How Did Best World International Limited Fare In Its Most Recent Quarter?

Best World International Limited (SGX: CGN) is Singapore’s only listed direct selling company. Recently, I did a simple screen to find companies with high returns on equity and little debt. Best World was one of the three companies that topped the list of highest returns on equity. They have also shown impressive growth in recent years leading to the Best World share price increasing a phenomenal 14 times in just five years. With that in mind, let’s look at some of the key performance indicators for its 2018 third-quarter results.

The Numbers

1. In the reporting quarter, revenue spiked 96.8% to S$92.1 million.

2. Net profit attributable to owners increased 145.3% to S$29.9 million.

3. Year-to-date revenue was up 3.8% and net profit margin widened by 6.3 percentage points, resulting in a 32.3% increase in net profit attributable to owners.

4. Likewise, basic earnings per share was 8.15 cents for the nine-month period, 32.5% higher than the corresponding period last year.

5. Best World had S$134.2 million in cash and a net asset value per share of 27.93 cents at the end of the latest quarter.

What’s behind the numbers?

Investors should not get too excited about the large spike in revenue this quarter. The group previously said that its China operations have been changed to a franchise model. As such, sales from the first and second quarters are only being recognised in the third and fourth quarters of the year.

It is, therefore, more important to look at the year-to-date numbers which showed just a 3.8% increase in revenue but profit grew at faster tick of 32.2%, owing to higher gross profit margin.

The group breaks down its revenue by geography, with the bulk of its revenue coming from China and Taiwan.

Source: Best World International Limited 2018Q3 Press Release

From the table, we can see that over the first nine months, Best World’s revenue from Taiwan, its second biggest market, declined by 5.9%. However, on a more encouraging note, revenue from Taiwan increased substantially in the reporting quarter. Management said, “The Group is cautiously optimistic that business performance in Taiwan for FY2018 will match that of FY2017 with the upcoming anniversary celebrations and product launch in 4Q2018.” If so, investors should expect to see another year-on-year improvement in Taiwan sales in the fourth quarter. It is also encouraging to see that the group’s Indonesia presence has grown substantially in recent quarters, with this quarter marking the biggest growth in that region so far.

Looking forward

Management had said that it expects China to be a key growth driver in the next reporting period and for the next 12 months. Part of this growth will be due to the delayed revenue recognition from Q1 and Q2, as mentioned earlier. In addition, the group now has 28 franchisees across China.

The Best World share price currently trades at S$1.84, which translates to a price-to-book ratio of 7.9, an annualised price-to-earnings ratio of 16.9 and a dividend yield of 2.03%. Despite its relatively high valuation, if Best World can continue its strong earnings growth, investors who are willing to pay a premium now could be rewarded later.

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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 writer Jeremy Chia doesn’t own shares in any companies mentioned.