14 August 2013

Sino Grandness - 1H2013 Net Profit Up 24.2% To RMB173.6M - Updated Response to SGX Inquiry @ 19 Aug 2013

  • 2Q13 net profit up 24.0% to RMB103.0M from RMB83.1M in 2Q12
  • 2Q13 beverage segment sales surged 48.3% to record high of RMB346.3M on strong orders for Garden Fresh bottled juices
  • 2Q13 domestic canned food products sales up 34.2% to RMB51.3M on higher orders for Grandness canned fruits
  • Adding new distribution channels after  gaining access into leading convenience store 
  • operators – Hongqi in Sichuan province and Meiyijia in Guangdong province
Annualized ROE stands at about 30%. With new distributors in Si Chuan and Guang Dong, I believe the net profit could stand at more than RMB340.0M, and meet the internal target set by the convertible bond holders. Current P/B Ratio is about 2.0 X which I believe is justifiable as the company enjoys higher ROE with better financial strength. However as the Operating Cash Flow is still in negative amount, I do not think that Sino Grandness could afford to distribute dividends in near future, unless it has successfully get its beverage subsidiaries listed as soon as next year. 

With estimated PE of about 6.2 X now, I do think that there is a room for company's share price to grow further. Please note that this counter has liquidity issue and higher volatility risk. 

Below is the link for company's presentation slide.

Updated Response by the Management to SGX Inquiry on Receivable, Inventories & Payable (16 August 2013):

It generally explains why the operating cash flow is negative, especially when we see the turnover days for receivable & inventories become longer. While I am just suspecting that the company may give favorable t&c to clients so that they can boost the revenue further up, I do think that the company may undertake some cautious move to avoid any further deteriorating operating cash flow.

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