Towards Financial Freedom
Sweet Vibes From HK Roadshow
We hosted SinoGrandness (Sino)'s management for a non-deal roadshow in Hong Kong last week. The 22 client meetings held over two days received positive response. We raise our 2013 earnings projections for Garden Fresh (GF) to RMB250m and change our valuation method from P/E to sum-of-parts to derive a new but higher TP of SGD1.74. This translates into an undemanding FY13F P/E of 7x. Reiterate BUY.
- Valuing Garden Fresh stake at SGD377m, or SGD1.28 per share. We raise our 2013 earnings projections for GF from RMB220m to RMB250m.This would mean a 6x conversion for the convertible bonds (CBs), whichwill dilute Sino's stake in GF from 100% to 75%. Assuming the issuanceof 20% new shares, the group's stake will fall further to 62.5%. AssumingGF is listed at a 12x P/E (vs its HK peers' >20x), this 62.5% stake will beworth SGD377m, or SGD1.28 per share.
- Canned food business valued at SGD136m, or SGD0.46 per share. We are forecasting the canned food division to generate a 2013 net profit of RMB136m (SGD27m). Ascribing an undemanding 5x P/E to this business, we derive a valuation of SGD136m, or SGD0.46 per share.
- No single distributor accounts for >5% of sales. Chairman Mr Huang Yupeng said it is not economically feasible to operate in China without distributors given the sheer size of that country. The company tries not to be overly reliant on distributors by appointing them based on their channels and not by province. It also pays its own "listing fees" to supermarkets so that it is able to change distributors as and when necessary. GF's largest distributor accounts for <5% of sales.
- Internal beverage capacity to hit 270k tonnes by end-2014. The company's Sichuan beverage line which we visited in Jan 2013 has a production capacity of 70k tonnes. The upcoming second line in Hubei, targeted to commence in 4Q13, will have 100k tonnes of capacity and by mid-2014, it will add 100k more tonnes, bringing its total capacity to 270k tonnes by end-2014. Last year, it sold 173k tonnes of juice, with internal production accounting for 20% of sales while the remainder is from OEM.
Source: RHB
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
