Hot stock: Best World jumps 8.3% on higher earnings and dividends

BEST World International shares rose as much as 8.3 per cent on Wednesday after the direct selling group posted a fourth-quarter net profit of S$28.1 million, up 28.9 per cent from the same period a year earlier.

Revenue surged 78.6 per cent to S$127.7 million, led by a 120.5 per cent jump in revenue from China to S$80 million, due mainly from sales of its premium skincare products to franchisees. Best World said 61.7 per cent of its revenue comes from its franchise segment.

Gross profit more than doubled to S$99.77 million, reflecting a gross profit margin of 78.2 per cent, up from 66.7 per cent in the fourth quarter of 2017. However, net profit margin for the fourth quarter fell to 22 per cent, down from 30.5 per cent in the same period a year earlier.

The shares gapped up to open at S$2.65 on Wednesday, and last traded at S$2.70, up 6.72 per cent on volume of 9.68 million as at 10.40am. The counter closed at S$2.53 on Tuesday, after gaining 14.48 per cent over the day as the market anticipated good results and a dividend bump.

Management delivered on its promise in proposing a final dividend of 4.2 Singapore cents per share, as well as a special dividend of 0.8 Singapore cent per share. In the year-ago quarter, Best World offered a final dividend of 2.6 cents per share.

Chief operating officer Huang Ban Chin said: "Despite only a half-year contribution from the franchise segment, China remains the top performing market for the group. We believe that we will achieve both top and bottom lines growth for FY2019, largely driven by full-year contribution from the China franchise segment."

Best World switched from an export to a franchise model in China in the second quarter last year, which allows it to record higher prices for stocks sold.

One new feature in this quarter's results was a statement that the group "constantly engages the services of professionals to, amongst other reasons... ensure that its operations fulfil all local regulations in the different jurisdictions it operates in".

The group added: "As a result, we expect higher professional fees and other related expenses in FY2019 compared to the same period last year."

Best World said over the weekend that it will order an independent review of its business and accounting practices, following questions raised by The Business Times about the lack of clarity on how its franchisees operate in China. Best World has no direct selling licence for its skincare products in China. It says its franchisees operate under a "social selling" model.

Best World has meanwhile assured investors that it conducts its business ethically and in compliance with applicable laws, but "is not responsible for the accounting and sales records of the franchisees, who are independent third parties".

Best World's market cap has been on a rocket rise since 2016. Its controlling shareholders and founders, Dora Hoan and Doreen Tan, own a combined 46.7 per cent stake in the company. Mr Huang owns 4.227 per cent of Best World.

Among those who have emerged on Best World's list of 20 largest shareholders since 2016 are Maybank Kim Eng Securities, Morgan Stanley Asia (Singapore) Securities, Chen Yan Feng, Ng Seow Yuen, HSBC (Singapore) Nominees, RHB Securities Singapore, Chin Poh Leng and KGI Securities (Singapore). Banks and brokerages hold shares as nominees for clients.