Thursday 20 Jun 2024
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This article first appeared in The Edge Malaysia Weekly on July 24, 2023 - July 30, 2023

JOHOR-based plastic injection moulding and metal stamping company Ge-Shen Corp Bhd, which saw a shake-up of its management and board of directors recently, is looking for inorganic growth opportunities to build scale faster.

“We are on the lookout for more acquisitions of good profitable and, most importantly, good growth potential companies, which will help improve our revenue and bottom line immediately,” says Louis Lau Puong Kiet, who was redesignated as the group’s CEO from joint CEO last month, in a written interview with The Edge.

“We are looking for companies that are in the same industry of contract manufacturing. It may or may not be in plastic moulding and metal stamping, but within the same value chain and [using] different materials to offer our customers complete box-build solutions.

“For example, we are interested in companies with printed circuit board assembly for surface-mount technology capabilities, as our customers require them and [this] may be a prerequisite to winning more projects. Overall, we are upbeat about the ability to do more acquisitions as it will mean we are able to consolidate different manufacturing capabilities to offer engineering and manufacturing solutions to our global customers,” he adds.

He says the group will use internally generated funds, bank borrowings or tap the capital market to fund the acquisitions.

As at end-March 2023, Ge-Shen had a net debt of RM63.65 million on its books, with a net gearing of 0.52 times.

It is seeking to raise up to RM15.35 million through a private placement of shares. Proceeds from the deal will be used to procure raw materials and pay suppliers, utilities, staff-related costs and general administrative expenses for the group’s production facilities in Johor and Penang.

Ge-Shen recently saw the arrival of a new, high-profile shareholder. On June 6, Datuk Keh Chuan Seng had acquired 30.8 million Ge-Shen shares, equivalent to a 27.91% stake, for RM49.28 million or RM1.60 apiece via off-market direct business transactions. The various transactions were made through his private vehicle Frazel Group Sdn Bhd — a property developer.

Data from the Companies Commission of Malaysia shows that as at July 3, Keh held a 60% stake in Frazel Group, while Datin Jamie Cheong Kai Meng owned the remaining 40%. Frazel Group’s website shows that Keh is executive chairman of the group, while Cheong is chief financial officer. Keh is also executive chairman in three other Bursa Malaysia-listed companies — HB Global Ltd, K Seng Seng Corp Bhd and Tex Cycle Technology (M) Bhd.

At the same time, on June 6, Ge-Shen’s controlling shareholder and former joint CEO Chan Choong Kong, 60, had disposed of five million direct shares and 35 million indirect shares in the company. Chan is still the largest shareholder of Ge-Shen after the latest disposal, holding a direct stake of 0.091% and an indirect stake of 31.38% via Pelita Niagamas Sdn Bhd. In October 2021, Chan owned as much as 4.55% of direct stake and 63.47% of indirect stake in Ge-Shen.

Ge-Shen announced major leadership changes following the share sale. Keh replaced non-executive chairman Chew Hoy Ping to assume the post of executive chairman of the group on June 8. In addition, Lau, 37, who was then serving as joint CEO with Chan, became the group’s new CEO. Lau has been with the group for eight years. Chan, meanwhile, had stepped down from his executive roles amid the shake-up.

Lau says Chan had resigned from the board and company to pursue his personal interests. “Unfortunately, I am not privy to his plans,” he adds.

Ge-Shen also announced the departure of Ian Chan Tze Liang (the son of Chan), Ooi Hooi Kiang and Datuk Yeo Chun Sing, who was a former executive director of Chin Hin Group Property Bhd, from their boardroom roles. Replacing them are Lee Hai Peng, who is currently a non-executive director of Solarvest Holdings Bhd and an executive director of both K Seng Seng and Tex Cycle, Tex Cycle non-executive director Ho Ai Hoon and former Johor MCA leader Datuk Tee Siew Kiong.

Shares in Ge-Shen have fallen 9% since the day Keh bought them at RM1.60 apiece, closing at RM1.45 last Thursday. However, the stock has climbed 21% so far this year, outperforming the benchmark FBM KLCI, which has fallen 5%.

At last Thursday’s closing, Ge-Shen had a market capitalisation of RM160.2 million based on 110.47 million outstanding shares. On whether there are plans for a share split to expand the company’s share base, Lau says: “Not at the moment.”

According to Lau, the entry of Keh essentially provides new perspectives and reignites the growth of the company.

“Ge-Shen has grown from a small Johor-based injection moulding company in 1996. It went on to start a new facility in Vietnam in 2006 and acquired two other facilities in 2015 and 2016 respectively. Since the last acquisition, much focus has been on internal improvement and organic growth — for example, the major capital expenditure of more than RM100 million to expand our manufacturing facilities within the companies and also acquire high technology machinery to modernise our production capabilities to meet customer needs,” says Lau.

The new leadership team, he notes, has openly declared their intention to continue the journey to grow Ge-Shen through further acquisitions and organic growth and refocus on business segments that are profitable.

On whether Ge-Shen will explore and evaluate potential synergies that may arise with companies Keh has substantial stakes in — HB Global (16.65%), K Seng Seng (20.34%), Tex Cycle (26.44%) and EG Industries Bhd (6.83%), Lau says: “The companies’ businesses are not directly related, thus there may not be much collaboration per se. However, there may be operational collaborations or synergies — for example, leveraging each others’ core competencies. The collaborations are limited to a professional level, meaning it will still go through our own internal procurement process to ensure whatever collaboration benefits the company.”

Firm hopeful 1Q loss just a blip

Ge-Shen closed a third profitable year in a row in the financial year ended Dec 31, 2022 (FY2022), posting a net profit of RM10.16 million, a 23% decline from RM13.15 million in FY2021. This was despite recording its highest ever revenue for the year of RM253.61 million, which was a 6% year on year (y-o-y) increase.

Ge-Shen swung to a net loss of RM1.76 million in the first quarter ended March 31, 2023 (1QFY2023) on the back of an 11% y-o-y drop in revenue to RM57.67 million.

Lau hopes the 1QFY2023 loss is temporary, but notes that given the normalisation of economic activities post-Covid-19 pandemic, many companies around the world have experienced oversupply problems due to massive inventory built-up during the pandemic.

As the group adjusts its internal cost structure and lowers its break-even point, Lau says the impact of a dip in revenue will hopefully not result in continuing losses.

“Historically, we managed to turn around strongly in FY2020 from a terrible FY2019, bearing in mind that 2020 was the peak of Covid-19 with lockdowns and severe supply chain shortages, and we went on to deliver two reasonably good years in FY2021 and FY2022. I believe that with the same kind of operational discipline and teamwork with all employees of Ge-Shen, we will be able to turn around and do better in the coming quarters.”

Apart from the cost-saving measures and scaling down on its loss-making segments, Lau says Ge-Shen is in growth mode and the new leadership is prepared to make significant investments to increase its revenue and bottom line. “The group had recently acquired a new property in Sungai Petani, Kedah that is over 200,000 sq ft, which essentially increases our facility footprint by 35%.

“Within our industry, it is always a challenge on what comes first — customers would like to know that we have ready capacity before they award a project and we will be hesitant to invest if there is no firm prospect. With this new facility, we will be able to convince these potential customers that have these capacity concerns.

“Furthermore, we are currently in the final design stage of building a new building on our empty land in Penang as our current factory is rather cramped. Construction is slated to start by 4Q2023 or 1Q2024, with estimated completion by 3Q2024 or 4Q2024. Upon completion, we will have additional 33,000 sq ft of space, bringing the total manufacturing space to around 780,000 sq ft.”

Currently, Ge-Shen operates two facilities in Johor, and one each in Penang and Vietnam.

Seeing strong medical sector growth

Looking forward, Lau believes that the group will be experiencing a “bullwhip effect” where customer demand will suddenly surge when companies in the Western world suddenly realise the declining inventories in their warehouses.

He concedes that the electrical and electronics (E&E) sector has declined quite a bit; as such, the group has been focusing more on other possible expansion strategies like doing more in the medical sector and manufacturing for customers in the security devices sector.

“We are glad that the E&E sector will form a smaller percentage of our overall revenue in FY2023, and we foresee that the industrial segment will be the largest.

“We are focusing on doing more complete assembly and packaging for our customers and hope that in 2023, more than 50% of our revenue will consist of ‘complete box-build’,” he says.

“Therefore, the impact [of declining E&E sales] will be minimal. With the acquisition of land and building facilities in Sungai Petani, we are also strategising to entrench ourselves in the medical sector and hope for this segment to contribute up to 20% of our overall revenue within two years.” 

 

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