Research

FULLSHARE HLDS (607 HK)

Well, that was annoying. We had been planning to issue a brief note on Fullshare given the 200x increase in its market cap since its backdoor listing but were beaten to it. The well-known short-seller, Glaucus Research, issued a report on 25th April claiming that it is “one of the largest stock manipulation schemes…anywhere in the world”. While we are in broad agreement with the conclusions, our view on the details is slightly different. Fullshare’s shares have been suspended (at the company’s request) pending a clarification announcement, giving it time to regroup. We thought it would be worthwhile giving our…
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AAC TECHNOLOGIES (2018 HK)

Dissecting Gotham

Nigel Stevenson · 24 May 2017

Gotham Research has followed its initial teaser on AAC Technologies (May 11th) with a more detailed report (May 19th) alleging the use of undisclosed related parties to overstate profits, smooth earnings and evade Apple’s labour standards. The evidence that AAC has overstated its profits is circumstantial and, in our view, not entirely convincing. Nonetheless, AAC needs to explain its relationship with these parties even if there is nothing untoward. We have found no major issues from our analysis of AAC’s financials although certain items (such as loans to suppliers) require further explanation. The company announced that it will release a…
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NEWSLETTER 14:

CHINA GREENLAND (1253 HK): How Bizarre, how bizarre...

Gillem Tulloch · 24 May 2017

The problem with companies recognising profits well ahead of payment is that you’re never really sure if the money’s going to turn up. Take China Greenland Broad Greenstate (CGBG) for example. It looks like a no-brainer…Who wouldn’t want to invest in a company with 30% operating margins and profits forecast to quadruple over the next few years? But scratch below the surface and it gets murkier. How can a gardening company generate such high margins which have somehow bucked industry trends? And it never seems to get paid. In fact, we estimate cash sales in 2016 to be 25% of…
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ZTO EXPRESS (ZTO US)

SELL: 1Q17 – Downgrades to continue as margins fall

Mark Webb · 22 May 2017

Parcel courier company, ZTO, delivered another disappointing result in 1Q17 with further gross profit margin declines, driven by falling unit prices and rising transportation costs. We estimate recurring EPS rose a paltry 9% y-o-y. Given that the base period – 1Q16 – was comfortably the weakest quarter of that year, we expect margin pressure to continue for the rest of 2017. Guidance suggested 31% revenue growth in 2Q17, well below the 38% consensus expects for the whole of 2017. A combination of weaker than expected unit pricing and falling underlying margins mean lacklustre EPS growth for 2017 and further downgrades…
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