World International : CGN 0% will resume trading on the Singapore Exchange (SGX) on Monday (Nov 14).

 

Shares of the beauty products distributor were suspended in 2019, due to regulatory concerns about the company&rsquo s business model in China.

 

The company has been through an independent review and after submitting several trading resumption proposals to SGX, has received approval from the frontline market regulator to resume trading.

 

After such a lengthy suspension, investors may wonder how the stock will trade.

 

Rise and fall

 

Best World shares had been on a tear just before their suspension. They doubled in 2018 to S$2.61, and reached a high of S$3.28 in February 2019, driven by strong growth in China for its DR&rsquo s Secret line of skincare products.

 

Net profit for FY2018 grew 30.9 per cent on year to S$72.9 million, on the back of stronger revenue, driven largely from contribution from franchise sales.

 

The bull run did not last long.

 

The Business Times noted in February 2019 that it was challenging to figure out the sources of the company&rsquo s China sales, and analysts said key data was difficult to verify.

 

In April 2019, shortseller Bonitas Research published a report questioning the company&rsquo s accounting and sales in China.

 

The counter fell nearly 60 per cent from its highs to end at S$1.36, before it was suspended on May 9, 2019.

 

PwC Advisory Services was appointed as an independent reviewer to look into the financial affairs of Best World.

 

The report &ndash released in July 2020 &ndash highlighted several concerns surrounding the company&rsquo s operations under both a new franchise model and an earlier export model. The company&rsquo s legal adviser also noted that the franchise model was potentially in breach of regulations on direct selling.

 

Attempts to resume trading

 

Best World submitted its first proposal to resume trading in December 2020. But in March 2021, it announced that the suspension would continue until the group could make progress on its transition to a different selling model in China.

 

Last November, Best World&rsquo s board said it might be appropriate to consider a delisting. The company conducted two off-market offers to buy back shares for S$1.36 apiece.

 

Both tranches were oversubscribed.

 

In July this year, Best World said it had received an improved audit opinion from its independent auditor for FY2021.

 

Best World also cited two legal opinions that the non-compliance risk of its business model in China were remote.

 

It submitted another trading resumption proposal in October, to which the regulator had no objections.

 

Financials

 

Best World&rsquo s revenue and net profit have continued to grow.

 

Revenue for FY2021 came in at S$580 million, more than double the S$266.3 million reported for FY2018. China was the group&rsquo s largest market, accounting for around half of revenue.

 

Net profit for FY2021 stood at S$149.8 million, also more than double the S$72.9 million reported in FY2018.

 

Earnings per share rose to S$0.2754 in FY2021, from S$0.1326 in FY18. If the company sticks to its previous dividend policy of no less than 40 per cent of net profit, FY2021 dividends would have been at least S$0.11.

 

Bloomberg data shows Best World has traded at a median price-to-earnings ratio of 16 since its listing. At this level, the share price, based on FY2021 earnings, would be S$4.41.

 

The company released its latest financial statements for the nine months ended Sep 30, 2022 on Nov 11, which showed revenue declining 12.5 per cent on year, while net profit for the period also slipped 13.5 per cent to S$88.6 million.

 

Ongoing pandemic restrictions in China contributed to weaker revenue, and the group noted that prospects of recovery in China &ldquo remains very challenging&rdquo due to Covid-19 control measures.

 

Despite the recent decline, revenue and net profit for nine-month FY2022 are still higher than levels posted in FY2018.

 

Net asset value per share stood at S$1.0179 as at Sep 30, 2022, up from S$0.9344 in December 2021. The group has no bank borrowings or debt securities.

 

Although Best World&rsquo s reported financial performance has clearly improved, there are still questions over investor sentiment.

 

Investors might feel confident to buy into the stock if valuations are low. But there could also be some shareholders who were stuck holding the stock during the suspension, and are now looking for an exit.

 

Response to the company&rsquo s share buyback offer earlier this year shows there are many who want to exit their positions &ndash even at the S$1.36 level &ndash and put this episode behind them. 

 

These individuals might have been willing to take an illiquidity discount. As normal trading resumes on Monday, investors will have a clearer indication of how much the past three-and-a-half years have affected Best World.

Forty-two months after trading of its shares had been suspended, Best World International will resume trading on Nov 14.

 

The company, best known for its direct selling business of beauty and health products in markets such as China, had its trading suspended back in May 2019 after it came under short selling attack by Bonitas Research.

 

SGX RegCo, which directed an extensive review of the company after questions were raised over its business model.

 

According to Best World International on Nov 1, it will report its most recent earnings on Nov 11.

 

Best World had on Oct 5 received the go-ahead from SGX RegCo to resume trading.

 

The possibility of resumption of trading was mooted by the company in an update on July 9.

 

The company said that it had on June 16 received an &ldquo improved audit opinion&rdquo from its independent auditor for its earnings ended Dec 2021.

 

Citing the legal opinions and updates its lawyers, the company had said that &ldquo noncompliance risks of the group&rsquo s business model in China with regards to direct selling&rdquo as being &ldquo remote&rdquo .

 

Therefore, Best World believes that it has &ldquo satisfactorily addressed&rdquo concerns raised by SGX RegCo.

 

On Aug 11, the company reported earnings of $38.9 million the three months ended June, down 1.2% y-o-y. Revenue in the same period was down 13% y-o-y to $130.5 million.

BEST World : CGN 0%, after having trading put on hold for three years over the legality of its business model in China, has gotten approval from the frontline market regulator to resume trading - subject to conditions.

 

In a statement, the company said on Wednesday (Oct 5) it has received no objection from Singapore Exchange Regulation (SGX RegCo) on its resumption of trading proposal, provided that it satisfies these four requirements:

 

- Obtain an updated independent legal opinion on the legality of its beauty product sales and distribution business model in China within four months after its financial year-end on an annual basis and announcing the opinion on SGXNet. The audit committee is to consult SGX RegCo, should the committee assess that such legal opinion is no longer required

 

- Announcing the committee&rsquo s assessment of whether it is satisfied that the concerns raised on the legality of Best World&rsquo s sales and distribution business model in China have been addressed and the bases for such an assessment

 

- Making any changes to the directors&rsquo appointment would require SGX RegCo&rsquo s prior approval for the next three years and

 

- Announcing the directors&rsquo confirmation as to whether sufficient information has been disclosed to enable trading of Best World&rsquo s shares to resume in a fair and orderly manner.

 

Best World&rsquo s statement came after it had received an improved audit opinion from its independent auditor for its financial results for the fiscal year ended Dec 31, 2021, and having made two equal access off-market share buyback exercises.

 

Details of its trading resumption will be provided in further updates.