Excerpts from analyst's report
Worthy of Consideration at Current Share Price
NRA Capital analyst: Liu Jinshu
Our analysis shows that Sino’s share price is potentially still trading below fair value even IF the spin-off of its beverage unit Garden Fresh Group Holding Co., Ltd on the Hong Kong Stock Exchange is protracted. In fact, its share price may receive a double boost once the spin-off is confirmed, owing to the lifting of interest expenses from net profit and further re-rating from the trading value of Garden Fresh. Sino is anticipated to release its results on 11 August and we do not expect any negative surprises. |
♦ Recent downswing in share price unjustified. On 1 August, Sino’s share price fell from a high of S$0.590 to S$0.420. Subsequently, the company has clarified that some of its products have been selected as samples for a quality test and have passed the test.
Based on Sino’s announcement, some members of the investment community have apparently misread a third-party article to suggest that the products have failed the test.
Sino Grandness | |
Share price: 54.5 c |
Fair value: 79.5 c |
♦ Current share price assumes worst case scenario. The key risk behind Sino is less about the failure to spin-off Garden Fresh, but more so about its ability to repay bonds with a carrying value of RMB681.62m as of 31 March 2016.
In a worst case scenario, assuming that Sino raises up to RMB 1.0 billion of equity to pay off the bonds while waiting for the spin-off Garden Fresh, we estimate that Sino may still be worth S$0.501 per share (based on 7.0x post-fund raising earnings). The downside will be the roller coaster ride that Sino’s share price will face in the process.
♦ Few have insight about spin-off now |
![]() -- Liu Jinshu (photo) |
♦ Further upside is possible if debt refinancing is obtained or if HK listing succeeds. Conversely, we estimate that Sino may be worth up to S$0.880 per share if it does not spin off Garden Fresh, but successfully refinances its bonds with debt. This estimate is again based on a multiple of 7.0x adjusted earnings.
Under the successful spin off scenario, the estimated fair value of Sino may rise up to S$1.00 to S$1.20 per share if we re-rate the valuation multiple to 10x to 12x adjusted earnings.
Also, our multiple of 7.0x earnings is a subjective input and a different valuation can be obtained using other multiples. As we have not formulated detailed forecasts nor performed an in-depth valuation, we do not provide a rating on Sino at this juncture. For indicative purpose, we peg Sino at the average fair value across our three scenarios as provided (see table below).
100% Equity Funding by Sino to repay bonds | Successful Debt Refinancing | Successful Spin-Off | |
No of shares as of 31 March 2016 (m) | 673.34 | 673.34 | 673.34 |
Add conversion shares from Soleado loan | 50.00 | 50.00 | 50.00 |
Stock Options | 40.61 | 40.61 | 40.61 |
Rights Shares | 808.08 | NA | NA |
Adjusted No of shares | 1572.04 | 763.96 | 763.96 |
RMB SGD rate | 4.95 | 4.95 | 4.95 |
EPS (SGD) | 0.072 | 0.126 | 0.100 |
P/E Multiple | 7.0 | 7.0 | 10.0 |
Estimated fair value (SGD) | 0.501 | 0.880 | 1.001 |
Average | 0.794 |
Full report here.