Repost of visit to GENX in Nov 2006
Visit to GENX.
Travel to GENX was quite interesting. I had to go from Beijing to Tianjin by cab, 200 KM each way. For 800 RMB or 100US$ you can have your own cab for the day so it was not a big deal. Finding the place was a different story since my driver did not know Tianjin a small city of 10 million people! We finally made it after a lot of cell phone calls in Chinese.
I had 3 people waiting for me Mr song the Chairman son , The COO of the group and the CFO.
Mr. Song was the only one that could speak English. I started with the different points that I wanted to cover.
Company structure
The infamous loans
Company business and prospects
Future strategy
Status of old shares
GENX WB site
GENX is part of the GWG group owned by Mr. Song. The group has 1400 employees in Chemical, Pharma, Real Eastate, trading company. There is no legal relationship between GENX and GWG but a lot of sharing of resources. They occupy 2 floors of a very large building as their HQ. They also have several manufacturing facilities around Tianjin.
We had a long discussion about the loans. I stressed to them how bad it makes them look. The good news is that apparently the loans are more investments than loans. Equity interest in the companies receiving the loans are attached to the loans. I cannot go in more details at this point but will keep you up to date. The only thing I can say is that I urged them to clarify on their 10Q the interest they have in each companies.
Company is doing well but they are under constant pressure from the government to lower their cost. This could result in lower revenue growth if they do not expand the market. One million people in China could use the bone treatment they provide but only 50,000 can afford it. GENX supplies 20,000 patients, the next competitor is at 15,000. If they can reduce their cost with a manufacturing expansion they could service 200,000 patients. Bottom line is that they have a lot of room for expansion with the right investment.
They would like to enter the dental market with the same type of product. This would be a much larger market worldwide. I really liked that idea.
They need some help putting together their strategy and I committed to help them writting it.
The issue of old shares should be resolved soon. They do not seem to be overly concerned about it.
GENX will have a new WEB site before year end. I told them how important it was for shareholders visibility.
The conclusion is that GENX is not different than many small Chinese companies. Great potential but they do not quite know how to play the game. They are profitable, part of a bigger group and could do very well. They just need a lot of help.
In response to some of the posts made during the weekend about Chinese small cap companies, I would say that if you want to invest in them the DD needs to be a lot deeper than just reading a 10K or 10Q. You need to talk to them directly and even go there and see what they do. It does not guarantee success but it sure helps! A least I had a chance to climb the Great wall during my stay in Beijing.
By the way I am holding on to my 120k shares :)
BG
