4Q13 results slightly missed market expectations on non-operating expenses. But underlying strength of the business remains strong, mainly driven by the beverage segment.

Garden Fresh IPO is progressing well. Potential risk of a delay is limited and manageable.

Risk/reward profile still good. Maintain BUY with slightly higher TP of SGD1.06.

Slight miss on non-operating expenses

Sino Grandness reported slightly lower-than-expected 4Q13 results, with revenue up 36.3% YoY to CNY553m but net profit sliding 8.3% YoY to CNY59m. The strong top-line growth reflected the underlying strength of the business, namely, the beverage segment which met its full-year net profit target of CNY250m. This segment grew 56.7% YoY in 4Q13 and 59.5% on a full-year basis. 4Q bottom line missed market expectations by about CNY20m, weighed down by non-operating costs such as a net forex loss of CNY14.7m and Garden Fresh spinoff-related expenses of around CNY10m. Excluding such expenses, net profit was in line with our estimate.

Garden Fresh IPO update

Sino Grandness has engaged investment bankers and legal counsel in 4Q13 to commence work related to the proposed Garden Fresh spinoff. We believe due diligence is currently being conducted by the Hong Kong Stock Exchange and the company aims to submit the official application in the next few months. Management is confident that the IPO will be completed by 19 Oct 2014, the maturity date of the first tranche of convertible bonds.

Our view

We believe the risk of a significant IPO delay is very small. The stock’s risk/reward profile remains good and we maintain our BUY rating. We slightly raise our TP to SGD1.06.

Source: Maybank Kim Eng Research - 28 Feb 2014