Valuation
- Maintain BUY with a higher target price of S$1.06, taking into account the higher-than-expected 9M13 earnings. The company is still trading at an undemanding 5.2x 2013F PE, vs Hong Kong-listed peers’ 30.5x.
What’s New
- Sino Grandness Food’s (SGF) 3Q13 net profit jumped 99% yoy to Rmb168.1m, driven by strong sales in all three business segments.Total revenue rose 56% yoy to Rmb746.3m as sales of its Garden Fresh bottled juices jumped 78.8% yoy to Rmb436.5m, while canned food revenue also expanded 94.3% yoy to Rmb61.6m. Export sales rose 22.5% yoy to Rmb248.2m
- Gross profit increased 56.2% yoy to Rmb292.4m with gross margin stabilising at 39.2%.
- SGF also kept distributing and selling expenses in check at Rmb133.5m (+18.8% yoy) as the company budgeted only 6% of sales on A&P expenses instead of the normal 7-8%.
- We believe the company is on track to achieve its Rmb250m profit target after adding points-of-sale after the Hubei trade show in October. SGF also saw strong growth in its exports as the economies where its European customers reside in continue to recover.
- Gross margins are also likely to trend higher as the company will allocate more Garden Fresh production internally than to OEM producers. We think the loquat juice segment has room for growth, capturing market share from other juice (apple and orange juices) and drinks products (soft drinks and bottled teas).
- The snacks segment is also gaining some traction after launching 20 SKUs in the recent trade show, with its mushroom chips and lotus seeds products widely accepted by distributors.
- As for the status of Garden Fresh’s listing, the company has signed with top-tier investment bankers but is unable to reveal the institutions handling the process as they have signed a non-disclosure agreement. A Big 4 auditor has been engaged for this IPO process.
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