SGX pre-clearance obtained earlier than expected. Sino Grandness announced yesterday that it has obtained a no-objection letter from SGX for the proposed Garden Fresh spinoff. It is an important milestone that we have been waiting for. The approval from SGX is earlier than we expected. Now the big uncertainty is removed and the remaining steps are more under company’s control. We are more confident about a successful Garden Fresh IPO than before, thus we change our valuation methodology to SOTP. Our target price is raised to SGD1.89 accordingly. Maintain BUY.

Garden Fresh IPO likely to launch in the next twelve months. Earlierthan-expected approval from SGX will give Sino Grandness more time to work on the remaining IPO preparation. The next step is to appoint an investment bank. If everything goes smoothly, we expect the Garden Fresh IPO to finish in the next 12 months, which is about three months earlier than the first deadline for the convertible bonds (Oct 2014).

Optimistic on an at least mid-teen FY13 IPO PER. Some investors are not sure about what valuation Garden Fresh could get in HK. From our understanding, Sino Grandness has been approached by some investment banks already in the past few months and all of them are quite interested in the proposed Garden Fresh IPO deal because HK has not seen any pure beverage company IPOs in the past few years. HK allows companies to use forward earnings forecast to set the IPO price (in Garden Fresh’s case it could use FY14 forecasted earnings). Thus given the 30% earnings growth of Garden Fresh on our estimates, even a very conservative lowteen FY14 IPO PER could translate into at least mid-teen FY13 PER.

Special dividends can also be expected next year. Assuming a successful Garden Fresh IPO and parent company Sino Grandness selling some vendor shares, some special dividends can also be expected in FY14. It is still not clear whether or how many vendor shares will be sold. But on our estimates, a 5% vendor shares sale could potentially bring in about SGD24m capital gain or about SGD8cents/share.

Raise TP on SOTP. We keep our earnings forecasts unchanged for the next three years but change our valuation methodology to SOTP as we are more optimistic than before on a successful Garden Fresh IPO. We value Sino Grandness’s holding on Garden Fresh at SGD2,063m post spinoff and value the remaining business at SGD711m. Accordingly our TP is raised to SGD1.89. Maintain BUY.

Source: Maybank Kim Eng Research - 2 Jul 2013