Wednesday, 11 November 2015

Geshen: Patience Paid Off

Geshen FY15Q3 Financial Result

GESHEN (RM mil) FY15Q3 FY15Q2 FY15Q1 FY14Q4 FY14Q3
Revenue 45.12 36.23 17.73 16.53 24.69
Raw material used 20.17 18.07 5.70

Raw material % 44.7 49.9 32.1

Other Income 5.81 0.51 1.04

PBT 12.09 4.22 1.75 2.44 2.48
PBT% 26.8 11.6 9.9

PAT 8.71 2.82 1.17

MI 1.32 0.52 0.00

PATAMI 7.39 2.31 1.17 2.51 0.29

Total Equity 73.2 64.4 48.2 46.6 44.8
Total Assets 136.7 118.3 65.9 67.3 71.8
Trade Receivables 37.3 26.7 10.1 8.0 13.0
Inventories 17.0 15.5 6.3 7.5 8.5
Cash 12.3 5.2 14.6 16.4 12.8

Total Liabilities 58.0 49.8 17.7 10.7 26.9
Trade Payables 23.9 21.6 5.9 7.3 10.0
ST Borrowings 8.1 7.4 6.0 6.4 6.4
LT Borrowings 3.6 3.5 1.0 1.1 1.8

Net Cash Flow -7.8 -12.7 -3.1 2.3 -0.8
CFOperation 11.7 5.4 -1.7 3.6 2.7
Depreciation 4.6 2.9 1.3

CFInvestment -37.1 -33.2 -0.6 1.0 -1.5
PPE Purchase 4.2 0.3 0.6

CFFinancing 17.6 15.1 -0.8 -2.3 -2.0
FreeCF 7.5 5.1 -2.3

EPS 9.60 2.99 1.52 3.26 0.37
NAS 0.95 0.89 0.63 0.61 0.58
D/E Ratio Net cash 0.09 Net cash

Geshen's management really meant it when they said in previous quarter that "the group envisages improved performance over the next quarter".

Its latest FY15Q3 EPS jumps 220% to 9.6sen from 3.0sen QoQ, while revenue improves 25% in the same period.

The main reason for this extraordinary performance is a RM5.809mil gain in "other income".

From the profit breakdown, this "other income" should be made up of forex gain & interest income.

However, Geshen has registered both gain and loss on forex, with a net gain of RM3.75mil in this quarter.

I think the forex loss should have been included in "other operating expenses".

To be fair, if we take out forex gain of RM5.77mil from "other income" to calculate its core profit, we should add in the forex loss of RM2.03mil.

After deducting the net forex gain, Geshen's core PBT in FY15Q3 should be RM8.35mil.

At a tax rate of 28%, net profit will be RM6.01mil, and PATAMI roughly RM5.1mil.

To me, this is definitely a superb result as I only expect full year PATAMI of RM11.8mil for Geshen.

So, core EPS without forex gain for Geshen in FY15Q3 should be 6.64sen (total shares 76.9mil).

Annualizing this figure we can get 26.5sen EPS a year.

If we give it a fair PE ratio of 10x, then its target price will be RM2.65. If PE 8x, it will be RM2.12.

If it is fully diluted (+30mil RCPS), projected annualized EPS will be 19.1sen.

At share price of RM1.73 now, it seems like Geshen still looks "undervalued" even though it was just trading below RM1 one month ago.

Anyway, please bear in mind that the calculation above is based on annualized figure using single quarter result.

However, I think this is fair as FY15Q3 is the first quarter that included Polyplas's contribution fully.

Geshen did mention in the quarterly report that this Q3 has a seasonal higher production volume.

This is true, as Geshen consistently posted highest revenue in its Q3, but this is not necessarily so for its profit.

With the inclusion of Polyplas, which is basically a better company than the original Geshen, I'm not sure whether this seasonality will stay.

Furthermore, Geshen may still has room to grow as its 75%-owned Polyplas seems to be in growing mode, and it may acquire the remaining 25% shares later.

In another development, Geshen announced that its new major shareholder Mr Chan CK has been appointed as joint managing director of the company, who will be in charge of the company's day to day operation.

Is this a good or bad news?


  1. Thank you BD introduced us this counter. Hard to find such counter. You have the extraordinary sense to find this in early stage. Saw your portfolio really good performing. Admired. Thank you again. Thank you.

    1. You're welcomed kcwong. This Geshen performs very much above my expectation.

  2. BD, congrats on your gain... Believe it will continue flying for few days... If you have some times, do you mind to take a look on CBIP? It seems to be a good counter to me but I really too new to most of the statements inside... Mind to give some comments if possible... Thanks

    1. Thanks. I have known CBIP for quite some time. I always think that it is a well-managed company. I like its foray into oil palm plantation. According to AR2014, its available landbank of 65k hectares is not small for me. Only 6k planted until 2014. Their oldest tree age is still about 3 years so almost all still immature. It plans to plant 6k hectare a year.

      The problems are, revenue is slowing down recently and its tax incentive has expired since Feb15. Its tax rate in Mac15-Jun15 period jumped to above 25% from usual ~10%. Subsequent Qs results should be lower compared YoY. However, I think its current share price of RM1.94 is fair compared to peers. It will certainly grow after those palm trees reach prime maturity.

      I will surely consider CBIP if I decide to add plantation stock to my portfolio later, though I don't really like its special vehicles business.

    2. Thanks for the comment. CBIP plantation division is still losing money as expenses are spent to plant palm oil but all trees are immature, probably that's the reason they couldn't realize 6k hectares per year target?
      I didn't notice the tax rate, thanks for reminding. And I don't like its special vehicle business either... It's strange for me to see a cpo related company does this business....

  3. Hi BD,

    Thanks for introducing this counter. I bought at RM0.80. Are you interested to add more Geshen.?



    1. Hi Brian, I plan to add more after seeing this result.

    2. Hi BD,

      You plan to average up until what price ?


    3. I think it should worth at least RM2

    4. Yeah, i think in another 6 months time it will go up to RM3 very likeyly. But I am more kia si type, I only average up to RM1.04.


  4. Hi BD^^ , mmode result announced yesterday, mind to gv some comments ?

    1. Hi ssim,

      For me, a drop in revenue and net profit QoQ for mmode is not a good sign. There is actually a tax gain in its latest FY15Q3 as well. Its core EPS in FY15Q3 should be around 1.2sen instead of 1.6sen. Anyway, it is a cash-rich company with clean balance sheet and good cash flow. Its success should depend very much on the popularity of its service, that's why I think a drop in revenue QoQ is a concern. Anyway, its share price has gained a lot recently. You can still invest in it if you are very confident on its business model.

  5. BD, if u dont mind pls give your email address here. I would like to email u something on personal basis. Thank u

  6. Hi BD,

    What do you think about AWC ?


    1. Hi Brian,

      Last month I have commented on AWC as pasted below:

      # Though I don't like this kind of company, the proposed acquisition does look interesting. I'm totally unfamiliar with this company though. From simple calculation, base on FY15 PATAMI of RM7.78 plus profit guarantee of RM3.9mil & enlarged shares of 256mil, projected FY16 EPS will be 45.6sen. Now share price at 38sen which looks quite good. How I wish I read this announcement on 8th Sep. #

      After reading the links you provided, I decided to study its latest AR for more details. After going thru the chairman statement & management analysis, I feel that it is unwise not to invest in it even at share price of over 40sen now. This company is surely expanding - new businesses acquisition, new air-cond work venture, new overseas markets, new & higher concession rate, new facility contract for clinics & private sector etc.. There are just too many positives.

      However, after going thru its financial statement, there are significant one-off gain & also lower tax for FY15. I think its core PATAMI should be around RM5.5mil. It did not pay dividends in FY15 for funny reason but paid RM7.35mil dividend to NCI. I'm not sure why.

      Anyway, FY15 is already the past and I think FY16 will be a good year for AWC, with profit guarantee and more profit from new concession, new & delayed contracts etc. I think it should be able to achieve RM10mil PATAMI in FY16.

    2. hi BD,

      I have invested some @Rm0.39. How about Genetec ?


  7. Hi BD,

    Do you think it is still worth to enter geshen now at pricing of RM2.0? From the analysis, there's so much more potential but with the given pricing, I'm not sure if it's too late to enter now.

    1. Hi, I can't give u a definite answer... To buy now might be a bit risky, u may wait for correction if not comfortable.