Best World and Lust Caution

 

Best World was found in 1990. The company develop, manufacture and distribute premium skincare, personal care, nutritional and wellness products.

 

Revenue

Revenue in 2017 grew 10% to $221M. 2018 estimate is about 10% growth. 

SEA & Others constitue about 14%; Taiwan about 30% and China 56%.

Going into 2019, China revenue mix is likely to increase further. 

 

Growth Cycles

First growth phase was driven by sales in SEA in particular Indonesia. It peaked in 2008 followed by a decline until 2013. 

The second growth phase was driven by direct sales in Taiwan peaking in 2016. 

The company is now enterng its third growth phase in China. Export sales pick up significantly from 2016-1H2018. From 2Q18, business in China transitioned from export to franchise model. There are currently 28 franchises in 10 provinces in China. This likely explain the substantial revenue growth in 3Q18 as franchisees stock up inventory for future sales. 

 

Price in the Sky?

PE in the first growth phase averages 7.9.

PE in the second growth phase averages 14.0.

Current trailing PE is 26.8 @ $3.25.

 

Thinking out Loud

The market is currently pricing significant future growth and China is a major catalyst. How this will pan out depends on new franchises added and rate of sell-through. Given the attractive margin; competition from established and emerging players is only a matter of time. 

 

Though price may trend still higher; at such rich valuation, it may be prudent to exercise caution and leave trading to professional / programme traders & market movers. The next correction could be very painful for late speculators. 

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Update 24-Apr-2019

Bonitas Research - short-seller question Best World financials and business practice.