Dear all

Of late, GSS Energy (“GSS”) has caught my attention. It has dipped from an intraday high of $0.083 on 17 Sep 2021 and has weakened to $0.072 on 24 Sep 2021. This weakness may be attributed to profit taking and contra players exiting or rolling their positions. 24 Sep is T+5 of its high-volume day on 17 Sep. My personal guess is that most of the contra players may have already exited (i.e., selling may have been largely exhausted).

It may be time to relook into GSS Energy. Let’s take a look.

 

Basis

a) E mobility business gains traction

On 19 Aug 2021, GSS issued 83,333,300 new ordinary shares at an issue price of S$0.06 / share to a small group of investors via a private placement. Out of the net placement proceeds of around $4.8m, 80% will be set aside for financing the Group’s business expansion (such as the expansion into the e-mobility business to design and develop electric 2-wheelers and other related electric vehicle technologies). This is likely to be one of their next growth drivers especially when GSS mentioned in their 2QFY21 results that they plan to roll out their first model of the bike by end 2021.

Furthermore, it is noteworthy that according to GSS’ AR2020, GSS’ factory in Batam, has received formal approval from the Indonesian Government to assemble & produce electric 2-wheelers. GSS also cites support from our Singapore government through Enterprise Singapore, in a myriad of ways ranging from networking introductions to working partners, both technical and business-related and through financial grants supporting the development work.

According to McKinsey in October 2020, the market for two-wheel electric vehicles (“E2Ws”) and three-wheel electric vehicles (“E3Ws”) was valued at around US$97b, or 4% of global auto sales. This is likely to increase to US$150b by 2022 billion and the electrification in the scooter and light-motorcycle segments will accelerate most quickly, especially in emerging markets.

b) Demand for GSS’ products remains robust

In 2QFY21 results, GSS cited strong demand of their products given the additional time spent indoors. Moreover, in GSS’ AR2020, GSS mentioned that they have shifted from contract manufacturing to a more participatory relationship where they contribute to development and design of a larger range of consumer products with their established customers. Several new products are in advanced stages of full-scale production.

c) Oil & Gas operations may start to contribute next year

GSS has a non-operational interest in the oil and gas operations in Indonesia. According to their AR2020, GSS mentioned that their partners are working toward gas monetization in Indonesia where the key terms of Gas Sales Agreement have been agreed. If these oil and gas operations start next year, it may perhaps be another driver, albeit small.

d) Bullish chart

Based on Chart 1 below, GSS is on an evident uptrend with rising ADX, amid positively placed DI. Except for 6D EMA, all the moving averages which I track are rising. GSS price action for the past two days look good.  OBV is rising and RSI at 53.1 is not overbought. GSS has been largely trading in a three-month trading range $0.065 – 0.075. A sustained breakout above $0.075 with volume expansion points to an eventual measured technical target of around $0.085. Based on the chart development and price action, odds are likely of an upside breakout, rather than a bearish breakdown.

Near term supports: $0.071 / 0.069 – 0.070 / 0.067

Near term resistances: $0.075 / 0.080 / 0.083 / 0.085 / 0.087 / 0.090

Chart 1: GSS seems to be on an evident uptrend

Source: InvestingNote 24 Sep 21

 

Risks

Do note that the risks indicated below are just some examples of risks that readers need to be cognizant of.

a) Mixed valuations

GSS’ 1HFY21 net profit is around $1.7m. Barring severe chip shortage and for simplicity, if I annualise 1HFY21 net profit to derive FY21F net profit of around $3.5m, it trades at about 12.0x FY21F PE, which is not exactly cheap.

However, if we base on P/BV, GSS looks rather attractive. Based on Shareinvestor, GSS’ NAV / share is around $0.108, which translates to around 0.66x P/BV. Based on Bloomberg, GSS’ average 10-year P/BV is around 1.3x.

b) Parts availability is key

In their 1HFY21 results, GSS cited that parts availability is key. The shortage of chips has been well documented and recent article (see HERE) points to a lead time of up to 21 weeks for chips. This may have an adverse impact on their business and even their delivery of their first model of the bike.

c) Execution risk

GSS has been doing this e-mobility business for approximately three years. As of now, the product is not out yet. Even if the product is out, we do not know whether it will sell well. Readers who want to bank on this e-mobility business need to be aware of the risks.

Readers who have followed GSS before are likely to be aware that GSS has tried to enter Indonesia oil and gas operations but with lacklustre results. GSS has eventually divested their interests in the oil and gas operations and only maintain a non-operational interest in the oil and gas operations in Indonesia.

d) No analyst coverage

There is no analyst coverage now. However, should GSS manage to roll out their first model of the bike by end 2021, this may attract the attention of some analysts or the market.

e) Volatile share price

Based on Shareinvestor, GSS has traded in a range of $0.046 – 0.089. Thus, GSS’ share price can be rather volatile and may not be for risk adverse readers.

 

Conclusion

Personally, I find that GSS’ chart and price action look promising. Furthermore, the e mobility business segment which they have been developing since 2018 seems to be finally coming to fruition.

Just an observation which I want to point out to readers, but it may not be a direct apple to apple comparison. However, it may be a rough gauge on how GSS’ share price may perform, should there be updates on their e-mobility business.

On 19 Apr 2021, EuroSports Technologies and Strides Transportation (a wholly owned subsidiary of SMRT Road Holdings Ltd) have signed a Memorandum of Understanding (“MOU”) to develop, market and supply smart electric motorcycles for commercial and corporate clients in Singapore and Asia Pacific region. Eurosports’ share price has almost doubled from $0.169 on 19 Feb to close $0.300 on 19 Apr leading up to the above announcement.

Notwithstanding the above, readers are advised to refer to the above risks and GSS’ annual report and financial statements on SGX.

P.S: I am vested in GSS. I have also highlighted GSS to my clients last Friday.

 

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Disclaimer

Please refer to the disclaimer HERE