GP batteries

GP BATTERIES (SGX: G08)

Fundamental analysis

1. Understanding the business

This company deals with the production of batteries and related products, including power banks and flashlights etc. It is a simple and straightforward business. 

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2. Does the company have any moat, which makes it very difficult for competitors to penetrate the company’s market share?

2.1. Brand name

GP batteries is a fairly recognized battery brand, it generally occupies the mid-range batteries below that of energizer and Duracell. It is still a very popular brand for consumers as there are many mid-range products that do not require the power of premium batteries. Therefore, GP batteries are quite ideal for its value.  Furthermore, GP batteries also have premium batteries for high powered devices so it is not losing out in the entire spectrum of batteries.

2.2 Customer loyalty

It is extremely easy for customers to switch brands of batteries as it is fully compatible, thus in the battery business, customer loyalty is very hard to maintain.

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3. Does this business operate in a non-exciting industry?

The production of batteries has existed for a very long time and currently there are no breakthroughs in technology or whatsoever that requires this business to continuously catch up with.

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4. Was the company successful in a couple of locations before expanding nationally?

When the company was first setup in Hong Kong, it achieved good results and has expanded rapidly to span most of Asia at the moment. However, since this is a battery production (manufacturing) business and not service or food, it is rather pointless to deal with this factor as chains or branches has no effect on the quality of the products.

5. Has the company dominated in a particular segment of the market?

There are many other battery producing companies and almost every product under GP batteries has a competitor/existed under another company’s product.

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6. Is this company operating in a hot industry?

The production and usage of batteries is as mundane as 3000 years ago when mankind first invented it probably.

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Financials

7. What is the company’s earnings growth over the previous 10 years? Does it grow constantly?

I = ((FV/PV)^(1/N)) -1) x 100

I = % of EPS growth rate

FV = Future EPs value

PV = Current EPs value

N = Number of years

Year – EPS (cents)

·         2005 – 1.15

·         2006 – 12.08

·         2007 – 10.76

·         2008 – (-4.21)

·         2009 – 0.65

·         2010 – 33.82

·         2011 – 17.46

·         2012 – 5.93

·         2013 – (-13.76)

·         2014 – (-42.97)

·         2015 – 7.88

EPS growth rate = 21.22% for 10 years.

2008’s drop can be accounted by the financial crisis that hit the world markets.

In 2013, the appreciation of the yuan and the slow recovery of the global markets caused a drop in EPS while in 2014, the failed investment of Vectrix group caused huge losses and the company has since withdrawn out from the project. The loss of late chairman and CEO of Mr Andrew NG also took a toll on the company’s outlook.

8. Retained earnings

Retained earnings of GP batteries for the past 10 years = 28.79 cents = $0.2879

Change in market price of the stock from 2005 to 2015 = 0.86 – 2 = $-1.14

-1.14/0.2879 = $-3.95

This shows that, potentially each dollar retained by GP batteries would generate a $3.95 loss. This value shouldn’t even be negative, it is a disaster.

 9. Owner income

Owner earnings = net income + depreciation and amortization – capital expenditure

Year	Net income ($’000)	Depreciation and amortization($’000)	Capital expenditure($’000)	Owner earnings($’000)
2005	8,258	38,585*	6,787	40,056
2006	17,549	36,264*	1,014	52,799
2007	15,642	33,314	1,202	47,754
2008	-3,420	29,332	654	25,258
2009	7,066	29,297	994	35,369
2010	42,412	28,099	2,148	68,363
2011	23,575	24,636	1,881	46,330
2012	11,274	25,545	7,355	29,464
2013	-7,073	25,820	7,762	10,985
2014	-47,957	21,625	5,012	-31,344
2015	25,234	19,044	3,892	40,386

*Straightforward amortization values cannot be found in statements, thus excluded.

Owner earnings did not trend upwards or downwards throughout the last 10 years, which shows that the company is not growing. However the company has shown some resilience, regaining owner earnings after financial crisis periods.

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10. Company’s current ratio

Current assets / current liabilities for year 2014:

113375/89044 = 1.273

Current assets / current liabilities for year 2015:

119067/84172 = 1.414

While not excellent, the company is sufficient to fund its debts and won’t be facing any financial problems anytime soon.

 

11. Return on equity

Return on equity is calculated as net income divided by its average shareholder equity. GP Batteries International Ltd's annualized net income for the quarter that ended in Jun. 2015 was S$11.3 Mil. GP Batteries International Ltd's average shareholder equity for the quarter that ended in Jun. 2015 was S$263.5 Mil. Therefore, GP Batteries International Ltd's annualized return on equity (ROE) for the quarter that ended in Jun. 2015 was 4.30%. (credits to gurufocus.com)

SGX:G08' s 10-Year Return on Equity Range

Min: -20.09   Max: 16.01

Current: 5.16

During the past 13 years, GP Batteries International Ltd's highest Return on Equity (ROE) was 16.01%. The lowest was -20.09%. And the median was 4.61%.

SGX:G08's Return on Equityis ranked lower than 53% of the 2166 Companies in the Global Electronic Components industry.

The ROE does not trend upwards nor is it a very high value, it barely passes the test.

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12. Gross profit margin, does it grow or at least maintain?

Year	Gross profit $’000	Revenue $’000	Gross profit margin %
2005	174260	893860	19.49
2006	172669	886305	19.48
2007	146409	819722	17.86
2008	159264	976,382	16.31
2009	145957	864136	16.89
2010	186730	799366	23.35
2011	176321	831670	21.20
2012	158785	774524	20.50
2013	150586	721071	20.88
2014	156232	695407	22.46
2015	166372	719335	23.12

As we can see, gross profit margin is showing a slight increasing trend throughout the years, this is a good sign, albeit not a very high profit margin.

 

13. Return on assets, does it grow or at least maintain?

GP Batteries International Ltd (SGX:G08)

Mar06	Mar07	Mar08	Mar09	Mar10	Mar11	Mar12	Mar13	Mar14	Mar15
1.99	1.86	-0.42	0.94	5.43	3.26	1.59	-1.03	-7.57	4.12

Return on assets is calculated as net income divided by its average total assets. GP Batteries International Ltd's annualized net income for the quarter that ended in Jun. 2015 was S$24.3 Mil. GP Batteries International Ltd's average total assets for the quarter that ended in Jun. 2015 was S$618.0 Mil. Therefore, GP Batteries International Ltd's annualized return on assests (ROA) for the quarter that ended in Jun. 2015 was 3.93%.

During the past 13 years, GP Batteries International Ltd's highest Return on Assets (ROA) was 7.55%. The lowest was -7.57%. And the median was 2.53%.

SGX:G08's Return on Assets is ranked higher than 59% of the 2206 Companies in the Global Electronic Components industry. (credits to gurufocus.com)

The ROA isn’t exactly great for this company but as aforementioned, this company shows resilience as it’s values rose back to or even higher than the pre-crisis numbers during economy downturns. 

14. Dividends payout ratio

The company generally pays out extremely little of it’s profits as dividends (1-2%). Note that this value does not reflect the YIELD of the dividends, but rather how much of the profits are being given out as total dividends.  A low value could mean that the company is using its profits for something else, as compared to giving it back as dividends, it’s not exactly a bad or good sign.

15. Shares buyback

The company has been doing a regular share buyback program since 11^th June and has since bought back about 10% of the market share. This is very good as existing shareholders technically has increased their share of the company by 10%.

16. Others / personal opinion  

This company has the majority of shares (63.3%) owned by its parent company (can also be considered itself) and thus it has no threat of hostile takeovers or chaos rising within the company. The company is also trading at about half its book value. It has a 4.39% trailing dividend yield. 

Its p/e ratio of 10.458 and compared to the EPS growth rate of 21.22% for 10 years. This value is very good as it shows that the company is very undervalued right now as the growth rate (albeit unstable) is much higher than it's expected growth. 

While the batteries industry does not seem to have an burst of expansion anytime soon, it also does not seem like it is going away. Given that nearly every portable electronics require batteries to operate, I believe that this company is quite sustainable into the future.

As for inflation in prices, the company can easily increase the price of its products as these are daily commodities and a price war is unlikely to occur. 

Although I do not feel that the price of this stock will rise much in the near future, it might be worth keeping it under your pillow and let the value of the company unlock over time. I also do not see a much higher downside that will occur to this company, given that the stock is largely unaffected by the current economic crisis happening in china (as of 7/9/15).

IMO : Buy and hold, 6/10.