Ge-Shen sees better days ahead

TheStar Sat, Jul 18, 2020 08:00am - 6 months ago

“We are seeing the readjustments currently happening in the global supply chain - we are in discussions with a number of potential customers who want to have a supply base outside of China, ” its executive director Louis Lau tells StarBizweek.

Ge-Shen Corp Bhd hopes to capitalise on any opportunities that may arise from the ongoing US-China trade war as it sees the global supply chain adjusting to new geopolitical realities.

The company, a manufacturer which has factories in Penang, Johor and Vietnam, is in talks with new potential customers at the moment.

It had been impacted by the trade war prior to this, as sales had fallen in its financial year 2019 (FY19 ended Dec 31) resulting in it posting a pretax loss of RM9.9mil last year.

“We are seeing the readjustments currently happening in the global supply chain - we are in discussions with a number of potential customers who want to have a supply base outside of China, ” its executive director Louis Lau tells StarBizweek.

He says that operating out of Malaysia is an advantage at this point in time as this country does well in the areas of the rule of law and the ease of doing business, among others.

“We have a good chance to upskill and grab these opportunities, not so much to compete against the current and existing Chinese manufacturers but to complement them.

“But to grab these opportunities means a lot of hard work and difficult decisions to innovate in terms manufacturing processes and service (also), ” he says.

In its FY19, the company in its annual report attributed the decline in financial performance to the decrease in its customers order due to the US-China trade war.

The company says that this matter had caused slowdowns and delays in global demand, as most companies took a wait and see approach for the full financial year.

“I think that the Covid-19 lockdowns around the world has made businesses speed up their supply chain diversification plans.

“Companies also now focus their priorities on just-in-case (basis) rather than just-in-time, ” he says.

“And this looks like what it will be going forward as global demands have shifted and changed. Having alternative supply chain will be an important factor for many companies, ” Lau adds.

Ge-Shen also notes that costs have increased due to the minimum wage and the ongoing capital expenditure (capex) programme for its new projects.

This had led to significant increases in both depreciation and finance charges related to them.

For this year, Lau says the company is planning for a RM10mil capex that will funded both internally and externally through bank borrowings.

“Our initial plan for capex this year is mainly to cater for production bottlenecks and additional machine capacities where we were a bit tight. We delayed some of that due to the current pandemic but we have now started some of this delayed capex spend as we have to fulfill our production obligations towards our customers, ” Lau says.

“We have invested more than RM170mil (in capex) over the past five years to grow the business. Our key focus was to scale up our capacities and make strategic steps to drive efficiency and increase automation, ” he adds.

Moving forward, Lau says he expects a recovery in its revenues and bottomline.

“The MCO has given us much time to improve our internal cost structure and this will hopefully show in the near future. Our journey to continue increasing revenues continues, ” he says. “We are cautiously and very selectively continuing our investments into new process and equipment to support our customers. Our capex are also with a keen eye on automation and smart manufacturing to make us even more efficient and productive.” He also says that Ge-Shen is looking for strategic partners whether customers or suppliers to work together to continue strengthening the Malaysian supply chain with the aim of scaling up to be an even more meaningful manufacturer on a global scale.

“Overall, we are in a better position and stronger footing to be able to face the ongoing uncertainties today than we were six months ago and we are cautiously optimistic that given the right supportive policies of the global governments, we should be able to grow out of this crisis in due course, ” he says.

On its cashflow position with regards to the repaying of its debts, Lau says the banks have been supportive of the company and that they have been in constant communication with its bankers.

“We are glad that our banks have been extremely supportive of us. The moment the movement control order was announced, we started engaging with our bankers and most have responded positively, ” he adds.

“During the early parts of the MCO where our factories were shut, there were moments of anxiety. But our customers have generally been very supportive by paying on time, we were likewise able to normalise our payments to our vendors and proactively retire trade facilities earlier than expected. In short, we were able to reorganize our balance sheet and are in much better cash flow position now.”

Among its business segments, Lau says that the medical segment is doing ‘very well’ at the moment.

The company manufactures single use medical equipment or devices for the healthcare industry.

Lau says the company is also experiencing some sort of recovery in its other business segments where it manufactures for the consumer electronics, automotive and aerospace industries.

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