China Automotive Systems, Inc.

CAAS Details

Increase in Monthly Sales Order: China Automotive Systems, Inc. (NASDAQ: CAAS) is engaged in supplying power steering components and systems in China. Recently, the company informed the market that it has transported ~70,000 commercial vehicle steering systems to top producers and manufacturers of Chinese truck OEM and the North America in November 2020 month. Post pandemic, the Chinese industrial production has accelerated, which in turn increased the orders to CAAS, in recent times. The company expected to continue its monthly sales run rate of 70,000 units in 1QFY21.

3QFY20 Key Financial Highlights: During the quarter, the company reported net sales of $114.4 million, up 13.8% from the prior corresponding period. The sales growth momentum was on the back of a change in the product mix and elevated domestic sales volume along with recovery from the effects of the COVID-19 induced pandemic. Gross margins for the quarter stood at 11.9%, down from 17.2% reported in 3QFY19. Net income for the quarter stood at $2.4 million, or $0.08 per share, as compared to $4.3 million, or $0.14 per share, reported in the year-ago period. In 3QFY20, the company repurchased ~322,000 shares of common stock. The company exited the period with a cash balance of $113.5 million. 

Income Statement (Source: Company Reports)

Outlook: The company has raised its revenue guidance for FY20. It now expects full-year revenues to be ~$390 million, up from the previous outlook of $360 million. 

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last six months, the stock went up by ~160.4%. The stock made a 52-week low and high of $1.43 and $13.69, respectively. On the technical analysis front, the stock has a support level of ~$5.00 and a resistance level of ~$7.43. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer median, considering accelerated Chinese industrial production post COVID-19 pandemic, increase in top line in 3QFY20, encouraging FY20 revenue outlook and favorable product mix. Considering the spike in the stock price over past months, current trading levels, valuation, we are of the view that most of the positive factors of the company have been discounted at current trading levels. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the closing price of $6.64, down by 1.04% on 22 February 2021.

CAAS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Sundial Growers Inc.

SNDL Details

Issue of New Warrants: Sundial Growers Inc. (NASDAQ: SNDL) is a public company and a licensed producer that manufactures cannabis using state-of-the-art indoor facilities. On 19 February 2021, the company informed the holders of 98,333,334 warrants to buy common shares of the company and exercise their Warrants for cash, at prices of US$0.80 and US$1.10 for gross proceeds of US$89.1 million. Notably, the latest Warrants are exercisable immediately, with a term of 42 months from the date of the Registration Statement.

SNDL Regains Compliance with Nasdaq Rules: On February 17, 2021, SNDL received an official notification from The Nasdaq Stock Market LLC (“Nasdaq”) that it has resumed compliance with Nasdaq's lowest bid price requisite for continued listing on the Nasdaq Capital Market.  The notice suggested that, because of the closing bid price of the company's common stock having been at $1.00 per share or greater for a minimum 10 successive business days, SNDL regained compliance with Nasdaq's Listing Rule.

SNDL Unveils Premium Concentrates Products: In another update, the company in response to growing consumer demands for solventless cannabis extracts, unveiled a high-quality cannabis derivative product under its Top Leaf brand. The recent move in is line with the company’s emphasis on premium inhalable, in the wake of branded retail offerings of flower, pre-roll and vape cartridges.

3QFY20 Key Highlights: During the quarter, the company reported net cannabis revenue of $12.9 million, down 54% year over year, owing to more focus on branded retail sales. Branded net cannabis sales stood at 77% of total cannabis sales as compared to 69% in the prior quarter. In 3QFY20, net loss amounted to $71.4 million, whereas adjusted EBITDA loss stood at $4.4 million, up 13% quarter over quarter. The company exited the quarter, with a cash balance of $60 million, with debt outstanding reducing by $23 million during the quarter. 

Key Highlights (Source: Company Reports), Figures in 000’

Stock Recommendation: The stock of SNDL gave a positive return of ~493.8% during the span of three months and ~315.8% in the past six months period. The stock made a 52-week low and high of $0.14 and $3.96, respectively. Debt to equity ratio of the company stood at 1.71x in Sep’20 as compared to the industry median of 0.39x. On a technical front, the stock of SNDL has a support level of ~$0.52 and a resistance level of ~$2.23. On the valuation front, the stock is trading at a P/BV multiple of 6.0x as compared to the industry median of 4.3x on TTM (Trailing Twelve Months) basis. Considering the aforesaid facts, spike in the stock price over the past months, and valuation on TTM basis, we are of the view that most of the positive factors of the company have been discounted at current trading levels. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the closing price of $1.43, down by 6.54% on 22 February 2021.

SNDL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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