Thursday, 3 September 2015

Geshen: Polyplas Rolled In

Geshen FY15Q2 Financial Result

GESHEN (RM mil) FY15Q2 FY15Q1
Revenue 36.23 17.73
Raw material used 18.07 5.70
Raw material % 49.9 32.1
PBT 4.22 1.75
PBT% 11.6 9.9
PAT 2.82 1.17
MI 0.52 0.00
PATAMI 2.31 1.17

Total Equity 64.4 48.2
Total Assets 118.3 65.9
Trade Receivables 26.7 10.1
Inventories 15.5 6.3
Cash 5.2 14.6

Total Liabilities 49.8 17.7
Trade Payables 21.6 5.9
ST Borrowings 7.4 6.0
LT Borrowings 3.5 1.0

Net Cash Flow -12.7 -3.1
CFOperation 5.4 -1.7
Depreciation 2.9 1.3
CFInvestment -33.2 -0.6
PPE Purchase 0.3 0.6
CFFinancing 15.1 -0.8
FreeCF 5.1 -2.3

EPS 2.99 1.52
NAS 0.89 0.63
D/E Ratio 0.09 Net cash

Geshen has announced its latest quarterly result which includes contribution from Polyplas for the first time.

It posts a 104% increase in revenue and 97% increase in PATAMI compared to preceding quarter of FY15Q1.

Is it a good result?

Geshen announced the completion of 75% Polyplas acquisition on 17th April 2015.

If Polyplas's result was added into Geshen from 17th April onward, then it will contribute 75 days out of 91 days (82.4%) available in Q2.

From my earlier post, I calculated that if Geshen and Polyplas were to maintain their financial performance in previous financial year, then the new Geshen should get RM11.8mil PATAMI for a full financial year.

This is about RM2.95mil in average per quarter.

So, its actual FY15Q2 PATAMI of RM2.305mil falls below the average.

Profit attributable to non-controlling interest is RM0.516mil in Q2. This should represent 25% of Polyplas if I'm not wrong.

So, 75% of Polyplas net profit which Geshen's shareholders get should be RM1.548mil.

Thus, Geshen's original business should contribute RM0.757mil to make it overall RM2.305mil in this Q2.

This looks like a lower than expected result but actually it is affected by higher tax in current quarter.

Tax rate in FY15Q2 is 33.2%, which is exactly the same as Geshen's FY15Q1 tax rate without Polyplas, in which both include a small sum of deferred tax.

However, Polyplas's effective tax rate for its FY14 was just 22.6%.

I'm not sure whether Geshen's tax rate will remain this high or drop back to normal level of around 25% in subsequent quarters, but I think it should drop.

As mentioned earlier, approximately 82% of Polyplas's profit was included in Geshen's FY15Q2. If it contributes fully, then it could be about RM0.33mil more than actual PATAMI of RM1.548mil from Polyplas.

Overall, I think it is a fair result for Geshen.

From the profit breakdown, it looks like Polyplas continues to grow but the old Geshen is shrinking.

Hopefully the management can get the positive synergistic effect out of the merger of these 2 similar companies soon.

If we annualize only FY15Q2's result, Geshen can get an annual PATAMI of RM9.22mil. 

With current ordinary shares of 80mil, projected EPS will be 11.5sen.

However, we must not forget that there are 30mil of RCPS which are convertible to ordinary shares up to year 2020.

Anyway, the imminent acquisition of the remaining 25% Polyplas shares should help to ease this earning dilution effect.

Lastly, this is what Geshen wrote about its prospects in its latest quarterly financial report:

Improved performance QoQ or YoY? I guess most readers will take it as QoQ improvement right?

Normally we don't see many companies commit themselves to hint at a "better" or "improved" future performance in the group prospects section in the quarterly report.

From a quick check on previous quarterly reports, Geshen did not do that before the acquisition of Polyplas.

I think most companies will just mention something like "satisfactory result" or "remain profitable" etc.

Perhaps this is just the style of the new major shareholder of Geshen?

Lets wait for the Q3.


  1. Hi BD,

    What do you think about KESM ?


    1. Hi Brian,

      The problem with KESM for me is I can't find its segmental revenue/profit breakdown for burn-in/testing and EMS. From last few quarters results, net profits are going down, with increasing staff cost & depreciation, though its Q results tend to fluctuate.

      I think EMS segment slowed down while management is concentrating on automotive testing segment with huge money spent on new equipment. The shrinking EMS profit may make acquisition of all minority interest in test segment less attractive as profit may not jump as desired.

      At current RM3.6+ it's still a bit high for me. But I think KESM will have a good future as high capex in the last 2 years should start to bear fruits. Its operating CF is robust but seems not giving out too much dividends.

    2. Hi BD,
      Many thanks for your reply. I have the same feeling on KESM. The current price is a bit high for me.


  2. 好嘢。
    Wa, ur hevea very geng hor, btw Hevea has around 250m deductible tax asset, how do u interpret this?

    I really many co's hv lot of deductable tax asset, but cannot booked into balance sheet, n then they also nvr used it to dedect tax one.

    I realize u re "mother co acquire sub, then financial result will oso merge then eps boost" expert, can u help me see see ifca recently proposed to acquire its indon sub, see how it can boost the net profit, tq

    1. I don't know for sure what is the deductible tax asset. Is it like tax incentive?

      Haha, what a funny expert "title" that is. I think everyone is interested in this kind of corporate exercise. I'm not interested in ifca but will take a look. May be I should write about KESM first :)

  3. Firstly, thank for your analysis & sharing .

    How do you think of the take over offer?
    I'm Geshen shareholder and i feel quite disappointing with management's take offer price as at RM 0.81.
    And we could expect quite a number of shareholders willing to "sacrifice" their share after announcement.

    1. Hi. I'm still ok with it. May be when they decided the offer, Geshen's share price still below 80sen. I'm keen to know what will be the next development for Geshen.

  4. I compare Geshen against LCTH :

    Geshen annualised EPS = 11.5 sen
    LCTH annualised EPS = 5 sen (based on latest improved quarterly result)
    If I give target PE of 10 to both stocks :
    Geshen target price = RM1.15/share
    LCTH target price = RM0.50/share

    I invested into LCTH and it's stock price has moved quite a bit to 0.63 sen today, while Geshen stands at 0.805 sen with 43% upside potential to target price.
    So, I think I should switch LCTH to Geshen....

    BD, do you see any flaw in my rough estimation above :) ?

    1. I'm not qualified to pick up any flaw but just give opinion :)

      As mentioned above, Geshen has 30mil RCPS but it's up to year 2020. For LCTH, its "other incomes" from rental/interest etc are quite a lot compared to its gross profit.

  5. BD,
    Really sudden unexpected but pleasant spike up this morning. Mandatory Offer doesn't expire for another week or so.

    Wondering about their game plan now. Playing catch up with VS n SKP?
    Anyway, congrats to all that are still holding.

    1. Hopefully it will announce some good news soon to justify the surge in share price :)

  6. hi Bursadummy, do you mean to explain a little bit on this announcement? I don't quite understand whether this is a good or bad news to this counter... does it mean all GeShen holders have to sell its share to XXX with a price of 81cents? I wanted to collect this counter but too much of unknowns for me... So, I didn't..

    1. typo... i meant "do you mind to explain*"

    2. Hi hissyu2, I don't think there is anything new regarding this announcement, which is like an "advice" to shareholders. Shareholders may still choose to hold or sell, until 22 Sep.

    3. BD, does it mean if this deal is ON. All shareholders have to sell their share with a price of 81cents each by 9/22? (sorry, no sifu around... hope you don't mind to explain)... thanks Sir.

    4. No. The situation is like this: Mr Chan bought lots of Geshen shares recently at 81sen exceeding certain percentage. By law he has to offer to buy other shareholders' shares at the same 81sen. He may not want to buy more shares actually.

      So other shareholders can choose whether want to keep their Geshen shares or sell to Chan. You can see that recent announcement from Geshen that Chan keeps acquiring Geshen's shares at 81sen, which means some shareholders already sold to him. Those who want to sell their shares to Chan can do so until 22 Sep. After this date, the offer ends and everything back to normal. Geshen shares still listed and I will still hold its shares as I do not wish to sell to Chan at 81sen. I think Geshen should worth more than that.

      I feel that Geshen's share price is deliberately pushed up by someone to above 90sen to discourage small shareholders to sell to Chan. If the share price is traded at 95sen, I can sell the shares in open market at around 95sen, who want to sell to Chan at 81sen?

    5. Thank you BD... I noticed this msg too late... was very uncertain to the notice that I don't understand ... missed this plane... your estimated EPS was wrong... the recent result exceed more than you expect! Congrats, thanks for your selfless guidance...

    6. initial thought that everyone has to sell Geshen shares at 81cents else you might get a lower price... that's why I didn't dare to buy~~
      hope that you could further explain a bit on the newest quarter result, is Polypas contribution adding to "other income"? if yes, look like Geshen original business is not shrank yet :) you should have no worries at all :)

    7. You're welcomed. I went thru the same process as u not too long ago. We learn from experience. "other income" is mainly forex gain. I'm writing the result review and will post it up later.