1.

Company Overview
Founded in Singapore in 1990, Best World International (BWL) is the only direct selling company to be listed
on the Singapore Stock Exchange. With a regional presence across 12 markets across Asia Pacific and the
Middle East, BWL is mainly engaged in the development, production and direct distribution of skincare and
wellness products. At the end of FY16, it is being supported by a sales force of c. 412,000 members and
independent distributors in its active markets.

2. Economic Analysis
Amid slowing global growth, GDP growth in Asia-Pacific is GDP Growth Forecast
expected to outpace global growth, growing between 3.2% to (2016-2020)
5%
4% y-o-y between 2016 to 2020. Furthermore, growth in
4%
BWL’s key markets are expected to be robust. Despite the 3%
slowing growth, China is still expected to post an annual GDP 2%

growth between 4.2% to 6.7% in the next four years. 1%

Consumer expenditure in Taiwan is also expected to grow 0%

2016 2017 2018 2019 2020
more than 10% over the same period(1). This would represent World APAC
a positive outlook for BWL as consumption power in its active Source: EIU

markets continue to grow.

3. Industry Analysis
3.1. Direct Selling Industry
Based on WFDSA estimates(2), the rapidly growing global Top 5 Global Direct Selling Markets
direct selling market is believed to be worth USD183bn, with 25%

over 100m direct sellers by the end of 2014. Data also 19%
20%
17%
suggests that beauty, personal care and wellness products are
15%
the most popular products in the direct selling sphere. China,
10%
9% 9%
in particular, is a key catalyst for growth in the industry and 7%
(3)
is expected to grow by 4.5% CAGR to 2021 . By 2017, 5%
US China Japan Korea Brazil
China is expected to overtake US as the largest direct selling
Source: The World Federation of Direct Selling Associations (WFDSA)

market globally(4). With less than 100 direct selling

(1) EIU estimates

1|Page
(2) WFDSA Annual Report 2015
(3) Euromonitor: Direct Selling in China
(4) Direct Selling News (DSN) estimates
companies in China now, BWL is presented with the unique opportunity to tap into the highly exclusive direct
selling network in the country and gain access to the country’s USD 30bn cosmetic market(5).
3.2. Porter’s Five Analysis
3.2.1. Threat of New Entrants
With direct selling activities highly regulated in most jurisdictions, there has been limited threat from new
entrants traditionally. Furthermore, recent cases of pyramid schemes have affected the credibility of legitimate
direct selling companies. As such, new entrants will require significant time and investments to build brand
equity and credibility to differentiate itself from other fly-by-night schemes.
3.2.2. High Competitive Rivalry
There is a high amount of existing competitive products Rivalry among
Existing Firms
on the market, from both the direct selling and traditional
Threatof Substitute
distribution channels. While members will continue to Threat of New
Products and
Entrants
Services
play the key role in generating product awareness, BWL
must continue to innovate and deliver quality products to
Bargaining Power of Bargaining Power of
maintain its edge. Sellers Customers

3.2.3. High Threat of Substitutes

Personal care and wellness products are highly substitutable. Similarly, continual innovation, high-quality
products and effective marketing strategies will be key to BWL retaining its market share.
3.2.4. High Buyer Power
The performance of a direct selling business is highly dependent on its network of members/independent
distributors. Therefore, BWL is required to constantly review its membership structure and keep compensation
packages attractive to incentivize its buyer network to grow product sales.
3.2.5. Limited Supplier Power

Traditionally, the production of BWL’s proprietary brands are outsourced to contract manufacturers. This has
allowed the group to mass produce without incurring substantial capex costs but at the same time, creating the
need for the group to hold considerable amounts of inventory on its balance sheet due to the extended lead time
required by the OEMs. With the new Tuas facility set to be ready in 2017, the group can reduce product lead
times, reduce cost of procurement and improve product quality, limiting the influence of the suppliers.

4. Company Analysis
4.1. SWOT Analysis

Best World International’s SWOT Analysis

Strengths Weaknesses
• Established track record and mainboard listing • Wrongful association with notorious pyramid or
differentiates BWL from other pyramid schemes fly-by-night schemes

(5) National Bureau of Statistics of China estimates 2|Page

 • Growing membership base good indication of • Lack of control over members/independent
product appeal distributors creates risk of poor brand image
• Highly scalable business model, with little fixed
cost and upfront expansion cost

Opportunities
• Earnings momentum in Taiwan is expected to be
sustained, with growing brand awareness and
acceptance in the northern region
• Approval from direct selling license in China will
spur local interest and enable BWL to capture the
USD30bn China Cosmetic market
• Entry into upstream manufacturing enables margin
expansion and reduce stockpiling on balance sheet
• Net cash position creates M&A opportunities
Threats
• Weakening currencies in operating footprint
against the SGD may negatively impact the
group’s performance
• Keen competition in the cosmetics sector from
both direct selling and traditional distribution
channels
• Unexpected regulatory changes in direct selling
markets may affect the group’s operation in its
markets

4.2. Business Model & Value Chain Analysis

BWL’s business model is mainly categorized into four key segments.

Products are first formulated in-house, before being outsourced to contract
manufacturers for production. Through its distribution network, BWL will
then distribute its products to its members and 3rd party agents whom will
demonstrate and sell the products to end consumers. As a direct selling
company, BWL is the highest in the value chain because it enables the
group to eliminate costly overheads in conventional retail and reach its
end consumers in a highly scalable model. In 2017, BWL will also begin
to move the production of its products in-house, driving margins and
improving product quality.
4.3. Current Strategies
4.3.1. Focusing on the USD30bn Chinese Cosmetic market
With the issuance of the direct selling license in China, BWL is expected to shift its attention to growing
membership base in the 2nd largest direct selling market in the world. In the past, China is a predominantly an
export market and has overtime established a strong presence through its export agents in beauty, hair and nail
salons. With a high level of product acceptance, BWL will focus on converting its exports sales to direct sales
and scaling up margins in the process.

3|Page
4.3.2. Maintaining sales momentum in Taiwan
Since its entry into the Taiwanese market in 2006, the group’s effort has gained traction in recent years, seeing
revenue grown over 25 times from its SGD4.4m in FY09 to reach SGD123.0m for FY16. Going forward, the
group intends to place additional emphasis on members’ training and launch of new products to maintain its
sales momentum in their largest market.
4.3.3. Shifting manufacturing activities in-house
The group’s manufacturing facility in Tuas is expected to be operational by end 2017. The upstream expansion
will allow the group to reduce inventory lead time and grant them greater control over procurement cost and
quality, leading to increased margins over the long run.

5. Accounting Adjustments and Analysis

5.1. Operating Leases
Future operating lease payments represent the firm’s rental payable for certain office premises and retail outlets.
The lease rental terms last three years on average and are bound by contract and non-cancellable without penalty.
As such, these payments represent future obligation from the firm and should be reclassified as a liability with
a corresponding entry as an asset to represent control over the office premise and service centres.
5.2. Contingent liabilities
On 25 June 2010, PT Best World Indonesia, a subsidiary of the group, received a claim from the Indonesian tax
authorities for Corporate Income Tax (CIT) and Value Added Tax (VAT) for year 2008. The Group filed an
objection to the tax authorities but was rejected. The case was referred to the supreme court in which the group
was required to pay the full sum for the CIT. The case is still pending for the VAT. We believe that it is unlikely
that the supreme court will rule in favour of Best World for the VAT objection and thus should recognize all
the liabilities in the year that the claim was issued.
5.3. Trade receivables
Analysis of the aging profile of the trade receivables indicated that the management has been overestimating
the amount of allowance for doubtful debt. Allowance as a percentage of gross receivables range between 8%
to 11%. However, actual write-offs vary from 0% to 3% of gross receivables. Therefore, we proposed to adjust
the historic allowance downwards to 5% of gross receivables to better reflect the economic reality of the firm.
5.4. Comparison of Performance between Pre-and Post-Adjustments

Pre-Adjustments Post-Adjustments
2014 2015 2016 2014 2015 2016
ROE 7.34% 15.01% 38.80% ROE 9.83% 16.55% 43.60%
Net Margin 5.41% 9.15% 17.14% Net Margin 5.93% 8.85% 17.03%
Asset Turnover 0.89x 1.08x 1.25x Asset Turnover 0.80x 1.02x 1.24x
Leverage 1.52x 1.52x 1.81x Leverage 2.06x 1.83x 2.06x

The overall impact of the accounting adjustments on the performance of the firm is quite marginal. ROE is least
affected in 2014 and 2015 but experienced the greatest divergence between pre- and post-adjustment figures in

4|Page
2016. Looking at the DuPont breakdown of ROE, we observed that the net profit margin is marginally affected
by the adjustments. Asset turnover is more affected in 2014 and 2015 but the difference gradually dissipates in
2016. The best explanation for the difference in pre- and post-adjustment ROE comes from the divergence in
financial leverage.

6. Ratio Analysis
6.1. Profitability Analysis
Although there were little fluctuations in its gross margins over the last three years, BWL’s EBIT and Net
margin almost tripled over the same period. Specifically, the margin expansion grew in tandem with the rapidly
increasing revenue. The correlation can be explained by the stronger presence in Taiwan and China that has led
to increase in asset utilisation rate through higher sales volume. BWL could therefore enjoy a less than
proportionate increase in cost due to economies of scale. We also noted that BWL had a superior performance
with the highest EBIT and net margins among its peers.

Source: Source:
BWL Profitability Analysis Company Profitability Comparison Company

90% 45% 100%

87.4%
80%
40% 73.2%
70% 80%
% of total revenue
Profit margin (%)

60% 35% 57.5%

50% 60%
30%
40%
40%
30% 25%
25.0% 25.4% 24.5%
20% 17.0% 14.1%
20% 20% 14.0%
10% 9.1%
5.9% 5.0%
0% 15%
0%
2012 2013 2014 2015 2016
Gross Margin EBIT Margin Net Margin
Gross Margin EBIT Margin
Net Margin Distrbution Cost / Revenue Best World Peers Average Peers Highest Peers Lowest

6.2. Credit Risk Analysis

Despite its rapid expansion, BWL’s leverage is well maintained in both absolute and relative terms, with no
immediate need for either debt repayment or future debt financing. Due to the asset-light and commission based
business model, BWL can scale up its operation without the use of excessive leverage. In fact, its D/E ratio
reduced from 0.58x to 0.25x over the last three years.
Source: Source:
Interest Coverage Company D/E Ratio Company

250.0x 8.00x 7.38x

202.0x
200.0x 6.00x
150.0x
79.3x 4.00x
100.0x
50.0x 16.8x 2.00x 0.63x
4.3x 0.25x 0.01x
0.0x 0.00x
Best World Peers Peers Peers' Best World Peers Peers Peers'
Median Highest Lowest Median Highest Lowest

5|Page
6.3. ROE Decomposition
Beyond experiencing exponential growth in its top and bottom-line, BWL’s ROE has also increased five folds
over the last three years. After a detailed decomposition, we found that this was mainly due to the huge growth
in their profitability (NOPAT margin) and efficiency (Operating asset turnover). Furthermore, we believed that
BWL’s ROE has yet reached its real potential due to a decreasing financial leverage and a widening spread.
This is a signal that BWL could utilize additional leverage to increase ROE in the future. Compared to Nu Skin,
its closest competitor, BWL has proven itself as a better investment with higher margins and efficiency. This
gap could potentially widen due to Nu Skin’s limited upside potential, stemming from its relatively high D/E
ratio and a smaller spread.

BWL BWL BWL BWL Nu Skin

FY2014 FY2015 FY2016 FY2016
Net operating profit margin 6.27% 9.07% 17.13% 6.95%

x Operating asset turnover 187.35% 310.01% 335.88% 251.82%

= Return on net operating assets 11.74% 28.12% 57.55% 17.51%

x Net operating assets / business assets 55.97% 46.79% 60.67% 80.69%

+ Return on investment assets 0.42% 0.45% 0.58% 0.00%

x Investment assets / business assets 44.03% 53.21% 39.33% 19.31%

Return on business asset 6.76% 13.40% 35.14% 14.13%

Spread 5.29% 10.89% 32.99% 11.65%

x Financial leverage 58.01% 28.91% 25.64% 63.63%

= Financial leverage gain 3.07% 3.15% 8.46% 7.42%

= Return on equity (ROE) 9.83% 16.55% 43.60% 21.55%

7. Investment Thesis
7.1. China- The Impending Growth Driver
BWL’s expansion into China will be the next growth driver for the firm in the next 3 to 5 years. Currently, the
firm exports their products into China, using a traditional retail export model. The export segment alone has
increased overall sales in China by ten folds over the course of five years, indicating high product popularity.
Furthermore, Chinese government had reduced import tariffs from 5% to 2% in 2015(6) to encourage cosmetics
import into the country.
The next growth driver is expected to arise when BWL officially enters the Chinese direct selling market in
2017. With the Chinese direct selling market heavily regulated and exclusive, the successful award of a direct
selling license in the country helps BWL create an economic moat in a highly lucrative market with limited
competition.

(6) Reuters 6|Page

As such, we expect sales to grow mid to high double digit in the next 3-5 years in China, replicating the similar
success experienced by BWL in Taiwan. Furthermore, with the higher margin direct selling model, we are
expecting BWL’s margins to increase as they gradually gravitate towards direct selling in China. With the
success in the Chinese market, we believe that there will be strong earnings momentum which will drive the
stock price up.

7.2. Scalable Business Model with Strong Returns for Shareholders

The direct selling business model is one that is highly scalable with minimal fixed costs. Unlike traditional brick
and mortar retail model, BWL’s direct selling model relies heavily on either the word-of-mouth or personal
network of its members/distributors to boost product awareness and sales. Fixed costs and capital expenditures,
such as a complex logistics network and overhead costs, are largely redundant. Beyond just reducing the number
of intermediaries required to reach the end consumers, the low intensity nature of the direct selling model also
creates extremely high returns on investment (ROI).
All these is evidenced in the financial performance of the firm. A striking observation is that returns on invested
capital is a whopping 49% as compared to about 35% of their direct selling peers. In comparison to its WACC
of 6%, investors of BWL are earning far more than the cost of capital. Looking at the breakdown of other
financial matrix, returns on business assets is similarly impressive, growing from 6% to 35% in three years. A
large bulk of growth is generated from the increase in operating asset turnover from 1.9x to 3.3x, reflecting the
strength of operating leverage that a direct selling business has.

7.3. Superior cost savings from upward integration of supply chain

Beyond just focusing on the growth of its distribution channels, BWL’s management had their sights set on
expanding upstream to build a sustainable business. In 2016, the firm acquired a manufacturing facility in Tuas
to reduce its reliance on 3rd party manufacturers. This will internalize the cost of production and remove any
intermediaries. Furthermore, the firm had earlier invested heavily in a manufacturing plant in Zhejiang to
produce a specific line of cosmetics products for wholesale distribution in China. On top of being an additional
revenue stream, the new segment contributes to the overall margin growth of the firm.
The financial performance of the firm does show the results of these incremental improvements in supply chain
over the years. Gross profit margin is stable at 73%, far ahead of peer average of about 56%. Operating margin
improved significantly from 6% to 17% in the past three years. All these testifies the firm’s prudent cost control
measures to maximize returns to shareholders through expanding sustainable margins.

8. Valuation
8.1. Revenue Drivers
8.1.1. Direct Selling
The business segment operates by recruitment of members into the company. Products are sold to the members
at a member price who then look for end consumers to sell the products to. As such, segment revenue is a
function of number of members and how much sales each member can generate.

7|Page
Historically, membership base has grown about 12% CAGR over the past 5 years. We believe that most of the
markets that BWL is in, such as Vietnam and the Philippines, are under penetrated. This gives further room for
BWL to grow membership base. As such, we project a growth of about 13% in net new members for the next
five years. The bull case scenario reflects a 15% growth, considering the network effect of membership base.
The more members there are, the easier it is to penetrate the market as each member will in turn recruit new
members of their own. We estimate a growth of 10% for bear case in anticipation of any difficulty in customer
acquisition.
As for sales per member, it has grown strongly historically at about 19% CAGR. We conservatively estimate
about 8% growth in sales per member for base and bull case. The reason being that high growth in sales per
member is unsustainable given increasing adoption of the product. A bear case scenario of 5% is assumed to
incorporate the possibility of economic slowdown which will adversely impact sales by members.
We expect both sales per member and membership growth to spike in FY 2018 when direct selling activities in
China reaches top gear in 2018.
8.1.2. Exports

The export model is generally utilized in countries like China and Myanmar, where there are unclear direct
selling regulations. China has experienced tremendous growth over the past five years as sales at least doubled
every year. We expect growth to moderate in the future with the issuance of the direct selling license in China.
We expect BWL to shift the focus in China from exports to direct selling to generate higher margins. However,
we remain confident of sustainable growth in the export market due to its huge success in the past. Therefore,
growth will maintain at 7% CAGR. The various bull, bear, base scenarios reflect the possibility of economic
changes in China.

8.2. Key Assumptions

8.2.1. Discount rate
The cost of equity is obtained using the Capital Asset Pricing Model (CAPM). Risk-free rate is determined by
the Singapore 30-year government bond. Beta, which represents systematic risk of the firm, is obtained by
regressing the historic stock price with changes in STI. Cost of debt is disclosed in the annual report.
8.2.2. Capital structure
The firm has very little borrowings with a debt-to-equity ratio at about 0.09. Furthermore, most of the
borrowings are specific to the new Tuas facility. Therefore, the Group intends to pay down the debt in the near
future and maintain an all-equity financed firm.
8.2.3. Terminal growth rate
Terminal growth rate of the firm is the weighted average inflation rate of the geographical markets the firm is
in.

8|Page
8.2.4. Valuation model
We triangulate our valuation of the firm using three valuation methods: discounted cash flow model, residual
income model and trading multiples. After analysing multiple scenarios, we are initiating our coverage on Best
World International with a BUY call at a target price of SGD3.66, with a 48% upside on last close price.
8.3. Football Field Analysis

9. Key Investment Risks

We have identified several investment risks that might be significant in compromising our recommendation.
Specifically, we further categorise these into market, political and firm risks per their nature. However, we
believe that BWL can effectively handle these potential threats and maintain earning momentum due to
favourable macro-environment and advantageous market positioning.
9.1. Government Regulation
BWL’s direct selling model may be often associated to fraudulent pyramid scheme and multi-level marketing.
Furthermore, with increased press coverage since the grant of the direct selling license in China, BWL may
9|Page
invite addition supervision and scrutiny from the local government due to its wrongful association with the
multi-level marketing business. This can severely undermine their future earnings as China already accounts for
28.8% of their FY16 revenue and is expected to be their fastest-growth market in the near future. However, as
the only direct selling Mainboard listed company on the SGX, we are confident that it will enjoy greater
credibility obtained from the higher transparency and stringent reporting requirements. Its proven track record
thus far can also help them fend off any scepticism over their business model in the long run.
9.2. Intensified Competition
There has always been intense competition in BWL’s major markets like Taiwan and China. Particularly in
China, the reduction of import tariff, from 5% to 2% in late 2015 for skin care products, has intensified
competition in a market where BWL traditionally benefitted from. Going forward, competition in the Chinese
market is expected to intensify further as local brands begin to mature and begin competing with foreign brands
such as BWL. However, we are in the view that this will have a limited impact on BWL’s business due to its
unique edge as a direct selling company where they can scale up faster and cheaper compared to other traditional
skin care companies. Furthermore, the growth in BWL’s export business indicates that the growing consumer
acceptance in BWL’s products.
9.3. Earning Manipulation

BWL Income Statement Manipulation Peer Comparison

Analysis 23.7x
25.0x
4.0x
20.0x
3.0x
15.0x
2.0x
10.0x
5.7x 5.0x
1.0x 3.7x
5.0x 2.2x
0.6x 1.2x 0.9x
0.0x 0.0x
2012 2013 2014 2015 2016 Revenue / Cash CFO / Earnings
Revenue / Cash CFO / Earnings Best World Peers Median Peers Highest Peers Lowest

Behind BWL’s impressive growth, there might be concerns with its reporting credibility and faithful
representation. While BWL’s Revenue / Cash ratio has grown rapidly during their three-year expansion phase,
their CFO / Earnings ratio has constantly gone down over the same period. Therefore, this can signal potential
earnings management and threatens to impede the progress made by BWL thus far. However, BWL’s rising
revenue / cash ratio could be attributed to its unique direct selling model as rising revenue / cash ratio seems to
be a norm among its peer in the direct selling industry. Furthermore, the low CFO / Earnings ratio is mainly
affected by their changes in working capital which is necessary during expansion. Nonetheless, we still suggest
that investors remain vigilant as the firm may be susceptible to earnings manipulation.

10 | P a g e
10. Appendix
10.1. Key Business Segments
Majority of BWL’s sales is generated by the Direct Selling Segment, Revenue by Segments
(FY2016)
comprising of sales to customers through direct selling channels
Manufacturing/
Wholesale
across its market. With its direct-selling operations spanning across 9 2%
Export
different markets in Asia Pacific, the segment was the largest revenue 27%

contributor in FY16, generating 71% of FY16 revenue.

The Export segment is the 2nd largest contributor to BWL’s top line. Direct Selling
71%
The export model is generally utilized in markets where has unclear
direct selling regulations are unclear or for new markets to build brand
awareness/presence before application for a direct selling license. Mainly driven by demand in China, the export
segment generated SGD54m in FY16 (27% of FY16 revenue), a 272% y-o-y increase from FY15.
The Manufacturing/wholesale business is the latest addition to BWL’s segment offerings and remains the
smallest amongst the different segment.
10.2. Key Geographical Segments
Majority of the group’s FY16 revenue (90.1% of FY16 revenue) was Revenue by Geography
(FY2016)
generated in Taiwan and China. Taiwan, the group’s top performer in Others,
Indonesia, 2.70% 3.70%
FY16, generated c.SGD120m in revenue, a 118% y-o-y increase from
Singapore,
FY15. China, predominantly an export market, is the group’s 2nd 3.50%

largest revenue generator, contributing c. SGD57.8m in revenue in

China,
FY16. With the issuance of the highly converted direct selling license, 28.80% Taiwan,
61.30%
coupled with growing consumer awareness and acceptance, China is
expected to underpin the group’s growth strategies in the near term.
The group’s other markets are in Singapore, Indonesia, Philippines, Thailand, Hong Kong, Vietnam, Myanmar,
Malaysia and Korea. The group also operates a joint venture in Dubai.

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10.3. Liquidity Analysis

BWL Current & Quick Ratio Liquidity Analysis

4.6x
4.2x 2.9x

3.3x
3.1x
2.1x
2.7x 2.6x 2.0x
1.7x
2.0x 1.9x 2.1x
1.2x
1.0x 1.1x
1.2x

0.4x

2012 2013 2014 2015 2016 Current Ratio Quick Ratio

Current Ratio Quick Ratio Best World Peers Average Peers Highest Peers Lowest

In the past five years, BWL’s liquidity has been consistently deteriorating with decreasing current and quick
ratio. This was mainly due to rapid growth of trade payables during BWL’s rapid expansion. However, BWL
should not encounter any short-term liquidity problem in foreseeable future with its strong current and quick
ratio. Furthermore, BWL’s liquidity management remains commendable in comparison to most of its peers.
10.4. Efficiency Analysis

Cash Conversion Cycle Change Efficiency Analysis

400 250
300 200

200 150

100 100

0 50
2013 2014 2015 2016 0
-100
Days Sales Days Days Payable Cash
-200 -50 Out. Inventory Out. Conversion
Out. Cycle
Avg. Days Sales Out. Avg. Days Inventory Out.
Avg. Days Payable Out. Avg. Cash Conversion Cycle Best World Peers Average Peers Highest Peers Lowest

Historically, BWL’s efficiency in cash conversion has been both excellent and consistent. First, they managed
to achieve a negative cash conversion cycle over the past four years while keeping inventory turnover relatively
stable despite inventory hikes over periods of fast growth. Furthermore, compared to peers, their ability to
control payable repayment remains exceptional and can be attributable to the negative cash conversion cycle.
BWL’s mounting trade payables also explains the decrease in current and quick ratio over the years.

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10.5. Capital Management Analysis

ROIC & WACC ROE & Sustainability Analysis

60% 140%
49.65% 119.64%
50% 120%
43.53%
36.11% 100%
40%
75.20%
28.34% 80%
30%
60% 45.37%
43.60%
20% 33.77%
12.18% 40%
22.54%
10% 6.12% 20%
0% 0%
ROIC WACC ROIC - WACC ROE Dividend Payout Sustainable
Spread Ratio Growth Rate

Best World Peers Average Peers Highest Peers Lowest Best World Peers Median Peers Highest Peers Lowest

Despite the similarities in business model, we observed that BWL displays a superior capital management
performance compared to its peers. This is mainly due to the management’s consistent effort in cost control
during the expansion phase to drive higher margins. Furthermore, BWL also provides a respectable ROE to it
investors. Although BWL’s dividend pay-out ratio is currently below its peers, we believe that this is due to the
additional capital required for their undergoing aggressive expansion in areas like China.
10.6. Forecasted Financial Statements
Best World International Limited (SGX: 5ER) Financial Year End 31 December
Income Statement Historic - Post-adjustment Projections
FYE 31 Dec (S$'000) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenues 48,218 41,081 75,265 101,672 200,764 257,438 327,382 394,991 459,149 504,815
Cost of Sales (10,977) (9,266) (19,275) (24,805) (53,797) (68,983) (75,298) (90,848) (105,604) (116,108)
Gross profit 37,241 31,815 55,990 76,867 146,967 188,454 252,084 304,143 353,544 388,708
Operating Expense
Distribution Cost (17,266) (14,335) (28,249) (36,386) (66,358) (91,172) (115,943) (139,887) (162,608) (178,781)
Administrative Expenses (17,706) (17,647) (21,745) (26,563) (35,620) (51,488) (65,476) (78,998) (91,830) (100,963)
Other Gains 51 1,912 621 1,732 4,677 0 0 0 0 0
Other (Losses) (847) (916) (2,079) (1,393) (2,461) (813) (897) (1,178) (1,750) (6,527)
Other Operating Income 867 973 1,642 2,742 3,712 5,609 7,133 8,606 10,004 10,999
EBIT 2,341 1,802 6,180 16,999 50,917 50,591 76,901 92,686 107,361 113,436

Interest Income 225 213 175 311 335 377 492 623 831 1,103
Finance Costs (417) (392) (505) (727) (642) (586) (490) (411) (410) (410)
Profit before tax 2,149 1,623 5,850 16,583 50,610 50,382 76,902 92,899 107,781 114,129

Income Tax (646) (702) (1,386) (7,587) (16,421) (16,347) (24,952) (30,142) (34,971) (37,031)
Net Income (Loss) 1,503 921 4,465 8,996 34,189 34,035 51,950 62,756 72,810 77,098

Dividends paid (1,228) (1,228) (1,321) (2,202) (7,707) (10,211) (15,585) (18,827) (21,843) (23,129)

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Best World International Limited (SGX: 5ER) Financial Year End 31 December
Balance Sheet Historic - Post-adjustment Projections
FYE 31 Dec (S$'000) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
ASSETS
Current Assets
Cash and Cash Equivalents 28,241 33,283 40,975 47,247 54,933 71,626 90,747 120,935 160,578 206,401
Other Financial Asset 0 1,015 259 0 0 0 0 0 0 0
Trade and Other Receivables 6,104 5,541 10,461 11,064 23,430 32,230 40,987 49,451 57,483 63,200
Inventories 5,351 5,905 7,753 11,515 42,953 38,488 42,011 50,686 58,919 64,779
Other Assets 6,796 7,111 8,712 7,250 12,089 28,901 36,753 44,343 51,545 56,672
Assets Held for Sale Under Frs 1,088 0 0 0 0 0 0 0 0 0
Total Current Assets 47,580 52,855 68,160 77,076 133,405 171,244 210,497 265,416 328,525 391,053

Non Current Assets

Property, Plant and Equipment 6,731 6,392 7,554 6,847 16,765 17,183 18,129 19,458 21,011 22,430
Capitalized Lease Asset 845 1,931 8,542 4,624 1,667 1,149 601 23 0 0
Other Financial Assets 1,274 259 0 1,990 2,034 2034 2034 2034 2034 2034
Deferred Tax Assets 289 261 396 749 582 582 582 582 582 582
Intangible Assets 1,248 1,092 7,900 7,018 6,216 5,252 4,317 3,528 2,745 1,966
Investment Property 1,255 1,237 1,218 1,200 1,182 1,164 1,146 1,128 1,110 1,092
Total Non Current Assets 11,642 11,172 25,610 22,428 28,446 27,364 26,810 26,753 27,482 28,104

Total Assets 59,222 64,026 93,770 99,503 161,851 198,608 237,307 292,168 356,007 419,157

LIABILITIES
Current Liabilities
Trade and Other Payables 8,562 7,422 18,999 24,505 43,888 60,297 65,816 79,408 92,306 101,487
Other Financial Liabilities 0 3,500 4,719 7 2,638 2,638 2,082 3 0 0
Income Tax Payable 860 730 979 4,624 16,485 16,485 16,485 16,485 16,485 16,485
Other Liabilities 991 961 961 961 961 961 961 961 961 961
Total Current Liabilities 10,413 12,613 25,658 30,097 63,972 80,381 85,344 96,857 109,752 118,933

Non Current Liabilities

Other Financial Liabilities 10,147 11,109 13,088 11,088 15,800 12,842 10,760 10,757 10,757 10,757
Deferred Tax Liabilities 778 (2,275) 1,059 (679) 1,997 1,997 1,997 1,997 1,997 1,997
Lease Liability 845 1,931 8,542 4,624 1,667 1,149 601 23 0 0
Total Non Current Liabilities 11,769 10,766 22,688 15,033 19,464 15,988 13,358 12,777 12,754 12,754

Total Liabilities 22,182 23,379 48,346 45,130 83,436 96,368 98,702 109,634 122,506 131,687

EQUITY
Shareholders' Equity
Common Stock - Par Value 17,192 17,192 20,169 20,169 20,169 20,169 20,169 20,169 20,169 20,169
Retained Earnings 20,467 22,803 24,080 34,404 58,607 82,432 118,797 162,726 213,693 267,662
Other Reserves (559) 976 2,023 1,516 1,563 1,563 1,563 1,563 1,563 1,563
Total Shareholders Equity 37,100 40,971 46,272 56,089 80,339 104,164 140,529 184,458 235,425 289,394
Minority Interest (61) (323) (848) (1,715) (1,924) (1,924) (1,924) (1,924) (1,924) (1,924)
Total Equity 37,039 40,648 45,424 54,374 78,415 102,240 138,605 182,534 233,501 287,470

Total Liabilities & Equity 59,222 64,026 93,770 99,503 161,851 198,608 237,307 292,168 356,007 419,157

Best World International Limited (SGX: 5ER) Financial Year End 31 December
Cash Flow Statement Historic - Post-adjustment Projections
FYE 31 Dec (S$'000) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Cash Flows From Operating Activities:
Profit before tax 16,992 50,382 76,902 92,899 107,781 114,129
Adjustments for:
Interest income -311 (377) (492) (623) (831) (1,103)
Interest expenses 54 586 490 411 410 410
Depreciation & amortization 2,783 4,639 5,078 5,516 5,616 6,354
Loss (gain) on disposal of plant and equipment 7 0 0 0 0 0
Goodwill written off 27 0 0 0 0 0
Fair value gain on contingent consideration for acquisition of subsidiary -954 0 0 0 0 0
Net effect of exchange rate changes in consolidating foreign subsidiaries -382 0 0 0 0 0
Operating cash flows before changes in working capital 18,216 55,230 81,979 98,202 112,976 119,790
Inventories -3,762 4,465 (3,523) (8,676) (8,233) (5,860)
Trade and other receivables -1,362 (8,800) (8,757) (8,464) (8,032) (5,717)
Other assets -1,025 (16,812) (7,852) (7,590) (7,202) (5,127)
Trade and other payables 6,458 16,409 5,519 13,592 12,898 9,181
Net cash flows from operations before tax 18,525 50,493 67,366 87,064 102,407 112,267
Income tax paid -1,428 (16,347) (24,952) (30,142) (34,971) (37,031)
Net Interest Income (528) 2 213 421 693
Net cash flows from operating activities 818 712 11,115 17,097 20,060 33,617 42,416 57,134 67,856 75,929

Cash flows from investing activities:

Capital expenditure (3,558) (4,524) (5,459) (6,345) (6,976)
Net cash flows used in investing activities (3,294) 2,050 (6,820) (2,518) (11,929) (3,558) (4,524) (5,459) (6,345) (6,976)

Cash flows from financing activities:

Debt repayment (2,638) (2,638) (2,082) (3) 0
Capitalized lease repayment (518) (547) (579) (23) 0
Dividends paid to equity owners (1,228) (1,228) (1,321) (2,202) (7,707) (10,211) (15,585) (18,827) (21,843) (23,129)
Net cash flows (used in) from financing activities (1,244) 2,270 3,401 (12,987) (222) (13,366) (18,770) (21,487) (21,869) (23,129)

Cash and cash equivalents:

Beginning balance 30,212 26,492 31,524 39,220 40,812 48,721 65,414 84,535 114,723 154,366
Net increase / (decrease) (3,720) 5,032 7,696 1,592 7,909 16,693 19,121 30,188 39,642 45,823
Ending balance for SOCF 26,492 31,524 39,220 40,812 48,721 65,414 84,535 114,723 154,366 200,189

Cash pledged for bank facilities 1,749 1,759 1,755 2,075 6,212 6,212 6,212 6,212 6,212 6,212
Cash pledged for security deposits - - - 4,360 - - - - - -
Ending balance for SOFP 28,241 33,283 40,975 47,247 54,933 71,626 90,747 120,935 160,578 206,401

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10.7. Peer Analysis – Trading Comparables
Trading Comparables
All data given in SGDm, unless otherwise stated
Enterprise LTM LTM LTM LTM EBITDA LTM LTM LTM LTM FWD Net Debt/
Ticker Market Cap Net Assets FWD P/E Debt/ Equity
Value Revenue EBITDA NPAT Margin NPAT Margin P/E P/B EV/EBITDA EV/EBITDA LTM EBITDA
BEST WORLD INTERNATIONAL LTD BEST SP Equity 680.0 648.1 62.0 200.8 41.8 34.6 20.8% 17.2% 19.67x 10.97x 15.51x 16.40x 9.62x 0.0 -1.03x
AMWAY MALAYSIA HOLDINGS BHD AMW MK Equity 397.3 333.5 67.0 345.8 23.5 17.4 6.8% 5.0% 22.86x 5.93x 14.20x 19.49x n.m. 0.0 -2.72x
HAI-O ENTERPRISE BHD HAIO MK equity 285.9 268.0 85.5 110.5 20.1 14.8 18.1% 13.4% 19.28x 3.34x 13.37x 19.56x 10.48x 0.0 -1.69x
GRAPE KING BIO LTD 1707 TT Equity 1184.2 1213.2 192.8 396.0 105.9 55.7 26.7% 14.1% 21.26x 6.14x 11.45x 17.92x 11.78x 0.7 0.12x
NU SKIN ENTERPRISES INC - A NUS US EQUITY 3746.0 3812.8 939.3 3122.8 429.3 202.4 13.7% 6.5% 18.51x 3.99x 8.88x 15.99x 7.92x 0.6 0.16x
TUPPERWARE BRANDS CORP TUP US EQUITY 4315.8 5187.3 301.0 3130.3 572.1 316.3 18.3% 10.1% 13.65x 14.34x 9.07x 13.30x n.m. 3.3 1.53x
HERBALIFE LTD HLF US EQUITY 7062.4 7923.1 277.7 6348.5 787.0 367.8 12.4% 5.8% 19.20x 25.44x 10.07x 12.53x n.m. 7.4 1.09x

Min. 13.65x 3.34x 8.88x 12.53x 7.92x 0.0 -2.72x

25th Percentile 18.68x 3.99x 9.32x 13.97x 9.20x 0.2 -1.24x
Median 19.24x 5.93x 10.76x 16.96x 10.48x 0.7 0.14x
Average 19.13x 6.75x 11.17x 16.47x 10.06x 2.0 -0.25x
75th Percentile 20.76x 6.14x 12.89x 19.10x 11.13x 2.7 0.85x
Max. 22.86x 14.34x 14.20x 19.56x 11.78x 7.4 1.53x

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