This article first appeared in The Edge Malaysia Weekly on September 13, 2021 - September 19, 2021

GE-SHEN Corp Bhd is getting attention from investors. Shares in the plastic injection moulding and metal stamping company have been on an upward trajectory after swinging back to profitability last year.

The company’s stock price has risen 206.15% over the past 12 months to close at RM1.99 last Wednesday. It has gained 126.1% year to date, while the FBM KLCI has slipped 0.31%. With a market capitalisation of RM218.94 million, Ge-Shen is trading at 16.43 times its trailing 12 months earnings.

The stock’s gains reflect the recovery of profitability in the past few quarters arising from the group’s business development work over the past few years, according to Ge-Shen executive director Louis Lau Puong Kiet.

“All our operating subsidiaries have contributed positively to the bottom line for the second quarter ended June 30, 2021 (2QFY2021). This perhaps attracted the attention of certain people, leading to the increase in share price,” he says in an email response to questions from The Edge.

For many companies, 2021 has so far been a sombre year, no thanks to the impact from fresh lockdown measures. Not so for Ge-Shen. The group managed to turn a RM6.39 million net profit in the six months ended June 30, 2021 (1HFY2021), from a net loss of RM4.43 million a year earlier. Revenue increased 92.2% to RM130.69 million from RM67.98 million.

In August, the company reported that its 2QFY2021 net profit was up 37.8% at RM3.71 million, compared with RM2.69 million in 1QFY2021, on higher customer orders. Revenue grew a marginal 0.9% quarter on quarter to RM65.63 million for 2QFY2021. Ge-Shen said if not for the Covid-19 lockdowns that had impacted the group’s operations, it would have notched a fresh quarterly record for 2QFY2021 revenue — surpassing the record RM70.49 million set in 4QFY2020.

The firm is “cautiously optimistic” that it will be able to sustain its performance for the remainder of the year given the strong orders in hand, coupled with the gradual reopening of the global economy.

“In addition, we are focused on capitalising on the opportunities available for all our factories,” Lau says.

The ongoing trade tensions between the US, China and other countries also bode well for companies like Ge-Shen, whose factories are located in the Asean region. “With the ongoing tensions in global trade, there have been quite a lot of potential business enquiries from customers all over the world to diversify their manufacturing base,” Lau says.

Yet, he refrains from declaring that the worst is over for the group, noting that the devastating impact of Covid-19 across industries has taken many, if not all, businesses by surprise.

“It is difficult to predict the tipping point as any factor has the potential to cause devastating impact to our operations. For example, the unexpected lockdown in June capped our Malaysian operations capacity at 60%. Likewise, our suppliers also have less capacity to supply to us and, thus, many of our customers’ demands were capped.

“With the prolonged lockdown, the multiplier effect can be profound. However, through engagement with our customers, we remain hopeful that we can fulfil backlogs in the remaining [period] of 2021 or 1Q2022,” he says.

Ge-Shen is a contract manufacturer, with the metal stamping segment contributing 25% to the group’s revenue, and plastic injection moulding making up the rest. It serves five main business sectors, namely home and lifestyle products, industrial applications such as semiconductor testing equipment, office automation and data storage, medical and life sciences, and home audio.

The growth is encouraging, and Lau believes the group still has plenty of runway ahead in all its business sectors except home audio, whose growth has reached a plateau but will remain at a stable level.

“We have had a good 1HFY2021 and, of course, hope the trend continues for the rest of the year. However, we are also living in unprecedented times where we face factory floor operational disruptions due to the closure of our factories as a result of the Covid-19 pandemic. Nevertheless, we are working hard to ensure we deliver all our orders on time,” Lau notes.

“There are multitudes of challenges that if any single issue goes out of control, [it] may impact our overall plans. We have experienced many supply-side issues like longer lead time, increasing material cost and the unavailability of materials from our suppliers, notwithstanding the internal challenges with Covid-19. We were fortunate not to have laid off any staff during this pandemic. We try to manage internal headcount through retraining and right sizing our headcount when there are resignations,” he says.

Ge-Shen has a workforce of more than 1,500 across its three factories in Malaysia, one in Vietnam and a global sales office in Singapore.

For the rest of FY2021, Lau says Ge-Shen will focus on ensuring that it continues to have stable operations in its four factories.

“We expect the unforeseen challenges arising from Covid-19 to continue taking a lot of management time but we are optimistic that with the increasing vaccination rate in Malaysia and through government efforts, including the Public-Private Partnership Covid-19 Industry Immunisation Programme for our factory, we will be able to quickly stabilise and achieve more normalcy for the rest of the year. We look forward to the day when our factories and the country embrace ‘Living with Covid-19’,” he says.

“At certain capacities, we were hindered by the lack of production headcount to comply with the government policy, resulting in delays in customer orders. However, our team has been working hard to secure new customer orders — it ranges from cold calling to invitation for tenders and referrals. Also, once the global economy opens up further, we expect global demand to increase, which would further boost our utilisation rates.”

Close to 68.22% of Ge-Shen’s shares are tightly held by its managing director, Shaun Chan Choong Kong, according to Bursa filings.

Chan, whose background is in asset management, emerged as a substantial shareholder in Ge-Shen after acquiring 11 million shares, or a 14.3% stake, at 68 apiece, totalling RM7.48 million, through his private vehicle Pelita Niagamas Sdn Bhd in April 2015.

In August that year, Pelita Niagamas made a mandatory takeover offer to acquire the rest of the shares and redeemable convertible preference shares (RCPS) in Ge-Shen it does not own at an offer price of 81 sen apiece, after its shareholding in Ge-Shen increased from 14.3% to 52.7%.

As at July 13, 2021, Pelita Niagamas owned a 63.54% stake in Ge-Shen. This brings Chan’s direct and indirect shareholding in the company to 68.22%.

Lau, meanwhile, had emerged as a substantial shareholder of the company with a 5.02% stake in December 2018. However, he ceased to be one in April last year following the dilution of his interest due to the conversion of RCPS into new shares.

At end-June, Ge-Shen had a cash balance of RM12.46 million, while borrowings totalled RM95.5 million.

Lau says the group has no plans to raise any funds for now unless there are value-accretive expansion plans. “As a listed corporation, we will always enhance shareholders’ value through organic and inorganic growth. Half of our RM96 million borrowings are long term in nature and the rest for working capital. These borrowings support our total assets, which are in excess of RM260 million.”

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