Latest Earnings From Sino Grandness Food Industry Group Ltd

Sino Grandness Food Industry Group Ltd  (SGX: T4B) had released its earnings for the quarter and year ended 31 December 2015 last Friday.

As a short introduction for context later, Sino Grandness manufactures and distributes canned vegetables and fruits into Europe, North America, and Asia. In 2010, the company started launching its own-branded bottled fruit and vegetable juice products under the Garden Fresh brand.

Based on Sino Grandness’ own account, it is now one of the leading brands for loquat fruit juice in China and one of the top exporters of canned asparagus, long beans, and mushrooms from China.

Investors may want to note that the company was the target of a short-seller’s report in 2014, which appears to have hurt the firm’s share price. Since closing at a price of S$0.69 on 4 September 2014 (the apparent date of publication of the short-seller’s report), Sino Grandness’s shares have fallen by 36% to S$0.44 as of last Friday.

Now, let’s take a look at Sino Grandness’s latest earnings release.

Financial highlights

The following is a quick rundown of the latest important financial figures:

  1. Revenue for the whole of 2015 had advanced 17.5% to RMB3.31 billion. This revenue increase can be attributed to healthy growth in own-branded beverage sales (up 23.6% in 2015) and domestic canned product sales (up 36.1%). The sale of canned products to overseas markets fell by 9.3%.
  2. The company’s net profit had declined by 17.2% to RMB206 million. The drop in profit had mainly been due to a hefty increase in distribution and selling expenses (a 50.1% jump to RMB570 million). There was also a 165% jump in finance costs to RMB227 million as a result of a large 171% spike in the non-cash interest cost (from RMB81 million to RMB219 million) relating to Sino Grandness’s convertible bonds.
  3. The company has proposed a final dividend of RMB0.018 per share, which translates to around 0.38 Singapore cents. There was no final dividend declared in 2014.
  4. Sino Grandness ended 2015 with RMB143 million in cash and equivalents and RMB1.16 billion in total borrowings on its balance sheet. The company’s balance sheet has weakened drastically compared to a year ago when there was RMB226 million in cash and equivalents and RMB781 million in debt.
  5. In 2015, Sino Grandness had generated RMB579 million in cash flow from operations and spent RMB147 million in capex. There was also an outlay of RMB571 million in cash for deposits for non-current assets (mainly some of the company’s production plants). For perspective, Sino Grandness had brought in RMB51 million in cash flow from operations in 2014 but had spent a total of just RMB131 million in capex (including deposit for non-current assets).

All told, Sino Grandness has done a good job with increasing the total revenue during the year. But, that growth couldn’t be seen in the bottom-line due to higher advertising and promotional expenses and higher transportation costs (these are part of the aforementioned distribution and selling expenses). During the year, the company had tried to strengthen its brand image through outdoor promotional activities as well as TV advertising and sponsorship of high profile TV shows in China.

A future outlook

To drive higher market share in 2016 in China and Hong Kong, Sino Grandness intends to intensify its sales and marketing programmes, expand its sales and distribution network, and plow ahead with a “rapid expansion” of new retail distribution in China.

Sino Grandness commented in its earnings release that it has invested more than RMB1.4 billion to grow its brand equity and distribution network over the past five years.

Sino Grandness last traded at S$0.44 last Friday. This translates to a historical price-to-earnings ratio of 5.1 on Sino Grandness’ latest earnings. There is a decline of 5.8% to S$0.41 in the firm’s share price as of the time of writing (3:45 pm).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.