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SGX orders independent review of issues raised by Best World short-seller

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The regulatory arm of the Singapore Exchange (SGX) has ordered a review of Best World International's business in China, to address all matters raised in a short-seller report after the stock fell 9 per cent on Wednesday.


THE regulatory arm of the Singapore Exchange (SGX) has ordered a review of Best World International's business in China, to address all matters raised in a short-seller report after the stock fell 9 per cent on Wednesday.

The reviewer will be required to report directly to SGX RegCo and the company's audit committee. The Business Times understands it has not been determined whether the review will be done by PwC (which Best World hired for an independent review on the franchise model adopted by the company in China last year) or another party.

In a statement on Wednesday, SGX RegCo said it is aware of Bonitas Research's short-sell report on the premium skincare firm: "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.

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"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."

Best World shares fell as much as 11 per cent on Wednesday after short-seller Bonitas Research questioned the accounting behind the premium skincare firm's profits and its sales practices in a 28-page report.

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. Of those, some 2 million shares were sold short.

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."

Another trader at a local brokerage said 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.

Best World did not respond to BT's queries.

The short-seller said it doubted that Best World's main customer in China in 2017 was an independent party, though Bonitas was unable to establish a formal link between the customer and Best World management.

Bonitas referenced the BT exclusive published on Feb 18, headlined "Sales of DR's Secret in China: Best World's best-kept secret?".

In it, BT had questioned how realistic Best World's China sales numbers are, as they did not match its low popularity and presence on online platforms such as Dazhong Dianping, China's biggest review and ratings app, and Taobao, China's biggest e-commerce app.

After the report was published, Bonitas found a spike in online review counts and transaction history for DR's Secret online vendors on both and

It questioned whether the reviews were authentic: "Not only did we find repetitive/sequential reviews from the same accounts ... but also calculated a six times acceleration in the number of reviews generated after, versus before, the BT article was published."

BT noted in February that Best World's retail locations in China are exceptionally hard for consumers to track down. In China, the goods are sold through 33 franchisees under a "social selling" model. Initially, Best World declined to disclose the locations of its Chinese franchisees. After the BT report was published, Best World listed the addresses of 33 BWL Lifestyle Centres on its website.

Bonitas said it visited 12 Best World-linked outlets in China, and that employees at those centres did not seem used to dealing with walk-in customers.

The short-seller also highlighted that Best World's products were priced higher than other luxury brands; it was second only to Chanel.

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

After the BT report, Best World hired PwC to conduct an independent review on the franchise model it adopted in China last year.

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

In an earlier response to the BT report in February, Best World told shareholders that it had conducted its business ethically and in compliance with applicable laws, although it acknowledged limited oversight and responsibility over its franchisees.

Best World is the most shorted stock on the Singapore exchange.

Bonitas isn't the only short-seller with sights set on Best World. An anonymous group that calls itself Valiant Varriors published the first instalment of a supposedly two-part report on Wednesday, echoing concerns about Best World's selling practices in China.

Meanwhile, Best World has written to the authorities for a two-month extension to hold its annual general meeting (AGM) by June 30. The company told BT that its 2018 annual report will be published after the date of the AGM is confirmed.

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