Sino Grandness

Sino Grandness: Announced FY11 results, which was below estimates, largely due to ‘one-off’ admin and distribution expenses which grp experienced in 4Q. 4Q11 rev at Rmb285.2m, +36.2% yoy and +4.4% qoq, while net profit at Rmb21.0m, -45.9% yoy and -54.6% qoq. Result brings FY11 rev to Rmb1.02b, +58.1% yoy and net profit to Rmb150.9m, +29% yoy.

Weak qoq bottom-line was largely attributed to higher distribution and selling expenses in relation to advertising and promotional costs which mgt had guided a portion to be one-off lumpy expenses and also higher transportation costs. Expenses in grp’s recent issue cost of convertible bonds also weighed on bottom line via admin expenses.

Strong top-line driven by beverage segment, with sales +123.7% to Rmb401.7m in FY11 vs Rmb179.6m in FY10 due, to rapid expansion of grp’s distribution network in China and positive response to new range of loquat juices. For 4Q11, sales of beverage segment recorded a new high, +88% yoy to Rmb125.1m, bringing beverage segment as the largest contributor to grp’s rev for the first time, comprising 39.4% of FY11 rev.

Grp also saw higher sales across all product segments for FY11, as core export products such as asparagus, long beans and mushrooms recorded positive growth due to increased production capacities and higher orders secured from existing major customers, although worthy to note that exports were very weak on a qoq basis, due to slowdown in exports.

Going ahead, grp positive on outlook and see potential growth area as grp leverage on growing distributor and retail base in China , while for beverage segment, grp will focus on 4 main areas to drive growth, namely intensified A&P activities to grow brand value, expansion of distribution network, ongoing R&D to expand product range and expansion of production capacity.

Of special interest, grp said that it does not rule out a potential spin-off/listing of its beverage segment in a bigger mkt, notable HK or Taiwan, once rev streams frm the segment fulfils grp’s/convertible bond holders internal targets for the division. At current price, grp trades at 3.9xP/E.

Ratings as follow:
DMG downgrades to Sell and slashes TP to $0.37 fron $0.52, as house expect 1) non-beverage net profit to contract 50% y-o-y due to a deteriorating export outlook and 2) beverage profit to grow by only 10% y-o-y, constrained by a funding gap of some RMB100m for its intended expansion plan.