Best World has been my top winner for the past 2 years. It was not that long that I was still positive about its prospect but noted its higher valuation.

So why did I divest most of my stake last week?

Boon at Valuebuddies highlighted a speech from BWL first Star Diamond Ambassador (SDA) in the recent convention at Kao Shiung (https://www.valuebuddies.com/thread-1033-page-49.html)

What is interesting is this DSA comes from China when direct sales revenue for China is still zero. A series of posts were on this at the forum and I also took a look at the BWL convention facebook page which showcases new awardees, primarily from Taiwan and China.

I am sufficiently disturbed by this that I decided to divest part of my holdings. I also decided to check with Bestworld IR on this matter. I am heartened that the management provided a response to my query that you can read at the bottom of my post. In a nutshell, BWL is recognizing the distributors’ achievement with BWL leaders’ ranking even though the qualification mechanism is different and this is also an attempt to transit them into direct sales model eventually.

I appreciated the response as it gives me an idea what the management is thinking but am still not comfortable with such arrangement and hence has no regret divesting my 75% stake.

I am comfortable to hold on to my 25% stake for the moment to see how things will work out.  Most importantly, I will not lose sleep over it as it takes up less than 2% of my portfolio by cost. This might turn out to be a non-event and BWL may continue to do very well in China, judging by the sales generated by SDA within half a year.

Side note: With this divestment, I can recycle the cash to my other counters. I have also made my first foray into US market (more on this in the next post). I decided to set aside about 10% to 20% of my portfolio to build a small portfolio of International stocks. Feeling excited about the new adventure.

Managment response:
All DRs Secret products freely sold in China by DRs Secret outlets/workshops are operationally independent and does not have any contractual agreement with Best World and any of its subsidiaries. It is common market practice for foreign brand owners to recognize the sales achievement of their foreign agents, especially during their incentive trips.
Strategically, we confer these distributors with relevant rank based on their sales achievements. Although their qualification mechanisms are different, we chose to recognize their achievement together with BWL leaders from other markets from day one (which is not difficult). This would be just one of our several deliberate efforts to inculcate them with the attitude of a direct selling leader as early as possible, so we could integrate them as seamlessly as possible into our direct selling operations before converting our China business into Direct Selling. As a late mover in applying for our license, we have had the opportunity to refer to other companies as case studies for ourselves. As such, our strategy is not only to obtain our license within the shortest period possible, but also to address integration from the onset to ensure undisrupted transition moving from a retail model to a full fledge direct selling company when the time comes.
Hence, due to the difference in the qualification mechanisms, China sales are independent from Taiwan sales. Best World already has the necessary license to import our products into China. All DRs Secret outlets/workshops being independent entities, will be fully responsible for the necessary licenses and permits they need to hold in order to operate.

Our direct selling license will only be applicable when we convert our operations into a direct selling model.
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