Long Term and Short Term Prospects of Ge-Shen

Ge-Shen Corporation Berhad’s principal activities is the manufacturing of plastic molded products and components, tools and dies. The company was founded back in 1995, serving the precision plastic injection molding business. In year 2000, the company has formed Exec Technology, a 100% owned subsidiary to complement its existing molding business as a dedicated tool shop. Ge-Shen begin its listing on Bursa Malaysia in 2004 and founded Ge-Shen Vietnam in 2006 to expand its manufacturing of plastic components business. In year 2015, Ge-Shen Group acquired 75% of Polyplas, an injection molding company to expand its current manufacturing capacity.

Based on Financial Year (FY) 2015 full year results, Ge-Shen achieved RM137 million turnover, which is considered to be a small enterprise. Other aspects of the company’s latest financial results are illustrated in the table below.

Since FY2011, Ge-Shen’s revenue has been in a slight decreasing trend till FY2014 from RM 89 million to RM 85 million per annum. However, the company experienced a sharp increase in revenue to RM 137 million in FY2015, which translates to a 61.5% increase within just a year.

Similarly, the company achieved a big jump in net profit of about 400%, from RM 2.56 million to RM 12.7 million. This significant surge in both revenue and net profit were mainly due to the contribution from the newly acquired 75% subsidiary company Polyplas Sdn. Bhd., as well as disposal of loss making subsidiary companies.

Net profit Margin wise, Ge-Shen scores a reasonable 9.90% but in terms of Return on Equity, Ge-Shen’s 16.08% does look healthy. In terms of dividend, sadly Ge-Shen have not been paying dividend for many years.

On company’s debt, Ge-Shen has a total debt to equity ratio of 0.17 which is considered low as the company has a relatively low long term debt as well as current liabilities as compared to their shareholder’s equity value. The company’s current ratio of 1.72 is pretty good and cash ratio of 0.473 is still acceptable, considering close to half of their current assets are in terms of cash.

In summary, Ge-Shen’s financial performance is considered above average and currently having a low PE Ratio of 9.98. In long term aspects, Ge-Shen’s future seems to be mixed due to the fact that while Ge-Shen’s increasing capital expenditure for business developments as well as weakening Ringgit against USD are bringing positive impact to its business, on the other hand, future minimum wage policy and higher foreign labour administrative cost are expected to increase its operational expenses which reduces the company’s profit margin.

However, for short term wise, the company’s FY2016 first quarter results have surpassed FY2015 Q1 by one fold in terms of revenue, outlook for the rest of the quarterly results remains positive as the acquisition of Polyplas brings immediate increase to the company’s revenue and earnings.

Next quarterly results announcement should be on the month of Aug 2016 for Q2 results.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Ge-Shen

After falling from recent intraday high of RM2.97, this stock has built a nice accumulation base around RM1.50 - RM1.60 levels. The market was tested to the downside but made a 2 bar bottom reversal denoting Sign Of Strength (green arrow) in end May/early June 2016.

Should Ge-Shen break above RM1.80 level with volume, we should see a new upside trend. Consider to accumulate around current levels of RM1.60 - RM1.70 but patience is required and contra trading should be avoided. Do remember to set your stop loss level.

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