A shareholder of Sino Grandness has emailed to NextInsight his astute analysis, as follows: 

The run-up of share price of Sino Grandness, a S-chip, has caught many by surprise.

Many investors have doubts about the brand equity of Garden Fresh for the beverage business is keenly competitive. When signs emerged that Garden Fresh is selling well, and mainly through big supermarket chains, concern turned to the hefty penalty that has to be paid to bondholders if Garden Fresh fails to list in HKSE by Oct 2014.

Judging by the rising sales of Garden Fresh juice, the money from bondholders has been put to good use. 

Garden Fresh is selling in more provinces, gradually, and the company plans to reach lower-tier cities in existing provinces. Moreover, the company initially relied on OEMs.

Only after sales had picked up, it decided to have its own juice factory in Sichuan, which is now operating, and another one in Hubei, scheduled to start operations several months from now. In-house production lowers costs and the geographical spread of its own factories and OEMs reduces transportation cost.

Initial concern about failure to list Garden Fresh in HKSE revolved around not being able to fulfil the following profit targets:

2011 RMB 70m

2012 RMB 140m

2013 RMB 250m.

Garden Fresh turned in a profit of RMB 87m in 2011. Indications are that there is no difficulty in crossing the required RMB 140m in 2012, going by the strong performance in the first 9 months of last year.

The penalty that becomes payable if Garden Fresh is not listed in HKSE in time amounts toRMB 560m, against the nominal value of RMB 370m.

With rising profit from Garden Fresh, the company should be in a position to pay this off. The original business of being the OEM of canned vegetables for overseas supermarket chains is doing well as poor economies in Europe drive many to shop for cheaper foods from China.

Being the OEM that cans vegetables under the labels of big overseas supermarket chains also provide Chinese consumers food safety assurance as Sino Grandness expands sales of non-beverage products domestically.

he nascent canned fruit business seems to has prosper, earning high margins.

It may sound odd that failure to list in HKSE may not be bad after all. A successful listing will result in the bondholders having a 25% stake in Garden Fresh valued at six times of RMB250m. It will not be unrealistic to expect a higher price earnings ratio of 15 times.

Moreover, the likelihood of Garden Fresh exceeding RMB 250m in 2013 is not far-fetched, and the juice company should have  a much higher valuation.

Bro chill man, there are longists and shortists for almost every stock out there just as there are buyers and sellers everyday. That's the market for you. One shortist means nothing amongst millions of buyers and sellers out there. 

My gf got worried when she received CDP mail saying her Sino Grandness shares have been loaned out under Securities Lending scheme. She got worrried cos this implies the borrower of the shares is shorting the stock. Like that how? When the loan was made, the stock price was in the 50s, now in the 60s, the borrower kena whacked big time. But what if .....?

Ethan, what do you think?

Well I'm up over 50% on Sino Grandness, and about 33% on China Minzhong - all this while the Shanghai Composite is still at depressed valuations.

Another big positive, however, is that the Shanghai Composite has looked like it's been regaining signs of life in recent weeks, while the local s-chip index (FT ST China Index) has crept up from below 220 to 237. This index would be trading at 300+ to 400+ during less bearish times - in fact during the last Chinese bull market I believe this index reached as high as 600-700. 

So if this is a recovery (hopefully) in Chinese stocks, it's only just the beginning. 

Kudos Ethan! Your stock pick has done amazingly. Now let's see how the other one, Minzhong fares/

Just broke out again, the sky's the limit for Sino Grandness...

Breno,

There's no such thing as a risk free investment but I've studied the numbers and they make sense to me. 

More importantly they make sense to Goldman Sachs too, which is now represented on the board of Sino Grandness.

The chairman owns almost half the shares in the company. Also note that in its IPO in November 2009, it IPOed at 29 cents (significantly below current share price) and raised only $16.9 million, which is even less than its net profit in last quarter alone.

Instead of cashing out of the IPO, chairman Huang Yupeng has actually repeatedly purchased more Sino Grandness shares at between 48.5 cents to 50 cents, significantly higher than IPO price, showing you that he wasn't just using the IPO to cash out, unlike some other companies out there. 

Again, no such thing as a risk free investment. You got to take your bets. I've taken mine. But be nimble and quick to react if things don't go according to plan. 

Ethan,

good post, thanks for the knowledge.

But, with the recent events regarding the SEC's threat to delist a number of Chinese companies listed in the US for being dis-honest and unclear with their reporting, I tend to take positive Chinese results with a grain of salt.

Do you think this risk applies to Sino Grandness?

Hi Daisy,

Unlike the Cheongwees and Macgyvers of this forum, I'm certainly nowhere near to being an 'uncle', but since you are unable to see me in this forum I shall take your calling me an uncle as a compliment on my wisdom rather than a disparagement of my looks ;).

Look I'm not a short term/momentum trader, I don't believe in that. I believe in finding value and keeping it for the long term. If you bought Sino Grandness at 55 cents don't be too happy yet - in the short term anything can happen, it can go up 10% in 1 day, it can also go down 10% in 1 day so please don't thank me yet - but 10% is nothing honestly, I didn't buy Sino Grandness at 40 cents to make a mere 10% profit in it. 

As long as the fundamentals of this company with immense potential stay in tack, as I'm confident they will, I intend to keep this stock until at least both of the following happen:

(1) The Shanghai Composite hits at least 3000 or more (this is nothing considering it hit over 6000 in 2007)

(2) Garden Fresh gets listed in HK or TW. 

We are currently in a bear market for Chinese stocks. I believe that in a normal market, Sino Grandness would be valued at at least over $1 - and in a bull market, even much more - assuming the fundamentals stay in tack. 

But many people these days are impatient and only in it for the short term. Those people should be happy with 10% gains and sell. 

As I've been saying for quite a while now, I'm also bullish long term on China Minzhong which I got at below 60 cents and have recently been accumulating somemore. Minzhong is also undervalued, assuming the fundamentals remain in tack. The recent minor correction in the stock makes it attractive to accumulate more of the stock at 80 cents and below. Again it's for the long term - I don't make short term bets. 

U got in at 48.5, I got  in at 55 cents.

heng, ah! Today I am happy happy that Sino Grandness closed at 59 cents. I have a few forumers here to thank, esp Ethan. Uncle, when will you exit?

I think I got in too late at .485 but still happy with the rally!!

How far will this go???????

This is just the beginning, no need to get too excited yet. There was some serious buying going on today, think some big boys/funds are being o accumulate.

I bought at 40 cents and already sitting on huge gains but if you look at the valuations and growth potential, this is nothing. If the Shanghai Composite recovers next year, you'll see a much bigger move in Chinese stocks. Also, once news of Garden Fresh's listing in HK/TW starts filtering through, probably in the second half of next year, expect lots of hype to be generated for Sino Grandness.

Even 70 cents is nothing. This could potentially be a multi-multi-bagger one day.

Struck 57 c !

Thank you UOB KH for the tip-off: DMX, SINO GRANDNESS, BIOSENSORS: More than 50% upside?

Who is surprised that the stock has now hit 55.5 cents?
Am holding on for the ride to 70 cents. My fellow riders include Ethan, it seems. :-)

After breaking 50 cents, the sky's the limit now for this one. As news of the impending listing of Garden Fresh in Hong Kong or Taiwan starts coming in next year, Sino Grandness may receive a lot of good press coverage and attention that may drive it up. Ballpark estimates show that if Garden Fresh continues its phenomenal growth, the IPO may generate a huge amount of cash for Sino Grandness, almost certainly in excess and maybe even up to 2-3 times its current market cap. 

Sino Grandness and China Minzhong continue to outperform the broader China market, and deservedly so. 

After breaking thru 50 cent level, the stock has an easy time sailing up to 53 cents! More to come???

I also have a large no. of Sino Grandness shares @ lower prices .... Just hope that there is no reason for Muddy Waters to short this stock!

Just broke 50 cents!

I've been vested in this since 40 cents and intend to hold it until the Shanghai Composite recovers. I've also been vested in China Minzhong since 57 cents. As I've been saying for a while now, these 2 stocks were and still are significantly undervalued and barring any unforeseen circumstances i intend to hold them until Chinese stocks see a bull market again.

Any fan of Sino Grandness? It's inched up bit by bit and has hit 49 cents. If it breaks above 50 cents, it's charlie boom town then.

3Q profits were most surprising. Hope the stock price can run from here on. In the past, solid profit announcements have not been successful in triggering a sustained price rise.