Best World will not survive the self-inflicted carnage

Extension of Trading Halt
Best World requested a trading halt at 11.23 a.m. on 18 February 2019 in order to prepare, finalise and release a clarification announcement to address the matters discussed in the Business Times article entitled “Sales of DR’s Secret in China: Best World’s best-kept secret?” published on 18 February 2019 in a comprehensive manner.

https://links.sgx.com/1.0.0/corporate-announcements/YH082EVNCC34YTOU/e3eeb67d8d1b8cc9d4b469b57af2d7b0a333070825c5afe1cfe244048276dbe9

Now, they asked for an extension of the trading halt by up to two days and the trading halt is likely to be lifted no later than 8.30 a.m. on 25 February 2019 (Monday).

The lingering concerns regardless of the trading halt is lifted

Best World has not been giving clear reports in their earnings announcement as reported in the Business Times, letting serious investors try to independently verify the popularity of DR’s Secret to make sense of data points that suggest an unimpressive online and offline footprint for what is supposedly a fast-growing skincare brand.

It has also not updated shareholders regularly and timely on the development of its direct selling licence and franchise in China. I could see that their expansion could be just too fast for them to stomach and hence they could not have done their due diligence in ensuring that they cover all angles that are otherwise required of a good company. Many unseen problems must have been beneath the water level as has been evident from their tardiness to reply the questions posed by BT’s Marissa Lee.

Their tardiness in disclosing clear data must have given opportunities for BB to take advantage of and pump up the stock prices since the start of 2019 to the astronomical value of $3.30 on 12 and 13 Feb 2019, giving a crazy price-earnings ratio of 32.86 then.

“We are not worried about franchisees loading on inventory because they have to make cash payments, and there is (a) no return policy. They will not pay cash for inventories they can’t sell. So we have a good feel of the pulse of the market”, said Mr Huang Ban Chin, COO of Best World, when he was asked if Best World makes a point of tracking end-user demand. He is not worried but I think other shareholders will be very worried as they know if the company does not take care of, or work with, their franchisees, the company will not know the pulse of the market and thus cannot react in time should there be a need.

What goes up hard unjustifiably must come down hard logically. 

I have a short position on Best World before BT published the analysis on it and I think I will have a belated CNY Angpao coming soon.

Superphang
https://superphang.blogspot.com