Note from Maybank KE Retail Research
[img=400x0]https://www.nextinsight.net/images/stories/BestWorld/dora_ningxiang2.jpg[/img]
Best World obtained its direct selling licence in China in Nov 2016 but has yet to begin direct selling.
Photo: Company
[size=undefined][size=undefined]Best World hit a low of $1.40 (-9.1%) in early trading following a negative Bloomberg article highlighting a government crackdown on alleged pyramid schemes in China, which prompted a SGX trading query.[/size]
Share prices for Herbalife (-7.8%), Nu Skin (-9.6%) and USANA Health Sciences (-10%) fell overnight after China's State Administration for Industry & Commerce announced a three-month campaign to police pyramid schemes, although it did not name any companies.
Given that the Chinese market is the key growth driver for the three global direct sellers, the regulatory clampdown could pose a significant risk on sales.[/size]
[img=100x0]https://www.nextinsight.net/images/stories/Misc2016/LQM_ad141e.png[/img]Despite the near-term overhang on the stock, we retain Best World in the Market Insight Growth portfolio on the basis of its phenomenal earnings growth momentum as the group makes further inroads into China.
-- Maybank KE
Best World has only recently made inroads into the Chinese direct selling market after obtaining its licence in Hangzhou city in Nov '16
In 1H17, revenue from China contributed 48% of Best World's overall sales of $100m, of which almost all stem from the export and manufacturing/wholesale segment.
Best World does not operate a pyramid scheme and will be introducing its direct selling operations in phases. The government crackdown is aimed at Ponzi schemes, which are illegal and is not directed against legitimate direct selling businesses.
As for now, Best World still operates the export model in China where it sells its premium skincare products primarily to beauty/hair salons, spa owners, etc. The model does not incentivise retailers to stock up on products (channel stock) as they would not receive any distribution gains, as opposed to the direct selling model.
Further, Best World has policies in place to prevent channel stocking, particularly in China, which could lead to pyramid schemes. Products sold in China are reportedly in short supply due to increased demand from consumer acceptance.
Following the selldown, Best World currently trades at 14.1x FY18 P/E, with consensus earnings growth forecast of 23%/16% in FY18/FY19.
传销
It's clear that HBC choose to interpret the SAIC review as Pyramid scheme instead of Direct selling or MLM.
This is very easy as most valuebuddies understood that Pyramid scheme is illegal (both in Singapore and China).
And, of course, bwl is not a Pyramid scheme.
No questions about that.
For valuebuddies who really care about bwl,
you must read the original SAIC document and also Chinese news report.
It's our wish that bwl growth well under DS license.
It's my wish that bwl focus it's entire energy in pushing for DS transformation.
MLM?
Dora/Doreen/HBC, take this opportunities to do the right things.
Bestworld 宝贝 加油! 用心生活.
On a lighter note, DBS issued a downgrade on Best World on 16th Aug, cutting PT down to $1.45 from $1.82, when the last issue to buy was done on 8th Aug. Amazing how they can change the tune in a such short period of time.
There are always 2 sides of a coin in any analysis. Only time time will tell which side is correct and that's what causes the share price to go up or down. So long as the business model of BW remains intact and is still doing well the share price should recover. Have faith in BW's management abeit they have come this far. As mentioned before, the Chinese market is a big black box. If BW can manage to succeed in establishing itself there, its future is brighter than many of the companies listed on the SGX!
I think it is rather obvious where people from the two sides are coming from.
Anyway, back to the main topic, Best World, which is obviously more important. With this recent crackdown debacle, I suppose within the next 3 months, one will find out whether BWL is "legitimate" thus far. That would be in 4th quarter 2017 result.
Sent from my SM-G930F using Tapatalk
Back to the topic on Best World, the following is what they put out in a response.
"In response, the Company would like to highlight that although we hold a direct selling licence, we have not converted our business in China to direct selling yet. Presently all DRs’ Secret, Avance and Optrimax products are available for purchase by customers through DRs’ Secret outlets and workshops. As such, the above SAIC statement has little or no impact to our China business."
Out of curiosity, I wanted to find out that if in the case these workshops/outlets were to be involved in any direct selling (not even talking about MLM here), would Best World be absolved from any blame? I got some inkling of an answer from the FAQ at MOFCOM.
9.能否通过与直销企业签订合作协议的方式开展直销?
不能。根据《直销管理条例》,从事直销经营必须经商务部批准获得直销经营许可,任何单位和个人未经批准从事直销活动的,将被依法查处。根据《行政许可法》,被许可人(即直销企业)涂改、倒卖、出租、出借行政许可证件,或者以其他形式非法转让行政许可的,行政机关将依法给予行政处罚;构成犯罪的,依法追究刑事责任。
个别企业或团队打着与直销企业合作的名义从事直销,属于未经批准从事直销,是违法经营行为,工商、公安机关将依法予以查处。
So seems like from Best World's line of argument, if there is any wrongdoing, the workshops/outlets will be in trouble as per what is indicated in the underline portion but not explicitly Best World. From the pictures and videos posted, the SDAs and their PDs are definitely seen with lots of BWL logos and even in offices decked in those logos and products. However, it can be argued that BWL is cooperating to do those activities since they have mentors from Taiwan, Dora speaking of Passive Income etc.
In short, nothing really concrete...
Good info to read through the FAQ here
http://zxgl.mofcom.gov.cn/questions.html?##
Not easy for common business entities to ''game '' around with the authorities in China.
It is a market of 难者难 , 易者易 , (For those ''who can make it easy will find it easy , those who can't make it easy will find it difficult ''. )