Sino Grandness

[crubs]

Hi crubs and portuser,
 
Best World booked prepayments under “Other Assets” – St****** used to do that but had shifted them under “Other Receivables” in the latest AR.
 
Anyway, back to Trade Receivables as % of Revenue, I reckon by comparing 3M, 1H or 9M figures to that of FY figure is not exactly comparing apple to apple. So let’s wait for the FY2015 figures.
 
By comparing SG to HY could be useful provided one could make the correct comparisons, interpretations and conclusions from it.
 
What interpretations and conclusions could one draw from the following table?


[Image: w0knch.jpg]

I've plotted 2 graphs

[Image: r8i35u.png]

This graph, trade receivables as a percentage of sales shows that Sino Grandness and Hui Yuan have been exhibiting similar trends from 2011 onwards.

[Image: 2jeqx5c.png]

The second graph shows that both companies exhibit revenue growth but Sino Grandness is growing faster than Hui Yuan.

[crubs]

Many investors have questioned the significance of Sino Grandness' latest announcement.

NEWS RELEASE Sponsorship of Informal Talkshow v3 - 151215.pdf

In this announcement the company stated that they have clinched a TV sponsorshop with Hubei Satellite Channel to place their products in the variety talk show called  <非正式会谈> (“Informal Talks”) . This talk show involves youth from different countries discussing & sharing about their culture and talking about global issues. Season 1 proved to be very successful and now the show is in the second season.

To understand how big a deal this sponsorship is, please refer to this link

http://news.hbtv.com.cn/p/106758.html

Hubei TV station (the producer of this programme) announced that the first episode of this season, which was aired on 11th December 2015 received a total viewership of 200 million. This is an extremely huge number and we can draw some possible conclusions.
1) The increase in advertising in Q3 was justified because they prepaid for this sponsorship
2) Sino Grandness will only advertise on such a scale when its distribution has the capability to reach this much potential buyers
3) A programme this prestigious will only select brands of scale and repute to be their sponsor

By understanding the size of their advertising campaign, we can have an idea of the scale at which Sino Grandness operates.

[trade4life]

I am a vested investor. And i am monitoring Sino Grandness/GF for a long while. Beverage business is cut throat and very competitive. This is the reason I am hesitating to add more. After all the price seems to be stuck there.

Any good insights on sinograndness fundamentals?

[Boon]

Hi crubs and portuser,
 
Best World booked prepayments under “Other Assets” – St****** used to do that but had shifted them under “Other Receivables” in the latest AR.
 
Anyway, back to Trade Receivables as % of Revenue, I reckon by comparing 3M, 1H or 9M figures to that of FY figure is not exactly comparing apple to apple. So let’s wait for the FY2015 figures.
 
By comparing SG to HY could be useful provided one could make the correct comparisons, interpretations and conclusions from it.
 
What interpretations and conclusions could one draw from the following table?


[Image: w0knch.jpg]

I've plotted 2 graphs

[Image: r8i35u.png]

This graph, trade receivables as a percentage of sales shows that Sino Grandness and Hui Yuan have been exhibiting similar trends from 2011 onwards.

[Image: 2jeqx5c.png]

The second graph shows that both companies exhibit revenue growth but Sino Grandness is growing faster than Hui Yuan.

Thanks for the graphs, crubs. Excellent work there !

I have added the following table which I think might be helpful in interpreting the trends in the graphs, particularly the operating CF before capital changes (ocf b4 wcc) to revenue ratio which have been surprising flat and stable at around 25% over the years.

Interestingly, income tax paid as a % of revenue have also been pretty stable as well, around 5%~7%.

Since both income tax to revenue ratio and ocf b4 wcc to revenue ratio have been flat, income tax paid to ocf b4 wcc ratio also turned out to be flat, as expected.

Income tax paid to ocf b4 wcc ratio is at around 25%. In another word, for every RMB 100 ocf b4 wcc generated, RMB 25 go to tax, which seems high to me.


[Image: 2iatp40.jpg]

[portuser]

I am a vested investor. And i am monitoring Sino Grandness/GF for a long while. Beverage business is cut throat and very competitive. This is the reason I am hesitating to add more. After all the price seems to be stuck there.

Any good insights on sinograndness fundamentals?

One can start a new beverage brand by outsourcing production.

But it is not easy for the new product to enter supermarkets and convenience stores because major beverage producers usually disallow their appointed distributors to carry competing brands. For example, a distributor who is tied to Huiyuan or Minute Maid will not take on a new orange brand. 

Garden Fresh was able to attract distributors as its loquat juice was the first of its kind in the market. The therapeutic value of loquat might also be a strong factor. 

Garden Fresh management has stated that popularity of its product will attract others to produce their own brands of loquat juice. It has said that the emergence of other loquat juice brands is a positive development, and competition is welcomed. To some this smacks of arrogance. 

Interestingly, an early copycat is none other than Tianhai Dongfang, http://www.thdfqrq.com/, the first company that Garden Fresh engaged to bottle its loquat juice. But its market share of the loquat juice sector was minuscule, based on market surveys: 

.............................................................Market share 
........................2013  (by Frost & Sullivan)....2014 (by Euromonitor)

Garden Fresh...............78.2%........................................86.1%
Furenyuan.....................10.8%...........................................7.0%
Minzhong........................6.6%............................................2.8%
Tianhai Dongfang.........3.9%............................................2.5%


In 2014, Garden Fresh spent close to RMB 200m (from RMB 60m in the preceding year) on advertising and promotion. A&P spending in 2015 was expected to be much higher. 

In early days, loquat was plainly eaten as fruit. After Garden Fresh had commercially produced loquat juice, demand for loquat soared. The management foresees a loquat shortage in the immediate future. A successful listing of Garden Fresh will raise funds to plant new loquat trees. 

Garden Fresh can thank its lucky stars that major beverage players (such as Huiyuan, Tingyi and Uni-president) have not entered the fray. One possible explanation is that given the limited loquat supply, loquat juice sales will not add much to their revenues. For example, Tingyi's revenue in 2014 was in excess of RMB 37 billion, whereas Garden Fresh took five years to reach sales of RMB 1.8 billion.     

[alex]

Don't worry, the market is big enough for competitions. If there are no competition, it will be tough for one company to raise the awareness of the product to stir demand.

[Young Investor]

Don't worry, the market is big enough for competitions. If there are no competition, it will be tough for one company to raise the awareness of the product to stir demand.

Several big orange juice brands fighting to grow their market shares have to set prices low and margins are affected. Therefore gross profit margin of common beverage (such as orange juice, ready-to-drink-tea) is around 30%.

In the loquat juice sector, Garden Fresh is the dominant player and others are nowhere near. Its GPM is therefore 40%. Minzhong also has GPM in excess of 40%.  

[chinafarmer]

 

In early days, loquat was plainly eaten as fruit. After Garden Fresh had commercially produced loquat juice, demand for loquat soared. The management foresees a loquat shortage in the immediate future. A successful listing of Garden Fresh will raise funds to plant new loquat trees. 

Sounds like a good reason to raise funds?

China Essence once had a grand plan to raise funds to plant potatoes. 

Before the collapse of China Essence, it said that its potato inventory was destroyed due to frost in winter.

[Boon]

Hi crubs and portuser,
 
Best World booked prepayments under “Other Assets” – St****** used to do that but had shifted them under “Other Receivables” in the latest AR.
 
Anyway, back to Trade Receivables as % of Revenue, I reckon by comparing 3M, 1H or 9M figures to that of FY figure is not exactly comparing apple to apple. So let’s wait for the FY2015 figures.
 
By comparing SG to HY could be useful provided one could make the correct comparisons, interpretations and conclusions from it.
 
What interpretations and conclusions could one draw from the following table?


[Image: w0knch.jpg]

I've plotted 2 graphs

[Image: r8i35u.png]

This graph, trade receivables as a percentage of sales shows that Sino Grandness and Hui Yuan have been exhibiting similar trends from 2011 onwards.

[Image: 2jeqx5c.png]

The second graph shows that both companies exhibit revenue growth but Sino Grandness is growing faster than Hui Yuan.

Thanks for the graphs, crubs. Excellent work there !

I have added the following table which I think might be helpful in interpreting the trends in the graphs, particularly the operating CF before capital changes (ocf b4 wcc) to revenue ratio which have been surprising flat and stable at around 25% over the years.

Interestingly, income tax paid as a % of revenue have also been pretty stable as well, around 5%~7%.

Since both income tax to revenue ratio and ocf b4 wcc to revenue ratio have been flat, income tax paid to ocf b4 wcc ratio also turned out to be flat, as expected.

Income tax paid to ocf b4 wcc ratio is at around 25%. In another word, for every RMB 100 ocf b4 wcc generated, RMB 25 go to tax, which seems high to me.


[Image: 2iatp40.jpg]

[Image: vgvx3.jpg]


Can Hui Yuan be considered a high growth company?
 
Even for Sino Grandness, the RATE of growth has been slowing since peaking at 61% in 2012
 
Revenue increased 6.2 times for SG and only 1.6 times for HY from 2009 to 2014.
 
One has been growing much faster than the other but interestingly both their “trade receivables as a % of revenue” are converging towards each other, and trending upwards - the gap between the red and blue line has been narrowing as shown on the first graph.
 
Could this be a market wide problem of deterioration in receivables collection cycle as a result of market competition?    
 
To capture market share, high growers like SG has been giving customers longer credit terms. This “longer credit terms” then became customers expectation and market norm.
 
As competition gets keener, credit terms get stretched longer and longer.
 
Reluctantly, likely it or not, all market players (regardless of their revenue growth rate – high or slow growers) including market leaders like HY, has to follow in order to defend market share and/or stay in the game.

It doesn't appears to me that SG has been competing on price as the ocf b4 wcc margin looks pretty stable.
 
That’s my interpretation and I could be completely wrong. Ha-ha !
____________________________________________________________________________________________________________________________________

[portuser]

Boon, 

Please refer to your point that the growth rate of Sino Grandness has slowed since peaking at 61% (in 2012) 


Sino Grandness has three business segments:

..................................................Revenue (RMB m)
..............................2009.....2010.....2011.....2012.....2013......2014
Beverage..................52.......180.......402.......873....1,382....1,877

Canned Food
..Overseas................372.......436.......592.......656......690.......635
..Local ......................27.........29.........26.......111......189.......308

Group revenue.........451.......645.....1,020....1,640...2,261....2,819


In 1997, Mr Hwang took over a state-owned company through a management buyout, and expanded the business of producing canned vegetables under the house brands of major European supermarket chains. But with Europe experiencing tough times in recent years, revenue dropped 8% in 2014, and 17% in the first 9 months of 2015, lowering the growth rate of group revenue.

Had it not set sight on China and focused on domestic sales, Sino Grandness would have been in trouble by now. 

Beverage sales in China increased 9 times between 2010, when sales of Garden Fresh loquat juice started, and 2014. 

(Before 2010, Sino was selling a herbal drink with a tongue-twisting brand name "八仙V动力", in the hope of carving a meaningful share of the huge herbal drink market dominated by Wanglaoji. But it made no headway, and the product was dropped.) 

The attempt to sell canned food in China suffered initial setback too. Its "刀妹" canned vegetables were faring badly, and things started to look up only in 2012, when " 振鹏达 " canned fruits were introduced. 

Some investors have quipped that the failure of "刀妹" was certain because its pronunciation is very close to that of "倒霉" (to have bad luck).