I came across the following report published on a regional US news site last week, concerning the impact of the coronavirus on one US company with operations in China. The relevant extracts are pasted below.
...The novel coronavirus outbreak that has killed more than 80 people worldwide is having an impact on at least one Dayton-area company doing business in China.
In the wake of the novel coronavirus outbreak, Dayton-based Stratacache has closed operations in China until at least Feb. 17.
The digital sign and technology company has more than 300 employees in China and 1,100 worldwide.
CEO Chris Riegel said so far this isn’t impacting his company’s revenue because everyone was off half of last week and all of this week for Chinese new year.
“Once we see how next week is shaping up we will have a better sense of the go forward, but if people can’t travel to get back to our factory, then it will start to have a real economic impact,” Riegel said.
The company’s plant is in Ningbo, about two hours south of Shanghai.
He said staff are currently evaluating all global business travel and upcoming trade show events — including two in Europe in the next three weeks — and may begin suspending all business travel and event participation until this is brought under control.
The relevance of the above is that Gale Pacific's China manufacturing plant, like that of Stratacache, is based in Ningbo.
This report from Reuters released at the end of January adds more weight to the suggestion that the coronavirus has been impacting companies operating in China's Zhejiang province, in which Ningbo city is located:
SHANGHAI (Reuters) - China’s eastern Zhejiang province said on Monday companies in the province were not allowed to resume operations before Feb. 9, to help prevent the spread of a coronavirus that broke out in Wuhan at the end of 2019.
In the most recent announcement ('Market Update', 24/01/20) there was no mention of any potential impact of the epidemic on the company, although at the time of the release the situation was still developing.
However, the situation has become significantly worse since then. One University in the US has launched a map visualising confirmed cases of the virus. You can see from the most recent update that Zhejiang province, where Gale Pacific's manufacturing plant is located, has the second highest number of confirmed cases in China after Hubei, the province at the epicentre of the epidemic.
At this point I can't really see how this coronavirus situation isn't going to have some impact on the company. Certainly, you'd have to assume the management will at least need to put out an announcement clarifying this in the near future.
As you can see from the 'disclosure' tag below, I am still a holder in Gale Pacific, as I still remain optimistic about the prospects for the stock over the long term. However, I sold some of my shares in the company last week, as I can't help but feel that the share price still has further to fall.
One problem with Gale is that for years it has been spruiked by the likes of Under the Radar and Motely Fool as a 'yield play', and as a result dividend-seeking investors have rushed into the stock.
This presents a trap for the management, as they know that if they cut the dividend, it will probably lead to numerous shareholders dumping their shares.
But increasingly, I suspect that the generous dividend payout that has been on offer from this stock over the years is in fact part of the problem with the company. My feeling is that this has been putting them at a competitive disadvantage, and the company would be better off in the long run if they paid out a smaller dividend, and channelled the money saved into marketing and product development.
In the short to medium term, I veer towards pessimism, as in the months ahead I suspect the company is likely to put out another profit downgrade, as well as probably a cut to the dividend. Invariably, this is likely to have a negative impact on the share price.
That said, I think Gale Pacific is worth keeping an eye on for those with a longer-term perspective.
GAP Price at posting:
20.0¢ Sentiment: None Disclosure: Held
(20min delay)