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GP Batteries – Potential Turnaround Play
Corporate Digest | 30 July 2014
Related stocks:
5IG
By: Ernest Lim
Articles (134) Profile

Since my write-up on Gallant Venture in late April / 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:

  • It trades at an approximate 0.5x Price to book. NAV / share is 1.506
  • GP Industries, a major shareholder of GP Batteries, bought an additional 1.764 million shares from 18 June to 25 July. For the month of July alone, GP Industries has purchased 1.39 million shares at an average gross price of $0.742 (excluding brokerage and stamp duty)
  • GP Batteries reported its 4QFY14 results on 29 May (year end Mar) with a net loss of $52 million vs $16 million loss the previous year. Its stock price did not weaken much after the results but quickly rebounded approximately 49 percent from $0.535 in end May to $0.795 on 25 July. This might be an indication that FY15 may be a better year

Description Of GP Batteries
GP Batteries manufactures and sells primary and rechargeable batteries. For more information, please refer to this link.

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 $20 million;

Excerpt from GP Batteries’ 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 $190 million in FY13 to $152 million 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 percent for the past four quarters in FY14, compared to 20.1 percent to 21.9 percent 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 $9 million.

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 1.764 million shares from 18 June to 25 July such that it has 90.5 million shares, or 54.92 percent in GP Batteries.

For the month of July alone, GP Industries has purchased 1.39 million 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

GP Batteries is hosting its AGM on 30 July. It is going ex-div on 19 August 14. Dividend per share is $0.01.

Some Noteworthy Points

    Time is required to observe whether:

  • 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;
  • There is any growth in their core business and its effect on its bottom line
  • Stock is pretty illiquid with average 30D and 100D volumes of around 342 lots and 240 lots respectively
  • With reference to Chart 1 below, GP Batteries has appreciated approximately 49 percent from $0.535 in end May to $0.795 on 25 July. RSI is at 75.3 on last Friday. 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 percent since end May

    Source: CIMB itrade complimentary chart (25 Jul 14)

  • 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 analysts’ 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 and SGX website for more information.

Ernest Lim is a CFA, CA and has worked at GIC Special Investment. He has a solid feel of the markets and financial world and is now a remisier.

Please click here for more information about this author.

Gallant Venture  -- -- --   
Business: [FY18 Turnover] Automotive (90.9%), utilities (5.5%), industrial park (2%), resort operations (1.6%).

Insight: May-19, 1Q19 revenue rose 8% due to higher trucks ... Read More


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