There are earlier reports that Garden Fresh is heading for IPO on the Hong Kong bourse where several leading food & beverage makers* are listed. The reports also make the point that unlike Singapore where share valuation is based on historical earnings, Hong Kong allows the use of estimated earnings.
*such as Tingyi, Huiyuan, Want Want, Uni-president and Vitasoy
When Want Want issued its IPO prospectus in early 2008, profit of the whole of 2007 was not available.
https://www.quamnet.com/media/IPO/0151_prospectus_e.pdf
Page 11 of the prospectus provides profit estimate of HK $1,362 m for 2007, and states that if share is issued for HK$ 3, price/earnings multiple will be 25.7; and multiple will be higher, 35.1, for issue price of HK$ 4.10.
Appendix III of the prospectus sets out what Pricewaterhousecoopers (PWC), the reporting accountant for the IPO process, and joint sponsors had done in relation to the profit estimate.
PWC states:
“
It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with……………………………
It is our responsibility to form an opinion, as required by rule 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.”
The joint sponsors (four of them) state:
“
On the basis of the information comprising the Profit Estimate and on the basis of the accounting policies and calculations adopted by you and reviewed by PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, we are of the opinion that the Profit Estimate, for which you as directors of the Company are solely responsible, has been made after due and careful enquiry.”
I have no idea what these statements really mean, but friends in the accounting profession have told me that disclaimers do not provide full protection, and accountant and joint sponsors ought to have taken their tasks seriously.
In its 2013 full-year results announcement, Sino Grandness stated that RMB 9.8m was spent in 4Q for engagement of professionals for IPO of Garden Fresh. Sino also indicated that the professionals would start work in early 2014.
Scepticism about sales reported by Garden Fresh abounds.
It is reasonable to doubt Garden Fresh sold around RMB 1.4b worth of its juices in 2013, when Huiyuan, with a much wider market presence, achieved RMB 4b.
Will it be reasonable to assume the reporting accountant has no similar doubt? Will it also be reasonable to assume further that he has not read surveys by Euromonitor and Nielsen?
If it is hard to believe 2013 sales, then the reported sales of RMB 869m in first half of 2014 (50% higher than RMB 581m the year before) are even more incredible. More startling are 2Q 14 sales of RMB 535m, 55% higher than prior year’s RMB 344m.
Thai investors made reference to financials in the following statement dated 1 Oct 14:
“
SINO GRANDNESS’s revenue in 2013 stands at RMB 2,261 million (or approx THB 11,952 million), which has grown at a compound annual growth rate of 52% over the past five years with an annual average gross profit margin of 39% and a net profit margin of 18% over the past three years. To finance and continue its fast-paced and profitable growth, the company had sought to increase capital and potential geography market expansion into South East Asia.”
For sure, whether Thai investors had scrutinised the numbers before endorsing, we do not know.