$Best World(CGN.SI)

CLSA's investigative report on BestWorld yesterday revealed some very telling evidence.

The way I see it, Best World's model in China isn't exactly a typical network marketing one. In a network marketing model (such as Amway, Unicity), company products are primarily distributed directly to individuals, who in turn become a node to form their own distribution network to other individuals.

But in Best World's case, company products are distributed to distributors which act more like wholesalers holding up the stocks. It is up to the distributors how they want to sell the products. It is a pseudo franchise-network marketing model.

When distributors buy products from Best World in bulk, Best World records revenues. That results in very high revenues and growth. But it doesn't mean the products will be consumed by end users. Chances are there is an increasing stockpile at the distributors. Chances are there are clauses in their contracts for distributors to return unsold goods to Best World.

As pointed out by the CLSA report, there is a risk for Best World to repeat its boom-bust cycle, previously in Indonesia and Taiwan. The initial years see very good revenues and profits growth. But the numbers soon collapse when distributors stop buying, return stocks etc.

Despite having fallen from $2.60 recently, I believe there is more downside in the short term. Interestingly, CLSA made a sell call but revised its target price sharply higher from $1.29 to $1.75. This is primarily due to expectation for good 2019 result.

My view is that it will head to $1.50 this round.

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21 comments
Sweeswee

Clear break of technical support at $1.92 despite recent buyings by boss.
Sellers have managed to overwhelm buyers.
With downside price momentum and uncertain with its business model, more long term holders are expected to bail out in the coming weeks.
I think $1.50 is coming.

shirleytoong

Reply to @Sweeswee : I.ll wait for that day,no need wait for the clause

Investforfund

Hey yes. I agree with you.
But not too sure on the clause for unsold goods.

This business model is quite common, if you are active on social media space (in both East Asia or South east asia).

yohanesyudhi

Reply to @Investforfund : yes.. Tht depends on the customer demand. But I think in their website sm other analyst / presentation say the goods arent returnable. The thing CLSA got right is tht BWL has historically been successful then down again, smtimes peak in their growth n stabilize (in taiwan they're stabilizing their growth if i say) bfr expand to other markets. Maybe with China is also the same - we dont know when they peak though. But china market is very huge compared to Taiwan.

yohanesyudhia

I'm not personally convinced with their report. First take a look at the revenue quoted : it's 1.3 billion RMB. Remember that BWL revenue is coming from Many countries, not just China. The revenue coming from China is merely around 650 million RMB. So, this makes BWL Wechat (their promotion technique) rank more comparable with respect to their peers of similar revenue. Then, we should discount Tiens Wechat/Baidu rank as well since they got Scandal that makes the ranks go up lol, but who wants to buy the product le..

layers

Reply to @stressful : cos their banking system do by them

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Sweeswee

BestWorld managed to get some support from CEO buying and company share buyback.
But do note that the amounts bought were very small. Insufficient to hold the fort.
Rebound on Wednesday was also probably helped by bargain hunters and that shorting facilities for the stock is not easily available.

Some analysts/investors point out that BW's franchising model entails the franchisee paying BW for the products at the time of delivery. That's why BW is safe as revenues are collected in cash and booked.

But I would like to question: Is there any clause in their agreement with franchisees to allow the latter to return unsold products and get refunds?

Net net, I would AVOID this stock. It WAS a great, superb multi-bagger from 2015-2019. Now the bubble seems to have burst, when more and more question marks arise.

Invinciblesummer

@Sweeswee How do you get access to reports from CLSA? Normally, local brokers reports are easier to obtain, but the bigger, foreign brokers reports I find are not normally available.

mikeli

Hmm... today will be a bloody day for BW

shirleytoong

Reply to @mikeli : BESTWORLD--selling quite strong--will break the level 190--too many involve with this counter

The wrong type in the stock -bringing it at its low level seen at 130 before it springs back to the $3/ range

Spinning_Top

Thanks for sharing the report


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Bonitas has rebutted Best World's rebuttal (attached).

Bonitas makes sense to me. Furthermore, they put money in their mouth and declare they are shortists, publish reasons for shorting. I think its fair and they serve a useful function in the market. The amount of research and legwork they put in is beyond most investors, including institutional ones.

Dont forget, Bonitas' reputation is also at stake. They are also building a track record. If shown to be unreliable, in future nobody will give them any credibility.

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$Best World(CGN.SI)

Very interesting investigative work here:

https://valiantvarriors.wixsite.com/home/n...

In the definition of the Laws, Bestworld was probably not wrong to state that the franchisee/importer was not related to BWL.

BUT, if the article's findings are true (brother in law relation etc), then effectively the PEOPLE in Bestworld and its main franchisee/importer ARE CLOSELY related. This gives rise to possibility of hanky panky transactions etc (I am not saying surely hanky panky, but "possibility" unless proven otherwise) .

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So, company requested for a trading halt after SGX made a query on the trading activities.
The company is likely to refute the Bonitas Research report.
But I note that Bonitas is just one of several research house /investors to have checked on the BWL Lifestyle centres in China and all reported that these centres were merely empty store fronts with little or no sales activities. They also checked around and concluded that brand awareness for DR's Secret skin care products were very poor, definitely not enough to be able to record the sales that BW claimed.

Tellingly, Bonitas highlighted that BW's founders have exponentially accelerated their annual take home pay by a whopping 20x in 5 years. The figures were also a huge percentage of the company's operating cash flows.

Interestingly, all this while, the 2 founders are being addressed as "Dr Hoan" and "Dr Tan"....both proudly listed they have obtained PhD degrees - from "Western Pacific University, USA" and "Canyon College, USA" - respectively.

But an internet search suggests that both these institutions are either non-existent or have been found to be unaccredited or just a degree certificate printer.

https://www.idahopress.com/members/online-...

People who use such dubious sources to claim a "PhD" title and thus be addressed as "Dr" are very likely to be using the titles to give others a FALSE impression of their intelligence and credibility, and to hide other wrongdoings. Such an action alone casts real doubt on the INTEGRITY of the founders.

So over the years, how many people have addressed them as "Dr Dorothy Hoan" and "Dr Doreen Tan"? Hahahahahahahaha..............hahahahahahahahaha

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$Best World(CGN.SI)

Another RUMOR that has been going round for some time is this:

BW had asked franchisees in China to buy their shares. Those who bought above a certain amounts would get good credit terms, "case by case" basis. So, instead of paying BW for the products in cash, the Chinese franchisees used the funds to buy BW shares. This could be one reason to explain for the meteoric rise in BW shares over the past 3 years. Demand for BW shares overwhelmed supply.

If the above rumor is true, imagine what happens when things go wrong (like now!) and there is a rush for the exit door. A stampede!

Nevertheless, I wanna emphasize that the above scenario is just a market RUMOR. Not substantiated. Not a fact yet. I just wanna share what I heard.

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