GRP Limited

[Musicwhiz]

Dear all, my analysis of GRP's FY 2010 Financial Results is now up on my blog. Please feel free to visit and leave comments, thanks!

A snippet as follows:-

"I acknowledge that the concept of a low risk, high yield investment does not exist in this world except in concept; due to the nature of business cycles and competition, any so-called competitive advantage and moat which cannot be suitably maintained will eventually be eroded through time (just as a steady drip of water droplets can, over time, penetrate a block of stone)."

[dydx]

I am now looking forward to the coming FY10 (ended 31Jun10) AR, and the payment of the declared $0.01/share Final dividend for FY10 expected in Nov (last FY09: a Final dividend of $0.01/share was paid on 19Nov09).

Meanwhile, the FY10 full-year results announcement makes interesting reading.....
http://info.sgx.com/webcoranncatth.nsf/V...5003802C4/$file/GRP-YearEndAnnouncement30Jun2010.pdf?openelement

In FY10, the 2 core businesses - distribution of hoses to the marine and oil & gas industries; and distribution of measuring instruments into the regional markets - continued to operate profitably with strong resilience. Based on FY10's EPS of $0.0291, NAV/share of $0.1915 and Nett Cash/share of $0.104 as at 30Jun10, and a consistent yearly dividend payout of at least $0.02/share (as proven by the record of the past 4 FY's), the current share price of $0.23 remains undemanding.....

[Musicwhiz]

If we take the share price of 23 cents/share and less out the net cash per share of 10.4 cents/share, the core business is being valued at 12.6 cents/share. Based on the EPS of 2.91 cents/share, the PER is just 4.3 cents ex-cash.

Considering GRP is a stable cash generator without much prospects for steady growth, I guess this explains the low PER. I do not see any event which could materially impair the cash generation ability of GRP, so it would be good to wait for the FY 2010 AR to see what the Chairman has to say.

Honestly, I had believed they could have paid out more than 1c/share final dividend, but apparently Management thought otherwise.....

[kazukirai]

Hi all,
posting a link to forummer's Drizzt's post on GRP Ltd.

Nicely written, clear analysis of GRP's business model and some of the more important financial ratios.
Overall, a good read to get a better idea of this company.

Sidenote- Drizzt's blog is pretty good and I personally find his/her posts very informative.

Drizzt- Nice work. You won't mind if I link it right? Please let me know if you do and I'll take it off.

Disclaimer: Vested in GRP as well.

[Musicwhiz]

Well, GRP's FY 2010 Annual Report does not mention much about corporate prospects (at least, not in detail anyway); and no mention is also made of the super-high current ratio on the Balance Sheet. I guess Management wants to prep themselves for headwinds in the Hoses business, even though Measuring Instruments is doing well. The last "big" dividend bonanza was in FY 2007; seeing a repeat may be too much to ask, but then again something to hope for?

[valuestalker]

Hi All, just start looking into this company.
Need some clarifications on the following:
how about the shareholder proportion? managements or founders own the big portion of share?
First thing i notice from SGX's announcement is that their Group Finance just left? no?
Although in business, the turnover is normal, but just to be safe, as they have huge cash.

[Drizzt]

of course i don't mind but i got to know this counter only through musicwhiz so thank him for that.

fundamentally i see an absence in growth drivers. but afew discussion points would be that where is the barriers to entry?

i would think that exclusive distribution rights for hoses provides some moat but really we are not seeing it.

for measuring instruments what makes them more special then others? cheaper? thats not an edge really, exclusive distributor?

[valuestalker]

Hi Drizzt,

For me, only 2 points attract me to invest in this company:
1. Cashflow and hence dividend yield.
2. CASH CASH and CASH.
Just need to make sure the cash is actually there or else it will be the same s-chip story all over again?

[Musicwhiz]

Drizzt has made a very valid point, to be honest. In terms of competitive moat, one must assess if a Company has this in order to conclude if it is a prudent investment.

For GRP's case, I actually infer that it has some form of monopolistic pricing and competitive moat when I observe its gross margins for Hoses and Marine which can hit 44%-50%. Gross margins for Measuring Instruments hovers around 24% to 30%. Net margins are quite attractive too; average of 33.2% for Hoses and Marine and average of 14.8% for Measuring Instruments. (Note: data taken is from GRP's financials from FY2006 to FY2009).

Another good indication is its ability to generate FCF, even significant capex. Even before GRP ungeared their Balance Sheet in FY 2007, they were already generating consistent FCF every year from FY 2002 through to FY 2009. ROE is dragged down by excessive cash, but has hovered at an average of 19.6% for the last 5 financial years (FY 2005 to FY 2009).

[Drizzt]

i think its important how we see them sustaining the margins. the amount is small but the current cashflow generation is good.

at the end of the day, i invested in a lot of past companies that got their margins eroded. there is no point having a high roe and no moat because sooner or later others will do the same.