Software Circle Share Discussion Threads

[charlie] 09/7/2010 13:31

Confucius wise man, but charlie wiser.

and today, poorer :(

Unfortunately reinforces the common prejudice against Chinese companies on AIM. That is, they often have lots of cash, but the external shareholders never see it. A great shame, because Sinosoft seems to have a good software business. If only they would stick to it, and return to shareholders the cash they don't need.

[stewjames] 09/7/2010 12:48

"Stew, the loan to the developer was to buy a stake in the building as I recall a reasonable move."

Oh, I agree it's not outlandish or anything. But at the same time, is it really something they should be getting involved in to the tune of around 1/4 of their cash? And isn't it a bit odd for a developer to be needing to take loans from one of their clients at 10% interest plus future rent concessions rather than a more traditional financing source?

[saucepan] 09/7/2010 12:43

Thanks for the feedback. These calls are never easy. Best wishes and see you around on other threads.

[nickgrant2] 09/7/2010 12:24

Stew, the loan to the developer was to buy a stake in the building as I recall a reasonable move.

Regarding the $3.8m, any sized company can be victim to unauthorised activity (see jerome kerviel).

Some things to be grateful for;
1. Its just a percentage of their cash as a profitable company that they have lost, not 10 times that amount of cash.
2. This will make them implement far better processes in the future while they are still smallish.

One thing to be not so grateful for;
1. We dont know the bottom of it, it could be a lot uglier than we know.

[stewjames] 09/7/2010 12:13

What the hell? Heads must roll over this.

Puts comments about the desirability of distributing the cash into context. There were signs they were getting a bit exotic with the cash when they made the decision to make a substantial loan to the developer of the property to which they were relocating.

[davidosh] 09/7/2010 11:38

Buggy.....Have you emailed the FD with your concerns ?

Normally one would expect a change or two at board level for such an admittance of lack of controls and understanding within the company.

Is there a UK based non executive director ?

Time to start digging and try to secure the remainder of the cash for distribution of a significant part to shareholders IMO.

Saucepan.....You sound very sensible and of course there may be more hidden rot to be uncovered here. I think the company reputation will have dropped immensely with this news and that is why the value of the company has initially at least fallen by much more than the amount lost in the contracts.

[saucepan] 09/7/2010 08:55

Taken the hit and moving on. Extremely disappointing. Good luck to those who keep the faith.

[stewolf] 09/7/2010 08:34

Bit of an eye-opener that statement, but does highlight the sort the risk that putting money into companies like this on the AIM market carries.
I hold these and intended to for the long term as their software business looks solid, so I hope this gets sorted satisfactorily soon, but it's changed the way I'm looking at them now. Have to echo Stegrego's sentiment, what are they doing in forex contracts? GLTA holders.

[drewz] 09/7/2010 07:50

To think that back at IPO this was being touted as the new Chinese Microsoft!

It has turned into another Chinese AIM shambles.

[zangdook] 09/7/2010 07:47

Perhaps this explains the recent fall. Even allowing for the loss of $3.8m, ISTM we're still trading below net tangible assets. Happy to hold for now.

[stegrego] 09/7/2010 07:43

Not invested here, but have to ask why the hell are they doing ANY forex contracts at all?

Looks like someone fancies themselves as a trader and has messed up big time.

Not good PR for Chinese AIM again.

[matt] 09/7/2010 07:33

Ouch

Trading Update



The Board of Sinosoft has been informed that the Company recently closed certain
foreign exchange contracts which have, in aggregate, resulted in a net loss to
the Company of approximately $3.8 million. The consequence of this is that the
Company expects to report a loss for the first half of 2010 and that the group's
cash and cash equivalents at 30 June 2010 will be materially below the $14.9
million at 31 December 2009 reported in the Company's audited accounts for the
year ended 31 December 2009.

The exact nature of this trading activity is being investigated as the Board is
of the opinion that it had not authorised this level of exposure to foreign
currency derivatives.

[cheeky13] 23/6/2010 14:11

335000 buys today must go up surely .

[davidosh] 19/6/2010 16:35

Thanks Drewz that is excellent. The forecasts seem to be for growth still. How do you see it panning out from here and why do the company need to hold on to so much cash as they could easily afford a better dividend if the growth is not there and cash needed in the business.

[drewz] 19/6/2010 15:41

They've been ploughing revenues back into R&D and held up by delays in the nationwide roll out of the export tax software, where technical problems have caused greater expenditure than expected.

It was expected that once the tax software was installed and de-bugged in one region then it could be quickly replicated at low cost in the rest of the country.

This has proved not to be the case and each region is needing a bespoke installation. All resulting in slower and more expensive installation and therefore lower revenues and tighter margins.

The low shareprice reflects these disappointments and also the realisation that a surge in revenues, expectation of which gave the share such a boost post-ipo, is unlikely to materialise anytime soon.

[davidosh] 19/6/2010 12:08

I copied this from a report on the company from four years ago....


Sinosoft derives a third of its revenues from selling export tax software and the remaining two thirds is generated from sales of e-government software and add-on services. The last set of results for the year to December 2005 revealed a pre-tax profit of $3.38 million on turnover of $6.287 million. The group had cash of $3.3 million at the year end. From the $17 million raised, Sinosoft intends to use $6 million on sales and marketing, $3.8 million on R&D, and will repay a $2.4 million loan. In the current year, analysts are looking for sales of $11.2 million, partly resulting from the government contract win. Profits in the current year are forecasted to come in at $5.46 million. With more territories under control and more local authorities buying the Sinosoft software, profits are expected to increase to $7.1 million on sales of $15.5 million, putting the stock on a single digit PE.


This is how it panned out over the last six years to December 2009


Turnover (m) 4.98 6.16 9.20 10.62 12.08 14.51

Op Profit(m) 2.74 3.55 3.54 4.78 3.29 3.30

Pretax Pr.(m) 2.67 3.46 3.81 5.19 3.79 4.41


Can anyone with good long term knowledge and background here provide a reason why Sinosoft did not meet forecasts as expected and why the margins have been declining so steadily ? That aside are there other reasons for the extremely low valuation compared to NAV considering this company does make actual profits and generates cash albeit slowly as is so often the case with China based companies ?

Many thanks for any help with my research.

[buggy] 16/6/2010 12:45

SPADman,

No downside just have to be prepared to tie down the money for a few years.

Seems to go up in steps after each results then comes down again. Long ternm a solid investment but most people a chasing a quick turnover on their money and not willing to hang around.

Ex dividend today so those that hung around for the divedend are moving on ...no doubt to return again before the final results next year.

Par for courses for most Chinise based company..... not known for constant news flow ... though SFT may well pull out a rabbit out of the bag in terms of an acquisition.

[spadman] 16/6/2010 12:30

I dont get this, have got a few ks worth but thinking of filling up big time... the figures just dont make sense why on earth is SFT so cheap???

Dont agree that being cash rich is so bad either for above reasons... does anyone know any downside that justifies the lowly rating?