Sino Grandness

Kim Eng on 24 Oct 2014

• Share price shed 12.5% in three days under siege from short seller.
• Do not share the same view but think solid evidence from management critical.
• Maintain HOLD. TP under review.

Hit by allegations of financial misrepresentation
Sino Grandness’s share price retreated 12.5% in three trading days under attack from a short seller who questioned its financial creditability. With the short seller recommending a short and giving zero value to the stock, investors’ confidence was rocked.
Management hosted an investors’ meeting yesterday to refute claims in the report. It attributed the differences in its profit margins and other operating metrics to business-model variances in the industry. It also blamed the discrepancies in survey results on the different methodologies employed by the research firms. It provided independent research from Frost & Sullivan to show Garden Fresh’s loquat juice’s market position. Management would consider buying back shares if its share price stays weak.

Much stronger proof needed
While the allegations are poorly argued, confidence has been dented and solid evidence such as government documentation from the company is critical, in our view. Without this, we expect the overhang to linger. In view of this and Garden Fresh’s still-uncertain listing status, we keep our HOLD. Our TP is under review. We could turn more positive on the company on any powerful defence evidence.