible reasons behind Best World’s shares great performance in the past year:

1. Impressive membership and earnings growth

In 2015, Best World had recorded strong business growth. Total revenue for the year had surged by 35.1% to S$101.7 million while the bottom-line soared by nearly 150% to S$10.1 million. Best World attributed its growth to strong sales increases in Taiwan, China, Indonesia, and Malaysia.

Overall memberships, an important number in a direct selling business, has been growing for Best World over the past few years too. To the point, Best World had ended 2011 with 245,444 members and this has since increased to 402,422 in 2015 (this is also up by 6.5% from 2014).

2. Improving balance sheet, growing cash flow, and rising dividend

As of 31 December 2015, Best World’s balance sheet had S$47.2 million in cash and equivalents and total borrowings of merely S$17,000. These numbers are an improvement from the end of 2014 when there was S$41.0 million in cash and equivalents and total borrowings of S$6.0 million.

During the year, Best World was also able to churn out S$15.9 million in free cash flow (S$17.1 million in operating cash flow and S$1.2 million in capital expenditures), a spike of 60% from the free cash flow of S$9.9 million seen in 2014 (S$11.1 million in operating cash flow and S$1.2 million in capex).

Coming to the dividend, the direct-seller had declared a dividend of S$0.02 per share in 2015, quadrupling the S$0.005 per share seen in 2014.

3. Future growth opportunities

In Best World’s latest earnings release (for the 12 months ended 31 December 2015), the company commented that “management maintains a cautiously optimistic outlook” for 2016 “as a result of the continued growth for [Best World’s] direct selling business in Taiwan, Indonesia, Malaysia and exports to China.”

Best World’s management had also filed for an application for a Direct Selling license in China and the application is in progress. In addition, Best World is also setting up a regional centre in Dubai to serve as a launch pad into other Gulf Cooperation Council (GCC) nations such as Saudi Arabia, Bahrain, and Kuwait.

At Best World’s current share price of S$0.575, it has a trailing PE ratio of 13. For some perspective, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the Straits Times Index – has a price-to-earnings ratio of 11.5 as of 15 April 2016.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo owns shares in Best World International.