sino grandness - undervalued stock

Hi abb,

Can you share the bases leading to your exit price of $0.99?

There is a Oct/Nov report by UOB Kay Hian's Brandon Ng that puts the stock's value at $1.02. Any thoughts/comments on the valuation?

Trading range is tight for 2H of this year. Seems to me traders were taking profit at the top of the trading range and re-entering at the lower end of the range.

Boonbibi, analyst reports/target prices are like Ladders -- if ladders are too short, you will not reach the place you want to clean.

Analyst reports are "short" in many instances because the analysts themselves don't really get it.

Is UOB's target price a little higher than my intended exit price? It's by coincidence that this is so. These 2 figures were arrived at independently.

Personal observations on Sino Grandness recent weakness

a) The recent selloff does not come with much volume in view of their recent 1:1 stock split. It is likely to be some small boutique firm or high net worth individuals who are taking profit or rebalancing their portfolios ahead of the year end.

b) Sino Grandness 9MFY13 beverage revenue amounted to RMB1,021.7m. Assume a conservative net margin of around 18%, 9MFY13 net profit is around RMB183.9m. Assume a conservative 10% decline in beverage revenue in 4QFY13F (due to whatever reasons) and similar net margin of around 18%, 4QFY13F net profit is easily around RMB70.7m. All in, FY13F net profit should easily be around RMB254.6m which exceeds the profit target of RMB250m.  personally, I would think there is no problem in exceeding the target of RMB250m.

c) As Sino Grandness is doing their Garden Fresh IPO next year, their core focus will logically be on their beverage business. It is reasonable to expect decent growth in 2014 as Garden Fresh is priced based on 2014F earnings.

d) Sino Grandness has been rolling out new SKUs every year and 2014 is unlikely to be any different. I would guess that there may be new products to be launched in their annual March Chengdu trade fair.

FYI only.

The overall net margin of Sino Grandness was 20% in the first 9 months.
The beverages segment used to have higher net margin. In 2012, pre-tax margin of the segment was 25.5% vs 22.8% for the canned products segment.
Although the gross margin of canned products sold in China is very high, domestic sales (RMB143m) still lagged exports (RMB554m) in the first 9 months.
As canned products were not likely to fetch a net margin higher than that of beverages, it follows that the net margin of beverages was above the overall net margin of 20%.

Looking at the chart, I see that Sino Grandness reached 72 cents on 23 May 2013. Today, some 7 months later, it is still trading at the same level. Why? Why, despite the sterling 2Q and 3Q results and the prospects of higher profits in 2014?