Results within expectation. Sino Grandness’s 1QFY13 results were within market expectation. Revenue grew by 32% yoy to RMB376m and net profit grew by 25% to RMB70m. 1Q net profit accounts for 18% of our full year forecast but it is more of a factor of seasonality (last year 1Q net profit accounted for 19% of full year number). We reiterate our BUY call on Sino Grandness and keep our target price unchanged at SGD1.60. The next catalyst will be the clearance from SGX for Sino Grandness to spin off Garden Fresh, its beverage business.

Garden Fresh: on track to meet target. Garden Fresh continued to drive the growth with revenue up 50% yoy. Gross profit margin also improved thanks to the in-house production facility which significantly reduced the loquat puree cost. As a reminder, Garden Fresh has to achieve RMB250m net profit this year to enjoy the highest conversion PER for the CBs. This implies about 56% yoy growth, thus 50% growth in 1Q seems on track to the target.

Stronger quarters ahead. We expect 2Q and 3Q results to be stronger for three reasons. 1) 2Q/3Q are usually the peak seasons for canned vegetable export business. 2) Beverage sales also tend to be stronger in summer season. 3) RMB290m indicative orders signed in March during the F&B trade fair could start to contribute to revenue in 2Q.

Canned fruit could drive growth after Garden Fresh spinoff. SGX might take into account the asset quality of the remaining business after the potential Garden Fresh spinoff. In our view the remaining business will still be growing healthily. Apart from Garden Fresh, Sino Grandness still have two parts of business left, namely canned vegetable export and domestic canned fruit. In 1Q, despite some minor slow down (-3% yoy) in the canned vegetable export revenue, domestic canned fruit revenue grew strongly by 94% yoy. The company will continue to grow domestic food business and expand the product range, which provides the growth engine for the remaining business.

Keep invested while waiting for the next step. We reiterate our BUY call on Sino Grandness. Our current target price is pegged to 6x FY13 PER, which could be significantly raised once getting approval from SGX for Garden Fresh spinoff. We maintain our target price for the time being but watch out for the further step towards the Garden Fresh IPO.

Source: Maybank Kim Eng Research - 16 May 2013