This is reproduced from the blog of Ernest Lim, a remisier. He can be contacted at crclk@yahoo.com.sg
In 1HFY10, Sino Grandness succeeded in developing its own-branded newly developed beverage products and selling them to the domestic market. This new segment contributes about 23.5% of 1HFY10 revenue as compared to 17.6% of FY09 revenue.
Some aspects which I find it interesting
a) Consensus TP: $0.51, dividend yield of 5%
According to Fig 1 below, the consensus analysts’ target price for Sino Grandness is $0.51 (last done price was around $0.425), representing a potential capital appreciation of 20%.
According to Bloomberg, analysts are forecasting a dividend yield of around 5% for Sino Grandness. If their forecasts materialize, this would represent a potential total return of 25%.
Secondly, it is noteworthy on how the analysts determine their target prices. Most of them ascribe a PE multiple on Sino Grandness FY10F earnings.
As 1H has already passed, analysts are likely to increase the target price as they roll their valuation method to FY11F earnings or FY10F/FY11F blended earnings (this is based on the premise that Sino Grandness continues to report robust results).
b) FY10 results likely to meet analyst targets, representing approx 35% and 45% year on year growth in revenue and net profit.
Based on 1HFY10 results, some may worry that Sino Grandness is unable to meet the analysts’ estimates. However, 2H is typically much stronger than 1H.
I noted that Sino Grandness 2HFY09 revenue amounted to RMB330M, as compared to RMB121M in its 1HFY09. 2HFY09 net profit was also twice that of 1HFY09 net profit.
Although this does not guarantee that 2HFY10 will replicate the growth rate experienced last year (as 1HFY09 was from a low base), it does show that 2H is typically stronger than 1H.
Secondly, the own-branded newly developed beverage products bears promise. As at 31 Jul 10, Sino Grandness has signed distributorship agreements for new bottled juices with 16 distributors from a variety of provinces such as Beijing, Guangdong, Hunan, Hubei etc.
In 1HFY10, Sino Grandness’ beverage product segment (i.e. canned herbal drink and bottled juices) generated RMB57.2m. It is highly likely that this segment will generate stronger sales in 2HFY10, post the signing of the distributorship agreements.
In a nutshell …
In a nutshell, if Sino Grandness is able to meet analysts’ projections of revenue and earnings, this represents approx 35% and 45% year on year growth in revenue and net profit. With such growth and trading at a consensus analysts’ estimated PE of 5.1x FY10F earnings, it seems to be a growth stock, trading at low valuations.
Disclaimer
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