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Edward Vranic, CFA
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I am a private investor based out of Toronto, Canada and I have been investing since 2003. After 8 years in Corporate Finance with a Canadian Telecom company I have decided to dedicate myself full-time to the capital markets. I write on Seeking Alpha to demonstrate my financial analysis and... More
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Edward Vranic
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  • Grand Power Sells Interest In Yangshan Port Project In Excess Of Its Market Cap 0 comments
    Mar 14, 2014 10:53 AM

    In my previous blog post I discussed an overlooked opportunity - Grand Power Logistics Group on the TSX Venture Exchange under the symbol GPW. That opportunity became more lucrative yesterday as the company managed to sell its interest in the Yangshan Port Project for $5,139K USD, over $5.5M CDN:

    "The sale price for the whole Yangshan Logistics Park project is RMB239 million (approx. US$38.93 million). Grand Power's portion of the sale price is RMB31.55 million (approx. US$5.139) for its 13.2% interest. As of today, Grand Power has received a payment deposit of RMB10.45 million (approx. US$1.7 million). Grand Power has invested a total of HK$13.2 million (approx. US$1.7 million) for its 13.2% interest in the project."

    Even as GPW rose 44% on the news, the company's market cap at 6.5 cents is still only $4,904K CDN so investors buying at this level are getting the rest of the business for free plus a cent per share in cash. The company provides local and cross-border trucking services as well as air and ocean freight and warehousing under the name Grand Power Express in China. The company's key financial performance statistics can be seen below.

    (click to enlarge)

    With an EPS of $0.02 and a stock price of $0.065, the low Price to Earnings ratio of 3 and Price to Book ratio of 0.406, GPW's low price is a throwback to the Sino-Forest days where the fear of all Chinese companies being frauds was at its peak. GPW has not recovered from the 2011 depths despite improved financial performance to achieve positive net income over the past year. And as mentioned above thanks to the proceeds from the sale, this profitable business is essentially valued for free.

    How much is GPW worth? The cash from the Yangshan deal implies a 7.5 cent valuation as the base. Then the value of the business needs to be layered in on top of that. Reviewing the quarterly income statement, revenues are over $60M a year.

    (click to enlarge)

    With a market cap of $4.9M, the price to sales ratio on GPW is less than 0.1. In my article on December 12 titled "Alibaba's Looming IPO Shows That Smaller Players In The Chinese E-Commerce Industry Are Significantly Undervalued" I spoke highly of Fireswirl (OTC:FRWRF) thanks to its very low 0.3 price to sales ratio at the time. GPW's P/S is more than three times lower than FSW's. FSW's revenues are in a strong growth phase while GPW's revenues are flat over the last 3 years after a decline from 2009 to 2010, but GPW has also made a strong push towards positive net income during that time while FSW is still in the process of trying to achieve the goal of profitability.

    My target for FSW is 10x its current price. GPW is more than three times lower FSW's current price when using the price to sales metric as a guide. I think it is a reasonable statement to say that GPW's P/S should be at least 0.25 which would value the business at $15.6M based on the past four quarters of revenue of $62.5M. With 75.5 million shares outstanding that would imply a value of over 20 cents a share. Add in the 7.5 cents from the Yangshan deal and the fair value target for GPW becomes at least 28 cents.

    Disclosure: I am long FRWRF.

    Additional disclosure: I am long GPW and FSW on the TSX Venture Exchange.

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