I bought some GNG recently at 18p (price now up to 26p) given:

- excellent trading update giving a current year P/E of 8 or 9 on likely 3p-3.5p EPS
- 2.6p historic EPS to 31/3/06 and a historic P/E of 10
- contract wins announced post-IPO in June 2006
- 1.9m of net assets, with 820k of cash, against a 6.8m m/cap
- results to be announced 28th November following the trading update

Here's the trading update:
http://www.investegate.co.uk/Article.aspx?id=20061031080000P4198

I gather GNG's CEO and CHairman (both superb English speakers) will be over here next week to tour the City, give press interviews etc.

GNG intended to raise $7m at IPO, but raised only 500k due to terrible matket conditions at the time in June. Despite this they've now announced that they're almost going to meet the broker's estimates as calculated on raising the full $7m.

GNG should now be on course to make around 3p-3.5p EPS this year to March'07. This leaves them on a current year P/E of only around 8 or 9.

Heres their IPO RNS from 23rd June 2006 (the Board of Directors is extremely impressive):

http://www.investegate.co.uk/Article.aspx?id=20060623081500PF52B

This is what GNG do:
GEONG has established itself as one of the market leaders in the Peoples Republic of China in providing content management solution software products and related services for large enterprises. GEONG's flagship product range, the GEONG PortalAge series, is used by the top 5 Chinese banks and 12 out of the top 20 securities firms in China. It is an enterprise server software product which combines a number of optional business solution components and customisation modules that can be used to provide individual solutions for a range of industries including those that require real-time or time critical applications such as internet banking.

Note the wording a range of industries.

In slightly more detail, GNG has a 6.8m m/cap, with 26.12m shares in issue.

GNG made $1.28m post-tax profit for the year to 31/3/06. At $1.87 that's 685k, or 2.6p EPS, for a historic P/E of just 10.

The brokers forecast on IPO was for $1.89m post-tax profit this year to 31/3/07, or around 3.7p EPS, for a P/E of just 7.

And per the pro forma in the prospectus GNG had at 30/4/06 1.9m of net assets, including 820k of cash, against the current 6.8m m/cap. Thus the continuing business making a $1.28m historic profit after tax is valued at just 4.9m.

The prospectus noted that GNG are trading in line, and there's been some excellent announcements post-IPO at the end of June to indicate that things are continuing to go well:

July : a $350k contract win with Huawei-3Com, who employ more than 4,500 people worldwide:
http://www.investegate.co.uk/Article.aspx?id=20060724074128PFD9C

October : a $500k contract win with Air China:
http://www.investegate.co.uk/Article.aspx?id=20061018071237PC25A

In the same RNS, GNG stated that their solutions "are already being used by Shanghai Airlines and China Travel International and will allow us to gain a larger share in this fast growing sector."

October : core supplier status from IBM:
http://www.investegate.co.uk/Article.aspx?id=20061018071206PB237

November : new contract win with China's Bank of Communication (one of China's "Big Four" banks):
http://www.investegate.co.uk/Article.aspx?id=20061121070205P7788

The reason for the post-IPO fall is some of the pre-IPO $300,000 loan note holders from late 2005 turning their converted stock for a quick profit, and a complete lack of PR. GNG also raised less than they hoped for on IPO because they floated just after the FTSE had dropped calamitously from 6,100 in May to 5,600 - this of course also contributed to the artificial fall in the share price post-IPO.

Note also from the prospectus that 80.16% of the shareholders, including the directors, are locked in for from 6 months to a year, so there are only 5.2m shares in free float, or around 1m worth.

On a 6.8m m/cap, a company making 1m post-tax profit could have rather a long way to go imo. DYOR etc.

Corporate website : http://www.geong.com/Site/Home/EN

Well, sorry for the late response to results, busy today. Well, below below below BELOW.

Below even the standard broker forecasts. How can these people, get away with saying in the April 10th statement "Pre Close Trading Update" that they were ahead, and now put results below even what an "in line" statement would have made the market expecting.

Awful.

Inventories rising, working cap requirements rising, what now looks like a very misleading April 10th Pre Close update, cash falling....

The April 10th update saying they were ahead is, well, damn awful imo.


*****************

Broker Forecasts in place at "AHEAD" statement in pre close update 10th April :

2008 PTP 1.46m
2008 EPS 3.92p

"AHEAD" means +10% or more of the broker forecasts.

So in fact we must be looking for minimum on Monday of :

PTP of 1.6m
EPS of 4.3p

___________________________________________________________

Therefore, figures to watch compared to Interims are :

Expected PTP = 1.6m Actual PTP = 1.13m (WELL BELOW)

Expected EPS = 4.3p Actual EPS = 3.53p (WELL BELOW)

Interim Cash level was : 2,148m Cash level now is 1,996m (GOING DOWN)

Net cash generated from ongoing ops : -1.4m Now is -1.47m (Negative means eating cash in working cap)

Trade receivables was 3,494 Now is 5,363 (OH DEAR - RISING)

Other receivables was 712K Now is 761K (OH DEAR - RISING)

Inventories was 173K Now is 191K (OH DEAR - RISING)



Figures for interims are approximate, and using 1.97 exchange rate.

Links :

Pre Close update - "Ahead" not retracted - http://www.investegate.co.uk/Article.aspx?id=20080410070000P372A

Interims in US$ - http://www.investegate.co.uk/Article.aspx?id=20071122070000PCAE0

Papalpower, are you saying that Geong is doing creative accounting?

tut tut! how could you ever think such a think of a chinese company?

:o))

GNG now has an 17.8m m/cap at 56p. Against this it has 7.2m of tangible net assets, basically comprising 2m of net cash and 5.4m of blue chip trade debtors.

The EV is therefore only 10.6m, against which GNG made 1.24m adjusted PBT last year (3.7p EPS). GNG is now forecast to make 2.36m PBT this year and 3.38m PBT next year. These equate to 6.5p EPS and 9.1p EPS.

Seymour Pierce have a target price of 120p. They've assumed 15% tax this year again, which I think will again be conservative as last year GNG only paid 5% and they have a tax reduction scheme in place.

I note that the Chairman bought abother 30k of shares today at 60p.

Debtor days are very poor and trade debtors high. But there are good reasons for this - read the ADVFN thread for more - and in particular this year it seems that a company restructuring to reduce tax has led to debtors being temporarily high. Those who attended today's presentation say that GNG have reduced the year end debtors by 1m already.

The presentation attendees also note that the order book is up to 5m from 2.5m last year. Recurring income is up to 44% from 40%. GNG forecast they'll have 4.4m of net cash by the year end.

Given the defensive characteristics above, plus the director buying at 60p (today)and 65p last year, the high order book and the consistent profit growth in the past and as forecast, I don't consider a historic P/E of 15 and a current year P/E of 8.6 to be expensive.

GNG cocked up their reporting by essentially booking certain contracts as completed last year which on review were agreed to be completed in this current year. Some may hold this against them for a while, which is fair enough.

Personally I believe the fundamentals and prospects are too good to ignore.

Here's the new broker note which came out today - there's a typo as there's actually 130,000 SmartBox user seats, not 13,000:

"Sustainable delivery continues

Having grown revenues and profits by 77% and 33% respectively for
the financial year to March 2008, and forecast to grow profits by 90% in
2009 and by 43% in 2010, Geong, currently trading at 7.5x March 2009,
looks extremely attractive. March 2008 PTP of 1.24m was below our
forecast of 1.4m as revenue recognition milestone led it to defer
revenue from 2008 to 2009. We remain keen buyers with a price target
of 120p and utmost confidence in the management to deliver our
forecasts for 2009 and 2010.

In October 2007, Geong established itself by increasing its presence in
Guangzhou, Southern China, a region and area that is seeing significant
growth compared to the rest of China. Administrative costs increased from
1.1m in 2007 to 1.7m in 2008. R & D cost increased by 95% as Geong
introduced SmartExpress, the entry level product of the SmartBox product
family, designed for very small enterprises. Margins dropped from 55% to
47% as the revenue mix began to shift towards reselling of 3rd party licenses.

With 2m of net cash, Geong should expand into new markets and new
products thus significantly increasing its customer base. It currently has
relationships with over 100 blue chip companies in China who either have
used or are using its ECM product PortalAge and revenues from its top 10
PortalAge clients doubled during 2008. It has almost 13,000 licensed users
of SmartBox and SmartExpress in over 2,000 SMEs.

Geong has the capacity to generate underlying growth of 40% to 50% quite
comfortably. Recurring revenue continues to increase, 44% in 2008
compared to 40% in 2007. 2009 order book is strong and growing as
evidenced by the signing of 4 new contracts today. The management is
focused and workforce has grown from 330 a year ago to 520 at March year end.

Trading at 7.8x March 2009 Geong is extremely undervalued.

BUY."

a synopsis would have been more readable, but i happened to note "Debtor days are very poor and trade debtors high" ..... i don't want to hear the excuses ..... from running my own biz and seen others, i know that cashflow and credit control are paramount ..... perhaps the chinese can delude themselves that book debt = profit .... not until it's banked it ain't, any more than a profit on shares! ..... in fact it is a truism that any debt 90+ overdue becomes progressively harder to collect .... it is also self-apparent that Geong don't pay their bills either .... well, i guess that's no surprise iof they don't collect what is owed!

the graveyard is full of companies that were theoretically profitable but just ran out of cash .... this can happen through over-trading or under-capitalisation or, as in this case, incompetent credit control

oh dear .... not more misrepresentation surely? ...... booking certain contracts as completed last year which on review were agreed to be completed in this current year".

oh dear again ...... company running significantly less profitably .... "Margins dropped from 55% to 47%".

and you STILL want to buy these shares????

Cynic, you certainly live up to your name :o))

The debtors comment was mine, not the broker's (as you seem to indicate?).

Cash is king. So:

- it's fortunate that GNG have 2m of the stuff
- almost all its 5.4m debtors are blue chip, so GNG barely has any bad debts. The bad debt write-off has risen to just 35k from 1k last year! Thus any comment about debts over 90 days being hard to collect is just not relevant
- the high year end debtors appear to be due to a specific company restructuring, creating a new debt-collecting company entitled to collect all the debts, which apparently will bring about a lower tax charge. Attendees at the presentation say this has been completed
- as a result cash inflows post year-end are reported as healthy and debtors have reduced by 1m since then
- further, the cash position is such that those attending the presentations report that the flagged acquisition will likely be paid for from cash rather than in shares
- GNG expect to have 4.4m of cash at the year end, i.e 25% of the m/cap

As for your comment on creditors, these are tiny at 1.45m compared to trade debtors of 5.4m.

The small reduction in margins is fully explained and was flagged previously. It's not a surprise to those who've read the company's RNS's.

There are bear points to be made, the cocked-up trading statement and working capital amongst them, but it seems that GNG have addressed working capital and are currently on an institutional tour to address the former.

In particular, there are many, many bull points. It would be a treat to see some balance and a measured response to those points I've laid out in post 227.

small typo in the accounts booking orders in one year when they belong in the next.

margins .... small reduction??????? .... 55% down to 47% ..... what planet were u born on?

trade debtors ..... disgraceful credit control assuredly damages cashflow and some of that may well turn out to be bad debt in the final analysis.

pah! .... stinks of the gullible being conned by silken words from the management.

Broker downgrade for EPS forecast for next year in a new note.

Prior forecast was 7.23p for 2009, now reduced to 6.5p


Given the appalling "Ahead" statement in April which was missed totally in the results, its no surprise the broker is lowering estimates. The question is, can anyone believe what the company say anymore so easily ?

How the hell can you say "Ahead" in pre close in April, put out another trading update just prior to results and NOT CORRECT the ahead to being below, and then deliver results below expectations.

So even with the reduction in EPS target, can anyone actually easily have confidence that even just prior to results they say in line or ahead, will they again put results in BELOW.

Papalpower, can you paste the broker downgrade as above-mentioned? Thanks.

Rivaldo's post 227 contains the 6.5p forecast EPS from the new broker note. Link on AFN.

This is the new figure against the 7.2p+ that was in place before results.


= DOWNGRADE OF EPS figure.

Interesting post by AinW on TMF. The full post, on the link, is well worth a read :

http://boards.fool.co.uk/Message.asp?mid=11098219

.................Geong Geong Gone

SER is not an isolated example of an ADVFN thread where sanity seems to be in short supply.

The MDX threads, and there are more than one, have been a case book in the insanity of investors fingers crossed a PhD student writes a thesis on the madness of Meldex one day. (Fingers crossed to all MDX followers with regard to the meeting to be held with management on Monday.)

The Caledon thread is manic as well.

But the other thread that I want to highlight is Geong International (GNG) where the number of posts is not high by ADVFN manic levels, but for a small Chinese-based AiM-listed company the number of posts is surprisingly high. What is interesting from the outside is how IMV the share appears to have been ramped: take a poster who well-known on ADVFN, who posts on GNG on a regular basis (the posts are often on press releases, news stories, anything that Google news locates that has a passing relationship to Chinese software companies), hints dropped from time to time that he has been in contact with management, highlight what the company is going to achieve not this year but in the following year, and hey presto, the SP looks undervalued. PIs relax and stop looking at the share in a critical eye. The SP ticks up over time, oh the power of momentum trading, and then along comes an ugly trading update.

Having attended the Sinosoft AGM last week, I can assure PIs that the cultural gulf between Chinese companies and UK private investors remains very very wide. Investing in Chinese companies is a risky business, always add a risk premium.....................

last para .... how politely put if perhaps a bit too subtle!

.

Comment from RHPS - cannot blame them, most sensible call imo. It did look ok, but with those trading updates and the results - very sensible call.

http://www.fspinvest.co.uk/Investment-Services/Red-Hot-Penny-Shares.html


GEONG (GNG): After the confusion caused by Geongs two recent trading statements the actual results for the year to March 2008 have raised further questions. First of all the gross profit margin has fallen from 55% to 47%. This was attributed to a higher percentage of sales of third-party products, which carry a lower margin. I raised this matter with GEONG and was told that the percentage of third party product sales had risen from about 5% in 2006/7 to 10% in 2007/8. But even if I accept these numbers and assume that GEONG makes no profit whatsoever on its sales of third party products, the gross profit margin on its proprietary software has fallen from 58% to 52%. The second major question mark over the figures concerns the cash position. In its presentation GEONG showed an increase in its year end cash from 515,000 to 1,996,000. However if we exclude the 3.4m of new cash raised last summer it is clear that there has actually been an outflow. The reason for this is easy to spot. The amount owed to it by its customers has increased from 946,000 to 3,276,000. Again I quizzed GEONGs directors on this and was told that GEONG had decided to set up a new company through which to transact some of its business, and that some customers had withheld payment to this new company until it had received proper clearance from the authorities. If this is the case I would have thought that GEONG would have explained it in the results statement rather than hoping that nobody would notice or ask probing questions. The good news is that sales growth continues at an impressive rate. Revenues increased by 77% last year and have continued at a similar pace in the new financial year. GEONG is now looking to make an acquisition to help its software to break into new industries, and it is also looking to take the product to overseas markets. So this is a difficult one to weigh up. GEONG has a good record of growth, and one must make some allowances for the fact that priorities of Chinese companies are not necessarily the same as those of UK investors. All the same, I am not convinced that GEONG can maintain its historic profit margins, or has proper control over its cash management. So, although the share price has rallied and chairman Henry Tse has bought some shares at 60p, this one bothers me. And I would rather not be bothered. SELL

Papalpower, good call, support at 50p has been broken...now 45p.

Thought I'd pop in for a little bit of balance :o))

At 43.5p GNG's m/cap is 13.7m - with net tangible assets are 7.5m comprising blue chip debtors and a 2m cash pile! Probably up to 8m net assets by now too.

GNG's consistent PAT record in sterling is (using $2:1):

Y/E 31/3/04 - (0.14m)
Y/E 31/3/05 - 0.42m
Y/E 31/3/06 - 0.65m
Y/E 31/3/07 - 0.84m
Y/E 31/3/08 - 1.18m
Y/E 31/3/09 - 2.03m (per forecast)
Y/E 31/3/10 - 2.88m (per forecast)

So the 6.2m Enterprise Value (EV) compares to a historic PAT of 1.18m - a multiple of 5.3. Even the historic P/E is down to a pretty respectable 11.7. The current year P/E is down to 6.7, the forward P/E is 4.8 and the PEG is at a ridiculously low 0.15.

Using the current year the EV multiple reduces to 3.1 :o))

You can say what you like about recent cock-ups, but given 44% recurring revenues, a 5.6m order book and a multinational client list the fundamentals are pretty telling.

Here's what Evolution wrote about GNG after a post-results meeting (remember they're not the house broker, Seymour Pierce are):

"GNG MV 15m at 56.5p
Morning After attended the analysts meeting for Geong International, a Chinese software company which trades on Aim.

Why bother? Mainly because it opens the eyes to the coming challenge for western software companies. Were used to the code-writing giants from India: Geong looks the first of, no doubt, many Chinese vendors selling their own products. The Chinese are intensely nationalistic and go to great lengths to avoid using western, ie US, software.

520 employees
Geongs core product, PortalAge, is a Java-based suite that allows large companies to place a customer web interface on their core software, whether from Oracle, SAP or IBM. It sells to a range of blue chip Chinese companies. Geong has 520 employees and is expanding at break-neck speed. (A year ago there were 375 on the payroll.) A UK software company would need sales of 200m to support such a headcount.

Debtors: slow boat from China
Clearly there is an alarming number here closing debtors which needs serious explanation. Geong set up a new company, Geong International, during the year. Its customers seem to have used this as an excuse to delay payments while they completed inquiries. (This is China, after all). About 2.7m of debtors related to this issue. The Company says it had collected 1m of this amount by 31 May. Hmmm China is a slow-paying country and we assume software pricing takes this into account.

From October Geong will begin marketing an English-language version of a separate package, Smartbox. In Canada this will be fronted by the Canadian Development Bank. Geong says no sales are assumed in its budgets.

Buy or not buy? Any UK software company clocking up growth on this scale would either be a market star or seen as the next Isoft-style car crash.

It seems likely Geong really is a star performer, Chinese-style. It has already booked 5m sales in the current year, so forecasts of 10.7m for the full year are plausible. It just needs to show it can collect the renminbis."

After that Pre Close "ahead" statement and then delivering results BELOW expectations at the pre-close this stock should in the 25p to 35p range perhaps.


Terrible !!!!

Margins also falling and working cap requirements going through the roof - its not any wonder most people are selling it..........

The misleading pre-close statement on the 10th of April will be very off putting.

Is there anybody out there gullible enough to actually read the half truths and laughable misunderstandings in PP posts let alone accord them any credibility?

Thread Set up price then Price now
IPL Jun08 120p 28p
PMHL Apr08 140p 110p
AST Feb 06 12p 6p
LEAD Feb 08 47p 21p
VYKE Sep 07 180p 55p
VLK Feb 06 83p 60p
TAG Feb 06 60p 12p when namechange occured and consolidation
SCE Sep05 45p 15p