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Wednesday, December 5, 2012

Sino Grandness - Share Price May TAKE OFF If Subsidiary Managed To Be Hived Off For Listing On The HK Exchange



Sino Grandness Food Industry Group Limited manufactures and sells canned vegetables and fruits. Since listing on the Singapore Exchange in 2009, the company has successfully diversified its business model, transforming itself into a canned vegetable exporter focused on both the overseas and domestic markets Its products include canned asparagus, canned mushrooms, canned long beans and other canned products (including sweet corn and fruits). It sells its canned food products to distributors and retailers in Germany, France, Singapore, Turkey and China. Its products are branded under its customer's brands, including Mikado (under I Schimdt) and ECO+ (under Siplec), and house brands of supermarket chains in Europe, including Lidl, Aldi, REWE, Walmart and Metro. In October 2011, it incorporated a wholly owned subsidiary, Garden Fresh (Sichuan) Fruit & Vegetable Beverage Co., Limited.

Possible Hiving Off Of Susidiary. Sino Grandness is eyeing a separate listing of its beverage business under Garden Fresh HK on the Hong Kong Stock Exchange in 2014. Garden Fresh is a very profitable company since inception and there is much value waiting to be unlocked. It could be worth SGD383m if Garden Fresh were successfully listed in Hong Kong vs only Sino Grandness’s current market cap of SGD126m based on some reports.

Risk – If Garden Fresh Fails To List On HK Exchange. Sino Grandness issued convertible bonds totaling CNY370m to Sun Hung Kai Investment and Goldman Sachs in 2011 and 2012. The bondholders are allowed to convert the CBs into shares of Garden Fresh based on a predetermined PE multiple. The main risk for Sino Grandness is that it could bear a substantial penalty if Garden Fresh fails to get listed in Hong Kong.

Rewards For Those With Big Risk Apetite. During its 4QFY11 results briefing, Sino Grandness in-house branded products launched in 2012 took off surprisingly well. In 2QFY12, this segment contributed RMB38.2m of revenue in 2QFY12 vs RMB1.3m in 2QFY11. The domestic canned fruits business leveraged on Sino Grandness' existing distribution network and commands gross margins of 37.1% (higher than its overseas products). Domestic canned fruits business made up  8% of 2QFY12 sales and net profit.  Sino Grandness is trading at a steep discount of 3-x FY13 PER, based on Reuters estimates. Apart from the substantial return in the event of a successful listing of Garden Fresh, a PER of 3x seems too cheap for a company with over 40% annual growth. Source: Maybank Kim Eng Research - 19 Nov 2012. • At the current share price it is trading at about 4-5 time PE. Currently, the fast-moving consumer goods peers in Hong Kong are trading at an average of 33.2x FY11 PE. The strongest re-rating catalyst is likely to be in 2HFY13 where it may commence work on the spin-off of its subsidiary
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