Towards Financial Freedom
Sino Grandness - 1Q13 Results In-Line
Sino Grandness reported a 24% y-o-y growth in 1Q13 earnings to CNY70.5m. Results are in-line with expectations, accounting for 18% of our full year estimates as Q1 is traditionally the weakest quarter. Stock price has risen 23% since our last note. We continue to remain positive on the stock. Re-iterate BUY with unchanged TP of SGD1.74 based on our SOTP valuation. This translates into an undemanding 6x FY13F P/E.
- 1Q13 results in-line. 1Q13 earnings growth of 24% y-o-y to CNY70.5m accounts for 18% of our full year forecast. Results are in line with expectations as Q1 is traditionally the Group's weakest quarter due to weaker sales of its export canned food division. Historically Q1 would account for 18-20% of full year earnings.
- Sales of domestic canned fruits almost doubled. Overall, the canned food division registered sales growth of 9% y-o-y to CNY 137m, accounting for 17% of our full year estimates. While export sales declined by 3%, domestic sales almost doubled, rising 94% y-o-y to CNY30m. This is in line with management's guidance and target of focusing on the Chinese domestic market. In the long run, Chairman Mr Huang Yupeng expects domestic market sales to supersede the export market.
- Sales of beverages up 50% y-o-y. Sales of beverages was up 50% y-oy to CNY239m, accounting for 17% of our full year estimates. We are projecting a 60% growth in 2013 beverage sales. Going forward, we expect growth to come from expansion of its distribution network into new provinces and channels.
- Lower cost of raw materials bumped up gross margins. 1Q13 gross margins came in at 40.5% vs our 2013F of 39.3%. On a y-o-y basis, gross margins has expanded by 3ppt, largely due to in-house processing of puree for beverages as well as economies of scale.
- SOTP-derived TP of SGD1.74. We value Sino Grandness using sum-ofthe-parts (SOTP) valuation to derive TP of SGD1.74. Since our last postroadshow note on 25Apr2013, stock price has risen by 23%. We still see
further upside and re-iterate BUY.
Source: OSK
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