Positive takeaways from recent China trip. Sino Grandness invited us for a 3-day trip to China. We came away positive after our visit to an F&B trade fair in Wuhan and a plant in Danyang. In our view, Sino Grandness's domestic business is making impressive progress on all fronts, including new product launches, expansion of its distribution network and new capacity installation. The Garden Fresh IPO is also on track, according to management. We continue to like Sino Grandness for its strong growth outlook. We believe the stock is still undervalued at 5.1x FY13 PER and much more value is waiting to be unlocked via the Garden Fresh IPO. Maintain BUY. Our TP is adjusted to SGD0.94 due to its recent share split.

New products well accepted by the market. During our stay in Wuhan, we were much encouraged by Sino Grandness’s achievements. New juice products launched in 2Q, including 50/100% concentration Pipa juice and Pipa/Mango juice, seem to have been welcomed by the market and were among the company’s best-selling products in the past few months. Sino Grandness has also launched some snack food products under its “Haotianyuan” (好田园) brand. It is still too early to say how well these snack foods will be accepted by the market but we found that many attendees at the trade fair, including us, liked the taste of the product.

Horizontal and vertical expansion of distribution network. Garden Fresh hired a team of experienced sales staff from another big beverage company earlier this year. With the help of the new sales team, Garden Fresh is expanding both horizontally and vertically. It has penetrated into new markets in the northwest and southwest provinces in China. It also grew its retail points further into Tesco, Jusco, Parkson, Hongqi and Meiyijia. Within its existing territories such as Guangdong and Sichuan, Garden Fresh is expanding vertically into more channels, such as restaurants, Foxconn’s Shenzhen factory as well as the Navy.

Hubei plant to be ready for juice production by end-2013. We also visited Garden Fresh’s Hubei plant. Construction of the main infrastructure and production area in Phase 1 has been completed. On full completion, the plant will have two juice production lines with annual production capacity of 200k tonnes. The first juice production line is ready for installation and management expects production to start by end-2013. Currently, Garden Fresh still relies on OEM for 80% of its sales volume. We expect the new production facility to significantly increase the proportion of its in-house production, enhancing its margins in future.

Source: Maybank Kim Eng Research - 9 Oct 2013