I could not help but to ask why CEO would like to sell his 5% stake (his stake reduced from 40% to 35%) to other stakeholders given that the PE ratio is so low. I believe it mostly due to the cash flow issue where the company is still experiencing the negative free cash flow at this moment. If that so, 10% dividend payout policy may not actually benefit to the shareholders in long run as they may like to borrow money to pay the dividends to the shareholders.
I think you do have a point; the amount of cash in its current assets declined from 180M RMB in 1Q14 to 60M RMB in 2Q14 - he is burning a lot of cash (for what I'm not sure) within a single quarter. The previous lowest cash holding in the last 4 years was 81M RMB in end FY10, obviously he needs the extra cash not just to top up what was already burned but possibly also to spend on something else! But on the other hand, 2Q14 also recorded probably one of the highest net earnings of 161M RMB. If the money is real and still there, that's an annualised ROE of some 40% which is not bad. (vested a little but still not too convinced to accumulate some more).
IMO there is still an overhang due to the CB. Would prefer to wait out until a clearer picture on the intended corporate action by management even if I may lose out marginally. That said, SG is one of the stocks that has great potential for the future!
Sino Grandness is setting up a new production base in Anhui and plans to plant loquat trees for supply of loquat fruit for juice making.
It is likely that the Thai investors are comfortable with Sino. They are putting in $50m for 86m Sino shares at 61c apiece, and will lock up 47.1m shares for 10 years.
The investors were likely to have examined the high trade receivables, an issue that has been troubling some investors. (It should be borne in mind that the receivables, amounting to 3-month sales, are not really high.)
There is an option for the first batch of bonds (maturing on 19 Oct 2014) to be extended until 30 June 2015. The second batch matures in Sep 2015.
When money was needed in 2011, and again in 2012, to grow Garden Fresh, Sino could not borrow from banks because Garden Fresh was then in its infancy. It therefore had to resort to issuing CBs with stiff terms.
The money from CBs has enabled Garden Fresh to grow into a strong brand. Garden Fresh has negligible banks loans now, and may be able to secure better terms from banks.
Paying a dividend when a company is geared is not uncommon. If prospects are good, judicious borrowings provide part of the overall funding and are not a burden.
I would not rule out a postponement of the IPO even beyond June 2015 which may actually not be a bad thing, for the following 2 reasons.
(1) No doubt Sino Grandness would have to pay back convertible bondholders the principal, together with a 'penalty' - for argument's sake let's assume this total amounts to roughly 700 million RMB. If Garden Fresh achieves a net profit of between 350-450 million RMB this year, this would give it an IPO valuation (given a PE of roughly 15-20 times) of roughly 5 to 9 billion RMB, in which case a 25% stake (which would be the dilution if bondholders convert) in Garden Fresh would be worth significantly more than the 700 million RMB to pay back convertible bondholders. Assuming a steady CAGR, this difference may even more if you compare if to the opportunity costs of not doing a 2016 IPO instead.
(2) Garden Fresh is already growing very impressively even without the IPO funding. Postponing it to for example, 2016 would mean taking IPO valuations based on 2015's earnings - which assuming the same CAGR, would mean a significantly higher valuation and significantly more funds raised during the IPO.
In this sense, postponing the IPO and forcing bondholders to redeem may seem like the rational thing to do. However this will also largely depend on the cash flow situation at Sino Grandness as the funds from the placement alone will not be enough to pay back convertible holders in full, assuming a full redemption. So alternatively sources such as bank loans may be required.
I'm sure Sino Grandness management can see that the more convertible bondholders choose to redeem rather than convert, the less dilution it would have to suffer at less than favorable terms as compared to its current share price, the price of the recent placement, and even more so, the valuations it would achieve at the impending HK IPO.
Anyway, I'm just putting this out there. Does anyone have any thoughts on this?