This article first appeared in The Edge Malaysia Weekly on February 17, 2025 - February 23, 2025

Ge-Shen Corp Bhd’s (KL:GESHEN) stock has enjoyed a good run so far in 2025, shrugging off the recent global markets’ reaction to the emergence of a low-cost Chinese artificial intelligence model, DeepSeek, and US trade measures.

Shares in the plastic injection moulding and metal stamping company-turned-electronics manufacturing services (EMS) player have gained 30% year to date to close at RM5.10 per share last Thursday, outpacing the Bursa Malaysia Technology Index, which is down 10%, and the benchmark index’s 2% loss. The stock has gained an impressive 213% in the past 12 months.

Ge-Shen has also outperformed most of its peers, including Nationgate Holdings Bhd (KL:NATGATE), VS Industry Bhd (KL:VS), D&O Green Technologies Bhd (KL:D&O) and Cape EMS Bhd (KL:CEB).

However, Ge-Shen’s stock appears expensive now. AskEdge data shows that Ge-Shen trades at a trailing price-earnings ratio (PER) of 41.4 times, the highest among its peers. In comparison, Nationgate trades at a trailing PER of 40.6 times, VS Industry at 18.4 times, D&O at 33 times and Cape EMS at 37.8 times.

It is worth noting that Ge-Shen has been on a spending spree in the past two years, acquiring stakes in three companies and it isn’t done yet.

In September 2023, the group acquired a 60% stake in Kibaru Manufacturing Sdn Bhd, which manufactures custom elastomer and silicone rubber products for a range of industries including medical, for RM16.8 million. Last year, it acquired a 40% stake in Local Assembly Sdn Bhd, an EMS provider, for RM48 million, as it seeks to diversify into the EMS market. Under the deal, Ge-Shen is guaranteed a minimum net profit of RM24 million from Local Assembly for 2024 and 2025.

This was followed by the acquisition of a 60% stake in both Amity Research & Development Sdn Bhd and Amity Technical Services & Consultancy (M) Sdn Bhd for RM13.5 million in a deal that is expected to enhance its printed circuit board assembly research and development and manufacturing expertise.

Ge-Shen CEO Dr Adrian Foong Hong Nian says the group is still keen to acquire companies that will complement its current businesses and help propel it to high-value areas “at the right price”.

Foong, 44, who took the helm in September last year, says Ge-Shen is seeking to move up the EMS value chain and attract high-value customers through the acquisitions. These strategic assets position Ge-Shen as a key player in high-tech, high-end manufacturing, which yields better profit margins.

As at end-September 2024, Ge-Shen had a net debt of RM49.31 million or a net gearing of 0.3 times against a peak in 2021 of 0.79 times.

“It is important to note that acquiring assets naturally reduces cash reserves, while disposing of assets replenishes cash flow, helping to balance the group’s financial position. With Ge-Shen actively divesting non-core assets, the group is effectively managing its cash flow to support future growth. These disposals ensure that while strategic acquisitions may temporarily reduce cash, the proceeds from asset sales help offset any financial strain, keeping the group’s cash position well-managed,” Foong tells The Edge in an interview.

“Therefore, Ge-Shen’s net debt position should not be viewed as a major concern, as its active portfolio optimisation strategy maintains financial stability while enabling future expansion.”

To support business growth, the group has also allocated capital expenditure, including RM24 million for a new facility at its wholly-owned subsidiary Polyplas Sdn Bhd in Penang, which will add 20,000 sq ft of production space plus a Class 10,000 (which refers to air cleanliness levels with a maximum of 352,000 particles of 0.5 micrometers per cubic meter) clean room; RM10 million for an expansion in Vietnam; and RM20 million for a new production floor on a 4.7-acre site in Sungai Petani, Kedah, which belongs to Kibaru Manufacturing.

The move to diversify into EMS and related manufacturing activities follows recent shareholding changes at Ge-Shen. In June 2023, it saw the entry of new shareholders — executive chairman Datuk Keh Chuan Seng, who is now the largest shareholder in Ge-Shen with a 29.59% stake through his private vehicle Frazel Group Sdn Bhd, while Chin Hin Group Bhd (KL:CHINHIN)-linked Chiau Haw Loon and Chiau Haw Yew became the second-largest shareholder with a 22.68% stake via Enrich Signature Sdn Bhd. Ge-Shen executive director Lee Hai Peng is also a substantial shareholder, owning 5.74%.

Keh is also executive chairman in two other Bursa Malaysia-listed companies — K Seng Seng Corp Bhd (KL:KSSC) and Tex Cycle Technology (M) Bhd (KL:TEXCYCL), owning 20.34% and 26.44% respectively. Lee, meanwhile, holds 2.32% in K Seng Seng and 5.129% in Tex Cycle. Haw Loon and Haw Yew also hold a 13.25% stake in Tex Cycle via Enrich Signature.

Ge-Shen’s former controlling shareholder and former joint CEO Chan Choong Kong ceased to be a substantial shareholder in the group in July last year.

“Since the change in shareholders, Ge-Shen has embarked on a transformational growth strategy focused on expanding its EMS capabilities, optimising asset utilisation and reinforcing its financial position,” says Foong.

The transformation plan appears to be bearing fruit. Ge-Shen posted a 17% decline in net profit of RM8.46 million in the financial year ended Dec 31, 2023 (FY2023) from RM10.16 million in the previous year on higher effective tax rates. Revenue grew at a marginal 1% year on year (y-o-y) to RM256.31 million from RM253.61 million, as the global economic slowdown impacted the revenue of many customers, resulting in slow-moving inventories.

But net profit jumped 314% to RM10.68 million in the first nine months ended Sept 30, 2024 (9MFY2024), from RM2.58 million in the prior-year period, while revenue rose 18% to RM216.84 million from RM183.34 million. It is worth noting that during 9MFY2024, Ge-Shen also reported gains on disposal of property, plant and equipment of RM1.34 million and gains on deconsolidation of subsidiary of RM2.16 million. 4QFY2024 results are set to be released on Feb 27.

Traditionally, the fourth quarter of the year is a weak period for the group due to the Christmas holiday season in its major export markets such as the US and Europe, but Foong expects improved performance for full-year 2024.

“Growth so far has been driven by heightened demand across key sectors, including electronics, medical devices and industrial components. The acquisitions of Local Assembly and Amity Research & Development have started contributing to the group’s expansion, strengthening its position in the EMS industry.

“In addition to acquisitions, strategic investments in automation, digitalisation and facility expansions have further improved operational efficiency and profit margins. The group’s disciplined approach to cost management and process enhancements has also bolstered profitability,” he adds.

As at 3QFY2024, Ge-Shen’s revenue of RM67.86 million was primarily derived from Malaysia and Singapore, contributing RM61.16 million in sales to external parties. Vietnam contributed RM6.7 million in external sales.

According to Foong, the group’s outlook for FY2025 remains strong, supported by growing demand in the medical devices, electronics and industrial automation sectors.

In addition, expansion projects in Penang, Vietnam and Sungai Petani will further strengthen the group’s production capacity to meet growing industry demands. “By strategically reinvesting proceeds from asset divestments into core business areas, Ge-Shen is reinforcing its commitment to sustainable growth while maintaining financial flexibility,” he says.

Last year, Ge-Shen sold its entire 70% stake in Johor-based Demand Options Sdn Bhd for RM15 million to the management of the company, aiming to streamline operations by divesting the loss-making subsidiary. The group has also completed the sale of two land assets valued at RM8 million and RM5 million respectively, with proceeds reinvested into business expansion.

It is also divesting five pieces of land in Johor Bahru worth RM35 million, which it expects to complete by 2QFY2025. The proposed disposal is anticipated to generate a pro-forma gain of RM14.3 million, which will be used to repay bank borrowings and support working capital requirements.

Foong concedes potential challenges that could impact Ge-Shen’s growth momentum include macroeconomic uncertainties, currency fluctuations, supply chain disruptions and rising raw material costs.

The group is bracing itself for escalating costs with the double whammy of Malaysia’s new minimum wage increase to RM1,700 per month, from RM1,500 per month previously, from Feb 1 and the potential rise in US tariffs on imported goods. This could lead to higher operating and production costs, affecting margins and competitiveness, he says.

“The cost of raw materials such as plastic resins, rubber and silicone rubber accounts for about 60% of our total operating costs, followed by overhead costs. We see our overhead costs rising by some 15% this year due to the minimum wage hike,” he notes.

To mitigate these risks, Ge-Shen is focusing on better cost management, operational resilience and strategic sourcing. Additionally, it has been diligently increasing pricing to its customers to ensure the projects in hand are profitable, as well as pursuing new projects across various industries in order to build a bigger customer base. Foong reveals Ge-Shen has set an internal target of 20% y-o-y growth in revenue. 

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