Monday, March 15th, 2010
Pansoft Q&A: A Look Towards 2010 and Beyond
YES, I want free trades through Zecco.com!
Sumfolio.com conducted a brief interview with Pansoft Company Limited (NASDAQ:PSOF) to learn more about their business and plans going forward, and how it competes against international enterprise software providers like International Business Machines Corp. (NYSE:IBM) and Oracle Corporation (NASDAQ:ORCL).
Can you provide our readers with a brief history and overview of your company?
Pansoft Company Limited is a leading enterprise resource planning (“ERP”) software and professional services provider for the oil and gas industry in China. The Company’s software offers comprehensive solutions in various business operations including accounting, order processing, delivery, invoicing, inventory control, and customer relationship management. Pansoft was founded in 2001 by Hu Wang and Guoqiang Lin and has been in rapid growth and expansion in the last five years and achieved several milestones including its successful Initial Public Offering on NASDAQ Global Markets in September 2008.
Pansoft has done extremely well, despite the worldwide economic crisis and economic recession. Do you expect continued or stronger growth in 2010 and 2011 as the global economies recovery?
Yes, as we stated during our recent earning conference call, we expect Pansoft to maintain the 30 – 40% growth rate range of annual organic revenue growth during the next two fiscal years. We have a proven track record for years of maintaining and exceeding 30% (46% for 2009) annual revenue growth rate with steady gross margin.
Pansoft develops software solutions primarily for the oil and gas industry. What are the barriers to entry in this market? And what sets your company apart from the competition?
Industrial expertise is a key market entry barrier. Pansoft has been working with our clients since inception. Even prior to the Company’s inception, some of our engineers worked for these oil giants for many years. Our domain knowledge is not only on their business as oil suppliers but also on their sophisticated IT requirements derived from a conglomerate organizational structure and multiple operations in a complete supply chain. Our expertise to interpret their business requirement to IT system needs years of accumulated hands-on experience. In addition, we are very familiar with our customers’ legacy systems. For SAP application, we understand its data model, work flow and development tools. Also, we have accumulated plenty of components, framework, platform and development tools through our past cooperation and services. Depending on these software assets, we can meet our customers’ needs and focus on cost control at the same time. We do not face serious competition from other domestic players in the market, instead, face competition from well-known international service providers such as IBM. Our competitive advantage is our knowledge in local corporations’ requirements and business common practice in China, in addition to our unbeatable low cost service.
During the latest quarter, Pansoft completed a reorganization of its operations into six business departments and a subsidiary. Can you elaborate on this reorganization and how it helps support long-term growth?
Our new corporate structure includes three market segments and three functional departments and newly established departments are:
- PetroChina service: Focusing on headquarters’ IT demand from PetroChina, mostly for their large centralized software system development and integration service on accounting, fund and assets management as well as integration of different ERP segments.
- Sinopec service: Similar services described above for Sinopec headquarters.
- Subsidiaries oil field service: Focusing on the service for IT demand from subsidiaries of two oil giants, PetroChina and Sinopec, including major oil field operations. This department is in charge of opening Pansoft’s regional on-site offices in oil fields so as to monitor on-site demands closely and serve the client’s daily operational requirements more efficiently.
- Coal mining service: Focusing on establishing our service business to large coal mining businesses. We have entered into this industry two years ago and established initial business connections and potential projects. With this newly established department, we expect to open a new client base and gradually become one of our major revenue sources.
- Solution development: Focusing on software solution development based on the packages, components and tools accumulated from many years of development experience addressing to the new operational and management needs from new customers as well as mid-size businesses. The solution business line will raise the reusability of software developed by Pansoft so as to significantly improve software development efficiency, which is a strategy to make Pansoft’s high-end software system to be available for middle size business operations in order to develop our new clientele in broader market scope.
- Marketing and sales: Focusing on opening new market and client development to sell Pansoft’s solutions and services. The set up of this department represents a strategic turning point for the Company. In the past, most sales and new contracts developed by project team as natural extension of existing projects. Now we will actively seek for new market opportunities by a professional force so as to catch the new business initiatives.
- Hong Kong branch (International headquarters): Focusing on serving for Chinese companies with operations in Middle East and Hong Kong regions. The Company will gradually expand into other overseas areas following the international expansion path of its giant clients.
The purpose of the reorganization of Pansoft’s corporate structure is to achieve more efficient allocation of internal resources, effective utilization of management expertise and stronger capability to maximize organic growth. In the past, Pansoft has established strong technical and operational management teams but most of them were concentrated in one department. Since the establishment of the new organization, we have promoted and assigned many new team leaders in managerial positions from our experienced management team. Of course, these new managers will face new challenges such as turning their focus from operational management to opening new businesses. In this process, Pansoft is confident to achieve a even stronger team to match the needs of rapid business and corporate expansion. The corporate strategy is to enhance Pansoft’s dominance in the ERP market and position Pansoft to capture additional market share in order to raise the Company’s brand awareness in the ERP sector.
In addition, Pansoft also signed an agreement with PetroChina. Can you provide the details of this agreement? Is their potential for additional orders from them in the future?
The contract recently signed with PetroChina was the largest order up to date but is NOT going to be the last large order placed by this oil giant. Under this contract, Pansoft’s team is working on the project to integrate their centralized accounting systems developed by Pansoft with their other SAP ERP systems. The system integration will need PetroChina’s long term commitment to complete. The integration of these application subsystems will form the most important fundamental platform for PetroChina’ management applications. The system integration demand will derive more projects to be implemented in this future and we expect more projects, varies in size, from PetroChina for its ambitious IT plan.
Pansoft has a large reserve of $14.7 million in cash and cash equivalents on its balance sheet with robust free cash flow generation. Do you plan on using these funds exclusively for acquisitions, or have you considered paying a dividend or buying back shares?
Most of our cash reserve will be used for merger and acquisition as well as investment to open new business operations. We do not have any plans to buy back shares in the short term. We are focusing on implementation of our strategic goal to become a much larger business operation, which is also the goal shared by most of our investors. Therefore, we do not have a plan to issue dividends in the short run before we become a more profitable company with steady growth for our investors.
Want to become a better trader? Click here to sign-up for a FREE trading e-course taught by a former floor trader!
-- Written by Simon Monger
hi guys…
hi guysI would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future as well and i have start my own blog now, , thanks for your effort…