Sino Grandness

Kim Eng on 14 Aug 2014

• 2Q14 net profit beat expectations on higher-than-expected revenue and margins.
• Rising trade receivables and low cash balance the only minor concerns.
• Maintain HOLD on uncertainty over Garden Fresh’s IPO and CB settlement. TP unchanged at SGD0.76.

Strong earnings, tight cash flow
2Q14 net profit growth was mainly driven by beverages (revenue up 55.2% YoY) and domestic canned products (revenue up 53.1% YoY). GPM also improved 3.4ppts to 39.1% on cheaper raw materials for beverages and higher ASPs for canned products. 1H14 net profit formed 53.8% of our FY14E forecast. Our concerns are rising trade receivables and a low cash balance. Trade receivables increased 22.5% YoY to CNY1.1b while operating cash flow turned negative again to -CNY79.6m from +CNY119.6m last quarter. Cash balance of CNY60.2m was its lowest since 3Q12. However, we are not too concerned as we believe Sino Grandness has enough funding sources to meet its working-capital needs.
Garden Fresh’s IPO could be delayed given a still-inactive HK IPO market. Sino Grandness may next focus on negotiations with its CB holders to postpone the deadline for its CBs or restructure them.
Maintain HOLD
Business operations remain strong but we maintain HOLD raing, TP remained set at SGD0.76 for now as we are waiting for the company to give more clarity on Garden Fresh IPO and CB settlement.