SINO GRANDNESS: More positive newsflow to come on Garden Fresh IPO

Placards showing Sino Grandness' winning loquat juice concoctions greet distributors at last weekend's trade fair in Hubei.

Photos courtesy of Parry Ng, VP of investor relations, Sino Grandness

SINCE MY writeup in Oct 2012 when Sino Grandness (“SFGI”) was trading at $0.23 (post-split basis), the stock has more than tripled to an intraday high of $0.800 on 28 May 2013 before retracing to the recent price of $0.68.

In addition to share purchases made by Asdew Acquisitions and SGFI’s CEO, Mr Jack Huang, another strong positive is that Fidelity has become the latest institution to become a substantial shareholder of SFGI.

It seems like there is a lot of interest in SFGI. Let’s take a look at its recent and potential developments. 

1HFY13 results – Good momentum 

1HFY13 revenue and net profit jumped 29% and 24% y/y to RMB972m and RMB174m, respectively. 

2HFY13 results – Likely better 

Sino Grandness CEO Jack Huang checking out his placard holders at the Hubei trade fair.2HFY13F is likely to be better than 1HFY13 as 

a) The indicative orders won for Garden Fresh juices and Grandness canned products in the Chengdu trade fair in Mar 2013 are likely to flow through to 2HFY13; 

b) The additional new distributors secured in North-eastern and North-western provinces are likely to have a gradual positive impact in 2HFY13 and beyond; 

c) The contributions from the recently added distribution channels (eg. Hongqi in Sichuan province and Meiyijia in Guangdong province) which were announced on 12 Aug 2013 are likely to gradually kick in 2HFY13 and beyond. 

Recent shareholder purchases bolster confidence 

There have been several purchases in the last two months. In late August 2013, CEO Mr Huang bought 100,000 shares at S$0.525-0.550 which raised his stake to about 40.1%. Asdew Acquisitions also bought 1.756m shares at an approximate price of $0.532. 

Fidelity also raised its stake to 5.06% by acquiring 490,000 shares at an approximate price of $0.657 on 30 Sep 2013. 

Recent developments 

The company has been busy on the investor relations front. In late Aug, due to a short seller report on China Minzhong which indirectly caused SFGI’s share price to plummet to an intraday low of around $0.500, SFGI management expediently spoke via telecon with Singapore investors to reassure them. In early Sep, company gave a presentation at a DMG conference in Singapore.  Last week, SFGI organized a trade fair in Hubei Province, together with an analyst plant tour of their new Hubei plant. 

Potential upcoming events 

Upcoming events include the appointment of investment bankers for the Garden Fresh IPO, calling for an Extraordinary General Meeting for shareholders to approve the spinoff, (first) roadshow to Europe to introduce SFGI to European funds and a seminar at Standard Chartered in late October. 

Noteworthy points on Garden Fresh IPO

At Sino Grandness' booth at the Hubei trade fair last weekend, the lit-up panels highlight its range of loquat concoctions to distributors.

Firstly, China’s fruit juice industry has seen strong growth as corroborated by the growth momentum seen in some industry players such, as WangLaoJi and Huiyuan. For example, Huiyuan’s revenue has risen every year for ten consecutive years through 2012 to reach RMB4b. 

Secondly, it has been some time since there has been an IPO for a company which is a purely domestic (beverage) consumption play in China. Hence, there may be some pent-up demand for stocks in this sector. 

Thirdly, Huiyuan’s results seem to be improving based on consensus estimates. This should bode well for the overall industry as Huiyuan can be considered to be one of the top players in the industry.

Fourthly, Huiyuan’s price has seen a significant jump of around 78% since late July 2013. This may be due to increased optimism on its business operations and a July 2013 bullish research report citing a target price of HKD7.40. 

Last but not least, Huiyuan’s estimated net profit for FY14F is around RMB317m and the stock is trading at an estimated FY14F PE of around 30x. 

According to Maybank Kim Eng, Garden Fresh may achieve its net profit of RMB250m this year. Assuming FY14F is another growth year for Garden Fresh, the results may not be too far off from Huiyuan's. Consequently, Garden Fresh may be able to fetch a PE valuation (based on 2014 earnings) which may not be too far off from Huiyuan's.

Waiting for more news on its IPO and 3QFY13F results 

The average analyst target price stands at around S$0.905. SFGI closed at $0.68.

In order for the market to narrow the difference between SFGI’s current price and its average analyst target price, it is likely that we need to wait for more developments on its Garden Fresh IPO and its 3QFY13F results.


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