Gogoro: good half-year results and a solid balance sheet (NASDAQ:GGR)

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Khanchit Khirisutchalual

Introduction

In May 2022, I wrote an article on SA about the Taiwanese electric scooter company Gogoro (NASDAQ: GGR) in which I said it seemed undervalued, but competitors were starting to emerge and I had my doubts about the the planned expansion into China would go smoothly.

I’m getting optimistic as Gogoro’s market valuation has fallen by nearly half since my first post and H1 2022 financial results were strong. Operating revenue rose 27.9% to $185.2 million, while adjusted EBITDA jumped 61.1% to $22.8 million. Additionally, the company recently announced a $345 million syndicated loan that will help it strengthen its balance sheet. Let’s review.

Overview of recent developments

In case you haven’t read my previous article on Gogoro, here is a brief description of its activity. The company was founded in 2011 and most of its revenue today comes from the sale of electric scooters and batteries. It also has a network of over 2,200 battery swap stations that supports a total of 10 brands and hosts 340,000 daily battery swaps. This company operates on a subscription model.

Gogoro products

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Gogoro Battery Swap Station

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Most of the stations are located in Taiwan, and in August 2022, Gogoro surpassed 500,000 monthly battery exchange subscribers on the island. This means that he has added around 50,000 new subscribers since the start of the year. The company now has a 92% market share in Taiwan and it seems to be almost unchallenged as this figure has exceeded 80% since 2017.

Turning our attention to Gogoro’s financial performance, H1 2022 results looked good, with revenue continuing to grow rapidly despite a weaker New Taiwan Dollar and a challenging market environment due to the COVID-19 lockdowns that resulted in a decline in foot traffic and scooter sales. . Sales of Gogoro vehicles increased 3.5% in the first half of the year, while high retention rates drove subscriber growth in the battery swap business. Thanks to economies of scale, the gross profit margin increased from 12.7% to 13.8%. Still, the income statement shows a net loss of $155.5 million due to a $178.8 million listing expense related to its SPAC deal in April.

Gogoro H1 2022 income statement

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At the time of its IPO, Gogoro expected to exceed $500 million in revenue in 2022 and its EBITDA for the year was expected to reach $69.7 million. However, lockdowns in Taiwan led the company to cut its full-year revenue forecast to $380 million to $410 million, with third-quarter sales accounting for about a quarter of that amount.

Gogoro Financial Forecast

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In my view, the revised guidelines seem overly conservative given that Taiwan has just announced that its COVID-19 measures have been significantly relaxed, as mandatory COVID-19 quarantines for arrivals will be lifted from October 13. Additionally, PCR testing for arrivals is also ending and the island is resuming visa-free entry for citizens of all countries that previously had this status. This should significantly boost tourist flows in the fourth quarter.

Turning our attention to China expansion, the company had a total of 202 battery swap stations in the cities of Hangzhou, Wuxi and Kunming as of June. COVID-related lockdowns there have led to slow battery swap station openings, and almost all of Gogoro’s revenue still comes from Taiwan. The company said on its second-quarter 2022 earnings call that it would likely delay further expansion of its network to other cities in the second half. He added that the uncertainties will likely extend into next year, so I think EBITDA could exceed CAPEX in 2023, a year earlier than initially expected.

On the balance sheet, things looked good at the end of June, with net debt down to just $84 million. Gogoro had $378.8 million in cash at the end of the second quarter and this amount could be higher at the end of September, because the company has just secured a five-year $345 million credit facility. years, with an option to extend for two years.

Gogoro H1 2022 review

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Overall, I think Gogoro posted good financial results in the first half of 2022 despite challenging macro conditions and I like the economies of scale here. Business expansion in China has been delayed but the company has a dominant position in Taiwan and a growing subscriber base. Moreover, the revised forecast for 2022 looks conservative. In my view, adjusted EBITDA should exceed $40 million this year. That would put the forward EV/EBITDA here at around 25x. This seems high at first glance, but you have to take into account that the company is growing rapidly and these figures only reflect the Taiwanese market. Of course, EBITDA targets have now been pushed back, but Gogoro is trading at less than 4x EV/EBITDA based on the original 2024 guidance. In my view, 2024 EBITDA numbers could be achieved by by 2026, unless there is a significant global recession.

When it comes to the risks of the bullish deal, I think there are three main ones. First, a new wave of COVID-19 could lead to more lockdowns across the world and thus put pressure on Gogoro’s operations in Taiwan and further delay its expansion plans in China and India. Second, rising tensions between China and Taiwan could create regulatory pressure on Gogoro in the future. Third, the company might overestimate its chances of replicating its success in Taiwan in other countries.

Takeaway for investors

Gogoro’s revenue and margins continue to grow despite a difficult market environment due to COVID-related restrictions and I expect the situation to improve in the coming months as Taiwan ends its quarantines for travelers in October.

The company has just refinanced its debt and it looks like EBITDA could exceed CAPEX sooner than expected due to delays in overseas expansion. Gogoro is much cheaper today than it was in May, and I think it would be undervalued even if it faces duds in China or India. I rate this stock as a speculative buy.

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