pstan3.17PS Tan (photo), aka lotustpsll, has been a shareholder of Best World International since 2015. He contributed this article to NextInsight. He worked with HSBC Group for over 30 years. Over the last 15 years of his  career he headed senior positions in the Risk Division of the Bank. His last post was Head of Risk Strategy. He was responsible for setting up two departments – Corporate Risk Identification and Financial Analysis – within Corporate Risk Division and managing them.

BWI released its annual results on 26 Feb. Last Q4 was a record quarter in many respects. 

 ('m)

Q4

2018

Revenue

128

266

Gross Profit

100

207

Net Op Profit

28

64

EBITDA

40

89

Free Cash Flow

70

 148

EPS

5.12 c

13.26 c

The magnitude of Q4 numbers is immense in relation to the full-year results.

Overall, NPAT for FY18 rose 31.6% y-o-y to S$72.5 million, despite a decline of 30% for H1. Management's positive guidance for FY18 was met.

The incredibly strong Q4 should provide a foundation for a stronger performance this year.

Management is confident of better results and has provided a positive guidance for FY19.


Country performance, based on revenue generated, was impressive (see table):

Top markets

Q4

2018

China

S$144.8m

+31 %

Taiwan

S$85.9m

+4.4%

Indonesia

S$15.7m

+200%

China’s new franchise model is working well and we may expect a multi-year growth profile given the scale of this enormous market.

Initial signs are very encouraging and that the Management’s strategies and plans are being successfully executed. Shareholders believe BWI can replicate its Taiwan success story and to achieve more in China.

China will be the key market to watch this year. 

Stability in Taiwan’s market in 2018 is welcome news for shareholders as it enters into a more matured phase. No doubt, Taiwan will continue to be an important market. Hopefully, we see a high single-digit growth rate for FY19.

Management and shareholders are equally excited over the potential growth prospects of Indonesia, 4th most populous nation. The group is keen to develop and to expand on this market.

DRsSecret17DR's Secret: Various items in the DR’s Secret line were first introduced in 2001, 2002 and 2003. DR’s Secret is, thus, a time-tested product line that has proven to be successful. In a nutshell, we are witnessing a growing and wider acceptance of BWI’s products, notably DR's Secret. This augurs well for the Group.

Why BWL is such an attractive investment for many shareholders? This is a summary of the varied factors -- based on facts.

  • BWI is a 28 year old home-grown business (a rare breed), not an overnight MLM.

  • Extensive experience of key directors (who are Founders of BWI) in this industry.

  • Strong track record of business success through astute business planning and execution, for e.g. Taiwan, China and Indonesia.

  • Secular uptrend of demand for premium “skincare” products.

  • An “asset light” business model that can be replicated from country to country.

  • Taiwan’s success story – a “Best in Class” case study for corporate strategy, planning and execution.

  • Similar cultural profiles of both China and Taiwan consumers allow BWI to use the Taiwan’s success story to map out its business plans and strategies in China.

  • Strong revenue growth in China and Indonesia. Management will be keen to raise its market share.

  • Strong EBITDA margins exceeding 30% achieved for the past 7 QTRs. Indicative of a highly profitable business model. Not many public-listed companies can achieve such margins.

  • Strong financial position supported by current huge cash reserves of s$205 million. Liquidity is stable and strong. No inherent cash flow or balance sheet risk.

  • For FY18, BWI generated free cash flow of s$148 million. This represents a solid FCF yield of 11.5%. A strong cash-generative business that will strengthen its capital structure and instil financial flexibility to fund business expansions and investments. Also, provides options to reward shareholders and raise shareholder value.

  • BWI has won numerous awards over the years. Last November, BWI was recognised by Forbes Asia “200 Best Under a Million”. This annual award honours high-performing Asia-Pacific listed companies, selected from a pool of 24,000 companies with an annual revenue between $5 million and $1 billion. Only 3 Singapore companies made it to the list.

  • From FY15 to FY17, BWI grew its EBITDA from s$19.8 million to s$72.5 million. This golden period was driven notably by Taiwan’s business growth. A stunning CAGR of 54%. Can BWI repeat this sizzling run from FY18 to FY21? Management is confident of FY19 outlook. This is looking positive.

  • BWI has appointed Chester Fong as an Independent Director, a significant addition to further the success of the company’s China/HK strategy. This is a good and strategic appointment which Business Times overlooked. Instead, BT merely cited Chester as a replacement to an ID who had resigned, casting the resignation in a negative light along with the rest of the article. 

    To do justice to Chester, I highlight below his extensive experience in the corporate world:

  • Mr Fong is currently a part-time senior advisor at McKinsey in Asia-Pacific supporting Strategy and Corporate Finance with focus on transactions and CFO service lines. He has more than 30 years of experience in finance and general management at Colgate-Palmolive, a global consumer products company; He was the Chairman and CEO of Greater China and the Chief Financial Officer of Greater Asia. During his tenure with Colgate-Palmolive he has championed and supported many global and regional acquisition projects.” (Source: BWI website). 


watchnowKorean celebrity Chailee Son talks about DR's Secret: 

Projecting earnings growth

Although the China franchise model was adopted only in H2 2018, the company's FY18 EPS rose 31% y-o-y to 13.26c.

Let’s assume BWI can generate 40% CAGR on EPS, using FY18 EPS as the base. 

 

EPS
(c)

P/E ^

Stock price (P/E @ 18)

FY18

13.26

16.82

$2.39

FY19F

18.56

12.02

$3.34

FY20F

25.98

8.58

$4.68

FY21F

36.38  

6.13

$6.55

^ based on recent price of $2.23

Further assume a conservative P/E of 18 for valuation purpose (even though I categorise BWI as a high growth stock that deserves a higher P/E rating).

The projected EPS and stock values are tabulated in the table.
           

Based on the projections, I believe the current share price represents a solid entry point for long term investors. BW is a quality high growth play with a 28-year operating history.

Also, bear in mind that BWL has invested in the stem cell business, currently holding a 12.5% stake in Celligenics Pte Ltd, which could provide a catalyst to its share price if this project comes to fruition.  This exciting investment certainly bears watching.

Please do your own due diligence before investing.

I have invested in BWI since 2015.

P/S

I find the BT article to be biased and unbalanced, which is extremely damaging to BWI, its shareholders and business partners. Article was damning with not a single positive point mentioned of BWL. The timing of release of the article is suspicious -- during a blackout period before the full-year results release when management had to refrain from commenting for a media article in order to avoid the risk of selectively disclosing non-public information.

I'm gratified that a fellow shareholder, Jason Wee, CFA, has given an objective rebuttal to BT's story
(
)


See PS Tan's previous article: