Sino Grandness – Asdew, Fidelity and CEO up stake. What gives?

Since my writeup in Oct 2012 where Sino Grandness (“SFGI”) was trading at $0.23 (post split basis), it has more than tripled to an intraday high of $0.800 on 28 May 2013 before retracing to the current price of $0.640. In addition to share purchases made by Asdew and SGFI’s CEO Mr Huang, Fidelity is the latest institution to become a substantial shareholder of SFGI. It seems like there has been quite a lot of interest in SFGI. Let’s take a look at SFGI’s recent and potential developments.
1HFY13 results – Good momentum
1HFY13 revenue and net profit jumped 29% and 24% y/y to RMB972m and RMB174m respectively. (See Table 1 below for the elaboration on the results)
Table 1: SFGI 1HFY13 result snapshot
Source: Company (*Technical issue, Im not able to put it here)
2HFY13 results – Likely better
2HFY13F is likely to be better than 1HFY13 as
a) The indicative orders won for their Garden Fresh juices and Grandness canned products in their Chengdu trade fair in Mar 2013 are likely to flow through to 2HFY13;
b) The additional new distributors secured in North-eastern and North-western provinces are likely to have a gradual positive impact in 2HFY13 and beyond;
c) The contributions from the recently added distribution channels (eg. Hongqi in Sichuan province and Meiyijia in Guangdong province) which were announced on 12 Aug 2013 are likely to gradually kick in 2HFY13 and beyond.
Recent shareholder purchases bolster confidence
There have been several purchases in the last two months. In late August 2013, CEO Mr Huang bought a total of 100,000 shares at an approximate average price of S$0.525-0.550 which raised his stake to about 40.1%. Asdew Acquisitions Pte Ltd also bought 1.756m shares at an approximate price of $0.532.
Besides Asdew, Fidelity also raised its stake in SFGI to 5.06% by acquiring 490,000 shares at an approximate price of $0.657 on 30 Sep 2013.
Recent developments
Company has been busy on the investor relation front. In late Aug, due to a short seller report on China Minzhong which indirectly caused SFGI’s share price to plummet to an intraday low of around $0.500, company expediently came to Singapore to reassure investors. In early Sep, company gave a presentation at a DMG conference in Singapore.  Last week, SFGI just organized a trade fair in Hubei Province, together with an analyst plant tour at their Hubei plant.
Potential upcoming events
Potential upcoming events include the appointment of investment bankers for their Garden Fresh IPO, calling for an Extraordinary General Meeting for shareholders to approve the spinoff, (first) roadshow to Europe to introduce SFGI to European funds and a seminar at Standard Chartered in late October. It is noteworthy that these events are tentative in nature (i.e. they may not materialize).
Noteworthy points on Garden Fresh IPO
There are some pertinent points on Garden Fresh’s planned IPO which are worth mentioning.
Firstly, China’s fruit juice industry has seen strong growth as corroborated by the growth momentum
seen in some industry players such, as WangLaoJi and Huiyuan. For example, Huiyuan’s revenue has risen every year for ten consecutive years through 2012 to reach RMB4b.
Secondly, it is noteworthy that it has been some time since there is an IPO for a company which is a purely domestic (beverage) consumption play in China. Hence, there may be some pent up demand for stocks in such sectors.
Thirdly, Huiyuan’s results seem to be improving based on consensus estimates below. (See Table 2 below) This should bode well for the overall industry as Huiyuan can be considered to be one of the top players in the beverage industry.
Table 2: Analysts’ consensus estimates for Huiyuan
Source: Bloomberg (7 Oct 13)
Fourthly, Huiyuan’s price has seen a significant jump of around 78% since late July 2013. (See Table 3 below) This may be due to increased optimism on its business operations and a July 2013 bullish research report citing a target price of HKD7.40.
Table 3: Huiyuan’s price chart – 78% rally since late July 2013
Source: Bloomberg (7 Oct 13)
Last but not least, based on Table 2 above, Huiyuan’s estimated net profit for FY14F is around RMB317m and is trading at an estimated FY14F PE of around 30x. According to Kim Eng, Garden Fresh may achieve its net profit of RMB250m this year. Assuming FY14F is another growth year for Garden Fresh, their results may not be too far off Huiyuan. Consequently, Garden Fresh may be able to fetch a PE valuation (based on 2014 earnings) which may not be too far off from Huiyuan.
Conclusion – Waiting for more news on its IPO and 3QFY13F results
Average analyst target price stands at around S$0.905. SFGI closed -$0.045 to $0.640 yesterday. In order for the market to narrow the difference between SFGI’s current price and its average analyst target price, it is likely that we need to wait for more developments on its Garden Fresh IPO and its 3QFY13F results.

 

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