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Best World stocks soar 9.9% on robust earnings and growth margins

The strong performance was attributed to the firm’s shift in its export-led model to a franchise model in the China market.

Skincare and wellness distributor Best World International's shares spiked higher on Wednesday to as much as 9.9% after the firm posted a 28.9% year-on-year jump in net profit for its fourth quarter, supported by higher sales and gross margins.

The strong performance was attributed to the firm’s shift in its export-led model to a franchise model in the China market.

Net profit for the fourth quarter last year was at S$28.1 million, compared with the S$21.8 million profit a year ago. Earnings per share for the quarter was at 5.12 Singapore cents, compared to a year ago’s 3.96 Singapore cents.

Revenue for the three months rose 78.6% to S$127.7 million, supported by a 120.5% increase in revenue from China. The group said 61.7% of sales came from its franchise business, while 37.2% of sales is attributed to its direct-selling business segment. The group’s gross profit more-than-doubled to S$99.8 million, leading to a gross profit margin increase of 78.2%.

Best World’s shares were on a bull run on Wednesday, opening the day’s session at S$2.65 after it closed Tuesday’s trading at S$2.53.

The stock gained large strides in the morning session, rising to as high as S$2.78 or 9.9% by noon at 1.25pm Singapore time, before cooling to S$2.70 later in the day.

Franchise segment in China the key growth driver for 2019

The group posted a final dividend of 4.2 Singapore cents per share, as well as a special dividend of 0.8 Singapore cent per share. The dividend pay-out is almost double of the 2.6 Singapore cents per share final dividend amount a year ago.

For the full financial year, the group posted a 24.0% increase in revenue at S$266.3 million, primarily supported by higher contributions from the group’s franchise segment in China. Net profit rose by 30.9% from a year ago to S$72.9 million.

For this year, Best World’s management said they maintain their expectations on China being the firm’s key growth driver. Giving an update, the group said its China subsidiary has entered into agreements with 28 franchisees as of the end of last year, with their locations located over eleven provinces and one city in mainland China.

The group signed with five more franchisees in January this year, Best World said.

Mr Huang Ban Chin, the group’s chief operating officer and executive director commented: ‘Despite only a half-year contribution from the franchise segment, China remains the top performing market for the group.’ The group believes that it will achieve ‘both top and bottom lines (of) growth’ for the financial year of 2019, largely driven by full-year contributions from its China franchise segment, he said.

Lack of clarity on franchise operations

Although the robust performance for the fourth quarter had drawn positive sentiments from investors, the group has been checked for on its lack of clarity on how its franchisees operate in China in a media report by The Business Times.

The company’s auditors Ernst & Young, have laid out an audit plan for the group's financial statements for the year ended December 31st, 2018, which will include looking through samples of revenue contracts and reviewing relationships with customers for evidence of related-party sales.

Best World has said it is not responsible for the ‘accounting and sales records of the franchisees, who are independent third parties’, and it has conducted its business ethically and is in compliance with applicable laws.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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