Is Best World International’s Share Buyback Offer Fair?

IMPORTANT: Please read the disclaimer before continuing.

Previously, I wrote an article about what’s a fair delisting price for Best World International. At that point in time, I believe a $3.68 price is appropriate for share buyback or delisting.

It is based on these assumptions:

Release of Equal Access Share Buyback Offer

On 31 December, the management of Best World released details of their buyback offer via SGXnet.

The Company will offer to buy back up to 54,410,011 Shares representing approximately 10% of the total number of 544,100,114 Shares in issue at a price of S$1.36.

At S$1.36, it is a Price-to-Earnings ratio of 2.75x. The calculation goes like this ($1.36 – net cash of $0.67) / annualised EPS of $0.251 = 2.75x. It is a very low price multiple for a cash-rich company that has high-profit margins and free cash flow margins.

BWL’s management and its affiliates are not eligible for this equal access offer. Since they are holding on to 51.56% of the company which means shareholders who are holding on to 48.44% of the company are eligible to sell their shares.

Given that the co is buying back 10% of its outstanding shares, the math goes like this 10%/48.44%, each shareholder is able to sell 20.6% of their shares without any worry. This is assuming a 100% participation rate which means every shareholder wants to sell their shares. If the participation rate is lower, then the rest of the shareholders are able to sell more of their shares.

When Will Best World Resume Trading?

One of the many conditions set out by SGX for Best World to resume trading is getting the necessary licenses from the Ministry of Commerce from China. In the prepared Questions and Answers document, the management stated

MOFCOM has not resumed accepting filings for expansion of the coverage of existing direct selling licenses since 2018. Accordingly, the Group is unable at this time to file for the expansion of the coverage of its existing Direct Selling License. In the event MOFCOM resumes the acceptance of filings for expansion of coverage of existing direct selling license, management estimates an approval timeline of 2 years to cover all the key markets today

source: Best World via SGXnet

This means we are possibly looking at 2 years minimal.

What To Do As a Shareholder?

A) Sell now, recognise some losses, re-deploy the capital elsewhere.

B) Continue holding.

The minimum waiting period is 2 years or it could take longer before the stock resumes its trading. Once the stock resumes trading, there is another uncertainty where we are not sure how investors would value the shares of Best World. In other words, what is the appropriate P/E ratio to assign to a growing company with healthy profit margins coming out of multiple years of suspension?

On the bright side if we choose to hold on, as shareholders, our ownership of the company gets enlarged. This is because after Best World acquires 10% of the company from other shareholders, the shares would be cancelled.

To help everyone visualise the potential returns lost if you choose to sell now, here is a table:

If you want a copy of the document, go to my Google spreadsheet.

I have not decided on my course of action for my personal holdings but I am leaning towards holding on to my shares.

Closing Thoughts

While I do recognise the management’s efforts to come up with this offer, the offer price is extremely disappointing. Despite being suspended, Best World has a healthy operating profit margin of more than 20% and a solid cash balance of close to SGD $400 million. Best World is also an asset-light business. This means the business is doing well and the management is in a position to offer a more acceptable price for long-suffering shareholders.

I will be chatting with more shareholders via our Telegram group (https://t.me/joinchat/3rw1yrBXkiwxYWI1).

If you’re an existing shareholder of Best World, join the group and feel free to chat with us.