GINSMS (GOK.v) – bottom fishing opportunity?

[tara]

GINSMS (GOK.v)

Raymond Richard, Corporate Secretary, (450)466-2621
Corporate@ginsms.com
Web site: http://www.ginsms.com



Went public at the end of 09. Founded in 2002.
GIN is a Hong Kong based technology company, one of the only two companies offering Inter-Operator SMS (IOSMS) service to telecom operators in Hong Kong.

GIN is servicing all mobile operators and Mobile Virtual Network Operators (MVNOs) in Hong Kong as well as the two largest mobile telecom operators in China through business alliance. The company charges mobile telecom operators on a usage basis for inter-operator transmission of SMS within Hong Kong. The IOSMS gateway has the capability to handle GSM, CDMA, PHS and fixed line SMS transmission. It is superior platform to cope with Inter Operator and International SMS business for today and beyond.



The pros

- Profitable 7 of 8 past quarters
- Q3 EPS= +93k, Q2=+95k, Q1=+34k (9 months = +.01$/share)
- No long term debt
- Gross margin about 70%
- Net margins about 45%
- Free cash flow positive
- Working capital = +758k (+.02$/share)
- Book value = 1.5M$ (or .035$/share – no goodwill and intangibles)
- Current Market cap about 2M$(july 26th 2010)
- 43.3M shares outstanding; Insider ownership about 70% (excluding family and friends)
- Insider buying @ .15$ dec. 2009
- No lawsuits that I am aware of
- Salaries are reasonable



The cons

- Needs more revenues; marketing campaign underway
- Illiquid but they recently hired Pinnacle Communications as IR
- CITIC 1616 is the dominant player, but could perhaps swallow GINSMS if they become a nuisance



What makes this company interesting in my opinion?

Having installed a new system capable of handling 10 times more traffic, the recent IPO financing should allow marketing spree to increase revenues. Per Q3 MD&A page 14, their operating expenses hover around 22k/month. For those who like Boyuan, Paul Law the CFO is a director of GINSMS. The company only has one competitor to deal with, but it’s a strong one: CITIC 1616. Short text messaging is cheaper than cellular calls, one of the reasons why it is booming in Hong Kong/China. Net margin is the key factor for this stock, which could drive earnings if they secure more business in the coming months. The company recently hired an investor relation firm(Pinnacle Communications) which has yet to prove its merit.



P.S. The above is simply my personal understanding and not to be construed as investment advice. I’m not a broker, promoter, director, manager or employee of the aforementioned company, just a shareholder. Do your own due diligence. Typos could have occurred.

[tara]

GINSMS PURSUES GROWTH IN CHINA

The company recently announced a profitable 2010, although the numbers were negatively affected by the IPO fees, a complete system changeover, higher depreciation charges and lost traffic during the system changeover. To top it off, some primary customers made routing changes, which required adaptation/time and translated into lost traffic, negatively impacting the bottom line also. See the following link : [url]http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aGOK-1744850&symbol=GOK®ion
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Traffic levels are re-establishing and the new system is now fully operational with 10 times more capacity, allowing the pursuit of growth initiatives. As such, the company announced july 30th signing a “WOFE” in China (Wholly Owned Foreign Enterprises). See the following link: [url]http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aGOK-1744852&symbol=GOK®ion
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The WOFE paves the way for market penetration in China, with an extremely large population(ie. SMS traffic). Management has indicated contemplating Value Added Services (VAS), on top of addressing inbound traffic to China from Hong Kong and other countries. Increasing the systems’ capacity was a prerequisite to this venture (phase 1), and the WOFE in place(phase 2) will now allow to address marketing for their offering(phase 3). Hong Kong operations alone generated more than 128.3 million short messages, and China traffic is far more enticing from a pure SMS point of view. VAS is an additional step out, perhaps involving partnerships for GINSMS.





Significant accumulation can be witnessed by TD. The latest insider trading report can be seen as such




GINSMS Inc. (GOK) As of August 2nd, 2010

Jul 13/10 Nov 12/09 Richard, Raymond Control or Direction Common Shares 00 - Opening Balance-Initial SEDI Report
Jul 13/10 Nov 11/09 Richard, Raymond Direct Ownership Common Shares 46 - Compensation for services 400,000
Dec 23/09 Dec 16/09 Law, Fung Yuen Paul Direct Ownership Common Shares 16 - Acquisition under a prospectus exemption 33,333 $0.150
Dec 23/09 Dec 16/09 Leung, Benedict Man Bong Direct Ownership Common Shares 16 - Acquisition under a prospectus exemption 33,333 $0.150
Dec 23/09 Dec 16/09 Lai, Man Kon Direct Ownership Common Shares 16 - Acquisition under a prospectus exemption 33,333 $0.150
Dec 23/09 Dec 16/09 Lam, Koon Fai Direct Ownership Common Shares 16 - Acquisition under a prospectus exemption 33,334 $0.150
Dec 23/09 Dec 16/09 Suen, Kwok Kin Direct Ownership Common Shares 16 - Acquisition under a prospectus exemption 33,333 $0.150
Dec 23/09 Dec 16/09 Ho, Chun Tat Direct Ownership Common Shares 16 - Acquisition under a prospectus exemption 33,333 $0.150
Dec 23/09 Dec 16/09 Richard, Raymond Direct Ownership Common Shares 16 - Acquisition under a prospectus exemption 33,333 $0.150
Nov 27/09 Nov 13/09 Law, Fung Yuen Paul Direct Ownership Options 00 - Opening Balance-Initial SEDI Report

[tara]

460 000 share yesterday, with almost half taken by TD.

Again this morning, TD led the charge with 200 000 on the opening bid, and growing as I write.

Pinnacle Communications has revamped the website, and valuable investor information can be found. A sample is given here:


GIN recently signed two year contracts with the five major MNOs in Hong Kong: Hutchison Telecommunications (Hong Kong) Limited, China Mobile Peoples Telephone Company Limited, PCCW Mobile HK Limited, CSL Limited and SmarTone Mobile Communications Limited.


The link is as follow(see corporate highlights):
http://www.ginsms.com/index.html

[tara]

Profitable in Q2, with 69% Gross Margin and 24% net margin



Although GINSMS had about 30k of filing fees related to the annual statement, the company generated another positive quarter.


The cost structure of this company resembles Alphinat, with a very low breakeven threshold. The gross margins(69%) and net margins(24%) are spicy indicators for the fundamentalist savvy. Targeted increase in sales should flow down to bottom line numbers, highlighting the forward looking undervalued state.


Biling more than 34 million short messages in Q2, the new system in place showed cost reductions as planned, boosting gross margins from 49 to 69%. And with the excess capacity and the new WOFE(Wholly Owned Foreign Enterprise), the company is marching towards signing deals to address the Chinese market.


The share price has increased 44% since introduced at .045$, and as expected, TD has led the increase while filing the bid side. This company is still available at bottom prices, until it cements an expansion deal as described above.



P.S. The above is simply my personal understanding and not to be construed as investment advice. I’m not a broker, promoter, director, manager or employee of the aforementioned company, just a shareholder. Do your own due diligence. Typos could have occurred.