Philippine Markets Newsletter

The “giant” of the cycling industry is benefitting from the bicycle boom amid pandemic, with Uniform returns twice the as-reported

July 7, 2021

Over the years, this Taiwanese company has been focusing on innovation that made them the largest bicycle manufacturer in the world. With the current changes in transportation and recreational activities brought by the pandemic, this company will more than likely reap robust returns.

However, as-reported metrics seem to ignore the company’s success in innovating its bicycles. Uniform Accounting, on the other hand, shows that the business has a better Uniform return on assets (ROA) than what you might think.

Also below, Uniform Accounting Embedded Expectations Analysis and the Uniform Accounting Performance and Valuation Tearsheet for the company.

Philippine Markets Daily:
Wednesday Uniform Earnings Tearsheets – Asia-listed Focus
Powered by Valens Research

Transportation was severely affected by the global pandemic. Due to the implemented social distancing protocols, restrictions that greatly limit max capacity were imposed on public utility vehicles. This resulted in commuters looking for alternative ways to travel without risking their health.

The pandemic also changed how people engage in recreational activities, specifically in terms of workouts and exercises. With most fitness gyms and sports places still running at minimal operations, people had to find ways to stay healthy and fit while limiting health risks from the pandemic.

Commuters started leaning towards travelling solo—owning a bicycle is a convenient way to do this, specifically for short distances. Moreover, fitness enthusiasts consider cycling as a safe outdoor activity, given the minimal contact with strangers.

These trends in transportation and recreational activities resulted in the surge of bicycle sales, paving the way for the bicycle boom of 2020. Today’s company, Giant Manufacturing, is benefitting from it.

Giant is a Taiwanese company considered to be the largest bicycle manufacturer in the world. It started off as an original equipment manufacturing (OEM) company that produces bicycle parts for other companies.

Its expertise in OEM business became its foundation when the company started making and selling its own bicycle brand.

Because of Giant’s reputation as the OEM provider for other brands in the market, consumers trust that the company’s bicycles are of high-grade quality.

Since the early stages of its operation, Giant has been focusing on its R&D and innovating its bicycles.

In 1987, the company pioneered the carbon fiber road bike CADEX, making the Giant the first bicycle company to apply computer aided design and volume production techniques to its products.

Its most significant innovation is the Total Compact Road (TCR), which is an all-around race bicycle offering increased rigidity, improved handling, and lighter weight. Since its creation in the mid-1990s, this product line has been expanded into six sub-families, and it has become one of the leading race bikes globally.

In tandem with their bike frames, Giant has also developed their own suspension technology, Maestro Suspension, delivering pedaling efficiency, complete suspension activity, and total brake independence to riders.

Besides traditional bikes, Giant is also a leader in the relatively new electric bike market, with Road E+ Pro being the main entry. With COVID-19 as a growth accelerator, the company saw a 55% increase in their revenues for Q1 2021 thanks to their e-bike sales, which makes up 30% of total revenues.

Given Giant’s competitive innovations in the cycling industry, one expects that the company would reap robust profitability. However, as-reported metrics do not seem to take this into account. For the past sixteen years, Giant’s as-reported ROAs have always been below 10%.

This is a misrepresentation of the company’s real profitability.

Uniform Accounting reveals that Giant’s Uniform ROAs for the past sixteen years have been consistently more robust than what as-reported metrics show. Currently, the company’s Uniform ROA is at 12%, almost twice the as-reported 7%.

What as-reported metrics fail to do is to consider the company’s excess cash on the balance sheet. While most companies inherently need some level of cash to operate, the portion of that balance that is earning limited or no return—or excess cash—ends up diluting as-reported ROAs.

When excess cash remains included in the company’s asset base while computing its performance metrics, the company’s profitability and capital efficiency may appear weaker than it actually is.

Removing excess cash allows investors to see through the distortions that come from management carrying much more cash on the balance sheet than what is operationally required.

From 2012 to 2020, Giant has had a significant amount of excess cash sitting idly in its balance sheet, ranging from 9% to 15% of its as-reported total assets.

After excess cash and other necessary adjustments are made, we can see that Giant’s current returns are actually a lot stronger than what as-reported metrics show. Without these adjustments, it appears that the company’s innovative efforts are not translating into profitability, leading to significantly poorer valuations.

Giant’s profitability is much more robust than you think

As-reported metrics are distorting the market’s perception of the firm’s profitability. If you were to just look at as-reported ROA, you would think that the company is a weaker business than real economic metrics reveal.

Giant’s Uniform ROA has been higher than its as-reported ROA for the past sixteen years. For example, when Uniform ROA was at 15% in 2009, as-reported ROA was only 9%.

The company’s Uniform ROA for the past sixteen years has ranged from 6% to 15%, while as-reported ROA has ranged only from 4% to 9% in the same timeframe.

Specifically, Uniform ROA gradually climbed from 10% in 2005 to a 15% peak in 2009, before declining to 6% by 2017. It then recovered to 13% by 2020.

Giant’s Uniform earnings margins are weaker than you think but its robust Uniform asset turns make up for it

Volatility in Uniform ROA has been driven by trends in both Uniform earnings margin and Uniform asset turns, with peaks and troughs lining up historically with that of Uniform ROA.

Uniform margins gradually rose from 5% in 2005 to 7% levels in 2011, before declining to 4% in 2017. It then rebounded to 7% in 2020.

Meanwhile, Uniform turns remained stable at 2.0x-2.2x levels from 2005 to 2015. It then faded to a 1.5x low in 2019, before recovering to 1.8x in 2020.

SUMMARY and Giant Manufacturing Co., Ltd. Tearsheet

As the Uniform Accounting tearsheet for Giant Manufacturing Co., Ltd. (9921:TAI) highlights, the Uniform P/E trades at 19.3x, which is below the global corporate average of 23.7x but around its own historical average of 19.2x.

Low P/Es require low EPS growth to sustain them. In the case of Giant, the company has recently shown a 59% Uniform EPS growth.

Sell-side analysts provide stock and valuation recommendations that in general provide very poor guidance or insight. However, sell-side analysts’ near-term earnings forecasts tend to have relevant information.

We take sell-side forecasts for Taiwan Financial Supervisory Commission: International Financial Reporting Standards (TIFRS) earnings and convert them to Uniform earnings forecasts. When we do this, Giant’s sell-side analyst-driven forecast is a 37% and 6% EPS growth in 2021 and 2022, respectively.

Based on the current stock market valuations, we can use earnings growth valuation metrics to back into the required growth rate to justify Giant’s TWD 311 stock price. These are often referred to as market embedded expectations.

Giant is currently being valued as if Uniform earnings were to grow 2% annually over the next three years. What sell-side analysts expect for Giant’s earnings growth is above what the current stock market valuation requires in 2021 and 2022.

Furthermore, the company’s earning power is 2x above the long-run corporate average. Also, cash flows and cash on hand are almost 4x its total obligations—including debt maturities, capex maintenance, and dividends. All in all, this signals a low credit and dividend risk.

To conclude, Giant’s Uniform earnings growth is in line with its peer averages, and the company is trading below its average peer valuations.

About the Philippine Market Daily
“Wednesday Uniform Earnings Tearsheets – Asia-listed Focus”

Some of the world’s greatest investors learned from the Father of Value Investing or have learned to follow his investment philosophy very closely. That pioneer of value investing is Professor Benjamin Graham. His followers:

Warren Buffett and Charles Munger of Berkshire Hathaway; Shelby C. Davis of Davis Funds; Marty Whitman of Third Avenue Value Fund; Jean-Marie Eveillard of First Eagle; Mitch Julis of Canyon Capital; just to name a few.

Each of these great investors studied security analysis and valuation, applying this methodology to manage their multi-billion dollar portfolios. They did this without relying on as-reported numbers.

Uniform Adjusted Financial Reporting Standards (UAFRS or Uniform Accounting) is an answer to the many inconsistencies present in GAAP and IFRS, as well as in PFRS.

Under UAFRS, each company’s financial statements are rebuilt under a consistent set of rules, resulting in an apples-to-apples comparison. Resulting UAFRS-based earnings, assets, debts, cash flows from operations, investing, and financing, and other key elements become the basis for more reliable financial statement analysis.

Every Wednesday, we focus on one company listed in Asia that’s relevant to the Philippines and that’s particularly interesting from a UAFRS vs as-reported standpoint. We highlight one adjustment that illustrates why the as-reported numbers are unreliable.

This way, we gain a better understanding of the factors driving a particular stock’s returns, and whether or not the firm’s true profitability is reflected in its current valuations.

Hope you’ve found this week’s Uniform Earning Tearsheet on an Asian company interesting and insightful.

Stay tuned for next week’s Asia company highlight!


Angelica Lim
Research Director
Philippine Markets Daily
Powered by Valens Research

View All

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683