The low barriers to entry in the market really worry me, but I can’t help but feel that this situation gives investors a skewed risk/reward opportunity here. If things just carry on as they have been then this investment will make a lot, I’d be very disappointed with even a 2 bagger! The downside is at least limited to 100%. I can’t put anything like a precise figure on their value until the convertible bond issue is over, but that doesn’t mean I can’t see it is undervalued.
Its definitely too risky to make this a large portfolio holding due to the chance of the IPO failing, but my gut tells me not to miss out on this. I’m currently moving broker so can’t buy shares, but when that’s done I will put about 5% of portfolio in this.
Sino Grandness did not have instant success in its venture into beverage business. Its first product, a herbal drink, failed badly and was abandoned.
"Garden Fresh" mixed vegetable-fruit juice, introduced in 2010, has not been popular.
The winner, "Garden Fresh" loquat juice, was introduced in 2011. The idea of making a drink from the fruit came from a staff posted to Sichuan where loquat is grown in abundance.
Being a new type of drink, supermarket chains in Guangdong were willing to test the appeal of "Garden Fresh" loquat juice. Consumer acceptance has led 7-Eleven in Guangdong and "Red Flag" convenience store chain in Sichuan to selling the drink.
A brand is easy to start but prone to failure. Brand owner do not have the foresight. Sino began by engaging contract manufacturers. It built its own factories only when its loquat juice was selling well.
Luck played an important part in the success story. Had the staff not been posted to Sichuan and if he was less inquisitive, loquat juice would not have come into being.
But luck alone is not enough. Sino has devoted considerable resources building up the "Garden Fresh" brand, and developing distribution channels.
Quarterly beverage sales rose to RMB350m in 2Q 2013 from less than RMB100m in the early part of 2011. In contrast, China Minzhong sold less than RMB 280m for the whole year ended June 2013.
Ironically, the rapid rise of "Garden Fresh" has generated skepticism. That "Garden Fresh" fetches a gpm much higher than those of more established brands has also raised doubt. "It is too good to be true," say many investors.
An independent sales survey of "Garden Fresh" prior to the listing of the beverage unit, if any, may go some way in assuaging concerns.
It's suspicious, or it's awe-inspiring, depending on how you look at it.
After failing with herbal drinks and not achieving resounding success with vege-fruit juices, Sino-Grandness ventured into loquat juice in 2011.
Within a short while, in the same year 2011, raised RMB100m thru convertible bonds in Sept. from Sun Hung Kai. Targets agreed upon were: net profit after tax of above RMB140
million in FY2012 and above RMB250 million in FY2013.
It's suspicious, or it's awe-inspiring.
These guys hadn't really demonstrated they had a winning range of beverages, yet they could raise RMB100 m and agree to incredibly high targets.
It's only later that the newly introduced loquat juice drinks proved to be successful. What if the loquat juice had flopped? Would that have led to a downfall in Sino Grandness?
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