Best World (BB:BEST __ SGX:CGN)

We believe that Best World is a fraud and that its Chinese sales are a fraction of what was reported to shareholders.

On March 19, 2019, Best World International Ltd. (BB: BEST __ SGX: CGN) (“Best World” or the “Company”) disclosed to its shareholders that it hired PricewaterhouseCoopers (“PwC”) to conduct a limited, one-year independent review of its 2018 China operations. We think Best World management purposely focused PwC’s investigation solely on 2018 in an attempt to both divert attention from, and ultimately further conceal, previously reported fake sales and profits from its China operations.

PRC Filings suggest that Best World fabricated at least S$ 31 million of its reported 2017 sales to its “one major customer” (“Changsha Best”), an entity Best World management secretly controlled and exclusively created to be Best World’s off-books China counterparty. Excluding fabricated sales to Changsha Best, we calculate that Best World overstated its 2017 net profits by at least 130%.

Since January 2019 we have communicated with 24 separate Best World China member representatives (“Member Rep(s)”) and have conducted field visits to 12 BWL Lifestyle Centers (~36% of Best World’s listed franchisee locations) to better understand Best World’s sales model.

Our findings suggest there exists very little end user consumer demand for DR’s Secret skin care products in China. In addition, evidence suggests that since the February 18, 2019 Singapore Business Times article (the “BT Article”), online vendors on both JD.com and Taobao.com appear to have artificially inflated their online review counts and transaction history to give a false appearance of online sales activity.

We found that 8 of the 12 BWL Lifestyle Centers we visited did not sell individual products to non-members. Our investigators commented that employees at BWL Lifestyle Centers disclosed and acted as though they were not accustomed to interacting with walk-in customers. We laugh at this, but we were told by on-site employees at one BWL Lifestyle Center that we were their very first walk-in customer despite their lifestyle center being open since October 2017!

As reward for their fraudulent scheme, Best World’s founders (the “Dora’s”) exponentially accelerated their combined annual take home pay by 20x in five years, earning less than S$ 2 million in 2013 to receiving S$ 40+ million in cash in 2018! In the three years since implementing the scheme, the Dora’s collectively took home S$ 85 million in cash, while Best World exited 2018 with its trade and payables balance at an all-time high of S$ 95 million and its receivables touching all-time lows at S$ 5.2 million.

We are short Best World stock and believe its stock price will go lower.

Company Name
Ticker
Investment Thesis
Exchange
Initiation Date
Initiation Market Cap (in USDmm)
Initiation Avg Volume (Shares per day)
Price at Initiation
Price Target
Current Price
% Change
Best World (BB:BEST __ SGX:CGN)
CGN
fraud
sgx
4/24/2019
$725
4,500,000
SGD 1.78
SGD -