Research

GRADING FINANCIALS

Where globally are you likely to find the most problematic financial statements and where will you find the best…and which companies are they? Where are companies most likely to be manipulating profits, or least likely? In which markets are companies looking the most financially distressed? In developing our newly launched Accounting Screen, we scored 3,000 companies in Asia and 16,000 globally using traditional mathematical models such as Beneish’s M-Score, Altman’s Z-Score, etc. It may be surprising that Hong Kong scores the worst globally, closely followed by China. Of greater comfort is that Japan, Thailand and Indonesia all score well. GET…
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Insights

CHINA EVERGRANDE (3333 HK)

Valuing Empty Properties

Nigel Stevenson · 22 March 2017

In our opinion, CBRE has gone to extremes to give Evergrande’s property assets the most favourable valuation. Its methodology allows Evergrande to increase valuations by simply revising up planned floor space, even at projects which our site visits demonstrated were failed developments. Furthermore, the lack of rental income on investment properties means CBRE has adopted a comparable transaction approach as opposed to income capitalisation. This produces a stellar valuation despite a pathetic rental yield of just 0.1%. In our report, CHINA EVERGRANDE: Auditors Asleep, we estimated these properties could be worth less than half their RMB122bn balance sheet value and…
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FOREIGN DEBT

Chinese Currency Manipulators

Nigel Stevenson · 9 March 2017

A large number of overseas-listed Chinese companies have been able to avoid recognising foreign exchange losses on their foreign debt by adopting what we think are inappropriate functional currencies. The culprits include major tech stocks, such as Alibaba, Baidu, Tencent and Ctrip. Based on our analysis, 80% of Hong Kong and US-listed Chinese companies have some form of foreign currency debt. Of those that do, for nearly a quarter it represented more than 90% of their total borrowings. A significant minority have foreign currency debt greater than their market value which makes them extremely vulnerable to even a moderate decline…
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ZTO EXPRESS (ZTO US)

SELL: 4Q miss, downgrade risks rise

Mark Webb · 1 March 2017

Management had led the market to expect inflated returns from ZTO Express, presumably to help support a grossly over-priced IPO. However, the company failed to meet expectations, with 4Q16 EPS coming in 4% below consensus forecast. Along with tepid guidance for 1Q17, this calls into question highly over-optimistic consensus forecasts. As a result, we expect the market to rapidly downgrade profit expectations. The stock remains overpriced on 31x 2016 trailing PE. We think ZTO is worth less than US$10 per share. With downside of at least 22%, we recommend SELL/SHORT. DOWNLOAD PDF What’s happened? ZTO delivers parcels in the highly…
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