Best World

Looking through thier 1Q2018 result, Net profit is down 40.3% to $5.7m .
Total revenue is also down 43.3% to $25.3m,

EPS is down 40.7% from 1.77 cents to 1.05 cents.

This could be the reason why the share price has tank from $1.56 to a low of $1.22 .

NAV of 24.74 cents.
P/B is 5.17X , seems quite expensive.

Presuming a full year EPS of 4.5 cents , PE of 22.2x seems expensive.

Cash flow seems quite healthy as they have managed to increased their Net Cash flow from Operating activities.

Overview

In line with management’s commentary in Section 10 of the Group’s last results announcement, Group Revenue for 1Q2018 was 43.3% lower compared to the same period last year, primarily due to minimal export to China as the Group commenced its conversion from the Export segment to the new China Wholesale segment.

Quarter-on-quarter, Gross Profit margin remains stable at 69.3% while Net Profit Margin improved to 22.8% in 1Q2018. This was mainly due to the following factors:

• Other Operating Income which the Group charges its China Agent for market support activities, product trainings and IT services as a function of the Agent’s sales for the 1Q2018, increased by 165.7% to $3.9 million;

• In line with revenue decrease in 1Q2018, Distribution Costs which comprises freelance commissions, annual convention expenses and other sales related costs decreased by 32.1%;

• Administrative Expenses for the Group decreased from $8.9 million in 1Q2017 to $6.6 million in 1Q2018 as a result of lower professional fees, management and staff costs as well as lower amortisation expenses;

• Net Other Losses of $0.2 million in 1Q2018 was mainly attributable to Unrealised Foreign Exchange Losses recorded during the period due to revaluation of the Group’s financial assets denominated in US Dollars from a depreciating USD as well as Unrealised Foreign Exchange losses recorded by our Indonesia Subsidiary as Indonesia Rupiah weakened against the Singapore Dollar and offsetting the reversal of unaccounted cash written off previously announced in February 2015, concerning BWL Health & Sciences Inc. of $0.7 million. The amount was in respect of tax payments for which had been finalised and paid;

• The Group’s Income Tax Expenses decreased from $2.5 million in 1Q2017 to $1.4 million in 1Q2018 due to a decrease in Profit Before Tax recorded by the Group.

As a result, Profit Attributable to Owners of the Parent Company declined 40.3% from $9.6 million in 1Q2017 to $5.7 million in 1Q2018.

Outlook:

Although the Group’s top and bottom line has been impacted in 1Q2018 due to the conversion of its business model from Export to China Wholesale and since actual demand for the Group’s brand offerings in China is still growing, barring any unforeseen circumstances, management is cautiously optimistic that the China Wholesale segment will contribute to the growth in the bottom line for the Group in 2H2018.

Factors that may affect the Group’s performance in the next reporting period and for the next 12 months are as follows:

• To set the Group’s growth path moving forward, management constantly explores M&A opportunities. In the course of assessing these opportunities, regardless of success or not, professional fees and other related expenses may be incurred; 16

• Higher Administrative expenses for FY2018 compared to FY2017 due to an increase in management and staff in certain Regional Centres (RCs), depreciation expenses related to the Group’s Tuas facility and machineries/equipment for the factory and establishment of our Changsha RC;

• As strategies implemented are not expected to gain traction immediately, management is cautiously optimistic that revenue from Taiwan will be stable when compared to FY2017, primarily led by events, campaigns and product launches in 2H2018.

• The conversion of Export to the new China Wholesale segment is expected to extend into 2Q2018 as export agent continues to deplete its inventory. Revenue from the Export Segment in 2Q2018 is also expected to be lower than that of 2Q2017. The Group’s China subsidiary BWCP may be able to register its first revenue contribution for the China Wholesale segment in 2H2018;

• Upon conversion to China Wholesale, some or all of the following items, amongst others may be affected: 1. Increase in Revenue and Gross Profit as a result of revenue recognition at a price higher than export price; 2. Increase in Administrative Expenses due to management and staff costs as well as lease expenses of our new Changsha RC; and 3. Decline in Other Operating Income due to lower service fees charged to the Group’s Export Agent, and

• Fluctuating currencies of key markets which the Group operates in against the SGD may positively or negatively impact the Group’s performance. Management will undertake measures to mitigate any potential risks the Group is exposed to. Other ongoing factors that affect the Group’s performance include, timeline required for product registration in various markets, natural disasters, local direct selling regulations, product regulations and market competition.


TA wise, it is on a down trend mode chart patterns!

The current price of $1.28 is staying below its 20, 50, 100 & 200 days moving average, this is rather bearish.

Short term wise, looks like it may go down to re-test 1.22.
Breaking down of 1.22 with high volume, that would be super bearish and may see the price sliding down further towards 1.01 price level.

The estimated PE of 22.2x seems expensive, I would rather wait for a reasonable price level of PE 15-16 x that is 70-72 cents.

Not a call to buy or sell.

Please do your own due diligence.