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23-12-2018, 09:21 PM
Finally found the time to take a look at Best World 3Q2018 financials.
Boon,
Good points raised.
Similarly, I find it very puzzling that COGS remain constant while revenue doubled.
I believe hints can be found if one references the earlier years of 2014-2015, where Best World has minimal Export revenue and achieved gross margins of 75%-80%. This gross margin range is also in line with Best World 3Q2018 guidance. Working backwards based on 2017 revenue segment and assume 77.5% gross margins, one can estimate that the Export segment has a gross margin of 59.1% compared to Direct Selling gross margin of 77.5%.
Although Export segment has lower margin by 18.4%, there are no expenses in terms of distribution costs and there is income from China Agent. One can still estimate which model is more profitable, but I am lazy to work the numbers. However, the more profitable model may not be the better model for the company in the long run.
Moving on, assuming that the gross margins for Direct Selling remains unchanged, 3Q2018 COGS (DS) would be $6.8 million. That would give 3Q2018 COGS (Franchise) of $8 million. Assume same products and revenue mix for DS and Franchise, hence the volume for Franchise is just 16% more than that of DS. On the other hand, the revenue for Franchise is double that of DS. This is interesting. Why are Best World products almost double in price in China compared to other regions? Is the higher price point sustainable?
Using the same approach, it can be calculated that 3Q2017 COGS (Export) dropped from $10.7 million to 3Q2018 COGS (Franchise) of $8 million. So there is an approximately 25% drop in volume sold.
Regarding the tax rate, Best World gives the following reasoning: "tax effect of Group consolidation adjustment on unrealised profits on inventories held by our subsidiaries as at 30 September 2018 and a higher provision for Group tax expenses for the nine months ended 30 September 2017." While the low tax rate is peculiar, I doubt that there is accounting fraud.
Not vested, but interested in Best World because a close acquaintance of mine has a stake.
Boon,
Good points raised.
Similarly, I find it very puzzling that COGS remain constant while revenue doubled.
I believe hints can be found if one references the earlier years of 2014-2015, where Best World has minimal Export revenue and achieved gross margins of 75%-80%. This gross margin range is also in line with Best World 3Q2018 guidance. Working backwards based on 2017 revenue segment and assume 77.5% gross margins, one can estimate that the Export segment has a gross margin of 59.1% compared to Direct Selling gross margin of 77.5%.
Although Export segment has lower margin by 18.4%, there are no expenses in terms of distribution costs and there is income from China Agent. One can still estimate which model is more profitable, but I am lazy to work the numbers. However, the more profitable model may not be the better model for the company in the long run.
Moving on, assuming that the gross margins for Direct Selling remains unchanged, 3Q2018 COGS (DS) would be $6.8 million. That would give 3Q2018 COGS (Franchise) of $8 million. Assume same products and revenue mix for DS and Franchise, hence the volume for Franchise is just 16% more than that of DS. On the other hand, the revenue for Franchise is double that of DS. This is interesting. Why are Best World products almost double in price in China compared to other regions? Is the higher price point sustainable?
Using the same approach, it can be calculated that 3Q2017 COGS (Export) dropped from $10.7 million to 3Q2018 COGS (Franchise) of $8 million. So there is an approximately 25% drop in volume sold.
Regarding the tax rate, Best World gives the following reasoning: "tax effect of Group consolidation adjustment on unrealised profits on inventories held by our subsidiaries as at 30 September 2018 and a higher provision for Group tax expenses for the nine months ended 30 September 2017." While the low tax rate is peculiar, I doubt that there is accounting fraud.
Not vested, but interested in Best World because a close acquaintance of mine has a stake.