Why Sino Grandness isn't too worried about Minzhong shortselling incident

Should investors be alarmed?

According to Maybank Kim Eng, in the light of the recent shortseller’s attack on China Minzhong, Sino Grandness’ management has been very responsive and open in dealing with investors’ concerns and readily agreed to hold a conference call with our clients yesterday despite the extremely short notice given to them.

Here's more from Maybank:

Sino Grandness does not use distributors extensively. Channel visibility of its products is a lot higher with Sino Grandness and customer demand cannot be manipulated as it sells its products directly to the end-customer.

Although both are involved in the vegetable export business, China Minzhong uses many local distributors to deal with the end-customers either overseas and domestic, while Sino Grandness sells directly to customers such as Cole Supermarkets in Australia or Tesco in the UK.

With customers where it has to use distributors, such as with the chain of 7-11 convenience stores in China, the distributors function more as logistics and fulfilment agents as there are just too many stores for Sino Grandness to make sure each store is fully stocked. However, the orders still come directly from the end-customer and not from the distributor.

Solid progress has been made with Garden Fresh IPO in Hong Kong. Sino Grandness is currently working on the Garden Fresh IPO in Hong Kong and things are definitely on track for a favourable conclusion. SGX’s approval for Sino Grandness to execute on the planned spinoff was the main hurdle and that was received on 1 July.

The next few stages will be more within the company’s control. Three big international investment banks have already been shortlisted and the final selection will be made soon.  

Any shares pledged by major shareholder Huang Yupeng? Some investors expressed concern that Sino Grandness may be the next target of short sellers, hence one key question raised was – did major shareholders pledge any shares to banks in return for personal credit that may end up in the borrowing market for shortsellers.

The company confirmed that shares belonging to Mr Huang Yupeng (chairman of Sino Grandness who owns 40% of the shares outstanding) are held in his own name and are not pledged out.

In fact, the company claimed that the bulk of Mr Huang’s personal wealth is tied up in Sino Grandness shares and he would not be doing himself any favours if he knowingly pledged out his shares.

Other than Mr Huang, the rest of Sino Grandness’ bigger shareholders are institutional funds, such as Asdew Acquisitions who mopped up the
bulk of a share placement in Mar 2013, Legg Mason and Fidelity.

In fact, it was just announced that Mr Huang made a purchase of Sino Grandness shares at SGD1.095 yesterday, and he is likely to buy more
if the share price stays depressed.

Recommendation. We maintain our BUY recommendation on Sino Grandness with an unchanged target price of SGD1.89. In our view, the
share price drop in the past two days was purely due to fallout from the Minzhong shortselling incident.

Sino Grandness’ fundamentals are still firm and the biggest catalyst for the stock, Garden Fresh IPO, still lies ahead. We believe Sino looks even more attractive today compared to last week.