Hot stock: Best World tumbles 9% after shortseller Bonitas' report

Published Wed, Apr 24, 2019 · 04:35 AM
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BEST World International shares fell as much as 11 per cent on Wednesday after short-seller Bonitas Research published a 28-page report that questioned the authenticity and legality of the premium skincare firm's profits.

When the company halted trading of its shares at 11.25am, the stock was down 8.99 per cent at S$1.62 on volume of 8.7 million shares.

Phillip Securities trader Robin Ho said: "Traders flee to safety first but after a spate of negative reports on Best World, investor confidence has been damaged...The abrupt halt today could have caught many traders with open short positions."

A trader at a local brokerage, who declined to be named, told The Business Times that the stock was reacting to Bonitas' report.

"This firm is a professional shortist and the report is encouraging traders to short," the trader said.

In its report, Bonitas questioned Best World's reported sales and profits as well as the legality of its sales practices in China. The firm said it doubted that Best World's main customer in China in 2017 was an independent party, even though Bonitas was unable to establish a formal link between the customer and Best World management. Bonitas said it had also visited 12 Best World-linked outlets in China, and that employees at those centres did not seem used to dealing with walk-in customers. It also highlighted that Best World's products were aggressively priced against other luxury brands like Chanel.

Best World sells its line of DR's Secret skincare products in China, the firm's biggest market. The products are manufactured outside of China and imported by a licensed entity.

After The Business Times raised questions about Best World's China sales in February, Best World has since hired PwC to conduct an independent review on the franchise model adopted by the company in China in 2018.

Bonitas said that by focusing on 2018, the review could miss relevant matters that occurred in previous years.

BT has reached out to Best World for comment but has yet to hear from the company.

In its earlier response to BT's February article, Best World had sought to reassure shareholders that it has conducted its business ethically and in compliance with applicable laws, although it acknowledged limited oversight and responsibility over its franchisees.

The regulatory arm of the Singapore Exchange said in a statement on Wednesday: "SGX RegCo is aware of Bonitas Research's short-sell report on Best World. We posed earlier today a Trading Query to the company and its shares have since been halted. We expect the company to call for a full independent review of all matters raised in the report so that shareholders will have a complete picture and can make informed decisions. We expect to be consulted on the terms of reference of the review and will require the reviewer to report directly to us and the company's Audit Committee."

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