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Sino Grandness - Strong Growth In 3Q13

kiasutrader
Publish date: Tue, 19 Nov 2013, 01:48 PM
SFGI's  3Q13  PATAMI  surged  97.4%  y-o-y  to  CNY168.2m  as  revenue grew  56% y-o-y,  buoyed  by its  beverage and domestic canned product segments.  The  company's  outlook  remains  positive,  supported  by higher production capacity and continued growth of its in-house brands in China.  Given  the  robust  3Q13  results, we  tweak  our  assumptions  to arrive at a SOP-based TP of SGD0.88 (post-stock split).
  • Own-brand  products  continue  to  win  over  customers.  During  a Chengdu trade show in 1H13, Sino Grandness (SFGI) secured a number of new customers.  Helped by an  increase in distribution points   and  an expanded  product  range,  sales  of  its  Garden  Fresh  (GF)  juices  and domestic canned food products  hit record highs in 3Q13. Encouraged by this  success,  SFGI  intends  to  aggressively  expand  its  retail  and distribution  channels  across  20  provinces.  It  started  pushing  more beverage products through food & beverage (F&B)  channels during the year,  as  well  as  secured  access  to  some  of  the  largest  convenience stores  in  China.  The  potential  in  China's  beverage  segment  (ie  juice market) remains huge, given the growing trend of juice consumption.
  • Launches new snack foods. SFGI recently launched a new snack food category  (which  includes  dried  mushrooms,  lotus  seeds,  peanuts, raisins, anchovies and dates) under its GF brand. It plans to leverage on its existing distribution network in China to grow this business further.
  • Maintain BUY. We tweak our revenue assumptions given the company's good  3Q13  performance. Consequently, our FY13 earnings estimate is raised  to  CNY426.6m  from  CNY387m.  We  note  that  SFGI  had  higher receivables (CNY983m) at end-3Q13 as it extended credit terms to some customers,  and  had  a  negative  operating  cash  flow  in  9M13. Nonetheless, plans for an IPO of its beverage business are on track. Our SOP-based TP of SGD0.88 assumes: i) GF will achieve a profit target of CNY250m, and  ii)  a 4.0x FY13F P/E  for its canned food business. Our TP implies  a P/E of 6.2x  for  FY13F (group earnings), with a 17% upside from current levels.
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Company Profile
Sino  Grandness is a China-based food and beverage company  listed on the SGX in 2009. It  started out exporting  canned vegetables (mushrooms, long beans and asparagus) to discount stores  in  Europe  before venturing into  canned fruits for the domestic Chinese market  as  well  as  beverages.  Within  three  years,  the  beverage  division  under  Garden  Fresh  overtook  the  canned  food  business, accounting for 53% of revenue in 2012. The company intends to spin off  Garden Fresh  in a Hong Kong IPO by Oct  2014,  before  the first tranche of its convertible bonds expires.
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Source: OSK
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