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Wednesday, November 11, 2015

Geshen: Exciting show at a stiff price

Background


Geshen was established in 1995 has businesses in the UK, US, Singapore, and Japan. Geshen is a manufacturer of high precision plastic components for the manufacturing of ICT products, electronics and electrical and automotive products.

Last year, Chan Choong Kong, an experienced fund manager acquired a 56.37%-stake in Geshen. Chan is the owner-manager of the following fund management companies:
  • Opus Asset Management , a fixed income asset management company
  • Pan Asia Capital Management Ltd, a Pan-Asian private equity
  • Sakura Management Ltd, a private equity business 
Last year, Geshen acquired a 75%-stake in Polyplas for RM33.76million. The acquisition represents a strategic investment for the Ge-Shen group as it allows it to diversify its product offering, expand its customer base, expand its market coverage, and increase its operating efficiency and achieve economies of scale. Polyplas contributed significantly to the bottom-line of Geshen in the last 2 quarters.

Recent Financial Results

From the table & chart below, we can see the sharp rise in the top-line & bottom-line of Geshen in the past 2 quarters.


Table: Geshen's last 11 quarterly P&L account


Chart 1: Geshen's last 11 quarterly P&L account

Financial Position

Geshen's financial position as at 30/9/2015 is deemed adequate, with current ratio at 1.5 times while gearing ratio is slightly elevated at 0.8 times.

Valuation

Geshen (closed at RM1.46 on November 8) is now trading at a PER of 9.2 times (based on last 4 quarters' EPS of 15.8 sen). Based on this, Geshen is deemed fully valued for a medium-cap stock. However, if the company can maintain its last 2 quarterly earnings going forward, its full-year earning can come to 25 sen. On that basis, its forward PER could be at a fairly attractive 5.8 times.

Technical Outlook

Geshen has rallied substantially from RM0.20 in early 2014 to nearly RM1.50 today. After such a long rally, the only way to get into the stock is on pullback towards the 10-week SMA line at RM1.00. However, that may not happen anytime soon.


Chart 2: Geshen's weekly chart as at Nov 8, 2015 (Source: Share Investor)


Chart 3: Geshen's monthly chart as at Nov 8, 2015 (Source: Share Investor)

Conclusion

Based on exciting prospects and good financial performance for past 2 quarters, Geshen is a stock worth tracking for long-term investment. 

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Geshen.

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