Here's how Sino Grandness will juice benefits from Garden Fresh

It eyes a spot on Hong Kong by 2014.

According to Maybank Kim Eng, in its view, the odds are still good for buying Sino Grandness now to bet on the catalyst of it pulling off a successful spinoff of Garden Fresh, its beverage subsidiary, at substantially higher valuations in HK than what investors in Singapore are currently giving the whole group.

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Sino Grandness could be worth up to SGD2.52 (158% upside) on our best case scenario and SGD1.31 (34% upside) on the worst case scenario, with potential 20% downside even if the listing does not take place.

The shares have doubled since 2012 as the market factored in good progress toward a successful spinoff but the odds are still good as a recent share placement drew in new institutional investors.

We initiate coverage with a BUY and target price of SGD1.60 pegged to 6x FY13F PER. Sino Grandness is still in the early stages of a multi-year growth cycle and the impending listing of its main growth engine will see it valued higher as a separate unit, unlocking substantial value for shareholders.

Multi-bagger in the making. The biggest catalyst for Sino Grandness is its plans to list wholly-owned juice subsidiary Garden Fresh in Hong Kong by October 2014.

Sino Grandness is a potential multi-bagger given the huge valuation mismatch between its current single-digit valuations and comps in Hong Kong that trade at 20-30x earnings.

Sino Grandness has put in huge efforts to achieve that goal by October 2014, including the setting up of two new production bases, the opening of new distribution channels and several rounds of fund-raising from strategic investors Sun Hung Kai and Goldman Sachs (convertible bonds) and Asdew Acquisitions (new shares at SGD0.82 a share).

Tapping into a “juicy” market. The food & beverage sector in China has been one of the greatest beneficiaries of the country’s dramatic economic growth over the past two decades. Sino Grandness has chalked up profit growth of 63% p.a. since its IPO, mainly driven by its three-year old juice business.

However, it is still in the early stages of a multi-year growth cycle. The fact that the juice business now accounts for half of sales in just three years underlines its boom potential. We believe the best is yet to come.

Its astute market positioning and low base will enable it to continue to drive strong double-digit top and bottomline growth.