27 February 2014

Sino Grandness - FY2013 Financial Statement Analysis (FEB 2014)

Snapshot of Income Statement

Income Statements. Source: Company, Jack Phang Compilation
The EPS grew 25% to 68 cents for financial year ended 31 December 2013 compared to the net profit growth of 38% mainly due to the dilution effect of shares placement amounted to S$82M during FY2013.

Financial Ratio. Source: Company, Jack Phang Compilation
Apart from that, we could see a rather stable net profit margin for FY2012 and FY2013 despite a product mix changes. The company increased the distribution cost ratio as it has started the business strategy to focus on domestic market as advertising & promotion costs and transportation costs across provinces increased according to the product under its own brand name Garden Fresh against white labeling export business mainly canned vegetables.

Snapshot of Balance Sheet

Balance Sheet - Assets. Source: Company, Jack Phang Compilation
Balance Sheet - Equity & Liabilities. Source: Company, Jack Phang Compilation
PPE more than doubled to RMB767M from RMB371M 2 years ago as the company increased capital expenditures on the domestic products (beverages & canned products) expansion plan. As a result of increasing credit sales, receivables ballooned to RMB895M from RMB298M 2 years ago. Cash conversion cycle increased to in between 4 months to 5 months.

As convertible bonds are expected to be redeemed this year, the company categorized convertible bonds under current liabilities instead of non-current liabilities. I would expect the company to get the beverages division (Garden Fresh) listed successfully in Hong Kong exchange as it has fulfilled the net profits target set under convertible bond terms & condition.

Snapshot and Comments on Cash Flow Statement

Overall, the company still managed to achieve a decent ROE of more than 30% and EPS growth of around 25%. Cash flow wise, the company was capable to maintain a positive net cash flow from operating for the full year 2013, which is a reverse trend from previous quarters. As the company


  • If Garden Fresh failed to be listed successfully, the company may end up have to make a huge repayment on convertible bonds which I believe to be funded from shares rights issues and it would dilute the EPS in future. 
  • I noticed that the gross profit margin of oversea canned products dropped to around 30% as the cost of production increases. Nonetheless, domestic canned products sales is playing a catch up against oversea canned products as the domestic to oversea profit margin percentage has been increased from 22.9% to 39% on year 2013. 

If we use a Sum Of The Part (SOTP) model, we could roughly calculate intrinsic value of Sino Grandness if Garden Fresh is listed successfully:

13X of 50% of Garden Fresh shareholdings - RMB2,031.25M
7X of Sino Grandness's canned products business - RMB1,596M
Total Value - RMB3,627.25M / S$756M / S$1.29

As there is a risk over there, so I would give a discount of 30% of the above value, so I would think 90 cents is intrinsic value of Sino Grandness based on current condition.

P/S: Please note that this company is still in the midst of expansion and there maybe a chance for company to raise up the cash from financing activities again this year if they could not manage increasing receivables effectively due to increased business activities. And as it is a S-Chip company, so we have no choice but to keep a close eye on it. This counter is only suitable for investors who have high risk profile.


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