Since my write-up on Gallant Venture in late Apr / early May, I have been looking at several companies. One of the companies which caught my eye was GP Batteries due mainly to the following factors:
1. It trades at an approximate 0.5x Price to book. NAV / share is 1.506.
2. GP Industries, a major shareholder of GP Batteries, bought an additional 1.764m shares from 18 Jun to 25 Jul. For the month of July alone, GP Industries has purchased 1.39m shares at an average gross price of $0.742 (excluding brokerage and stamp duty)
3. GP Batteries reported its 4QFY14 results on 29 May (year end Mar) with a net loss of S$52m vs 16m loss the previous year. Its stock price did not weaken much after the results but quickly rebounded approximately 49% from $0.535 in end May to $0.795 on 25 Jul. This might be an indication that FY15 may be a better year.
Description of GP Batteries
Likely turnaround play because
GP Batteries may be turning around based on the following observations
a) Absence of loss making ventures. (See excerpt from GP Batteries 4QFY14 statement below). According to the 4QFY14 financials, GP Batteries indicated that before the impairment provisions against Vectirx and the rechargeable Lithium plant in Taiwan, the Group would have posted a profit before tax of about S$20m;
Excerpt from GP Batteries’ 4QFY14 financials (not able to paste here due to IT issues but please refer to pg 15 of 4QFY14 financials)
b) Savings from interest expense as a result of reduced loans: Based on my personal observations on the FY14 statements, long term and short term bank loans have reduced from S$190m in FY13 to S$152m in FY14. Thus, there should be some savings from interest expense.
c) Revenues have been pretty stable but quarterly gross margins in FY14 have been higher on a year on year comparison for four consecutive quarters. Gross margins have been above 22% for the past four quarters in FY14, compared to 20.1% to 21.9% gross margins in FY13.
d) GP Batteries is likely to book a disposal gain on the disposal of its property at 97 Pioneer Road in 1HFY15. Estimated disposal gain is approximately S$9m.
GP Industries has been buying GP Batteries, latest purchase price $0.795
A most interesting factor on GP Batteries is that GP Industries has been actively purchasing shares of GP Batteries. GP Industries bought an additional 1.764m shares from 18 Jun to 25 Jul such that it has 90.5m shares, or 54.92% in GP Batteries. For the month of July alone, GP Industries has purchased 1.39m shares at an average gross price of $0.742 (excluding brokerage and stamp duty). (See Table 1 below)
Table 1: GP Industries purchase price of GP Batteries for the month of July 2014
|
Purchase date
|
Qty
|
Amt
|
Price per unit
|
|
25-Jul-14
|
40,000
|
31,800
|
0.795
|
|
24-Jul-14
|
50,000
|
37,250
|
0.745
|
|
23-Jul-14
|
287,000
|
213,815
|
0.745
|
|
18-Jul-14
|
115,000
|
86,150
|
0.749
|
|
17-Jul-14
|
516,000
|
380,782
|
0.738
|
|
11-Jul-14
|
44,000
|
32,950
|
0.749
|
|
9-Jul-14
|
171,000
|
127,660
|
0.747
|
|
7-Jul-14
|
51,000
|
37,485
|
0.735
|
|
4-Jul-14
|
85,000
|
62,265
|
0.733
|
|
1-Jul-14
|
31,000
|
21,700
|
0.700
|
|
|
|
|
|
Jul purchases
|
1,390,000
|
1,031,857
|
0.742
|
Source: SGX, Ernest’s compilations
*Please refer to GP Industries’ SGX announcements for more info
GP Batteries is hosting its AGM on 30 Jul. It is going ex-div on 19 Aug 14. Dividend per share is S$0.01.
Some noteworthy points
1. Time is required to observe whether
a) The impairment provisions or “any losses” relating to Vectirx and the rechargeable Lithium plant in Taiwan are once off and will not be repeated in FY15F;
b) There is any growth in their core business and its effect on its bottom line
2. Stock is pretty illiquid with average 30D and 100D volumes of around 342
lots and 240 lots respectively.
3. With reference to Chart 1 below, GP Batteries has appreciated approximately 49% from $0.535 in end May to $0.795 on 25 Jul. RSI is at 75.3 on last Fri. It is a tad overbought but it is noteworthy that GP Batteries’ all time high RSI is around 89.7.
Supports: 0.775 / 0.740-0.755
Resistances: 0.820 – 0.830 / 0.850
Chart 1: GP Batteries has rebounded approximately 49% since end May
Source: CIMB itrade complimentary chart (25 Jul 14)
4. There is no rated analyst coverage. Even if GP Batteries starts to turnaround in 1QFY15, it may take some time before the Market believes that its turnaround is sustainable. Without analyst coverage to raise the awareness of the stock, it may take even more time. However, if the turnaround is true and
sustainable, investors who understand and believe GP Batteries are likely to purchase GP Batteries with a good margin of safety.
Conclusion: Next few quarters’ results may be the re-rating catalyst
Whether GP Batteries will be a turnaround play depends on its results in the next few quarters. Based on its past year results’ release date, 1QFY15F results should be announced approximately around the week of 11 Aug. If GP Batteries can release respectable results in the next few quarters, it may just be the re-rating catalysts for this company.
The above is just a short introduction on GP Batteries. Please visit the company website
http://www.gpbatteries.com.sg/ and SGX website for more information.
Disclaimer
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