Sino Grandness Food Industry Group Limited – Financial Report Analysis (Half-Year Ended 30 June 2021)

Business Description

Sino Grandness Food Industry Group Limited is a Singapore-incorporated company engaged in the food and beverage sector, with core operations in manufacturing and distributing canned products (both domestic and international) and beverages, especially in China. Its primary segments are:

• Beverages: This segment includes fruit beverages sold domestically, experiencing demand growth post-COVID-19.
• Canned Products: Both domestic and overseas markets; however, overseas revenue declined, influenced by US-China trade tensions.

The company operates in a competitive landscape, facing market pressures due to global trade tensions and supply chain volatility. It has a moderately sized footprint, emphasizing domestic market presence with ongoing expansion plans for international visibility.

Financial Statement Analysis

1. Income Statement

• Revenue: Increased by 9.3% to RMB 537.5 million compared to the prior year, driven by a recovery in domestic beverage sales.
• Gross Profit: Improved significantly from a loss in HY2020 to RMB 80.6 million in HY2021, yielding a 15% gross profit margin, compared to a -2.1% margin previously.
• Operating Expenses:
  • Administrative: Slight increase to RMB 79.7 million due to plant shutdowns impacting production costs.
  • Distribution & Selling: Decreased sharply by 49%, attributed to reduced advertising and transportation costs.
• Net Loss: Despite improvements, the company recorded a net loss of RMB 165.5 million, a decrease from the RMB 317.3 million loss in the prior year.

2. Balance Sheet

• Assets:
  • Cash: Ended at RMB 337.5 million, an increase attributed to cash conservation post-pandemic.
  • Receivables: Lowered due to improved collection, reflecting a reduction in trade receivables by RMB 106.6 million.
• Liabilities:
  • Current Liabilities: Increased to RMB 1,460.4 million due to higher trade payables, bank loans, and bonds.
• Net Assets: Stood at RMB 1,752.9 million, a decrease from RMB 1,918.4 million at the end of 2020.

3. Cash Flow Statement

• Operating Activities: Generated a positive cash flow of RMB 115.2 million, driven by improved receivables collection.
• Investing Activities: Cash outflow of RMB 110.5 million, mainly for plant expansions.
• Financing Activities: Positive inflow due to additional bank loans, amounting to RMB 35 million.

Key Findings and Investor Insights

• Improved Revenue and Gross Profit: The recovery in domestic beverage sales and the management of distribution expenses positively impact gross profit margins, a promising sign.
• Net Loss Reduction: The company’s efforts have reduced losses, but profitability remains an issue, with substantial net losses still present.
• High Liabilities: The company’s rising current liabilities, especially in trade payables and debt obligations, indicate a financial risk, compounded by ongoing negotiations for overdue loan settlements.
• Dividends: No dividend was declared for HY2021 as the company aims to preserve cash for operational needs.
• Strategic Focus: Ongoing investments in manufacturing and innovation signal a focus on scaling production and market presence.

Recommendations

• For Existing Investors: Hold. While the company shows signs of improvement in revenue and operational efficiency, the high debt load and continued net losses require caution. Retaining stock may be beneficial if Sino Grandness effectively addresses its liabilities and pursues profitable growth.
• For Potential Investors: Consider Holding Off. Prospective investors should wait for further progress in profitability and a clearer debt reduction strategy before investing.

Industry Position and Competitive Advantage

Sino Grandness operates in the resilient yet highly competitive food and beverage industry, primarily within China. Its domestic beverage segment shows growth potential due to brand-building efforts and innovation. However, competition from both domestic and international companies and external pressures (e.g., trade tensions) pose challenges to market share and profitability.

Disclaimer

This analysis is based on the financial statements for the period ended 30 June 2021, provided by Sino Grandness Food Industry Group Limited. It should be considered along with additional market and financial data before making any investment decisions.