(Stocks Discussion) SGX: Best World International Ltd (SGX: CGN)?

Goods for health, slope game and nutrition that are sold in eleven different Asian and Middle Eastern marketplaces.

TL;DR Strong business model which possesses strong brand equity. Historical financials look very strong with excellent profitability, balance sheet strength and cashflow management.

Business Profile

Founded in 1990, Best World International is a Singapore headquartered company which specialises in the development and distribution of premium skincare, personal care, nutritional and wellness products with operations in 11 markets in Asia and the Middle East.

Financials

Income Statement

Revenue had increased YOY by 24% to 266m in FY18. Gross Profit increased significantly by 41.6% to 207m due to higher revenue with reduced cost of sales. Because of this increased profitability, profit before tax was significantly higher by 37.5% to 83m.

Balance Sheet

Current Ratio is more than 2, which shows that the firm has a strong short-term liquidity profile. Moreover, most of current assets are cash, which reduces liquidity risk, but could signify that additional cash could be reinvested into the firm. Leverage (D/E) for the firm is very small as well, which reduces the risks of defaults and could signify lower cost of borrowing in the future. Due to low amounts of debt, the interest coverage ratio is exceedingly high. Overall, the businesses debt profile seems very healthy.

Cashflow Statements

Cashflow from operating activities was significantly higher due to significantly higher profit after tax and significant improvements in working capital management by collecting receivables and extending payables.

Cashflow from investing activities was lesser due to lesser purchase in financial assets.
Cashflow from financing activities experienced a large increase outflow due to higher dividends (50% increase) being paid out.

Business Risks

Direct Sellers

The practice of exaggerating how a good product is may lead to regulatory intervention. Since most of the distributors operate independently, monitoring them will be a significant challenge. Proper training programmes and mentorship by BestWorld could help to mitigate this.

Regulation

Since direct selling requires special licensing in many countries, changes in regulation could have widespread effects which may lead to decreased earnings.

Business Strengths

Brand Equity

BW provides strong brand image, especially through Mainboard listing and large appeal to the masses. This provides BW with a unique selling point that can drive consumer traffic and increase transactions.

Scalability

Possessing a direct selling model, scaling should not increase fixed costs proportionately which can help to increase profits substantially as the number of transactions increase overtime.