Peter Graham Lancashire (left), a shareholder of Sino Grandness, lives in Switzerland from where he regularly visits www.NextInsight.net . An Oxford-educated lawyer, he also holds a MBA from Insead. Retired from a career in pharmaceuticals, he owns a number of Singapore-listed stocks in his portfolio.
SINO GRANDNESS is not a stock for "widows and orphans" but does have, in my book, a significant chance for upside, but with no dividends yet.
If they do come up with a dividend in 2015, this would increase their attractiveness to institutional investors.
A food company operating mainly in China (now up to 60%) with exports to Europe, it has moved beyond canned products into beverages, including "loquat" juice.
So far, the latter has been a great success, and now Sino Grandness is also into snacks (dried versions of fruits, not snacks like popcorn), where the jury is still out.
As the company is an "S-Chip", its share price has been excessively punished, in my view.
S-Chips as an asset class is out of favour in Singapore, as several S-Chips have had "shenanigans" with their accounting numbers. Similar cases have emerged with ADRs in the U.S.A.
Specifically, a direct peer, China Minzhong, suffered heavily at the hands of a U.S. short seller (Glaucus Research) which caused its share price to drop by half in a day!
The allegations by Muddy Waters were never adequately substantiated and China Minzhong's share price recovered following a (successful) takeover bid by Indofood.
But the damage was done and the asset class as a whole suffered.
This is why Sino Grandness currently sells at a ridiculously low PE of about 4, despite high ROA and ROE numbers, and a strong growth outlook.
I like its entry into higher margin (branded) beverages, its accreditation with Aldi and Walmart in Europe, and a rising share of the domestic business.
This year, Sino Grandness plans to launch an IPO of subsidiary "Garden Fresh" in Hong Kong, before October.
If its manages to get it up and away before the market turns, this could well be a major catalyst for Sino Grandness' stock price.
If not , it would be a set-back (worst case, my guess,share price drop to .50 sgd. cents).
However the underlying business of "Garden Fresh" looks good , irrespective of whether an IPO is launched or not.
The company is owner driven, with the owner (Huang Yupeng) holding 40%. Fidelity and Goldman are in there, since 2013, which raises the comfort level.
As presumably Fidelity and Goldman have done their due diligence, I have no reason to question their numbers, or those of Garden Fresh.
My target price is 1.00 Sgd, which is not quite as high as the analyst of AM Capital in Hong Kong, (see link).
Excerpts from HK analyst's report....
Juicy returns. We initiate research coverage on Sino Grandness (SG) with a bullish BUY and SG$1.51 target price.
Recent results showed strong performance in all areas with high margins of 32%-52% exceeding expectations.
SG’s canned export business saw improving orders from Germany, whilst the domestic fruit business sold higher margin products.
The beverage division is key, as a spin off in Hong Kong in 2014 could attract multiples of 15x, valuing the division higher than the current SGX listco. BUY, 110% upside.
A Hong Kong beverage spin off will unlock value. Guidance for the beverage division earnings for 2013 is approx SG$50m (RMB245m) - we believe profits will be RMB267 for 2013 with growth of 25% in 2014.
Listing the division in Hong Kong before Q314 at a conservatively assumed multiple of 15x (comparable Huiyuan—1886.HK trades at 30x), values the division at approx SG$1bn.
When compared to SG’s current market cap we cannot justify the stock to trade at 4x 2014 with such a valuable business segment under its operations.
For full report, click link.
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