sino grandness - undervalued stock

Readjusted to 1.89

Sino Grandness announced yesterday that it has obtained a no-objection letter from SGX for the proposed Garden Fresh spinoff. It is an important milestone that we have been waiting for. We are more confident about a successful Garden Fresh IPO than before, thus we change our valuation methodology to SOTP. Our target price is raised to SGD1.89 accordingly. Maintain BUY.

NextInsight carried an article on 2 July 2013.

SINO GRANDNESS: Way paved for HK listing, but will there be a special dividend?

www.nextinsight.net/index.php/component/...e-a-special-dividend

Coincidentally or otherwise, Investor Central had a video quoting Sino Grandness VP for IR answering Investor Central's question on the same special dividend. The video was uploaded on 18 July 2013:

Special dividend from Sino Grandness?

video.xin.msn.com/watch/video/special-di...%257c%257c%257c%257c

The kweilo presenter from Investor Central said t Garden Fresh will be valued at S$2 billion at IPO and Sino Grandness at S$711 million, if "the most recent coverage is to be believed."

His source of info is vague. Was there any analyst report on this valuation?

I checked the NextInsight article and it doesn't give the S$2 billion figure. Instead: "Analysts seem to think that this profit threshold of RMB250 million is achievable and Garden Fresh can fetch a PER of 20 (which is not unreasonable as some of its peers trade at about 30X PE). Garden Fresh will then be worth RMB 5,000m."

www.nextinsight.net/index.php/component/...e-a-special-dividend

Who is right?

Based on the 15X PE bandied about in the video, the value of Garden Fresh at IPO (assuming RMB250 m profit) - 15 x 250 = 3.75 billion RMB. No where near the S$2 billion mentioned.

As for Sino Grandness, the 711 SGD valuation translates into $2.41 per share. ie, 711 divided by 295 million shares outstanding of Sino Grandness = $2.41 per share.

This is again not comparable to Maybank's recent valuation of $1.89 for Sino Grandness.

At 15 times 2013 profit of RMB250m, valuation of Garden Fresh is RMB3,750m.

Sino Grandness' 75.3% stake in Garden Fresh (after bondholders take up 24.7% for not redeeming their lending) is worth RMB2,824m.


The value of this stake (RMB2,824m) will not change if new IPO shares are also issued at the same price earnings ratio of 15 times 2013 profit.

Maybank's valuation of Sino at $1.89 per share (see post above by 'dsk') is based on Sino Grandness' 55% stake in Garden Fresh valued at RMB2,063m.

It is obvious that Maybank has excluded the potential sale proceeds from vendor shares received by Sino during Garden Fresh's IPO.

Sino's portion in Garden Fresh of RMB2,063m as assessed by Maybank is RMB761m lower than the RMB2,824 stated at the start of this post.

The difference of RMB751m is 51c per Sino share.

Adding this 51c to Kim Eng's $1.89 gives rise to $2.41, which happens to be the Sino share value implied in the Investor Central video.

Do fellow forummers agree that $2.41 ought to be the theoretical value of Sino share before shares of Garden Fresh are traded?

To all who have bought and held onto Sino Grandness since I've been recommending it at 40 plus cents last year, congratulations and I hope none of you cashed out too early.

The stellar gains have been achieved in spite of the fact that the Shanghai Composite and Chinese stocks around the world have not made any headway since last year and remains continually mired in a bear market.

This means that Sino Grandness's stellar gains and come in the midst of a deep Chinese bear market. Imagine what happens in a Chinese bull market - where a rising tide further lifts all stocks? I have not sold a single Sino Grandness share since buying continuously at about 40 odd cents, and continue to hold onto them tight for the following reasons

(1) Shanghai is still in a bear market. I like buying during bear markets. This means that from the macro-market perspective, there is far more room for upside than downside in the medium to long term. And the macro-market impacts all stocks.
(2) Garden Fresh is not yet listed in HK. The potential benefits to Sino Grandness in this listing are huge.
(3) Garden Fresh and Sino Grandness's new canned fruit segment continues to have immense growth potential, and is still arguably at an early growth stage. Garden Fresh (鲜绿园果汁) has achieved great brand awareness in a relatively short time in Southern China. Many people I've spoken to from Guangdong province are very familiar with the brand, despite the recency of its entry into the market.

I won't mention names but there was one 'Mr Know it All' poster (he often gave predictions on the market and many stocks with a 'know it all' attitude and claimed to be doing it for good karma) in particular over here who was telling people to short this stock many months ago. Well I hope you did not listen to him or you would have paid an expensive price.

Sometimes you just need to keep quiet and let the stock price do the talking for you. Meanwhile let's hold on tight and enjoy the ride. As is the case with any stock, it will not be easy or smooth-sailing, but I continue to remain bullish in the medium to long term.