2QFY13 results as good as expected. Sino Grandness reported a set of good results. Revenue grew by 27% yoy to RMB595m and net profit grew by 24% yoy to RMB103m. 1H net profit accounted for 44% of our full year forecast. We maintain our earnings forecast unchanged as we believe that the company can do even better in 2H13 due to acceleration in beverage sales. The biggest catalyst for the stock, the spinoff of Garden Fresh, seems intact. Maintain BUY and target price of SGD1.89, based on SOTP valuation.

Garden Fresh: RMB250m profit target should be achievable. Beverage sector (“Garden Fresh”) continues to perform well with revenue up 48% yoy in 2Q. 1H beverage revenue achieved RMB585m. Although the company does not disclose the net profit for beverage sector, we estimate the number to be around RMB110m. In our view, full year profit target of RMB250m should be achievable as we assume stronger beverage sales in the second half of the year, thanks to the summer season and the new distribution network.

Further expansion of distribution network. Sino Grandness announced a few days ago that it has secured access into two big convenience store operators, which in aggregate have more than 6,000 convenience stores in China. With better brand name awareness via increasing investment in A&P and the expansion in distribution network, we are optimistic on the growth outlook of the company in long term.

Domestic canned food set to support the growth after Garden Fresh spinoff. Domestic canned products (mainly consist of various canned fruits) continues its growth momentum in 2Q with revenue up 34% yoy. Management tries to leverage on current distribution network to introduce more products going forward. We expect this division to deliver 30% p.a. growth in the next three years to provide the growth engine for the remaining business after Garden Fresh spinoff.

Investment story intact. Our main investment story on Sino Grandness, the value unlocking via Garden Fresh spinoff, seems intact. The next step will be appointing investment bankers, which we expect to finish in the next two months. BUY maintained.

Source: Maybank Kim Eng Research - 15 Aug 2013