Best World

[Boon]

The recent successful acquisition of Zhejiang Solid Gold (now renamed BWZ) completed on 26 February 2014 would have BOTH immediate and medium (to long) term effects on the Revenue (Top line) and Profit (Bottom line) of BWI.

Immediate Effects:
1) BWZ is principally engaged in the business of the development, manufacture and wholesale of its proprietary brand of dietary supplements in the domestic market of the PRC.
2) BWZ holds 36 dietary supplement licenses.
3) BWZ’s existing retail distribution network comprises of 153 agents and distributors throughout 31 provinces in the PRC.
4) Through these channels, BWZ achieved RMB 33.4 million in revenue and RMB 2.3 million in net profit after tax for the FY2013, net of expenses.
5) Incidentally, consideration paid by BWI to acquire BWZ was RMB33.4 million, based on FY2013 financial of BWZ, this translate into a net return of 6.9% and a PE ratio of 15.4
6) In connection with the acquisition, Mr. Shi Jinyu, the majority vendor to the acquistion who had subscribed for 15,500,717 new shares in the Group, at a subscription price of $0.199 per share, paid in cash, had also entered into a legally-binding service agreement on 13 August 2013 (“Service Agreement”) with BWI, under which he is entitled, inter alia, to an annual performance bonus, which is tied to the net profits after tax of BWZ for the calendar years 2014 and 2015, and is capped at a total of RMB 20 million.
7) How incentivized and motivated would Mr. Shi be in growing the top and bottom revenue of BWZ for 2014 and 2015 remains to be seen.
8) Revenue, profit and cost structure from this newly acquired Manufacturing/Wholesale business would be more pronounced in 2Q 2014 onwards when they would be recorded for all months within the quarter.

Medium (to long) Term Effects:
1) With the completion of the Solid Gold acquisition, BWI would be a step closer to becoming a licensed Direct Selling company in China.
2) Management would continue to work according to schedule for the Group’s China direct selling license application in FY2014
3) Direct selling in China is potentially a multi-billion dollar industry and the upcoming direct selling license, if obtained, would allow BWI to participate in the strong domestic consumption growth in China – the management believes that the Group is well-positioned to take advantage of the potential market opportunities in China to increase business turnover within the next few years.

Final Thought:
1) Only time will tell if this would turn out to be a good acquisition by BWI - potentially it sounds promising.

(vested)