KUALA LUMPUR (March 4): Ge-Shen Corp Bhd, whose share price has jumped 144% year-to-date, plans to buy a 40% stake in electronics manufacturing services (EMS) firm Local Assembly Sdn Bhd for RM48 million cash, to be partly-funded via proceeds from a private placement.

Ge-Shen has inked an agreement with Local Assembly’s co-founders Chai Voon Sun, Gurmakh Singh Ajmer Singh and Wee Thian Song for the stake buy. Chai owns 37.5% in Local Assembly, while Gurmakh has 22.5% and Wee owns 15%; Chin Hin Group Bhd executive chairman Datuk Seri Chiau Beng Teik's 55%-owned Divine Inventions owns 20%, while Proven Venture Sdn Bhd holds the last 5%.

This is not the first time the co-founders of little-known Local Assembly have been in talks with a public-listed company over a stake disposal.

In October last year, egg producer LTKM Bhd scrapped its reverse takeover (RTO) of the EMS firm for RM336 million, to be satisfied via RM100 million cash and the issuance of 181.54 million new LTKM shares at RM1.30 apiece.

The RTO, first proposed in April 2022, would have seen LTKM selling its chicken egg production business to become an EMS provider. The deal was mutually terminated with LTKM citing the parties' contrasting business performance.

Ge-Shen, meanwhile, said its investment into Local Assembly marks its move to diversify into EMS, which the plastic moulding and sheet metal stamping outfit said is in line with diversifying its income stream and diluting its business risk over a wider customer and industry base.

It also expects the investment to complement its existing business, enabling cross-marketing of products to a broader clientele and drive synergistic value through shared technology know-hows.

The deal comes with a guarantee from the sellers that Local Assembly would achieve an aggregate profit after tax (PAT) of at least RM24 million over the financial years ending Dec 31, 2024 (FY2024) and FY2025. Local Assembly logged a PAT of RM20.52 million in FY2022 on a revenue of RM131.78 million.

Local Assembly is a manufacturer of electronic, electrical, and plastic injection moulded components, and a sub-contract assembler of electrical appliances and equipment.

Ge-Shen is planning a private placement of up to 30% of its enlarged share base, from which it expects to raise at least RM84.46 mil or at most RM91.2 million, based on an illustrative issue price of RM2.31 per share, to fund the deal.

Ge-Shen plans to use RM33.6 million of the proceeds to part-settle the RM48 million price tag for the 40% stake buy — the remaining RM14.4 million will be funded via bank borrowings — while the remainder of the proceeds will be used to repay existing borrowings and working capital.

It said the deal is not a related party transaction, despite its executive director Lee Hai Peng being a common director in both companies, as Lee has no other interested relationships besides that.

The deal is expected to be completed by the second half of 2024.

Ge-Shen shares closed nine sen or 3.28% higher at RM2.83 on Monday, giving the company a market capitalisation of RM345.9 million.