Sino Grandness Food Industry Group Ltd - MANAGEMENT REPLY: Will it redeem its bonds or list its beverage segment?

29/6/2015 - Sino Grandness Food Industry Group has extended its network in Hong Kong further by rolling out its Garden Fresh brand of juices into 7-Eleven and wellcome stores.

Presently, the two main Garden Fresh juices that are being distributed in Hong Kong are the 50% loquat juice and 50% blended hawthorn juice.

It intends to gradually expand the Garden Fresh product range to overseas consumers as well.

It is also engaged in discussions with senior management of its strategic investors and distributors from Thailand, to explore the possibility of exporting Garden Fresh juices into the Thailand market during the second half of 2015 and thereafter to use Thailand as a new hub to tap into other Southeast Asia markets.

In April 2015, the Group announced that it had secured sizeable indicative orders worth about RMB470 mln after the conclusion of the trade exhibition held in Chengdu, Sichuan Province PRC during late March 2015.

During the Chengdu Trade Exhibition, it also introduced various new products including Garden Fresh loquat-lemon and loquat-kumquat beverage products, as well as Grandness fruit jams.

The company announced earnings for Q1 FY15 in May:

Revenue: +21.9% to RMB582.2 mln
Profit: +512.5% to RMB108.2 mln
Cash flow from operations: RMB230.1 mln vs RMB119.6 mln

This increase in revenue was attributable to the sales increase of 26.4% in beverages and 57.8% in canned products in the domestic market.

But these were partially offset by a decrease of 6.7% from sales of canned products in its overseas markets.

The increase in sales volume of canned products and beverages in its domestic market were mainly due to the expansion of distribution network in the PRC.

The increase in profit was boosted further by changes in fair value of the option derivatives over its convertible bonds from a negative RMB26 mln to a positive RMB67.6 mln.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Will it redeem its bonds or list its beverage segment?

In July 2013, the Group announced its intention to spin-off its beverage business segment.

However, preparatory work for the IPO, which started in early 2014, is still in progress.

Meanwhile, the two tranches of convertible bonds that were issued in 2011 and 2012 will be converted new company's shares if this business is listed.

Otherwise, the Group will have to pay high interest rates to the bondholders.

When 2011 RMB100 mln bonds matured in October 2014, and Garden Fresh was not listed yet then, RMB19.5 mln were redeemed with interest of RMB18.4 mln.

The remaining RMB80.5 mln were rolled over to June 2015.

The holders of 2012 RMB270 mln bonds maturing in July 2015, however, did not exercise their right to redeem.

On June 26, the Group announced that the maturity date for RMB80.5 mln bonds is extended to July 25.

As the time is coming closer, Sino Grandness has to come up with a solution to keep faith among investors.

Management Reply: No reply.

Question

2. How will expand if it won't invest in a new plant in Anhui?

The Group said that it is actively monitoring and managing cash flows and if required, it shall revise its capital investment plans in the new plant in Anhui Province, in order to strengthen its cash flow position further.

In 2013, it had entered into a Cooperation Agreement with Guzhen Municipal Government of Anhui Province, PRC whereby it agreed to invest RMB600 mln to construct a production plant to produce canned products and beverage.

The investment cost would be executed in 3 phases whereby construction work was commenced in 2014 and expected to be completed by 2016.

Management Reply: No reply.

(Read the full story to get all 5 questions)

We thank Stephen Yong, VP, Investor Relations, for his response.

Legal notice

While our purpose is to ask the questions which the man on the street would ask, and to help the everyday investor make informed investments, please note that:

Our reports and presentations ('our contents') are not investment advice nor should they be construed as investment advice or any recommendation of any kind; nor meant to cast allegations or insinuations of any kind against any individuals or entities. Before acting on the material in our contents, you should either seek independent advice tailored to your particular circumstances and intentions or rely on your own judgement.

Our reports and presentations express our observations, opinions and theoretical analysis based on the facts that we have gathered or have been provided to us. While we endeavour to ensure that our contents are accurate and are presented in good faith, we cannot and do not warrant the accuracy, adequacy or completeness of the material or that the material is suitable for its intended use; and we disclaim any such warranties express or implied that may be presumed by any party; neither do we take responsibility for the views of companies or other stakeholders or observers or sources quoted or hyperlinked in our contents. While every precaution has been taken in the preparation of our contents, we (and our principals) shall not be liable for any losses or damage or inconveniences due allegedly to errors or omissions in any facts or due allegedly to reliance on our contents in any way whatsoever; nor for any damage to any computer hardware, date information or materials allegedly caused by our contents.

All expressions of opinion and observations in our contents are subject to change without notice and we do not undertake a duty to update and supplement our contents or the information contained herein in the event we obtain any further or more complete information.

©2015 Investor Central® - a service of Hong Bao Media