Greenland Technologies Is Betting On Electric Forklifts And Looks Cheap

Summary

  • The company has a market valuation of below $90 million despite generating annual sales of around $100 million as well as net profits of some $13 million.
  • Next year could see significant growth as Greenland Technologies is launching the sale of electric forklifts, excavators, and loaders in the USA.
  • However, I’m concerned that receivables have been growing rapidly and this could lead to another capital increase.
  • Also, a resurgence of COVID-19 could hamper the launch of the new products in the USA as the company still has no local production facilities.

The mechanic is checking the quality and Maintenance Forklift

MJ_Prototype/iStock via Getty Images

Investment thesis

On November 12, I covered the listing of Chinese electric light and medium-duty commercial vehicles (ECV) maker named Cenntro Automotive Group through a merger with online intimate apparel and swimwear company Naked Brand Group (NASDAQ:NAKD).

Today, I want to talk about Greenland Technologies (NASDAQ:NASDAQ:GTEC), which is another electric vehicle (EV) company from the Cenntro Group. It has been posting significant revenue growth this year and is already profitable. Next year should be exciting too as Greenland Technologies plans to launch several products, including electric forklifts and loaders. However, the rapid increase in receivables looks concerning which is why I view this one as a speculative buy.

Overview of the business and financials

Greenland Technologies was created in 2019 when a $40 million British Virgin Islands-based special purpose acquisition company (SPAC) named Greenland Acquisition Corporation merged with Chinese forklift transmission and drivetrain products maker Zhongchai Holding.

Greenland Technologies products

(Source: Greenland Technologies)

As of September 2021, Cenntro Holding owns a 59.2% stake in Greenland Technologies.

Looking at the current operations, Greenland Technologies has a manufacturing facility in the province of Zhejiang in eastern China. The latter supplies mainly China and the company sold just over 110,000 sets of transmission products in the first nine months of 2021.

Greenland Technologies facility

(Source: Greenland Technologies)

The company is expected to close 2021 with sales of between $90 million and $100 million, and I think the business has been growing pretty well over the past two years. The financial performance during Q3 2021 was especially strong, with sales growing by 39.7% to $23.1 million. However, I find it concerning that there are barely any sales outside of China.

GTEC YoY growth

GTEC total sales

(Source: Greenland Technologies)

Looking at the sales in China, the company claims that it sells its transmission products to more than 100 local forklift manufactures, so at least it’s not relying on a handful of clients. Looking at the Q3 2021 financials, there are only two customers that account for more than 10% of revenues and one of them is a new client.

GTEC total revenues

(Source: Greenland Technologies)

Turning our attention to profitability, gross margins have been hovering around the 20% mark, which I think is pretty good. The net income came in at $6.8 million for the first nine months of 2021, which was almost three times higher than the same period of 2020. However, you can notice that the Q3 2021 net income was dragged down by higher G&A and R&D expenses.

GTEC revenues and net income

(Source: Greenland Technologies)

There’s a good reason for this. In December 2020, Greenland Technologies launched a new division that will manufacture and sell electric industrial vehicles and the latter has started launching several new products on the US market. In November 2021, the company started selling lithium-powered forklifts and it expects to offer an electric excavator in January 2021. It also has plans to start selling an electric loader. Greenland Technologies has been producing precision gears, transmission, and drivetrains for 15 years now so I think that it has the required know-how to succeed in transitioning to an electric vehicle manufacturer.

Greenland Technologies pipeline

Greenland Technologies growth timeline

(Source: Greenland Technologies)

My concern is that the new products are aimed at the US market, where the company has historically generated negligible sales. Still, Greenland Technologies looks cheap even if the new products aren’t a hit as it’s currently valued at forward revenues multiple of less than 1x, and its sales and earnings are growing rapidly.

The balance sheet looks strong too but I’m concerned that there are large amounts of receivables, including amounts due from related parties. This has led to significant growth in Greenland Technologies’ debt burden since the start of 2021.

GTEC total assets

GTEC total liabilities and shareholder equity

(Source: Greenland Technologies)

One sign that this could be starting to become a serious issue was that the company decided to carry out a $7 million capital increase in June 2021. This leads me to think there could be more stock dilution ahead if receivables don’t come down in the near future.

The explanation given in the Q3 2021 financial report is that receivables have been growing due to an increase in sales volumes as well as a slowdown in collections due to the COVID-19 pandemic (page 11 here). The sums should hopefully come down as the pandemic subsides. A total of $39 million of the amount due comes from Cenntro Group and that sum should be paid back on April 27, 2021.

GTEC related party transactions

(Source: Greenland Technologies)

Looking at the risks for the bull case, I think the main one is a resurgence of COVID-19 in China. The latter can cause material shortages, freight delays, and logistics issues as well as jeopardize the launch of the new products in the USA considering the company still has no local production facilities and the machines are being shipped from China. At the moment, the search for a location for the first US assembly plant is still ongoing and Greenland Technologies revealed in its Q3 2021 earnings call that it’s looking at Maryland, Virginia, and New Jersey.

Investor takeaway

I view Greenland Technologies as a relatively small Chinese forklift transmission products manufacturer that has been growing at an impressive pace. Profitability is also improving rapidly and 2022 could put the company on the radar of US investors as it’s launching electric forklifts, excavators, and loaders on the local market.

However, I'm concerned that receivables are growing which could lead to further stock dilution. Also, a resurgence of COVID-19 on the world stage could derail the launch of the new products in the USA. The company still hasn’t built an assembly plant on US soil, which means that those electric forklifts need to be imported from China.

Overall, I think that Greenland Technologies looks cheap even if the launch of the new products is a bust. The company is generating annual sales of around $100 million as well as net profits of some $13 million based on annualized Q2 2021 figures (remember that the Q3 financial include higher G&A and R&D expenses due to the new products).

This article was written by

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I have been investing in stocks for 13 years now, most of the time in my native Bulgaria. I have a bachelor's degree in Finance and a Master's degree in International Business and I like reading Pratchett and Michael Lewis. Regarding the opportunities that I cover, please take into account that I'm an admirer of legendary fund manager Peter Lynch so I tend to follow a lot of his investment philosophy.

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