Loquat fruit soothes the respiratory and digestive systems. But the fruit is harvested between March and May. Outside this period, only loquat syrup and paste are available.
When the staff succeed in commercial extraction of juice from loquat fruit, Sino must have seen the huge profit potential of the new loquat juice.
It was unlikely that Sino was reckless in borrowing a principal sum of RMB100m from Sung Hung Kai in 2011 on what were then deemed very stiff terms.
More generous terms were offered by Goldman Sachs when Sino borrowed a larger principal amount of RMB270m a year later, in 2012, to fund Garden Fresh growth. This could be the result of rising popularity of loquat juice.
Garden Fresh is now set for listing in HK after surpassing the 2011 profit target of RMB70m and the 2012 profit targets of RMB140m comfortably. The only unknown is the dilution of Sino's stake in Garden Fresh, which depends on 2013 profit.
There are some 12 months or so to the IPO of Garden Fresh. Understandably, Sino Grandness has been highlighting the high growth rates of its Garden Fresh beverage division whose sterling performance has underpinned this year's strong run-up in Sino Grandness stock price.
The other division of Sino Grandness is the canned fruits/vege business. Exports dipped in 1Q and 2Q marginally but its relatively new canned fruits/vege sales to China consumers is doing a roaring business.
I think we have not paid as much attention to its potential.
+50% growth in domestic revenue in 1H2013....
2Q revenue was 51 m rmb, equiv to S$10 million, which is not very sizeable.
Let's project no-growth for 2H, the revenue in 2H = 102 m.
Add the 81 m attained in 1H ---> FY13 revenue is a decent 183 m rmb.
One would expect growth in 2H, so we can round up the FY13 revenue to 200 m rmb.
This make it about 100% of the figure for 2012. It's amazing!
Has anyone worked out the gross profit margin?
Despite the doubling in stock price in the past 1 year, Sino Grandness PE is only 5.4X. It's amazing too. Why ? Why?
Is the market pricing in the risk that the accounts are artificially bumped up?
Investors have to hope that the auditors, the two bondholders and Asdew have scrutinised the accounts.
Supermarkets, which account for 40% of Garden Fresh juice sales, are unlikely to carry slow-moving items.
Last year, Garden Fresh stepped up advertising, sponsoring the Idol Presenter Competition. This year, Garden Fresh TV commercials appear in popular show, prime time news and prime time drama serial. It is possible that the rising advertising expenses are to spur sales further.
If Sino has been fabricating Garden Fresh sales, it would not have agreed to an IPO of Garden Fresh, during which the scam is likely to be exposed.
Sino's track record of serving major supermarket chains in Europe and Australia suggests that it is a serious player in the food business. These chains must have carried out due diligence before putting their house brands on the canned vegetables produced by Sino. It is likely that Sino is exercising the same discipline in beverage production.
Sino's bottled fruits are sold at a premium for their contents are visible to consumers. Chinese are eating more canned fruits for convenience and as certain fresh fruits are not available throughout the year.
Gpm for bottled fruits was 35.3% in 1H 2013, down from 43.9% in 2012 on account of higher raw material cost.
Bottled fruits should do much better than the RMB100m sales last year. During the Chengdu trade fair held in March 2013, new distributors ordered RMB70m worth of the products. Recently, Meiyijia, the largest operator in China with 4,600 convenience stores, has agreed to sell the bottled fruits. Part of the funds to grow this business segment came from Asdew, who provided RMB120m through subscription of 28.5 million Sino Grandness shares for 82c apiece.
Last edit: 10 years 2 months ago by Diversity. Reason: to add new points.
Sino Grandness announced that its wholly owned subsidiary Garden Fresh had issued RMB270m CB to Goldman Sachs and its co investors.
According to management, before deciding to invest in Garden Fresh, Goldman Sachs has appointed a Big Four auditor to audit Garden Fresh's business.
In addition, Goldman Sachs will appoint a representative to sit on Garden Fresh’s board of directors. The entry of Goldman Sachs does inspire some degree of confidence.
1. Who is the Goldman Sachs rep on the board of Garden Fresh?
2. What are his credentials?
3. How actively has he been keeping tabs on the business of Garden Fresh?
If we know the answers, we would have a much higher comfort level with investing in Sino Grandess. In particular, point 3. If Goldman's man has been active, then he acts as a powerful check and balance on Garden Fresh. The last thing any investor wants is for Glaucus to find reasons to target Sino Grandness!
In the meantime, let's drink (loquat juice) to toast the company's sterling performance to date!
The issue of convertible bonds by Garden Fresh to Goldman Sachs came with harsh terms by the bondholders.
Investors were also worried because a couple of listed companies in SGX that issued bonds could not repay their bondholders when their bonds matured and these companies ended up delisting and their shareholders suffered.
It is of great relief to see that Garden Fresh's profit target for next year's IPO is on track (maybe with some positive surprises).
What will be the financial position of Garden Fresh and its contribution to Sino Grandness's financials after IPO?