Results announced last night.
BEST WORLD INTERNATIONAL’S revenue for FY08 declined 6% to $96.1 million while its earnings came in 20.7% lower at $10.6 million.
Notably, net earnings for 4Q dropped more than expected (80%) to $989,000.
Best World, which is a direct seller of various products in the region, said it experienced weaker consumer demand for its products in Malaysia, in particular.
The weaker demand was partly caused by price increases of its products in 4Q in several key markets due to the appreciating Singapore dollar against the local currencies.
Solid balance sheet
Distribution costs, which comprise commissions, advertising & promotion expenses and other sales related costs, decreased proportionately with revenue.
But administrative expenses increased 8.2% to $18.8 million in FY2008 because of a revision in remuneration from the previous year and an increase in headcount, an increase in lease expenses and higher asset depreciation and amortization.
It does seem that Best World’s administrative cost structure stands at around $5 million quarterly and remains pretty fixed.
The company also incurred $2.1 million in unrealized forex exchange losses in 4Q alone. This is something that we have to seek clarification on.
Among the positives, I note that the company has improved its credit management and this has led to accounts receivable turnover decreasing from 45 days as at end-2007 to 22 days as at end-2008.
The company had no bank loan at the end of 2008 and has approximately $30.6 million in cash and cash equivalents. Hence, providing for working capital requirements, the company appears to be in a good position to continue its cash dividend payout in future.
A final and a special dividend totalling 1.0 cent per ordinary share has been proposed. Including the interim dividend of 1.2 cents, the total dividends will amount to 2.2 cents per ordinary share for FY2008.
26% increase in membership
Overall, membership figures grew 26% from 148,428 in FY2007 to 186,759 in FY2008. In the past, I understand that only about 2,000 are active business builders – that is, consumers who take direct selling as a business.
In a poor economic environment like the current one, I believe more white-collar workers will turn to direct selling as a second source of income. This could be a new source of sales folks for Best World, especially in Singapore where most of the sales force is Mandarin-speaking.
People still need to purchase necessities and consumables in good or bad times. And who better to buy from than one's own trusted network of business partners, colleagues, family and/or friends?
For the next 12 months, I would be looking to see if the company can add a substantial number of new members to its sales force and also to evaluate how much of these members are business builders as compared to normal consumers.
China was a disappointment
Best World announced the termination of the JV with Joymain a week ago. This came as no surprise to me as the company had no updates to this JV after its initial announcement in Dec 2007.
What concerns me is whether the company will have to write down its RMB 20 million loan to Joymain.
I also wonder what the company’s China strategy now is. Does it have to do another JV to grow its China market or should it build China slowly via organic growth? The company already has nearly 3,000 members under its franchise-selling scheme in China.
Valuation: 1X PE ex-cash
For an 18-yar-old company with annual revenue of almost $100 million and profit of $10.6 million, one can hardly call it a fledgling company. Yet, the market is valuing it at only 3.8x PE. This is a company that has generated $50 million of profit over the past 5 years.
Ex-cash (remember, it has $30.6 million in cash and zero bank loan), the company is now trading at just around 1x PE.
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