ethan999, thank you. My friends and I are holding on to Sino Grandness still while enjoying the ride so far and we are sure there is a higher aerial view in the run-up to Garden Fresh IPO. May I ask what is your own valuation of Sino Grandness? Surely you will exit at some point when the stock reaches a fair value.
I don't have target prices for individual stocks. The reason is this. Some people may say their target price for a stock is when P/E hits say, 20. A P/E of 20 seems on the high side, so why not right? But what if I tell you for example that this same stock will double net profit every year for the next 5 years? This means 'G' is extremely high and PEG becomes much lower. So you can't base it on P/E alone, but then what is 'G'? G will forever be unknown until it is realized.
The value of a stock at any point in time is highly dependent on this unknown factor. We can try to predict it based on the information we have, but we can never say with 100% certainty so we can never say with 100% certainty what the true fair value of a stock is at any point in time.
I don't have a target price for an individual stock. I have a target price for the overall market - in this case it is the Shanghai Composite which is the best gauge of macro-performance of Chinese stocks as a whole. My strategy is to buy good quality stocks during a bear market, and sell in a bull market. Over the last several years, China has been in a bear market and I have used this chance to accumulate stocks like Sino Grandness and China Minzhong.
Just look back in October 2007 when the Shanghai Composite was over 6000 - more than 3 times what it is currently. I'm sure if you look at the data, 95% of Chinese stocks that were listed at that time are were much higher than they are now, despite the fact that many of them have increased profits and asset values since that time. This shows you that the gravity of the macro-market has a very huge overriding impact on the prices of individual stocks.
Therefore for me the best time to sell is during a Chinese bull market just as October 2007 was a superb time to sell Chinese stocks. Barring any unexpected deterioration in company fundamentals, I will not sell a Chinese stock in a Chinese bear market like now. I'm still trying to decide on my target price for the Shanghai Composite, before I sell my stocks. While it has reached 6000 before, I will probably not be so ambitious as to target that. My target price will probably be somewhere between 3000-5000, depending on the circumstances.
It will take time but I believe the new Chinese leaders Xi Jinping and Li Keqiang, know what they are doing. Big changes will happen in China over the next few years, such as the eventual liberalization of interest rates - which will eventually enable companies to gain more access to loans and allow capital to be allocated more efficiently in China. One major major change that could theoretically spark off the next bull market in Shanghai would be the opening up of capital markets and the lifting of the now very limited and prohibitive foreign investment quota in China-listed stocks. If this happens one day there will be a flood of foreign money coming into Chinese stocks. It will take time but I'm very optimistic something big and monumental will happen over the next few years in China that could spark off the next bull market in Chinese stocks. Let's wait and see.
I think I have found out the answer.....The “error” in Investor Central’s video is a result of its own error plus an error in Maybank’s report.
The Maybank report said: “We value Sino Grandness’ holding on Garden Fresh at SGD2,063 m post spinoff and value the remaining business at SGD711m.”
The error in the Maybank report is the use of SGD when other parts of the report make it plain that the figures are actually in RMB.
Investor Central introduced an error of its own when it mis-read Maybank’s “Sino Grandness’ holding on Garden Fresh at SGD2,063 m” to mean the IPO of Garden Fresh was valued at SGD2 billion when what Maybank meant was the value of the holding of Sino Grandness in Garden Fresh.
U can see the error in Investor Central’s text accompanying the video: “With the S$2 bln IPO of Garden Fresh…”
Have given the matter some thought... I think, yes, the sales proceeds fr Sino Grandness' vendor shares should be factored into the sum-of-the-parts estimate.
As a mental exercise, if Sino Grandness doesn't sell a single vendor share, then it's holding of Garden Fresh would be reflected fully in the Maybank estimate.
It follows that if Sino Grandness does sell some vendor shares, the cash proceeds should be part of the S-0-T-P estimate.
I am thinking that in addition, one could apply a holding company discount to Sino Grandness' stake in Garden Fresh.
A 20% discount would not be excessive. If so, this would offset a chunk of the additional valuation of Sino Grandness which arises if one were to factor in the cash proceeds from the sale of vendor shares. At the end of the day, the SOTP valuation looks to be around $2.10.
Sino Grandness to List Garden Fresh Unit in Hong Kong or Taiwan
2013-07-26 00:54:14.575 GMT
By Jasmine Ng
July 26 (Bloomberg) -- Sino Grandness Food Industry Group
Ltd., a Chinese manufacturer of canned fruits and vegetables, plans to take its beverage unit public through a share sale in Hong Kong or Taiwan by October 2014.
The company, whose shares are traded in Singapore, plans to spin off its Garden Fresh Hong Kong unit, known for its loquat fruit juice in China. Sino Grandness will appoint banks for the stock sale in the next few months to raise at least S$150 million ($118.7 million), Chairman Huang Yupeng said.
The planned offer will help Sino Grandness capitalize on valuations in the overseas markets where comparable companies in Hong Kong and Taiwan trade at higher multiples relative to earnings, according to an April 8 report by Maybank Kim Eng.
Garden Fresh is expected to have a market capitalization of S$750 million if it trades at a “conservative” 15 times price-earnings ratio in Hong Kong or Taiwan, Huang said.
“Consumer companies are highly valued in markets like Hong
Kong and Taiwan,” Huang said in a phone interview on July 23.
“In Singapore, there are small and medium-sized Chinese
companies that are valued very cheaply.” .
Sino Grandness is trading at 6.8 times earnings, compared
with the average of 55.6 times for comparable peers from China, according to data compiled by Bloomberg. Those in Taiwan have a multiple of 41, more than twice the Singapore average, while food and beverage stocks trade at 23.8 times in Hong Kong, according to the data.
Deadline Risk
Sino Grandness will seek approval from its shareholders and appoint underwriters for the listing over the next few months, Huang said. The company has set a target to list Garden Fresh by October 2014, or it will have to pay a premium when it redeems
its convertible bonds.
Garden Fresh issued two portions of convertible bonds in 2011 and 2012, which can be converted to shares in the
subsidiary when they mature.
If Sino Grandness lists its beverage business by next
October, the bondholders are “likely to convert the bonds into shares of Garden Fresh, so that they can participate in the IPO,” Huang said.
Wei estimated that Sino Grandness would need to pay as much as 723 million yuan to all bondholders, based on a 25 percent effective interest rate, if the shares are not listed by the maturity date.
Sino Grandness, which has a market value of about S$450 million, has more than doubled in Singapore this year, compared with the city’s benchmark Straits Times Index’s 2.3 percent gain.
The company announced its plans to list Garden Fresh on an “internationally recognized stock exchange” in a filing to the Singapore Exchange on July 1.
“We believe the catalyst has not been sufficiently priced in and buying it now would be akin to a pre-IPO investment in Garden Fresh,” said Wei Bin, a Maybank analyst, who reiterated his comments in the April report yesterday.
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--With assistance from Winnie Zhu, Jonathan Burgos and Joyce Koh
in Singapore. Editors: Linus Chua, Chua Baizhen
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