The Straits Times / The Business Times News on Best World

The best is yet to come

New markets like Indonesia and China are expected to boost Best World's earnings. ANGELA TAN reports

BEST World International, a direct seller of cosmetics, nutritional supplements and skin care products, expects to sustain its robust 2004 sales and earnings going forward as it looks to expand into new markets such as Indonesia, Thailand and China.

For the year ended Dec 31, 2004, Best World - which was listed on Sesdaq last July - enjoyed an 81.5 per cent jump in sales to $31 million, while net profit grew 68.9 per cent to $5 million.

The strong growth was due to a larger number of active direct sales members, which fuelled the demand for its products like Avance, Dr's Secret and DRs Seager, in its core markets of Singapore and Malaysia.

'The direct-selling member base in Malaysia is only about 15,000. That's just the tip of the iceberg compared to Singapore which had 45,000 members last year.' Ban Chin Huang, Best World's executive director.

Best World's executive director Ban Chin Huang told BT that he is confident that growth is sustainable. After all, FY03 and FY04 numbers were achieved when its focus was on Singapore and Malaysia. 'But in FY05, not only are we expecting continued growth in Singapore but also higher contributions from Malaysia, Thailand and Indonesia,' he said.

Last year, Singapore enjoyed a healthy 37.7 per cent rise in sales to $17.75 million. But Malaysia was its star performer, posting a 176 per cent surge in sales from about $3.9 million to $10.7 million. The company also made inroads into Thailand and Indonesia, both of which contributed $2.5 million in nascent sales.

Apart from Singapore, the other markets are relatively new for Best World and therefore, seen as holding huge potential.

'The direct-selling member base in Malaysia is only about 15,000. That's just the tip of the iceberg compared to Singapore which had 45,000 members last year,' said Mr Huang.

According to a Sias Research report, Malaysia, Best World's second largest market after Singapore, has the capacity to grow at least 40 per cent this year, driven by its active sales membership base.

In June, a regional centre is scheduled to open in Indonesia, where it has about 300 members. The company aims to set up 15 lifestyle centres and targets 10,000 members in Indonesia by year's end. The company is also looking to expand in Vietnam, which it views as a springboard into Indochina.

By the second half of this year, Best World aims to enter Taiwan and Hong Kong, markets that Mr Huang acknowledged are mature and competitive but 'necessary stepping stones into China'.

In March, Best World's founders, Doreen Tan and Dora Hoan, pared their stakes from 33.77 per cent to 30.97 per cent each after selling a combined seven million shares in a married deal to two strategic partners.

Mr Huang explained that the married deals were struck with two partners who are seen as able to help Best World make its foray into China.

'Currently, direct-selling in China is not liberalised,' he said, adding that the company thinks the country might accept direct selling licence applications in August. 'China will be a wild card.'

Sias Research says the company plans to penetrate the mainland through a tie-up with US-based Advanced Nutritional Technology as well as by acquiring the Vigor brand of nutritional supplements. The latter has been available in China for the past five years.

But Mr Huang assured shareholders that the management has no intention of entering another married deal as part of its expansion strategy, partly because current valuations are deemed 'below value'.

Sias Research has forecast earnings of $6.7 million this year on a jump in sales to $46.1 million.

It said that at 25.5 cents a share, the stock is trading at a forecast PE of 4.7 times, which is attractive compared with the consumer industry average of 12.5 times. Malaysia-listed Amway, an established direct selling company, is trading at 19.4 times its projected FY05 earnings.

But this growth potential is not without risks: Among them are possible delays in product registration in its target markets; competition with large international direct-selling players like Nuskin, Unicity and Amway as well as from retailers offering similar products; and a drop in active sales members.