SFGI's 4Q13 PATAMI fell 8.3% y-o-y to CNY59.4m, although revenue grew 36.3% y-o-y. The latter was boosted by its increased production capacity and a wider customer base. SFGI's outlook remains positive as the trend for juice consumption in China is rising. The company plans to continue securing new customers and raising awareness of its inhouse brands. Maintain BUY, with a SOP-based SGD0.88 TP.
- PATAMI was lower y-o-y. This was mainly due to increased administrative expenses arising from the depreciation of its new production facility in Hubei, China, as well as professional fees incurred for the proposed spinoff of Sino Grandness (SFGI)'s beverage segment.Even with the additional expenses incurred alongside the company's efforts to grow its revenue, profit margins are still likely to improve. The q-o-q decline was due to seasonality, as fewer consumers turn to juices when the weather is colder.
- Management positive on prospects. Management said the potential in China's beverage segment, ie the juices market, is huge. This is supported by rising disposable income levels and growing demand for healthy beverages. On top of this, the former will also boost demand for canned fruits and vegetables. Against this backdrop, SFGI remains optimistic on its prospects going forward.
- Focus on key growth drivers. Apart from developing new products,and increasing advertising and promotional activities to enhance brand awareness, SFGI also aims to expand its distribution network further by participating in trade shows. It currently distributes its Garden Fresh juices in more than 20 provinces in China.
- Plans remain on track. Maintain BUY. SFGI's plans for an IPO of its beverage segment are on track. The company has appointed the relevant professionals to commence work related to this corporate exercise.
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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, contributing 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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