Sino Grandness

Sino Grandness: Touches the $0.90 mark for the first time. Counter is +5.85% today, probably boosted by larger Peer China MinZhongs rise after PT Indofood Sukses took a 15% stake in MinZhong. As Sino Grandness is in the midst of preparing for a separate listing of their fruit and vegetable juice business (Garden Fresh) by 2014 (either in HK or Taiwan), Lim & Tan does a comparative valuation with similar co’s listed in HK/ Taiwan, based on grp’s consensus earnings, which street expects to rise 34% in 2013 to Rmb329m and about 50% of it is derived from Garden Fresh, translating to Rmb165m. While much bigger in size than Sino Grandness, comparable co’s such as Uni President, Tingyi and Want Want are all trading at an average P/E of 25x 2013 earnings. Assuming we take a 60% discount (10x PE) due to its smaller size, Garden Fresh alone would command a market cap of $330m ($1.24 per share) vs Sino Grandness’ current market cap of $228m ($0.86). Sino Grandness’ current market value of $228m is only valuing the entire co at 3.5x 2013 earnings. While its share price has risen a significant 72% since Dec 12 and is currently at its all time listing high, its continued low 2013 valuation suggests that if the co is successful in listing Garden Fresh in 2014, it remains cheap even at this level. UOB Kay Hian maintains Buy and Upgrades TP to $0.91. House expect forward earnings growth in 2013 to propel share price further. The canned food segment is expected to register a 15.7% growth in revenue for 2013 by securing new customers and introducing new products with higher margins, while the rev of its beverage segment under Garden Fresh (GF) is set to jump 60% to Rmb1.4b with its new enlarged capacity. The group can also enjoy the earnings expansion of its new distribution networks such as the 600 7-Eleven convenience stalls in Guangdong province secured in 2012. Valuations are undemanding, with grp trading at 3.7x 2012F PE, a fraction of the average valuations of 30.8x 2012F PE commanded by its HK-listed fast-moving consumer goods (FMCG) peers. As grp is also looking to do a separate listing for GF in 2014, this would be a positive rerating catalyst for the group. House note the potential upside of S$1.28/share if the listing comes through, assuming a holding company discount of 20% to SGF’s GF stake and a 4.5x 2014F PE valuation for its remaining business.