KUALA LUMPUR (Oct 7): Ge-Shen Corp Bhd’s (KL:GESHEN) proposed acquisition of a 40% stake in electronic manufacturing services (EMS) firm Local Assembly Sdn Bhd for RM48 million is deemed fair and reasonable and is not detrimental to non-interested shareholders, according to independent adviser Strategic Capital Advisory Sdn Bhd (SCA).
In its independent advice circular on Monday, SCA said Local Assembly’s price-earnings (PE) multiple based on profit after tax (PAT) for the financial year 2023 of 18.31 times is higher than the average but within the range of comparable companies listed on Bursa Securities, such as Aurelius Technologies Bhd (KL:ATECH) and Cape EMS Bhd (KL:CEB).
Another reason supporting the “fair and reasonable” justification is that the implied PE multiple based on the average guaranteed PAT of 10 times is lower than the average and median as well as within the range of the PE multiples of comparable companies.
Additionally, the implied EV/Ebitda multiple based on the Ebitda for FY2023 of 8.55 times is lower than the average, higher than the median, but within the range of EV/Ebitda multiples of comparable companies.
Furthermore, SCA said the guaranteed PAT is reasonable and achievable, based on the historical PAT of Local Assembly for FY2020, FY2021, FY2022, and FY2023, which stood at RM14.18 million, RM20.06 million, RM20.52 million, and RM8.87 million, respectively.
“The revenue and PAT of Local Assembly for the financial period ended Aug 31, 2024 stood at approximately RM90.21 million and RM7.10 million respectively, of which the extrapolated revenue and PAT for FYE 2024 is approximately RM135.32 million (FYE 2023 revenue: RM101.37 million) and RM10.65 million (FYE 2023 PAT: RM6.55 million respectively, indicating a potential improvement in the financial performance of Local Assembly for the FYE 2024 as compared to FYE 2023,” said SCA.
The independent adviser said the exercise will create synergies between Ge-Shen and Local Assembly through business integration, sharing of technological know-how, cross-marketing of products, and tapping into a broader client base.
The geographical proximity of Ge-Shen Group’s two manufacturing plants in Johor Bahru and Local Assembly’s manufacturing plant enables Ge-Shen Group to leverage its existing business and network to expand its customer portfolio. This is in line with Ge-Shen Group’s ongoing efforts to reduce its risk concentration in a specific market.
“[Ge-Shen’s] proposed acquisition and proposed diversification [into the EMS sector] augurs well with the long-term strategy of Ge-Shen Group and is expected to contribute positively to the future earnings and cash flows of the enlarged Ge-Shen Group following the completion of the exercise,” it said.
To recap, Ge-Shen inked an agreement in March with Local Assembly’s co-founders Chai Voon Sun, Gurmakh Singh Ajmer Singh, and Wee Thian Song for the stake purchase.
Chai owns 37.5% of Local Assembly, while Gurmakh holds 22.5%, and Wee owns 15%. Chin Hin Group Bhd executive chairman Datuk Seri Chiau Beng Teik's 55%-owned Divine Inventions owns 20%, and Proven Venture Sdn Bhd holds the remaining 5%.
A month later, in April, Chin Hin Group-linked Chiau Haw Loon and Chiau Haw Yew emerged as Ge-Shen’s second-largest shareholders after acquiring an 18.31% stake in the company through their private entity, Enrich Signature Sdn Bhd. Notably, they are the sons of Beng Teik, making the proposed acquisition a related-party transaction due to the interests of the new major shareholders of Ge-Shen.
In addition, Ge-Shen has proposed a private placement of up to 39.6 million new shares, representing no more than 30% of its ordinary shares, to independent third-party investors to be identified later. Based on an indicative issue price of RM3.22 per share, the company aims to raise up to RM127.5 million under the maximum scenario, with 26% allocated to fund the proposed acquisition.
Ge-Shen is a contract manufacturer who works with materials such as metal, silicone and plastic, with operations in Malaysia followed by Vietnam. It manufactures high precision plastic components used in the manufacturing of computer peripherals, information and technology products, electronics and electrical related products and automotive products, among others.
Shares of Ge-Shen closed unchanged at RM3.60 on Monday, giving it a market capitalisation of RM462.3 million.