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

Excellent news re the positive trading statement and the small placing.

One of the most respected posters on ADVFN, eacn, has posted as follows re the placing: "FWIW, I took part in the placing. The company needs working capital to cope with extended payment terms on larger contracts. The trading statement is bullish and the fund raising is a prudent move. "

It's also fine by me - not too dilutive as only 19% more shares. Could have been a lot worse a few months ago. The funds are presumably meant:

- to finance GNG's growth, which is obviously continuing judging by the CEO's comments
- and/or to finance the long-flagged earnings-enhancing acquisition(s)

The order book was, what, 10.6m at the last count? It's now 13.6m..... Must ask at the AGM if Huawei are additional to the telco customers already known about. Every reason to continue to be confident. Who knows, the share price might get a boost from what is effectively a confident trading statement:

http://www.investegate.co.uk/Article.aspx?id=20090918164828PD51C

"Weidong Wang, Chief Executive of GEONG, commented: "GEONG's growth prospects continue to be extremely good, building on the 48% profit growth achieved last year. We have recently signed a long term contract with Huawei and we are confident of our ability to win and deliver similar contracts in the future.

Our order book has risen by more than 25 per cent. since 31 March 2009 and
currently stands at 13.6 million. With no debt and a fortified balance sheet, the new funds will enable the Group to service large and long term contracts, enhancing our future prospects. We therefore welcome our new investors and look to the future with confidence.""

All these companies with poor operating cash flows are making placings. RCG today, GNG recently, CHNS next ?

The market is being rough on them, and so it should really, its to be expected really and any posters attempting to "hype and ramp" them up on revenues is misleading people I think.

A good solid trading update with no surprises:

http://www.investegate.co.uk/Article.aspx?id=20091026060000PD307

The increase in the order book to 13.8m from 10.6m since the year end 6 months ago tells the full story imo.

The cash pile is certainly affected by seasonality - 1.2m consumed in H1. But GNG still had 2.4m prior to the recent small fundraising and now have 4.5m net cash. More than enough to finance the promised expansion.

To clarify re GNG saying they'll meet "market expectations", Seymour Pierce's current forecast on Hemscott etc is re basic EPS, not the true adjusted EPS before amortisation and share-based expenses.

Hemscott shows 2m PBT and 5.4p EPS this year, but let's adjust out 0.2m amortisation and 0.1 share-based expenses as per last year to get a 2.3m PBT, take a 15% tax charge on the 2m as per SP, and use a weighted average of 34.5m shares for the year.

That's 5.8p EPS for this year, against a 45p share price.

Normally I would say a P/E of 7.75 is maybe only a little undervalued for a Chinese company in the current market which has as good a record of growth as GNG has, with such excellent potential.

But for:

- the Chinese market leader in its sector
- a company with such high recurring income
- with a blue chip client base to die for
- a company growing its order book and revenues at such speed
- with such huge potential across sectors and countries
- a company with such a strong Balance Sheet, including 4.5m net cash against a 17m m/cap
- and with an excellent chance of producing a "substantially ahead of expectations" trading statement later in the year

I'd say that the current price is undercooked by some way.

See the price fell on that update. Not surprising.

Er, no, the bid stayed the same, it only fell on the offer. And the price is up 0.5p today :o))

this is another special chinese take-away ..... 43/47 and not a single trade all day

LOL - its a company that specialises in dealing people with "profit warnings" and "veiled profit warnings" based on past experience.

Many people would say "one to avoid", especially as L&G now have a large holding. A big holding in an illiquid stock means the price could collapse if they ever need to offload any, increases the risk for many.

Up another 1p to 46p today on 29k shares traded (including PLUS). The gain since the start of this thread is now 77% (155% for me personally).

L&G have steadily increased their holding over time to the present around 10% of GNG. They're obviously intending to be around for some time and wouldn't have the slightest expectation of disposing except in exceptional circumstances.

The m/cap is now up to 17m. In another two or three years' time the m/cap could be anything from 50m-100m given the Chinese market leadership and expansion into new sectors and geographies, plus expansion into second tier banks etc.

This year could see 7p+ EPS given the cost savings already made clear plus the hugely increased order book.

Plus GNG has 4.5m net cash against the 17m m/cap.

It's nice to be backing a share which is both cheap and has such terrific growth potential.

Interesting article :

http://www.fool.co.uk/news/investing/investing-strategy/2009/11/03/china-and-the-bigger-fool-theory.aspx

.

GNG announced terrific results today:

http://www.investegate.co.uk/Article.aspx?id=201007010700145951O

M/cap at 36p : 13.5m
Adjusted EPS to 31/3/10 : 6.2p
Historic P/E of 5.8

Historic adjusted profit before tax to 31/3/10 : 2.6m
Historic adjusted profit after tax to 31/3/10 : 2.14m

Net cash : 6.4m, i.e 47% of the m/cap

Tangible NAV of 16.7m, including the 6.4m net cash and and 4.7m trade blue chip (i.e fully recoverable) debtors

Order book : 14m (2009 : 10.6m), including 5.6m annual recurring income (historic turnover of 12.5m)

Historic adjusted profit after tax record:

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 - 1.22m, or 4.0p EPS
Y/E 31/3/09 - 1.66m, or 5.3p EPS
Y/E 31/3/10 - 2.14m, or 6.2p EPS

The usual cash flow concerns with Chinese companies appear to be improving further for GNG with fast-increasing client SaaS usage and a major banking customer turning to quarterly rather than annual payments. Last year saw 0.6m positive cash flow from operations.

Other pieces of good news:

(1) EVO, a much more heavyweight organisation, have replaced the ineffective Seymour Pierce as GNG's brokers and NOMAD
(2) GNG have arranged a 5m equity financing facility to allow for potential acquisitions. I would hope for action on this front sooner rather than later.

From the results:

"Operational Highlights:

SaaS business increased by 819% to 1.7 million with 10 new clients added (2009: 0.2million)
24 new client wins in our core market including in the Banking, Automotive and Telecommunications sectors
New partnership with Oracle and a breakthrough in the insurance industry winning five new clients
Launched new versions of products, along with innovative solutions in IaaS (PortalAge) and SaaS (PortalAge & SmartBox)"

GNG note that "the Group's trading conditions since the year end have been in line with management expectations", so things appear to be continuing to go well.

As a footnote, it's worth noting that GNG's client list is unbeatable for such a small company, including ICBC (the world's largest ever IPO), China Mobile, Air China, Sony, Hitachi, Adidas, Huawei-3COM, Motorola China, Bank of Communications, Shanghai General Motors, Lenovo, Volkswagen, Shanghai Telecom, Dell.

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, plus 2 of the top 3 telecoms companies and a number of the top insurance and auto sector companies.

GNG also has partnerships with IBM, Oracle and Microsoft.

Lots of negatives in there.

Price action (down lots) tells you what the market thinks.

At 29p GNG's m/cap is just 10.9m - yet at 31st March 2010 GNG had:

- 6.4m net cash, with forecast 7.3m net cash next March
- net tangible assets of 16.7m
- achieved historic adjusted 2.14m profit after tax to March 2010

GNG's consistent adjusted profit after tax (PAT) record in sterling is (using $2:1 for 2004):

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 - 1.22m, or 4.0p EPS
Y/E 31/3/09 - 1.66m, or 5.3p EPS
Y/E 31/3/10 - 2.14m, or 6.2p EPS

The historic P/E is down to just 4.7, and the ex-cash P/E is ridiculous at just 2.1.

Given 5.6m per annum recurring revenues, a 14m order book (including recurring income) and a blue chip client list the fundamentals are pretty telling.

GNG is the domestic market leader in its field in China with almost 20% of the ECM market there.

L&G have sold a part of their holding for whatever reason (could merely be rebalancing their portfolio), but at some point fundamentals and value will reassert themselves here.

Talking about "Management Expectations" is a key phrase used to avoid mentioning anything about performance as against market expectations. Smoke and mirrors using that comment.

Talking about "cost controls and cash" is simply padding the statement out, one would expect all companies to do this and its nothing out of the ordinary, perhaps the statement is there to try soften the "quiet 1st half" comment which looks like an excuse for the coming interims being poor ?

I can see perhaps why L&G have been selling down their holding..........

Perfectly good H1 trading statement - note the in line with "management" expectations, which are often better than market expectations.

I'm particularly excited about the move into Vietnam - and leveraging off the back of IBM as well.

Oracle too are deepening their alliance with GNG via contract wins and new SaaS products.

Remember that GNG are still a mere 13m m/cap company...but management have now confirmed that they're in line with expectations for a 2.1m adjusted PAT.

And that GNG had 6.4m net cash at the last results (which in H1 will have dropped to fund key contracts before peaking in H2 again).

And that the m/cap is still far less than net tangible assets!

GNG has the enviable combination of being low-risk given the net tangible assets, 6.4m net cash, high recurring income, core customer base - yet with high growth potential now in not just China but Vietnam too.

Broker downgrade to HOLD (which normally means its a sell)........

Geong (GNG, 35p, 13.24m) In its AGM statement Geong has highlighted the launch of a number of new products, including those on its SaaS platform. It has also reminded investors H1 is traditionally the weaker and it has maintained tight cost controls while focussing on its working capital. We drop the recommendation to a HOLD till the interim results are released to ensure the group has sufficient working capital as it does consume cash on growth. (Julian Tolley)

The interim trading statement is out in early November, so not long to wait.

Per the AGM conference call the initial Vietnam contract is worth $900,000! More substantial than I thought...and the promise of more to come given IBM's involvement.

Plus GNG are riding on IBM's back into Indonesia too. Another 250m people to go for.

And GNG mentioned "other South-Eastern countries" too.

The SaaS component of turnover is continuing to increase, particularly via the partnership with Oracle.

GNG had 6.4m net cash at the year end against a 13m m/cap. I somehow suspect they have sufficient working capital :o))

Absolutely superb post about GNG meeting all the criteria for a Jim Slater Zulu stock from ADVFN which I hope buetowa won't mind me copying here:

buetowa - 4 Nov'10 - 20:31 - 15826 of 15834

I posted this a couple of days ago on Liarspoker excellent thread - 2010 Zulu Thread = ZULU. The investing criteria follows that which was developed by Jim Slater.

GEONG - AIM listed China based provider of online business solutions utilizing Enterprise Content Management (ECM)technology.

I propose GNG which I know is a much unloved Chinese software stock at the moment but has the potential of being a ZULU stock for the following reasons:

MANDATORY

1. Five Year Record (5 years positive earnings growth)

Data taken from ADFVN financial section for GNG as at 2.11.10:
Turnover GBP (07) 4.30 (08) 7.61 (09) 14.67 (10) 12.51
2010 turnover down as a result a strategic decision to exit low margin SME market.
Pre-Tax Profit GBP (07) 0.89 (08) 1.14 (09) 1.69 (10) 2.27
EPS-Diluted GBP (07) 3.11 (08) 3.53 (09) 4.16 (10) 5.13

Comments from Rivaldos thread GEONG New IPO going for a song. GNG's consistent adjusted profit after tax (PAT) record in sterling is (using $2:1 for 2004):
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 - 1.22m, or 4.0p EPS
Y/E 31/3/09 - 1.66m, or 5.3p EPS
Y/E 31/3/10 - 2.14m, or 6.2p EPS

2. Low PEG Factor (PEG below 1 - ie 10% eps growth on a PE of 10 or less)
- PEG factor as at 2 Nov 2010 0.33

3. Optimistic Chairman's Statement

Trading Statement 1.11.10
- Trading in the first half of the year is in line with expectations.
- Margins increased during the first half as the SaaS business continued to grow.
- Company's continued emphasis on working capital management, the Directors believe that the Company is well placed to meet market expectations for the year as a whole.

AGM Statement 27.09.10
- We commenced our overseas expansion into Vietnam.
- The first 5 months of the current financial year, has continued to perform in line with management expectations

Final Results (Financial Highlights) 1.07.10
- Turnover down 15% to GBP12.5 million (2009: GBP14.7 million)
- Gross margin up 500 basis points to 46% (2009: 40%)
- Profit before tax up 34% to GBP2.3 million (2009: GBP1.7 million)
- Underlying profit before tax* up 30% to GBP2.6million (2009:
GBP2.0 million)
- Basic earnings per share up 21% to 5.2 pence (2009: 4.3 pence)
- Adjusted fully diluted earnings per share* up 17% to 6.2 pence (2009: 5.3
pence)
- Cash up 78% to GBP6.4 million (2009: GBP 3.6 million)
- Trade receivables of GBP4.7 million (2009: GBP4.3 million)
- Trade receivables, including accrued income of GBP13.1million (2009: GBP10.8million)
- Cash and Trade Receivables form 88% (2009: 84%) of total assets and 120% (2009: 115%) of net assets
- Order book of GBP14 million (2009: GBP10.6 million) including GBP5.6 million of recurring revenue (2009: GBP5 million)
(*excluding amortisation and share based expenses)

4. Strong Financial Position
- Cash up 78% to GBP6.4 million (2009: GBP 3.6 million)

5. Competitive Advantage
- Dominant position as the ECM provider for the Financial Services sector within China.
- Strategic alliances with IBM, Oracle and Microsoft


IMPORTANT

6. Something New

18 months ago (June 09) Appointment of CFO.

Within the last year - Deployed their SaaS model which brings forward cash flow which is an issue in the Chinese market where payment of invoice may only occur annually with very large organisations.

Within the last 6 months winning contracts outside China (Vietnam).

Within the last month 29.10.10 L&G was a significant shareholder that has been reducing their % holding in the company. This overhang has been a drag on the share price but it is now coming to the end. Now less than 5% as per recent announcement.

7. Small Market Capitalisation (a small cap stock - anything in the FTSE250 or above is out)

Market Cap as at 2 Nov 2010 - 13.72m

8. Relative Strength (as in the share price movement compared to the FTSE All Share Index)

Strong upward price movement over the past few days which could signal that L&G are close to exiting.


DESIREABLE

9. Dividend Yield (None)

10. Reasonable Asset Position (Yes )

11. Management Shareholding (Yes - http://www.geong.com/Channel/361668)

Number of Shares in issue - Total number of shares in issue of the Company is 37,834,622 shares at 15 October 2009. The Company does not hold any shares in treasury.

Percentage of shares not in public hands - The Directors' and their beneficial interests (including family interests) in the shares of the Company at 15 October 2009 were as follows.

Directors
Henry Hak-Yan Tse: 3,703,673 = 11.7%
Weidong Wang: 5,061,671 = 13.4%
Amit Thakar 17,500 = 0.1%
Minren Guan = 1,027,413 = 2.7%

Even after today's 3p rise, at 34.5p GNG remains on an ex-cash P/E of just 2.7.

This is based on a 13m m/cap, 7.3m forecast cash and last year's 2.14m profit after tax.

Last week's H1 results were good - much better than I thought given the expected reversion to the usual H1/H2 split after last year's exceptional H1 (H2 is always much, much stronger than H1).

- PBT up to 0.7m despite that exceptional H1 last year
- adjusted EPS was 1.6p, so we can likely expect a minimum 5.5p EPS this year
- 4.1m cash is higher than I predicted at H1 given the usual H1 dip
- expansion with IBM into Indonesia as well as Vietnam
- PLUS a 2 year framework agreement with Oracle re Japan and the USA!
- reiterating the positive outlook for the year ahead with an increased order book of 14.8m including 6.9m of recurring revenue

and margins are fast-improving now given the move to SaaS and deliberately reduced 3rd party sales.

Evolution issued a brief post-results note. To summarise:

- results have "comfortably beaten our 1H'11 forecasts"

- reiterate 50p valuation and Buy recommendation

- net cash to exceed 7m at year end - against the current 13m m/cap, and with over 2.1m adjusted profits after tax!

- pending a conference call with the company, forecasts put on hold due to the "much higher than anticipated gross margin"

GNG held a conference call post-results last week.

My own quick summary:

- increasing SaaS revenues mean both reduced overall costs (less need for servicing) and improved margins
- Haier are a new customer from two months ago, and as Mas pointed out are the world's fourth largest white goods manufacturer, a Fortune 500 company and one of China's top 100 IT companies with annual sales of around 10bn
- the IBM Global Services partnership should not only provide big sales numbers in the next year, but will improve cash flows since the customers are international and will pay on IBM's rather than local Chinese payment terms
- trade debtors/cash flows will continue to improve, with the year to come showing the biggest improvement

1.6p adjusted EPS in H1 with the seasonally much better H2 to come implies probably 6p+ EPS for the year imo against a 34p share price, and possibly a lot more, given the increased order books and recurring income.

As was stated in the conference call, the CEO only has to walk out the door and he makes a profit.

Not only that, but cash flows are improving and should give well over 7m net cash against an 12.9m m/cap.

The current share price is absurd imho. It's merely a question of waiting for when the L&G overhang ends, no more, no less. And we were told that EVO will be working on that front....

Masurenguy on ADVFN gave an excellent and much more detailed summary:

"An upbeat conference call with Wade and Amit from Geong this morning.

The anticipated H1 sales deficit was due to a combination of two factors - further planned reduction in low margin TPS plus last years H1 figure incuded a one-off 1.6m consultacy contract with Huawei. On the flip side of this, gross margins increased to offset the lower sales figure with SaaS rapidly increasing its share of the overall sales mix and this is expected to grow by 150% this year which would represent 20% of overall sales. They naturally would not forecast H2 sales but expect a pre-2010 ratio to reassert itself this year (without the H1 Huawei distortion) so on a more conventional 40/60 or 35/65 ratio I would be looking for an annual sales figure in the 12m - 13.5m range this year.

The margins on SaaS business are almost double the established licensed IaaS model (78% v 41%) which last year accounted for circa 85% of total sales. Consequently margin improvement will be a continuing factor as SaaS increases its share of the sales mix. This will also have a knock-on effect in further cost savings too since it it is far less expensive to service and support online SaaS than it is to support offline midware IaaS business.

The forward order book of 14.8m includes 6.9m of recurring sales (47%). The proportion of recurring sales has continued to increase year on year and they expect this to exceed 50% of annual sales in due course. This is highly significant in my view since it constitutes captive income that costs little to service in comparison to the cost of winning new business and will further enhance future profitability.

New partnerships with IBM covering Japan and the USA, plus Vietnam and Indonesia, together with their SaaS parnership projects with Oracle in other SE Asian markets, will feed through into topline sales during the latter part of H2 and throughout the whole of next year with gross margins in a similar range to their conventional business model. Also further developments are already advanced in the creation of CRM social networking applications for direct B2C business and growing mobile internet usage. These are all being incorporated into Geong Online 2.0 which will provide advanced standard & customised services which will also interface with both Oracle and IBM.

They have alspo picked up an interesting new client, via IBM, in Haier (no I'd never heard of them before either) but they are the world fourth largest white goods manufacturer and one of Chinas top 100 IT companies with annual sales of around 10bn. Haier are in partnership with Argos in the UK and Geong will provide them with vertical online B2C application amongst a number of other services.

http://www.haier.com/abouthaier/corporateprofile/facts.asp

This kind of deal really should be RNS'd in my view rather than just 'discovered' at a reporting stage.

The increased debtor levels at H1 have become predictable and, whilst this might be naturally a concern to many, it is worth reiterating that their customers are virtually all blue chip. The banks tend to pay annually in December and the year end always reverses this situation. This scenario is largely a product of large sales accruals which account for around two-thirds of the outstanding total and the timeline on any receivable only commences when the final invoice has been issued. This situation is just a characteristic of this business and will gradually improve as SaaS increases within the sales mix at the expense of the existing core of IaaS offline midware sales. The company has cash in the bank so there are no financing costs incurred and it does not create any cashflow problems for them either.

This is a transistional year for the company with the introduction of Geong Online 2.0, the new framework and strategic partnerships with IBM and Oracle and the move into foreign markets and the growing proportion of higher margin, lower servicing cost SaaS business within the overall mix. I would expect the year end figures to start to reflect the benefits of some of these trends."

Excellent new article on Proactive Investors noting that GNG is a "bargain basement" buy:

http://www.proactiveinvestors.co.uk/companies/news/27654/geong-a-hidden-gem-of-the-technology-sector-27654.html

"GEONG: A hidden gem of the technology sector
Wed 11:24 am by Ian Lyall

GEONG International (LON:GNG) is one of AIMs hidden gems. The expanding China-focused internet software company has a 200-strong blue-chip clients, and in IBM and Oracle, two top-notch industry partners.

It is also profitable and holds the equivalent of half its market cap in cash. The shares, meanwhile, trade at around a third of the average value of equivalent companies in its sector.

GEONG provides social network, mobile internet, B2B and B2C sites for customers including China Construction Bank, Guangdong Development Bank and Haier Group.

"We are not just providing a software solution, says chief executive Weidong Wade Wang. We help our customer operate and integrate the website.

And where there is the opportunity, GEONG also works on a shared-revenue basis, which means it can enjoy some of the upside it has created.

It deploys its expertise in two ways - Information as a Service, or IaaS and Software as a Service (SaaS).

Its IaaS offering means GEONG acts as the consultant, covering the design, development, implementation and maintenance of the project.

These contracts are long-term, account for 75 per cent of the companys revenues and produce a profit margin of 45 percent.

SaaS contracts, by contrast, provide steady and long-term revenue streams built on licence sales that are billed quarterly and monthly with variable volume charges added.

GEONGs SaaS offering is called Social Networking 2.0, contributes around 25 per cent of the companys revenue and produces margins of 50-60 per cent, with a higher cash conversion ratio that IaaS.

"SaaS contracts are very much meant to be pay as you go for the clients, so that they can pick and choose within GEONGs toolbox what they need, when they need it, and how much of it they need, says Philippe Geronimi, an analyst at Evolution Securities, in recent note.

"The SaaS model, towards which GEONG is increasingly migrating, usually generates gross margins of 50-60 per cent.

In July Social Networking 2.0 will be rolled out as a cloud computing solution with five applications. The idea is to create higher barriers of entry to competitors.

GEONGs past strategy was to focused on bidding for large accounts to generate as much growth as possible. However this weighed on its balance sheet, due to increasing working capital requirements.

As a result the chief executive and his team have begun prioritise cash generation over growth.

Integral to this is GEONGs move to the software as a service model where it bills monthly and quarterly, rather than waiting up to a year to receive payment for some projects.

Recurring revenues should also improve significantly with a move to SaaS, Wade adds.

He says its products and services allow companies to work smarter, which on the face of it is one of those awful marketing phrases that means not a great deal.

For GEONG it is actually pretty specific. It is about maximising the clients online offering by making sure the content management and/or the marketing and commerce are sharper and more focused.

A small illustration of this is the work it carried out for China Construction Bank on its social networking site.

That online presence made for a far more efficient interaction between CCB and the owners of small and medium sized business (SMEs) who used its services.

It improved communication between the company and its customers, who previously were looked after by a harried account manager with three or four hundred more clients.

And crucially there were tangible financial benefits to the company. There was an increase in trading volumes and the service to the SMEs improved, Wade says.

The companys sums up its expansion strategy in four words: go deep and broad.

Going deep means signing up second-tier clients, while moving existing customers from the information as a service solution to the newly instigated SaaS model.

Going broad means widening the companys reach from the four main industries it has targeted and coupling this with overseas expansion into key countries in the Asia-Pacific region.

Organic growth may also be augmented by acquisitions, according to Evolutions Geronimi.

The focus is the penetration of new industries, which would add to GEONGs market share in the financial services, telecom and auto sectors, he adds.

Management has disclosed that it would particularly like to acquire a company with a good presence in the healthcare sector, which it believes will continue to sustain good growth rates in the medium to long term.

The focus on cash generation in the short term, which will lead to a strengthening of GEONGs balance sheet, should facilitate the implementation of this strategy.

GEONG is also looking to diversify its product offer and is considering acquisitions that could help it accelerate its development in the fields of social networks, mobile internet and customer experience management.

Evolution, which is the companys broker, expects GEONG to post EBIT of 2.4 million this year on sales of 12.6 million, rising to 3.4 million in 2013 on revenues of 17.3 million.

That means the shares trade on a forward multiple of only six times forward earnings, which is cheap in anyones book.

That puts it on a major discount to larger players in the sector such as China Digital, Kingdee and ChinaSoft.

And while they are not directly comparable companies, it does highlight GEONGs anomalously low valuation.

Evolution reckons GEONG, at 33 pence, is undervalued and has set a 50 pence price target on the shares, which is still 35 per cent below the companys historic PE ratio of 13.2 times since its 2006 IPO.

All we are waiting for now is the market to recognise GEONGs bargain-basement rating."