Hall of Shame

Consumer Discretionary

Kasen International Holdings (496 HK)

Year: 2019

Kasen International Holdings Ltd, a Chinese company, manufactures upholstered furniture and leather products in China.  The Company serves United States furniture companies.  Kasen International also sells automotive leather to automobile parts suppliers.

It listed on the Hong Kong Exchange in October 2005, raising HK$775M.  A follow-on share offering in January 2015 raised HK$209M.

In November 2019, shoert -seller, Blue Orca Capital published a report on Kasen stating that it was uninvestable based on the following (in summary)  :-

  1. Three years previously, the company had sold off the most profitable parts of the business to the Chairmans daughters at well below the market value.  They believed that profits and revenue were understated in the years prior to the sale.
  2. in January 2018, Kasen had invested with a JV in a development of Waterpark in Cambodia.  They believe the project is a sham, and that the prepayments made, RMB177M, were likely misappropriated.
  3. In April 2018, Kasen, announced a cooperation agreement to develop the Steung Hav International Port and Special Economic Zone in Cambodia, investing RMB1.7M.  Blue Orca Kasen believe that Kasen has neither the resources, experience, nor expertise to successfully complete its proposed investment.
  4. Following the sales to the Chariman's daughters, Kasen reported that it spent RMB 714 million on PP&E to expand and upgrade its manufacturing facilities.  Blue Orca believe that either the Company made up the figures to conceal fake profits or that insiders misappropriated the funds.
  5. In 2009, Kasen had annouced the purchase of 1.4M sq. meters of land in Sanya for residential development.  After 10 years and pre-payments of RMB 843M they have only received 11% of the land and doubts whether the rest is forthcoming.

Blue Orca claimed that Kasen has "fabricated" financial statements to hide its true value and deceive investors into thinking that it is still a viable business. The short seller contended that the company had been looted by the chairman's family. The report alleged that the best parts of Kasen’s automotive leather and furniture business were sold to the chairman’s daughters three years ago, leaving the company with a single viable segment, property development, which is "a melting ice cube" as the firm is in the process of shedding the last of its remaining residential units.   To replace the sold assets and create an illusory impression that the firm was still strong, its leadership announced various development projects in Cambodia, which Blue Orca investigated and found "vacant, undeveloped plots of land which locals say are owned by someone else."

Kasen issued a denial of the allegations and two days later annouced that the Company resolved to establish an independent board committee  comprising all independent non-executive Directors to (i) engage and lead an independent professional party to conduct a review on the matters as alleged in the Report; 


Blue Orca Capital :  Blue Orca is Short Kasen International Holdings - Nov 21, 2019

Kasen: Sale Of Business Units - April 29, 2016
Kasen: Response to Blue Orca - Nov. 22, 2019

SCMP: Chinese furniture maker Kasen plunges 90% after critical report by short-seller - Nov. 21, 2019

Kasen : Annual report 2016
Kasen : Annual report 2017
Kasen : Annual report 2018

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