Geshen is primarily a plastic injection molding player like the famous high-flying VS Industry & SKP Resources. It had been included in 1995 and is based in Johor Bahru. Base on FY14 full 12 months net revenue of RM2.56mil, it is currently traded at an actual PE ratio of 18x at recent average share price of 58sen which is not attractive in any way.

Unfortunately, these two new business ventures do not live up to expectation and incur loss without fail to the group since the operation. Here comes the first BOOST. Geshen has disposed these 2 loss-making subsidiaries. How will the removal impact Geshen? From Geshen’s latest FY14Q4 financial statement, it is stated these 2 subsidiaries authorized total lack of RM4.283mil in the complete FY14 (red container below).

The PBT & PAT of its continuing operation (ie. FY14 is RM8.733mil & RM6.825mil respectively. However, there’s a one-off pre-tax gain from the removal of subsidiaries amounting to RM1.194mil in Q4. After deducting this special gain, its plastic material portion PBT should be RM7.539mils, and PAT should be RM5.9mil bottom on similar 21.8% tax rates. If its plastic business can maintain steadily its performance and reviews similar RM5.9mil net profit in FY15, it is EPS will be 7 then.38-sen (80mil shares).

Nevertheless, there is a significant drop in revenue of FY14Q4 due to reduced order. This remains a concern. The second BOOST is its proposed acquisition of its peer Polyplas which will exactly the same thing as it does. Geshen will acquire 75% of Polyplas for RM33.8mil which will be paid by inner finance and issuance of 30 million Redeemable Convertible Preference Shares (RCPS) at 60sen each which are convertible into normal stocks within 5 years. The RCPS shall increase RM18mil and its own holders are entitled to 5.5% dividends per annum.

Geshen gets the option to obtain the remaining 25% of Polyplas in the future. How good is this Polyplas? Polyplas is incorporated in 1988 and is based in Bukit Mertajam Penang. Compared to Geshen’s stagnant revenue, Polyplas’s income improved significantly by 39% YoY in its FY14 (finished Oct14). However, we don’t possess long enough data to ascertain that it is actually a consistent development, as income of contract manufacturers can fluctuate a lot.

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Anyway, recent growth continues to be a good indication. It really is even creating a new stock to increase its creation and warehouse space lately. Polyplas FY14 production capacity utilization rate reaches approximately 52% predicated on operating hours. There are different machine tonnage which caters for different customers’ products so it is nearly impossible to utilize all the machines at onetime.

Anyway, it is reported by the analyst that SKPRes have current usage rate of 75-85%, from 60% during its disappointing time in calendar year 2013. It has constructed a new manufacturing plant that increases its capacity by another 75%! Despite lower income by half in FY14, Polyplas have the ability to produce better net revenue than Geshen.