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GEONG - new Chinese software provider just being discovered (GNG)     

rivaldo55555 - 22 Nov 2006 22:47

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

PapalPower - 13 Oct 2008 09:16 - 261 of 382

GNG announced today a defacto downgrade going forward. Their trading update remains in line, but the outlook is not so good now, and they admit that China is slowing down, this is what you will see, as it becomes apparent over all the hype that in fact recession is coming the way of China.

Chinese stocks certainly should be excellent shorting candidates for 2009 and 2010.

rivaldo55555 - 13 Oct 2008 20:51 - 262 of 382

Excellent trading update today, about as good as can be expected.

GNG are confident that they'll meet 6.5p EPS expectations this year given the high recurrring income and huge order book, but with any new contracts or an acceleration in SmartBox they could quite easily beat expectations yet again.

Not a bad year then - PAT to be up at least 72% :o))

A spectacular increase in the order book too - up to 9.6m now is excellent news going forward.

And even better, recurring income is now up to 4.5m, a tremendous buffer for future years. GNG's clients are locked in to using PortalAge, so GNG will continue to have this excellent buffer, as they will from SmartBox.

Last month Legal and General anounced they'd bought 5% of GNG, 1.61m shares in total. Perhaps today's statement will encourage further institutional buying.

Interesting to note that last year's tangible NAV was around 7.2m. Add on 2m PAT this year, and revalue upwards for the almost 20% movement in exchange rates since then, and the tangible NAV becomes around 11m.

Which means that the remaining 1.5m EV in the business on the 12.5m m/cap at 40p is represented by an annual 2m PAT!!

And the cash pile is likely to be up to 3m - and maybe even 4m - if cash receipts are as good as indicated in the trading statement.

PapalPower - 14 Oct 2008 00:47 - 263 of 382

But that is not what people look at is it, you of all people should know the market is forward looking.

When a company mentions the 2nd half will be impacted a bit, and given the crisis started well into the 2nd half, this means that the 1st half of the next year, and all of next year could see significant reductions in business levels.

This is why, despite such bullishness by certain posters, the SP has done nothing.

The market looks forward, the outlook is not looking so bright, so why should anyone buy this, which is precisely what happened today.

You cannot continue to try to hype these China stocks rivaldo, the outlook for China is deteriorating fast, and the potential impact over there is bigger than the impact when it all went pear shaped in the USA.

PapalPower - 14 Oct 2008 01:39 - 264 of 382

On top of the GNG admission that things are slowing down, today also saw ZTC (Chinese telecoms) say this which again is more evidence to say that things in China are under pressure, and those who said 2009 would be a bad year for anything China related, might well be proven correct :

"As has been widely reported, trading and credit conditions for SME's in the PRC have become increasingly difficult throughout the third quarter of 2008. This is due to deteriorating macro economic conditions outside the PRC and slowing economic growth and restrictive credit policies in China. As a consequence, our markets have become increasingly competitive, disruptive and oversupplied. ZTC has therefore achieved sales significantly below those seen in the same period last year.

As a consequence, the Company's working capital available to operate and expand its business has become constrained, as has been previously announced. The Company continues to review all aspects of its operations to reduce costs and improve efficiencies to improve the availability of working capital for new model and market development. The possible sale of assets referred to above is one example of a potential method of cash generation that is being actively considered."

justyi - 22 Oct 2008 12:21 - 265 of 382

GNG will not survive as China starts to slow down. Selling at 35p would be wise.

rivaldo55555 - 28 Oct 2008 20:22 - 266 of 382

I believe the facts speak for themselves at the current valuation which already prices in any downturn. To reiterate....

At an 11m m/cap at 36p GNG is trading at only just above tangible asset value at current exchange rates, despite having say 3m cash now plus blue-chip debtors and confirming it should make 2m PAT this year.

Recurring income has surged to 4.5m now - against total overheads last year of just 2.5m (admin, selling, R&D costs etc). Not a difficult equation to work out.

And the order book is worth around say 11m at today's rates, against just 7.6m turnover last year.

GNG said two weeks ago they're confident of making 2m PAT this year. That could be reduced to 300k and GNG would still be good value, since it's trading at only just above NTAV :o))

If GNG were priced at 100p there might be an issue. At 35p it's a no-brainer imho given the cash pile, locked-in client list (big barriers to entry), profitability and huge potential.

The high recurring income, low overhead base, cash pile, locked-in clients with high barriers to entry, multinational customers etc make GNG a far more defensively secure option than most companies.

The accelerating yuan also means that this year's challenging forecast of 6.5p EPS is even more likely to be met or beaten - not something that most companies can say, especially only halfway through the year.

cynic - 28 Oct 2008 20:35 - 267 of 382

it's also a no-brainer to to remember that China is slowing down rapidly and a lot of these overhyped Chinese companies are heading for the incinerator ..... i know markets have been dire worldwide, but it is worth taking a look at the performances and recent pathetic trading volumes of such former darlings as GNG, WCC, TAIH and even SOLA, a company where it has been impossible to open a new short position for 6/8 weeks or more

Proselenes - 29 Oct 2008 00:43 - 268 of 382

Yes cynic, all there is now in China stocks is lots of longs all trapped in with big losses.

This means lots of selling pressure to come, as they have to bail out, or sell on any rises to get some of their cash back out.

Weak stocks, no appeal, and of course China is going to be lots of bad news to come.

justyi - 29 Oct 2008 18:46 - 269 of 382

Chart.aspx?Provider=EODIntra&Code=GNG&Si

Proselenes - 29 Oct 2008 21:25 - 270 of 382

Thats the chart..........ramped up and now falling down.

cynic - 29 Oct 2008 21:41 - 271 of 382

and furthermore, no volume

rivaldo55555 - 02 Nov 2008 07:47 - 272 of 382

The above five posts are revealing in their xenophobia and lack of reference to the current rather than historic valuation of the company.

The comment about no volume recently, when this is an 11m m/cap company with limited free float in the worst month in recent stock market history, is priceless :o))

And the chart posted above somehow begins at the all-time high, rather than at the IPO at 30p compared to the current 38.5p or my buying point at 18p (or the start of this thread at 26p). I wonder why?!

Some comment about the FACTS below would be appreciated :o))

At 38.5p GNG's m/cap is just 11.9m - but I expect net tangible assets at current exchange rates of say 9m at 30th September'08, comprised entirely of cash and cash equivalents of say 3m cash and 6m blue chip debtors.

GNG's consistent profit after tax (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, or 3.7p EPS
Y/E 31/3/09 - 2.03m (per forecast), or 6.5p EPS
Y/E 31/3/10 - 2.88m (per forecast), or 9.1p EPS

So the 2.9m Enterprise Value (EV) compares to a historic PAT of 1.18m - a multiple of only 2. The historic P/E is down to a pretty respectable 10. The current year P/E is down to 5.9, the forward P/E is 4.2 and the PEG is around a ridiculously low 0.1.

Given 4.5m per annum recurring revenues, a 9.6m order book and a multinational client list like Hitachi, Dell, Lenovo, Adidas, IBM, Huawei etc the fundamentals are pretty telling.

cynic - 02 Nov 2008 14:24 - 273 of 382

your money to lose, so do as you wish ... the fact that there is such a small free float should give you much warning as to how the price can readily be manipulated

Proselenes - 03 Nov 2008 03:57 - 274 of 382

FACTS - yes very recently GNG said "ahead" then delivered a defacto profit warning and then delivered results below.

After this "fiasco"........

Then they give a trading update saying in line for the next results but "credit crisis" is having an impact.

Makes GNG an AVOID for most people, and the price reflects that.

All IMO.

hlyeo98 - 24 Nov 2008 17:20 - 275 of 382

Yeah, agree with u, proselenes. You have to read between the lines with GNG. Sell.

zscrooge - 24 Nov 2008 19:50 - 276 of 382

Only on these boards does PP (Proselenes) actually get taken seriously. You have to laugh.


LEAD crashing since PP recommended.
Oil going to $200? LOL

Trolling around on over 20 threads over the weekend. Sad indeed. And squelched of course.

Proselenes - 25 Nov 2008 02:52 - 277 of 382

Well, GNG warned over the credit crunch, the poor results just out from CESG also inform us the Chinese economy is just as messed up as anyone else.

Avoid.

Proselenes - 25 Nov 2008 02:56 - 278 of 382

Is there a post missing ? I do not see post 276.


hlyeo98 - 24 Nov 2008 17:20 - 275 of 277
Yeah, agree with u, proselenes. You have to read between the lines with GNG. Sell.

Proselenes - 25 Nov 2008 02:52 - 277 of 277
Well, GNG warned over the credit crunch, the poor results just out from CESG also inform us the Chinese economy is just as messed up as anyone else.

Avoid.

Proselenes - 07 Dec 2008 04:43 - 279 of 382

riv is quiet, wonder why ? SP falling after poor results, again ?

Proselenes - 07 Dec 2008 10:46 - 280 of 382

Lets rewind. Many lucky people sold this doggie when RHPS said "get out" "sell" some time back.

Lets read again the RHPS comments from many months back - did they see things going wrong back then ?????????

July 2008

"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 "
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