Valuation Case Study on Sino Grandness

Transcription

1 Valuation Case Study on Sino Grandness

2 Disclaimer and Declaration The objective of the presentation is for educational purposes. The full content of the presentation is for illustration purposes only and should not be used as investment recommendations. AB Maximus and its presenters are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. The company and presenters may have personal interest in the particular shares presented.

3 Agenda 1 Company Background 2 Industry Analysis 3 Valuation 4 Risk

4 Company Background Sino Grandness is in the production and sale business of canned/bottled fruits and vegetables and beverage products

5 Company Background Fresh fruits & vegetables Cans & Glass Containers External Suppliers Farmers Seeds Fertilizer Pesticides Standard Canned foods & beverages Value Chain Distributors

6 Company Background Canned Fruits Lychees Pineapples Peaches Apricots Mandarin Oranges Herbal Beverage Fruits and Vegetables Beverage Canned Vegetables Long Beans* Asparagus* Mushrooms*** Sweet Corn Artichoke Bamboo Shoots GFHK SFGI *1 st Mover Advantage Top exporters Source: Company s Annual Report 2011

7 Company Background Network of Distributors* 4 continents with long-term strategic relationships Large Cross selling opportunities Rebrand Globally renowned supermarkets and distributors *HACCP, IFS, BRC, ISO certifications Source: Company s Annual Report 2011

8 Company Background Mexico Germany France Netherland Czech Rep Spain Turkey Russia Singapore Country Distributed Production Plants* External Suppliers (Beverage) Australia *Close to Raw Material Suppliers Source: Company s Annual Report 2011

9 Company Background Revenue by Segment (FY 2011) 39% 27% 53% 16% 10% 8% Others Beverage Asparagus* Mushrooms* Long Beans* Exports Exports and Beverage made up 92% *One of the Top Market Exporters Source: Company s Annual Report 2011

10 Company Background Revenue by Geography (FY 2011) 3% 4% 42% 51% Europe China America Others Mainly in Europe and China Source: Company s Annual Report 2011

11 Company Background cents Dividend per share ^ Earning per share Dividend Payout 15% 10% 0% Dividend Yield based on latest dividend and current price = $0.0086* / $0.49 = 1.76% *RMB/SGD = using 2010 Dividend Please note that company is not obliged to give dividends! ^No Dividend probably till 2014 due to GFHK project

12 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 SKU targeting Domestic Market *Store Keeping Unit (Distinct Product) ^Advertising and Promotions

13 Industry Analysis China retail sales growth 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 Demand is likely to increase Source: China s National Bureau of Statistics

14 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. Optimistic Outlook for Fruits/Vegetables Beverages Source: Company Oct 12 Presentation

15 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) High Potential Growth for Fruits and Vegetables beverages Source: Euromonitor

16 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 Europe pushing for more fruits and vegetable consumption *WHO recommendation Source: European Food Information Council

17 Valuation Methodology Sum Of The Parts (SOTP) Price to Earnings Ratio (PER)

18 Valuation (SOTP) Revenues Millions % 34% 26% 12% 74% -15% 60% 23% Domestic Exports Export to Europe likely to slow down but Likely offset by demand in Domestic market *Domestic refers to only the Canned Fruits segment

19 Valuation (SOTP) Assumption (Base Case) Canned Fruits and Vegetables 2012 Revenue Growth 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 *Garden Fresh Hong Kong

20 Valuation (SOTP) CB2*: Value by Share Conversion CB2: Value by Redemption 25% At atleast 7x, CB2 holders will prefer Share Conversion *2 nd Convertible Bonds (CB1=100m,CB2=270m) Source : OSK-DMG

21 GFHK Assumption Valuation (SOTP) IPO + FY12 net profit > RMB140m + FY13 net profit of RMB190m IPO GFHK 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/ *Sino Grandness Source : SGFI s 1 st Convertible Bonds for GFHK in SGX

22 Valuation (SOTP) Revenue/Net Profit projection RMB mil F 2013F 2014F Export Rev Domestic Rev Canned Net Profit* EPS^ Canned PE 3x SFGI s GFHK Value 2.06 Total Value 3.65 *Net of Revenue ^Number of Shares = 265m

23 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%

24 Valuation (SOTP) SOTP Valuation SGFI s 2014 (S$) 0.72 SGFI s (S$)* 0.53 Current market value per share (as at 16 Nov 2012) $0.49 for 1.75 years

25 Valuation (P/E Comparison) Company Sino Grandness (SGFI) Yamada Green (YGR) China MinZhong (MINZ) P/E 4.24 x 1.83 x 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 P/E rather high compared with other industry *FY12F Growth 65% YoY Source: bloomberg.com

26 Trading Data 52 Weeks Trading Range $ $0.50 Avg Volume (3 mths) 270,000 Market Cap $130 mil Source: bloomberg.com

27 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

28 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

29 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