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

Dead right - good point about the profit-taking - those who have almost doubled their money will doubtless be plesed to take out some profits.

Adjusted operating profit is actually up, to $382k from $294k, if you strip out AIM admission costs and amortisation of intangibles. And that's before you account for the additional SmartBox marketing costs this H1.

But just the same performance in this year's H2 as last year, with no growth at all, would give 2.7p EPS before even stripping out AIM costs etc...

Interesting to note GNG have 2m of net assets, almost all tangible, per the Balance Sheet. Excellent asset backing for a 7.5m m/cap company.

How many 7m m/cap companies can say this about their customer list?

"During the period GEONG won a number of significant contracts with Air China,
Huawei-3COM, Motorola China, Bank of Communications, Shanghai General Motors,
Shanghai Telecom and DELL"

And GNG are diversifying - they "are now working with customers in the
transportation, power and automotive industries."

We've also now found out for the first time that GNG are selling overseas:

"We also, in September, introduced an English version of Smart BOX(TM) which has sold in beta form in Canada and Hong Kong."

And how many companies are on this low a m/cap with this much potential - and likely to make at least $1.3m PAT for the current year which ends in four months? Not many.

I am signing off on this as I have bought and will keep with other Chinese stocks.
Long term gainers is what I want.
Thanks Rivaldo for your input which reinforced my decision to keep.

Hi Peter11, let's hope we're right on this one. I see you like FDP too!

I posted on another board that I managed to wangle a meeting with GNG yesterday. Here is what happened.

Remember, this is all IMHO, DYOR etc, and the notes are all my impressions/memories only - do NOT take as gospel. I may have to edit on re-reading it!

Firstly and most importantly, the coffee and biccies were of an excellent standard -plentiful choccie biccies in particular. Sadly no hobnobs.

Henry Tse (Chairman) and WD Wang (CEO) were present (plus the PR team). They're doing the rounds in the UK this week meeting and greeting - mostly the press, but also fund managers apparently. Keep your eye on the IC, Shares, GCI etc.

As you'll know from their ages Henry is the "old hand" and WD the young gun. Henry in particular is totally impressive - a superb English speaker with a great manner and a good sense of humour. Obviously someone who's been in the business for many years (mainly at super-senior level at IBM) and plainly knows his stuff, his industry and the Chinese territory. WD is more "stereotypically" Chinese, occasionally difficult to understand before your ear gets tuned in, but still came across well.

Now the formal stuff.

PROFITABILITY
The broker note forecast $1.9m operating profit this year to March 07 based on the full (unachieved) fundraising at IPO. The trading statement gave the impression that the operating profit for the full year wouldnt be far away from forecast. This was re-confirmed by the Directors.

I will aim low at $1.5m-$1.6m operating profit and be happy with anything around or above that....though of course on a 7.6m m/cap that isnt bad at all :o))

I enquired about recurring income. Around 30% of H1 income is recurring (maintenance etc). And around 70% of income is from existing customers. Its important to understand this, as in China many clients simply renew/roll over their contracts from year to year (see Bank of Communications section below). So in reality around 70% of revenues are recurring - its just that there isnt a contract going forward a number of years. This is where the reality of GNGs clients being captive is so important (also see below) - as long as GNG continue to do a good job.

SEASONALITY
The seasonal split for PortalAge remains at around 38%/62%. I didnt really establish why, but it appears that the Chinese clientele mostly sign up to PortalAge in H1 and implement it in H2. Of course, what this means is that from GNGs point of view there is relative certainty looking forward about the level of H2 revenues. Which is what makes trading statements such as the recent RNS possible. Which is also nice from a shareholder's point of view.

SmartBox is unaffected by seasonality. Mr Tse noted that it would be SmartBox that would transform the company, as an off-the-shelf package which could quickly be distributed, marketed and implemented.

Admin. & distribution costs are not seasonal. Thus one can extrapolate quite nicely the possible operating profit for the year

FUNDING/WORKING CAPITAL
I asked about financing of future growth/expansion, especially given the slow payment culture in China. I was told that at some future point and at the right price GNG would look for funds, but there was no immediate need for a fundraising.

As to the $4m of trade debtors, I was told that GNG intended to factor these with the banks. This is a very good idea, with the commission a small price to pay.

SmartBox sales are expected to ramp up quickly in H2, and this will benefit cash flow, not just for H2 but in smoothing out the H1/H2 discrepancy for PortalAge.

GNG noted they had no bad debts despite the high level of debtors. This was because of the blue chip nature of their clients, e.g ICBC, Air China, Huawei-3COM, Motorola China, Bank of Communications, Shanghai General Motors, Shanghai Telecom, DELL etc.

GENERAL
The CFO left soon after IPO, having only just joined pre-IPO. It seems that she lived on the other side of Beijing, which was 2 hours away, and the commuting was too much. Several candidates have been seen and a replacement will be appointed in due course.

The prospectus noted trademark applications for PortalAge and SmartBox were still pending. Apparently PortalAge has now been received, but SmartBox is still pending as in China this process takes 2 years!

The AGM will probably be some time after the prelims as usual.

The average contract size was $80k-$100k in 2005/6. In H1 this was $120k.

In March 2006, GNG employed 244 people - they now employ 280.

Re. Bank of Communication RNS recently (as an example), theres a $150k ongoing maintenance contract to Dec 06. I asked why this ended in December - the reason is because the contract will then be renewed for another year, and so on.

Henry Tse: his service agreement says 15 hours per week, which I was a little concerned about. Im not worried any more. He comes to the UK (from memory) once a quarter to talk to advisers, contacts etc, he is seen as a father figure by many of the young ex-IBM and other staff at GNG, and he seems to me to have a real and personal (and financial!) involvement.

Revenue recognition policy appears conservative, i.e revenue is recognised upon implementation and not signing of the contract.

News flow is healthy and my impression was that this will continue to be the case - after all, on this m/cap and level of sales, if you're dealing with such a blue chip customer profile most sales are going to be of a reasonable size and often potentially RNS'able (certainly of PortalAge anyway).

PORTALAGE
I wondered how GNG exerted such power for a tiny and relatively new company in selling to the top 5 Chinese banks, insurance companies etc. The reason is partly because of GNGs products and service, but also because the Chairman, CEO and others are all ex-IBM, HP etc who were carrying out projects for these blue chips when working for IBM, HP etc. So when setting up GNG they already had the reputation and the contacts - they merely needed the products.

GNG have not had to discount their prices to get initial sales at reference sites, although their prices are cheaper than those of multinational competitors.

Once PortalAge is installed, it is unlikely to be replaced by a different package as it would mean that the whole infrastructure of the clients reporting system would have to be overhauled. I was told that GNG had not lost a single customer yet

Licences are granted for periods of anything from 2 to 5 years, depending on the client, though more are for 2 years.

There was a $1m sale in 2004/05. I asked whether this was likely to be repeated. This was for a Corporate Licence for the Bank of Communication and was simply due to the way they wanted to structure it - it might or might not happen again.

Apparently there is already an English language version of PortalAge, which has been sold to Cummings (?) and Northern Telecom. This sounds intriguing to me, but GNG didnt want to stress this - they were happy to concentrate on prospects for PortalAge within China.

SMARTBOX
Of the $3.15m H1 sales, only $40k were SmartBox sales. As previously stated, this is expected to ramp up quickly, especially following the marketing seminars in the late summer.

Geong have already sold SmartBox in Canada and Hong Kong. This was through personal contacts of the Board - there are similar hopes for contacts in Singapore, and of course this is nice and cheap and doesnt require marketing costs, but means GNG have reference points for other prospective clients.

The increased marketing costs for SmartBox in H1 were around $130k. These will continue in H2.

And that's it.

Thanks a lot. Very through.
I started investing in Hitech way before the bubble in 2000.
My secret ambition was to own software shares for companies
which just brought in money (recurring income etc) once they were established.
No overheads, transport, raw materials etc.
Just elec bill and update the computer.
I expected them to go up by 20% but of
course everything went bananas, which I couldn't understand.
I had NTX before it was NTX at 50p and it went to 27. Now it's 25p
Gresham Computing is another classic case. And Sage.
But the principle is still there.
Chinese stocks shows growth but no ruinous bubbles and while
we are fortunate that they launch on AIM, will they pay a dividend?
(Hence my interest in a stock like FDP)
Are Chinese workers and owners going to pay UK shareholders.
Griffin Mining was a steady gainer which I got out of at 90p in May and is a share buyback
Whereas Asian Citrus is paying a dividend. How long before they sell oranges to the USA?
So GNG is on the right path which I noticed and bought before your posting.
Otherwise as an ex Canary Wharf worker (hack), one of the first to be
transferred there years ago, when it was derelict with one tower, I am into Sonbgbird SBDB heavily. But their views on dividends are on another planet see http://www.investegate.co.uk/Article.aspx?id=200610301614312377L
Hope you are well.

Good post, Riv, thanks.

Hi Soul-looked into this one and like what I see. Maybe patience needed but I bought a few today! thanks for the info.

My pleasure - hope it does well for all of us!

Looked at the website and noticed interims are out on Dec 30th--if they are good interest should rise.

Are you sure, MP? - the interims were released on 28th Nov.

sorry so I see..! Their website says 30th Dec so figures must have come out early check out the financial calendar in investor relations. Hope this does well as I sold some sola to buy here and look at them this morning!!!

Bought 37k @ 30p this morning but no trades showing as yet.zib

Making quite decent progress this morning: GNG Bid: 30p Offer: 31p Change: 1.5

I paid 32.15 for mine, so is good to see SP regaining some ground after the brief sell-off.

Getting better by the minute. Zib, your purchase clearly gave the market the kick it needed :o)

According to FT.com, somebody just paid 34p for a buy, which equals the high set at the end of Nov.

Wow: GNG Bid: 33p Offer: 35p Change: 5

What's going on out there?

EDIT: seems there are a few investors (speculators) over the road who are all piling in.

It's up 5p to 33p bid which is a jump of Renesola percentage proportions.

I've got a feeling we are into a good one here! hold on tight for a rewarding 2007 when the momentum gets going.

If the co manages a FY profit like that of last year, then it's on a PE of about 15 at the moment.

Experiencing a bit of a reversal at present. Anyone heard anything?

GNG Bid: 23p Offer: 25p Change: -2.5