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Valuation Case Study on Sino Grandness
Valuation Case Study on Sino Grandness
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Disclaimer and Declaration
The objective of the presentation is for educationalpurposes. The full content of the presentation is forillustration purposes only and should not be used asinvestment recommendations. AB Maximus and itspresenters are not responsible for all investment activitiesconducted by the participants and cannot be held liablefor any investment loss.
The company and presenters may have personal interestin the particular shares presented.
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Agenda
Company Background1
Industry Analysis2
Valuation3
Risk4
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Company Background
Sino Grandness is in the production and sale business of canned/bottled fruits and
vegetables and beverage products
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Company Background
Farmers
DistributorsValue Chain
Fresh fruits & vegetables
Canned foods & beverages
Seeds
FertilizerPesticidesStandard
Cans & Glass Containers
External Suppliers
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Company Background
Source: Company’s Annual Report 2011
Canned Vegetables• Long Beans*• Asparagus*• Mushrooms***• Sweet Corn• Artichoke• Bamboo Shoots
Canned Fruits• Lychees• Pineapples• Peaches• Apricots• Mandarin Oranges
Fruits and VegetablesBeverage
Herbal Beverage
*1st Mover Advantage Top exporters GFHK SFGI
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Company Background
�Network of Distributors*
� 4 continents with long-term strategic relationships
� Large Cross selling opportunities
Source: Company’s Annual Report 2011
Globally renowned supermarkets and distributors
*HACCP, IFS, BRC, ISO certifications
Rebrand
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Company Background
*Close to Raw Material Suppliers
Source: Company’s Annual Report 2011
Country Distributed
Production Plants*
External Suppliers (Beverage)
Mexico
Germany
France
Netherland
Czech Rep
Spain
Turkey
Singapore
Russia
Australia
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8%
39% 27%
16%10%
53%
Others
Beverage
Asparagus*
Mushrooms*
Long Beans*
Company Background
�Revenue by Segment (FY 2011)
Exports and Beverage made up 92%
Source: Company’s Annual Report 2011*One of the Top Market Exporters
Exports
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Company Background
�Revenue by Geography (FY 2011)
Mainly in Europe and China
Source: Company’s Annual Report 2011
51%42%
3%4%
Europe
China
America
Others
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Company Background
cents 2009 2010 2011
Dividend per share 5.4031 4.4088 0^
Earning per share 36.1 46.9 57.1
Dividend Payout 15% 10% 0%
Dividend Yield based on latest dividend and current price
= $0.0086* / $0.49 = 1.76%
Please note that company is not obliged to give dividends!
*RMB/SGD = 0.1959 using 2010 Dividend
^No Dividend probably till 2014 due to GFHK project
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Company Background
�Since 2009, Revenue Growth is 45.6% CAGR
�Increasing Revenues requires :-
� Increase SKU* in both beverage and canned food
� Increase Market Share in Domestic and Exports
� Raise prices of selective core products
� Expand Distribution Network
Aggressive A&P^ with increasing SKUtargeting Domestic Market
*Store Keeping Unit (Distinct Product)^Advertising and Promotions
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Industry Analysis
�China retail sales growth steadily @14.4% during first half of 2012
�Rising disposable income
� per capita disposable income for urban residents increased by 14.1% to RMB21,810 in 2011
�Increasing urbanization
� cities urbanization rate exceeded 50% to approximately 51.3% in 2011
Source: China’s National Bureau of Statistics
Demand is likely to increase
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Industry Analysis
�Increasing health awareness and food safety
� driving demand for ready to drink juices; carbonated drinks growth slowing down
�Limited product range in high juice concentration
� higher growth potential for high juice concentration products due to the low base effect.
Source: Company Oct 12 Presentation
Optimistic Outlook for Fruits/Vegetables Beverages
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Industry Analysis
�Huge growth potential in PRC’s fruit and vegetable juice market
� per capita fruit juice consumption in China est. < 1kg/yr in 2009 vs 45kg (US), 16-19kg (SGP)
� China’s consumption should be 9.1 m tons/yr(Population 1.4b => 6.75kg/yr)
Source: Euromonitor
High Potential Growth for Fruits and Vegetables beverages
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Industry Analysis
�Majority of Europeans under consume fruits and vegetables (≥ 400 g per day)*
�A priority for international organizations and national governments to increase consumption
� 5-a-day campaign initiative
� School Fruit Scheme
Source: European Food Information Council
Europe pushing for more fruits and vegetable consumption
*WHO recommendation
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Valuation
�Methodology
� Sum Of The Parts (SOTP)
� Price to Earnings Ratio (PER)
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Valuation (SOTP)
0
100
200
300
400
500
600
700
2008 2009 2010 2011 2012
Millio
ns
Domestic Exports
26%12%
34%
13%
-15% 60% 23%74%
Reve
nues
Export to Europe likely to slow down but Likely offset by demand in Domestic market
*Domestic refers to only the Canned Fruits segment
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Valuation (SOTP)
�Assumption (Base Case)
�Canned Fruits and Vegetables
� 2012 Revenue Growth
• Export @12.6%
• Domestic @74%
� Export Revenue Growth (FY13/14F) = 12.6%
� Domestic Revenue Growth (FY13/14F) = 2%
�Beverages
IPO + FY12 NP > RMB140m + FY13 NP of RMB190m
� 2013 GFHK* IPO listed @7x
*Garden Fresh Hong Kong
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Valuation (SOTP)
CB2*: Value by Share Conversion CB2: Value by Redemption
25%
Source : OSK-DMG
At atleast 7x, CB2 holders will prefer Share Conversion*2nd Convertible Bonds (CB1=100m,CB2=270m)
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Valuation (SOTP)
�GFHK Assumption
� IPO + FY12 net profit > RMB140m + FY13 net profit of RMB190m
� IPO valuation @7xGFHK Worth (C11iii) 5x190m 950m
CB% stake in GFHK 370/950 39%
Estimate Pre-IPO shares 20%
Estimated SFGI’s* GFHK shares (C19.14) 41%
Total 100%
Value of SFGI’s in GFHK 7x190mx41% 545m
Value/share of SGFI’s GFHK 545/265 2.06
Source : SGFI’s 1st Convertible Bonds for GFHK in SGX*Sino Grandness
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�Revenue/Net Profit projection
Valuation (SOTP)
RMB mil 2009 2010 2011 2012F 2013F 2014F
Export Rev 360 403 541 626 705 793
Domestic Rev 39 62 77 135 137 140
Canned Net Profit* 114 126 140
EPS^ 0.48 0.53
Canned Value/share @ PE 3x
1.43 1.59
SFGI’s GFHK Value 2.06
Total Value 3.65
*Net Profit @15% of Revenue^Number of Shares = 265m
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Valuation (SOTP)
Risk Free Rate 2.5%
Market Required Return 10.0%
Risk Premium (Small Cap) 2.0%
Risk Premium (S-Chip) 5.0%
Beta 1.2
Cost of Equity (CAPM) 18.5%
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Valuation (SOTP)
�SOTP Valuation
SGFI’s Value @Oct 2014 (S$) 0.72
SGFI’s Value @FY12 (S$)* 0.53
Current market value per share(as at 16 Nov 2012)
$0.49
*Discount @18.5% for 1.75 years
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Valuation (P/E Comparison)
Company P/E
Sino Grandness (SGFI) 4.24 x
Yamada Green (YGR) 1.83 x
China MinZhong (MINZ) 3.12 x
Average P/E 3.06 x
Est. Forward EPS for SGFI $0.196*
Fair Value of Sino Grandness using P/E $0.60
Source: bloomberg.com
P/E rather high compared with other industry
*FY12F Growth 65% YoY
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Trading Data
52 Weeks Trading Range $0.325 - $0.50
Avg Volume (3 mths) 270,000
Market Cap $130 mil
Source: bloomberg.com
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Main Risks
�Increase in raw material cost<
�Inability to source for sufficient labor<
�Product liabilities, complaints and negative publicity
�Failure to comply to new licenses or permits
�Macro uncertainty in main export country and domestic
Europe is still a concern
Source: Company Reports and Prospectus
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Main Risks
�Non-reply from relevant stock exchange for GPHK’s IPO application<
�Exposure to Currency Risk
�Default Risk - Low
� Current ratio = 3.53x
� Interest coverage = 25 x
� D/E ratio = 0.55
� Loans maturing this year = RMB76 mil
� Cash = RMB240 mil
END
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Competitors
China MinZhong Food
� Farmlands and Industrial Farm
� Fresh or Processed
� Champignon M.rooms (25%)
� Black Fungus (12%)
� Brocolli (5.9%)
� Celery (5.2%)
� King Oyster M.rooms (4.7%)
� Revenue � 83% PRC
� 11% Asia, 4.2% US, 1.5% Europe
Yamada Green Resources
� Farmlands
� Fresh or Processed
� Shiitake M.rooms (81%)
� Processed (19%)
� Revenue � 80% PRC
� 20% Japan