Sino Grandness

Wait for the Next Milestone

Buy on share price weakness.

from an all-time high of SGD1.60 to current SGD1.355 (down 15%).

However we see the recent share price weakness as a buying

opportunity. Our channel check suggests that the new products Garden

Fresh launched in 2Q13 have been well received by consumers. The

biggest catalyst, the potential Garden Fresh spinoff, also seems to be

on track. If everything carried on as smoothly as management

expected, we will very likely hear some positive news within the next six

months. At the current valuation of only 5.1x FY13 PER, we are not too

concerned about any downside risk. Reiterate BUY with TP SGD1.60.Sino Grandness share price dropped

New products, more channels.

new products at the Chengdu F& B trade show this March. Our channel

check suggests that some of the new products such as loquat-mango

juice have been quite successful. In addition, Garden Fresh also

secured some new distributors and penetrated new supermarkets in

Sichuan recently. These initiatives were launched right before the

summer season, which is the operating peak season for juice

companies. It will build a solid foundation for Garden Fresh to achieve

its full year profit target.Garden Fresh launched a series of

Potential spinoff in the making.

from SGX by the end of this year. Although there have been

no further official updates on the matter, we believe that the application

to SGX has been submitted and other preparations have been

progressing. In good case scenario, we should be able to hear some

positive news within the next 6 months. However as we pointed out

before, even if the IPO is delayed, we believe that the company has

alternative ways to settle the CBs. Recent M& A deals in the beverage

sector such as Mengniu’s acquisition of Yashili, show that it is never

difficult for good quality F& B assets to attract buyers.Management hopes to receive a preclearance

Reiterate BUY.

and potential spinoff of Garden Fresh. The stock is trading at 5.1x FY13

PER and the current valuation does not pose much downside risk.

Reiterate our BUY call and maintain our TP at SGD1.60 as we wait for

the next milestone of a successful Garden Fresh IPO.We still like Sino Grandness’s for its growth prospects

Sino Grandness – Summary Earnings Table

FYE Dec (CNY m) 2011 2012 2013F 2014F 2015F

Revenue 1019.7 1640.3 2427.7 2997.2 3522.1

EBITDA 231.9 427.8 564.7 692.0 796.8

Recurring Net Profit 151.5 289.1 392.2 483.5 556.2

Recurring Dilutive EPS (CNY) 0.5 1.0 1.3 1.6 1.9

EPS growth (%) 29.2 90.9 35.7 23.3 15.0

DPS (CNY) 0.04 0.00 0.09 0.12 0.13

PER (x) 13.1 6.9 5.1 4.1 3.6

EV/EBITDA (x) 8.9 5.2 3.9 2.6 2.1

Div Yield (%) 0.6 0.0 1.4 1.7 2.0

P/BV (x) 3.6 2.4 1.5 1.0 0.8

Net debt/(cash) 76.7 238.0 209.6 -181.1 -335.4

ROE (%) 31.2 41.3 36.4 28.4 23.7

ROA (%) 21.4 26.7 24.3 22.4 20.7

Consensus Net Profit

Source: Maybank KE370 474 600

Sino Grandness (KE)

Watch Out For The Next Step

Results within expectation.

within market expectation. Revenue grew by 32% yoy to RMB376m and

net profit grew by 25% to RMB70m. 1Q net profit accounts for 18% of our

full year forecast but it is more of a factor of seasonality (last year 1Q net

profit accounted for 19% of full year number). We reiterate our BUY call

on Sino Grandness and keep our target price unchanged at SGD1.60.

The next catalyst will be the clearance from SGX for Sino Grandness to

spin off Garden Fresh, its beverage business.Sino Grandness’s 1QFY13 results were

Garden Fresh: on track to meet target.

drive the growth with revenue up 50% yoy. Gross profit margin also

improved thanks to the in-house production facility which significantly

reduced the loquat puree cost. As a reminder, Garden Fresh has to

achieve RMB250m net profit this year to enjoy the highest conversion

PER for the CBs. This implies about 56% yoy growth, thus 50% growth in

1Q seems on track to the target.Garden Fresh continued to

Stronger quarters ahead.

for three reasons. 1) 2Q/3Q are usually the peak seasons for canned

vegetable export business. 2) Beverage sales also tend to be stronger in

summer season. 3) RMB290m indicative orders signed in March during

the F& B trade fair could start to contribute to revenue in 2Q.We expect 2Q and 3Q results to be stronger

Canned fruit could drive growth after Garden Fresh spinoff.

might take into account the asset quality of the remaining business after

the potential Garden Fresh spinoff. In our view the remaining business

will still be growing healthily. Apart from Garden Fresh, Sino Grandness

still have two parts of business left, namely canned vegetable export and

domestic canned fruit. In 1Q, despite some minor slow down (-3% yoy) in

the canned vegetable export revenue, domestic canned fruit revenue

grew strongly by 94% yoy. The company will continue to grow domestic

food business and expand the product range, which provides the growth

engine for the remaining business.SGX

Keep invested while waiting for the next step.

call on Sino Grandness. Our current target price is pegged to 6x FY13

PER, which could be significantly raised once getting approval from SGX

for Garden Fresh spinoff. We maintain our target price for the time being

but watch out for the further step towards the Garden Fresh IPO.We reiterate our BUY

Sino Grandness – Summary Earnings Table Source: Company, Maybank KE

FYE Dec (CNY m) FY11 FY12 FY13F FY14F FY15F

Revenue 1019.7 1640.3 2427.7 2997.2 3522.1

EBITDA 231.9 427.8 564.7 692.0 796.8

Recurring Net Profit 151.5 289.1 392.2 483.5 556.2

Recurring Dilutive EPS (CNY) 0.5 1.0 1.3 1.6 1.9

EPS growth (%) 29.2 90.9 35.7 23.3 15.0

DPS (CNY) 0.04 0.00 0.09 0.12 0.13

PER (x) 13.9 7.3 5.4 4.3 3.8

EV/EBITDA (x) 9.4 5.5 4.1 2.8 2.2

Div Yield (%) 0.6 0.0 1.3 1.6 1.9

P/BV (x) 3.8 2.5 1.6 1.0 0.8

Net debt/(cash) 76.7 238.0 209.6 -181.1 -335.4

ROE (%) 31.2 41.3 36.4 28.4 23.7

ROA (%) 21.4 26.7 24.3 22.4 20.7

Consensus Net Profit 392.3 482.7 601.5