Tremendous response at Chengdu trade fair. Sino Grandness said that its beverage subsidiary, Garden Fresh, has received indicative orders worth more than CNY290m at last month’s food and beverage (F&B) trade fair in Chengdu, China. The order win from this year’s event trumped last year’s CNY200m by 45%. Garden Fresh also secured several new distributors for provinces in northeastern and northwestern China, where it is eyeing penetration this year. This trade fair is very important for Sino Grandness because it usually contributes about 20-25% of total beverage sales.

On track to meet profit target. In our view, this development augurs well for Garden Fresh as it represents a big step towards helping it meet its profit target this year. To recap, it needs to achieve net profit of CNY250m in order to qualify for the highest conversion PER of 6x, based on the convertible bonds subscription agreement. We understand that Garden Fresh posted a net profit of CNY160m in FY12. This means it has to make a net profit growth of 56% in FY13 to achieve the net profit target of CNY250m. With order win growth of another 45% at this year’s trade fair, we think this target is within reach.

Bigger booth to showcase products. The F&B trade fair in Chengdu, Sichuan Province, is the largest in China and attracts more than 300,000 visitors from all over the country each year. It is a wonderful platform for F&B companies to display their new products, raise brand awareness and sign new distributors. Given the positive response from distributors in the last two years, Garden Fresh doubled its exhibition space this year in order to accommodate more visitors at its booth and showcase new products. Indeed, it launched several new beverages during the trade fair, including loquat-mango juice, soft-pack loquat juice and tin-can juice. The expanding product range will provide additional impetus for the company’s growth.

Reiterate BUY. We continue to like Sino Grandness’s growth prospects and the potential spinoff of Garden Fresh to unlock value. Its share price has surged by 28% in the last week but we still see plenty of upside from here. Reiterate BUY and target price of SGD1.60, pegged to 6x FY13F PER.

Source: Maybank Kim Eng Research - 17 Apr 2013