Best World International Limited (SGX: CGN) shares spiked more than 8% on Wednesday, 27 February after the company reported another quarter of earnings growth. Fourth-quarter net profit was up by 28.9% from the corresponding period last year, which brought its full-year profit up to S$72.9 million, 30.9% higher than the previous year. Here are the key takeaways from its earnings update.
- Revenue and gross profit for the reporting quarter increased by 78.6% and 109.2%, respectively.
- For the quarter, net profit attributable to owners was up by 28.9% to S$28.1 million.
- Full-year revenue and gross profit were up 24.0% and 41.6%, respectively.
- Full-year net profit increased by 30.9% to S$72.8 million.
- Full-year basic earnings per share rose 31.0% to 13.26 Singapore cents.
- The company has proposed a final dividend and special dividend of 4.2 Singapore cents and 0.8 Singapore cents per share. Together with the interim dividend of 1.2 Singapore cents and a special dividend of 1.2 Singapore cents declared in the third quarter, total dividends paid this year were 7.4 Singapore cents.
What’s behind the numbers
Best World delivered another strong quarter. The Group has fully transitioned its China operations from an export business into a franchise business.
The table below shows the Group’s revenue earned by geographical location.
Source: Best World International Limited Earnings Press Release
Impressively, all geographical segments of the company’s operations improved last year. China represents the company’s largest market, with revenue from China increasing 31.1% in 2018. Also worth noting is that revenue from Taiwan, its second largest operation, increased 26.2% this quarter after a 5.9% decrease in the first nine months of the year.
While Indonesia still contributes just a fraction of the company’s revenue, revenue from that market tripled in 2018.
Balance sheet and cash flow
Best World remains in a robust financial position. It reported for the full year S$150 million in cash flow from operations. Consequently, its net cash position ballooned to S$197 million from S$82 million a year ago, giving it the financial muscle to cover its dividend.
In its earnings press release, company management reiterated that it expects China to be the key growth driver over the next 12 months. The Group has 28 franchisees spread across 11 provinces and one municipality in mainland China, and it signed an additional five franchisees in January 2019.
Executive Director Huang Ban Chin remains optimistic about the company’s future, saying:
“We believe that we will achieve both top and bottom lines growth in FY2019, largely driven by full year contribution from the China Franchise segment, together with contribution from the Group’s operation in Taiwan, Indonesia, Singapore, and Hong Kong. The demand for premium skin care products in these markets are growing healthily and we will intensify our marketing efforts in these markets to capitalise on the growing trend.”
The Foolish view
February was a tumultuous month for the company’s stock. Earlier this month, an article on The Business Times said the company’s sales in China were difficult to track and suggested that the company was overstating its market share based on the reporter’s research. The article caused panic amongst investors and caused the stock to plummet more than 15% in a single day. However, this earnings release should provide some respite for shareholders.
On top of its earnings growth, investors should also be heartened by the fact that the company has decided to bump up its dividend this year. The company’s balance sheet also looks to be in good health, and based on management’s optimism, its future earnings continue to look bright.
Currently, shares of Best World change hands at S$2.33 per piece, which translates to a price-to-book ratio of 7.7, a price-to-earnings multiple of 17.5, and a dividend yield of 3.1%.
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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.