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.

Financial Exhibits

SWOT Analysis

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

Sino Grandness (T4B)

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