Sino Grandness Food (SFGI SP)

Additional Rmb270m To Fund Beverage Expansion

BUY

Price/ Target

Mkt. Cap/ F. Float

+34.7%

S$0.475/S$0.64

S$126.0m/56%

Fundamental View Technical View

Source: Nextview

The stock is likely to trend higher after forming an interim

base with immediate support at S$0.455. Resistance could

be found at S$0.525 with S$0.60 as the next potential

resistance level.

Financials

Year to 31 Dec

(Rmbm) 2010 2011 2012F 2013F 2014F

Net turnover 645.1 1,019.7 1,536.3 1,911.7 2,200.1

EBITDA 166.2 227.0 309.5 422.7 487.3

Operating profit 155.9 210.5 285.2 392.3 455.6

Net profit 117.2 151.7 210.0 285.3 333.1

EPS (RMB cent) 44.1 56.9 78.9 107.3 125.3

Net margin (%) 18.2 14.9 13.7 14.9 15.1

Dividend yield (%) 1.8 0.0 0.0 0.0 2.6

P/E (X) 5.4 4.2 3.0 2.2 1.9

P/B (X) 1.5 1.1 0.8 0.6 0.5

ROE (%) 27.8 27.2 27.3 27.1 24.0

Source: Sino Grandness, Bloomberg, UOB Kay Hian.

Background

Valuation

•

Food (SGF) with a target price of S$0.64. This translates

into 3.0x 2013F PE, pegged to Singapore-listed peers’

average.We re-iterate our BUY recommendation on Sino Grandness

Investment Highlights

•

bonds (CB) to Goldman Sachs Investments Holdings Asia

Limited and its co-investor. This is to fund its beverage

business for the eventual spin-off and listing in an approved

exchange. With the cash in hand, we expect the group to

speed up the advertising and promotion (A& P) activities and

increase its distribution points. To recap, the beverage

segment has to achieve Rmb140m in net profit for 2012 and

Rmb250m for 2013 within the CBs’ performance target to

obtain minimal dilution. As of 1H12, we estimate the

company had recorded NPAT of Rmb70.6m in the beverage

segment on Rmb392.4m (+120.7% yoy) of sales.SGF has completed the Rmb270m issue of convertible

•

cash cow

revenue. This will be driven by new customers and new

products. Sales of canned products for the domestic market

have expanded tremendously in 1H12 to Rmb53.6m from a

mere Rmb2.8m in 1H11. To cater for more domestic

demand, SGF is looking to distribute bottled cut fruits to

supermarkets such as Walmart and Carrefour.Canned fruits and vegetables business remains as, with a targeted 15-20% growth in annual

•

forecast SGF to report revenue of Rmb1911.2m (+24.4%

yoy growth) and net profit of Rmb285.3m (+35.9% yoy

growth) in 2013. SGF will be able to enjoy the full economic

benefits of the increased production capacity for the

beverage business and the expansion of canned food

business within the domestic market.Expect strong revenue and net profit in 2013. We

Share Price Catalyst

•

Fresh obtains approval from an exchange to list assuming a

holding company discount of 20% to SGF’s Garden stake

and a 3.0x 2014F PE valuation to its remaining business.We note the potential upside of S$1.12/share if Garden

•

announces the engagement of any financial advisors for this

listing. Last week, we saw an infrastructure-related stock

jump more than 20% the day the company announced the

intention to demerge and list its assets in an overseas

exchange.SGF is also able to enjoy a re-rating once the company

Peer Comparison

Company Currency

Price Market

Cap

(m)

PE

FY11

(x)

PB

FY11

(x)

TINGYI HLDG CO HK$ 23.350 130587 40.10 8.02

CHINA HUIYUAN HK$ 2.350 3473 9.13 0.54

WANT WANT CHINA HK$ 9.890 130822 34.85 12.26

UNI-PRESIDENT HK$ 8.920 32107 40.90 3.59

Average 31.24 6.10

YAMADA GREEN RES S$ 0.126 51.78 1.90 0.76

CHINA MINZHONG S$ 0.795 443.16 3.36 0.64

Average

SINO GRANDNESS S$ 2.63 0.700.475 125.96 4.28 1.17

Source: Bloomberg, UOB Kay Hian

Sino Grandness is an integrated manufacturer and

distributor of bottled juices as well as canned fruits and

vegetables. Since its establishment in 1997, the group has

rapidly grown to become one of the leading exporters of

canned asparagus, long beans and mushrooms from China.

The group serves globally renowned customers across

Europe, North America and Asia, such as Lidl, Rewe,

Carrefour, Walmart, Huepeden, Coles and Metro.

In 2010, the group successfully launched its own-branded

bottled juices,

juice and vegetable-fruit juice to target the huge domestic

consumer base in China. As a percentage to group revenue,

sales from the Chinese market have surged from 4.8% in

2008 to 41.9% in 2011 due

to strong sales growth of the

own-branded bottled juices.鲜 绿 园 (Garden Fresh) comprising mixed-fruit