GTEC - Greenland Technologies: Aiming To Make Significant Inroads In The Electrical Industrial Space

Summary

• Company is banking on sustained demand for its electric forklifts, loaders & excavators.
• Greenland remains very cheap from an earnings, sales and asset standpoint.
• Wait for a convincing swing low here before putting capital to work.

Intro

When sizing up potential value stocks, we look at multiple valuation multiples (Earnings, Sales, Book & cash flow), the balance sheet, and the technicals. We place far less emphasis on growth rates by focusing more on whether the company in question is self-funding (Generating positive cash flow) and continues to build its asset base over time. Irrespective of growth rates, the above paraments stack the odds in favor of the long-term investor if the investor can remain patient enough for the investment to come good. The reason is that, over time, even if management is not the best allocator of capital, the company's asset base will grow, which should result in sales and earnings growth in the long run.

Finding quality setups however which essentially tick all of the above boxes is a difficult task, to say the least. However, we have unearthed Greenland Technologies Holding Corporation ( GTEC ), which satisfies many of the conditions mentioned above. This company traditionally is a forklift transmission supplier mainly in China but branched into the EV space in late 2020. As we can see below, Greenland's sales, earnings , and assets (Book Multiple) are very low but the absence of a positive cash-flow multiple means the company at present is not generating cash flow. On the balance sheet at the end of Q3, management reported short-term debt of $8.7 million on equity of $83.3 million. This gives us a very keen debt-to-equity ratio of 0.10.

Technically, we see that shares continue to hug their support line so it will be interesting to see if the $2 level can hold here.

US Investment

Suffice it to say, we have a company here that is bound to avail of the worldwide EV tailwind (Especially if the price of the electrical vehicles turns out to be very competitive over time), is profitable, and has an unleveraged balance sheet to boot. Suffice it to say, given how the green agenda continues to gain traction worldwide, one would think that demand for Greenland's electric front loaders, forklifts, and excavators (HEVI Brand) will only grow over time. In fact, the company only 6 months ago opened up a 50,000-square-foot assembly operation plant in Maryland in the US in anticipation of meeting this demand.

If we look at the company's financials, we see that sales over the past four quarters come in at $94.6 million with operating income hitting $7.5 million. Although sales increased pretty significantly in fiscal 2021, quarterly growth in both the top and bottom lines has been mute of late. As alluded to earlier, however, Greenland's $4.9 million in net profit over the past four quarters did not return positive operating cash flow over the same period (TTM of -$6 million). This has actually been a recurrent theme in other quarters, which led management to raise $10 million in funding in July of last year when shares were trading at a premium ($4+) compared to what we have at present ($2.14).

HEVI Potential

In one sense, Greenland is fortunate that the success of its transmission business can contribute to the investment required to support the HEVI side of the business. In fact, at its maximum, management believes the new HEVI plant in Maryland will produce 500 units per year with the first one earmarked for the first quarter of fiscal 2023. Suffice it to say, given the company's present market cap of a mere $27 million and taking into account the dollar value of these machines, it can be evidently seen that the value of Greenland stock would change significantly if indeed demand remains strong for these products.

In order to come to market in the best way possible to stand out from the competition, HEVI vehicles will now have Cyngn Infinitracker (GPS tracker) on their equipment and will be able to be charged by Siemen's extensive network of over 100,000 charging stations. Both of these value-adding initiatives are important for customers in the buying process. Cyngn's GPS, for example, should be a major advantage to customers concerning their fleet management needs.

Conclusion

To sum up, Greenland's valuation still remains compelling despite the multiple capital raises which have been done in recent times. The technicals though are implying that the stock is not ready yet to rally to the upside. We look forward to continued coverage.

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