Beauty China (BCH SP)

Listed in November 2003, Beauty China was a brand management company that owned and managed the Colour Zone brand of cosmetics and skin care products catering to the China market. There is limited information surrounding the failure of the company but the sequence of events was something as follows:

  • On the 28th of February 2009, the company issued preliminary unaudited FY2008 results which showed sales growth of 21% to HK$768m, but a 29% decline in net profit to HK$162m.
  • On the 2nd of March 2009, the company disclosed to the SGX (release unavailable) that its founder and Chairman, Wong Hai Wai, might sell shares. It subsequently transpired[1] that on the 5th of March he was forced to sell 2.24m shares mortgaged to creditors, reducing his stake from 38.6% to 30.5%.
  • On 9th of March 2009, the company received a statutory demand from its creditors of HK$134m. Credit lines and facilities from its banks were subsequently terminated.
  • Share trading was suspended on 12 March 2009.
  • In June 2009, the auditors issued a qualified report for FY2008, citing the recoverability of receivables and going concerns. Restated audited numbers showed a net loss of HK$328m, versus an unaudited profit of HK$162m, the difference relating primarily to a HK$217m impairment on receivables, HK$165m on PPE, HK$62m on land right uses, HK$20m on goodwill and HK$47m on inventory.
  • A winding up petition was submitted by creditors and in September 2009 liquidator appointed. It was delisted as of 23rd April 2010.

In our opinion, the Chairman had used his shares as collateral for a loan. In the face of a deteriorating economic environment, this created an incentive to inflate profits. It is certainly strange that a business which was seemingly so profitable (an operating margin of 25%) and with such little debt (HK$155m, less than a year’s profit), should not be able to refinance.


[1] Page 35, Dealing with Perception: A Look at Overseas-Listed Chinese Firms in Singapore, 6 February 2014

Beauty China: Annual Report 2008

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