Excerpts from analyst report
IPO process updates. Management said the sponsors are still working on minor verifications and documentation but they remain non-committal on the dates of application and listing.
Huang Yupeng, CEO of Sino Grandness, at a F&B trade fair. The placards are promoting his company's beverages. Photo: CompanyTo recap, Sino Grandness Food (SGF) is spinning off Garden Fresh to raise funds for the fast-growth beverage segment as well as to unlock value for investors in the subsidiary.
We were expecting the IPO application by June and the IPO book-building to be completed in October, but seemingly, there is increasing probability that this may get delayed.
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UOB Kay Hian: IPO of Garden Fresh likely to be delayed (SFGI SP/BUY/S$0.69/Target: S$1.02) We caught up with management to get an update on Garden Fresh’s listing. Investment bankers and auditors have started the IPO process since Nov 13. To date, we estimate the application is 80-90% completed. |
IPO process updates. Management said the sponsors are still working on minor verifications and documentation but they remain non-committal on the dates of application and listing.
Huang Yupeng, CEO of Sino Grandness, at a F&B trade fair. The placards are promoting his company's beverages. Photo: CompanyTo recap, Sino Grandness Food (SGF) is spinning off Garden Fresh to raise funds for the fast-growth beverage segment as well as to unlock value for investors in the subsidiary. We were expecting the IPO application by June and the IPO book-building to be completed in October, but seemingly, there is increasing probability that this may get delayed.
Plan B if Garden Fresh's listing is delayed. Under the terms of the first convertible bond (CB) offer document, holders have the option to extend the redemption for another eight months to Jun 15 or redeem the bonds fully.
If the holders redeem the bonds at the predetermined rate, we reckon SFGI would have the capability to pay but may require bank financing for its working capital needs subsequently.
If the holders redeem the bonds at the predetermined rate, we reckon SFGI would have the capability to pay but may require bank financing for its working capital needs subsequently.
In fact, we understand management is in the process of securing new credit lines as we issue this report.
Operationally, sales outlook remains positive with the company targeting 25-30% growth for the juice business and high-single-digit growth for its canned food business.
The company reported a lower 1Q14 net profit of Rmb68.6m, -2.8% yoy, despite stronger revenue and gross profit, partly due to increased A&P expenses right before the Chengdu trade show.
This amounted to an additional Rmb25m on CCTV commercials but we do not expect this expense to recur again. Its Hubei’s 200,000-tonne production capacity will only be ramped up in 2H14 as the company has to reapply certain certifications under Garden Fresh instead of Sino Grandness.
Our scenario analysis suggests the valuation of SGF at S$1.02-1.45, where S$1.04 is the case where SGF has to raise Rmb175m in equity to redeem the two CBs and the listing of Garden Fresh is completed beyond 2015.
This amounted to an additional Rmb25m on CCTV commercials but we do not expect this expense to recur again. Its Hubei’s 200,000-tonne production capacity will only be ramped up in 2H14 as the company has to reapply certain certifications under Garden Fresh instead of Sino Grandness.
Our scenario analysis suggests the valuation of SGF at S$1.02-1.45, where S$1.04 is the case where SGF has to raise Rmb175m in equity to redeem the two CBs and the listing of Garden Fresh is completed beyond 2015.
Otherwise, SGF will have the capacity to redeem the first tranche of CB due in Oct 14, via cash or bank borrowings, if the holders choose to redeem.
Recent story: SINO GRANDNESS' stake in Garden Fresh may be worth $1.21 per Sino Grandness share
Comments
The value of the 25% stake in Garden Fresh that bondholders will receieve if the IPO goes through is around RMB 1,200m (=16 times [based on UOBkayhian's assessment] 2014 forecast profit of RMB 300m), twice the redemption amount.
The drawback is that expansions that company has been planning for may have to slow down. Hope for a special dividend from selling Sino's vendor shares will also be dashed.
Does the following (from UOB Kayhian) indicate alternative to IPO?
"CEO Huang has a 40.1% stake in the company and he would have to balance the growth of the company with the funds raised and the pricing of Garden Fresh."