The Singapore Exchange (SGX) is digging deeper into the business dealings of Best World International, after the mainboard-listed skincare products firm yesterday confirmed allegations that its chief executive's brother-in-law is the owner of Best World's largest client for 2017.
The customer, Changsha Best, was Best World's primary import agent in China, until Best World switched from an export model to a franchise model last year.
In a notice of compliance issued to Best World yesterday, SGX is requiring the firm to procure Changsha Best and other import agents to hand over copies of their financial information, accounting and corporate records to SGX RegCo, the regulatory arm of SGX.
SGX said: "The revelation of the relationship between Changsha Best and the company's CEO and managing director raises serious concerns about the veracity of the China sales conducted under the export model from 2015 to 2018 and whether these were conducted on normal commercial terms."
Earlier yesterday, Best World had apologised for failing to provide a fuller picture of the ownership of Changsha Best.
The firm said Mr Koh Kim Chuan - brother-in-law of Best World chief executive Dora Hoan, and the sole shareholder and legal representative of Changsha Best - was a "passive investor". It added that neither he nor his wife Mary Huan - Ms Hoan's sister - was responsible for Changsha Best's management and business operations.
Best World told investors last week that Changsha Best was an independent third party and that it would sue short-seller Bonitas Research, which had claimed otherwise.
SGX now wants Best World to "render all reasonable acts of assistance including and not limited to access and contact to the customers, warehouses and delivery service providers (including procuring the warehouse and courier documents) of Changsha Best and other import agents to SGX RegCo, the independent reviewer or any person(s) as directed by the Exchange".
Best World is already the subject of an independent review that SGX ordered last month.
The independent reviewer, PwC, has now been ordered by SGX to report "solely to SGX RegCo" on the scope and all findings of its independent review. PwC was initially told to report directly to both SGX RegCo and Best World's audit committee.
SGX also wants the scope of the PwC review expanded to determine the veracity of the group's sales in China under the export model from 2015 to 2018, and whether these were conducted on normal commercial terms, it said yesterday.
As for the new franchise business model that Best World adopted last year, SGX wants the group to obtain an independent legal opinion on the legality of its sales and distribution business under the model.
SGX is also requiring Best World to render its full cooperation to SGX RegCo, including requests for information, interviews or site visits to facilitate the independent review.
It said: "Compliance with this notice does not constitute a waiver of any kind, and SGX RegCo reserves the right to take disciplinary action against the company and/or any relevant person(s) for breaches of the Listing Rules, including any failure to comply with the requirements imposed by SGX RegCo."
Brokerage CLSA is keeping its "sell" call on Best World. Analyst Low Horng Han yesterday revised his 12-month target price for the stock from $1.75 to $0.47.
In a report yesterday titled Best World's Zero Moment Of Truth, Mr Low wrote that Best World reported a weak set of first-quarter results last week, reaffirming his view that consumer interest in the group's flagship skincare brand in China trails its strong sales.
SGX has suspended trading in Best World shares since last Thursday, with the suspension set to continue until it finishes investigating the firm's China sales.
Best World shares last traded at $1.36 before trading was suspended.