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.