Classified Take on Best World International (SGX:CGN)
The Motley Fool expressed that the recent short seller Bonitas Research report is damming and worrying for Best World International (SGX:CGN). Earlier in Feb 2019, a Business Times article cast doubt on the Best World sales figures in China. On the same day, the company share price dipped and the trading of Best World’s shares was halted. In its subsequent 15-page clarification, Best World indicated that it worked with one primary Import Agent (the “Primary Import Agent”) in promoting its products in China, but left out identity of this large customer. The Bonitas Research identified that this “one major customer” as “Changsha Best” and hypothesize it could be secretly controlled by Best World to be its off-books China counterparty.
Just this month, Business Times published another report leading to another share price dip. The report, based off the research from CSLA, an award-winning investment group voted for its high quality research, revealed contrasting evidence between the Best World reported strong sales revenue and the disturbing weak brand awareness of its flagship product/brand. CSLA reported that Best World’s revenue growth was historically anchored to growth in one country (Indonesia in 2006–2007, and Taiwan in 2014–2016). Revenue in both countries experienced an boom-bust and failed to recover.
Best World also exhibited many red flags discussed in a 48-page report titled “Avoiding Potholes in Listed Companies” by NUS Business School professors A/P Prof Mak Yuen Teen and Adjunct A/P Prof Richard Tan. Red flags include the engagement of an independent third party review and AGM delay. Early warning signs such as Dora Hoan being both Co-chairman and CEOand many unexplained changes in results attracting SGX query were noted. Best World has been queried by the SGX over 10 times since April 2016 for unusual trading activity. The most recent being 1) Query on trading activity in Apr 2019, and 2) SGX orders independent review of issues raised.
The Classified Take
Beyond the red flags highlighted by the various reports, the unusual high non-audit expenses to its auditor EY in 2017 was something fishy too. It is hard to explain a 10 times increase in non-audit fees at the amount of S$398,000 to EY.
It is also hard to believe that a Singapore-based company could penetrate China so successfully, reigning ever growing revenue yet with conflicting evidence that say otherwise i.e. the weak online presence. Business in China depends highly on 关系 but Best World is loudly absent with China partners. Its inability to have an online presence in Baidu search, WeChat trends and allegedly fake reviews that come a day after the Business Times article showed that Best World has more holes and being whole.
Best World has seen vastly impressive share price hike, growing from 10cents to a peak of $3.25/share in the recent five years. However, its share price has seen violent volatility. Given its nature of business and its track record of dependence in a particular country for growth, I don’t bore hope that Best World found jackpot by scoring China. The legality of its business in China remains unclear its Lifestyle Centres had that one eerie fact that they don’t serve have walk in customers raise eyebrows for me.
We are not vested in this stock and unlikely to hold any position on it.
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