Research

A&G MASTER SCREEN

We’re pleased to launch our Accounting & Governance (A&G) Master Screen, a major new addition to our product line-up. This enables users to evaluate portfolio accounting risk, and to search for companies with specific accounting traits. A significant development is the introduction of positive accounting flags, as opposed to negative ones. This will, hopefully, help users find companies with desirable accounting traits, not just problematic ones. The screen has been pre-loaded with over 10,000 companies globallly, based on the latest year-end scores from six of our accounting modules, including Profit Manipulation (Beneish and Montier), Fake Cash Flow, Excess Capital, Acquisition Accounting and Debt…
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Insights

IN-BRIEF: CHINESE SPORTSWEAR

Another one bites the dust

Gillem Tulloch · 13 September 2018

Yet another sportswear company has blown up. In June, Hosa’s share price mysteriously collapsed 90% in a day. It has since been targeted by a short-seller, delayed its dividend, failed to submit interim financials and is now suspended. Hosa’s financials have similar traits to the nine previous frauds highlighted in our recent report on the Chinese sportswear sector, lending credibility to our argument that companies faking their sales have a unique set of financial characteristics. Furthermore, background research shows that many of Hosa’s management had links to companies embroiled in past scandals. We have devised a slightly more generic scan…
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IN-BRIEF: COMPLICIT AUDITORS

PWC gives Sunac and R&F a free pass

Nigel Stevenson · 29 August 2018

Imagine if fund managers could immediately revalue new investments to what they considered fair value. It would make a mockery of the industry and be considered unethical. In RARE circumstances, such as a forced sale, accounting rules allow buyers to book an immediate gain on the revaluation of acquired assets. Unfortunately, highly indebted Hong Kong audited companies are using this loophole to inflate their profits and equity. PWC has set the benchmark by allowing Sunac and R&F Properties to push through questionable revaluations of acquired assets. Incidentally, embattled commodities trader, Noble Group used similar gains on acquisitions to pad its…
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IN-BRIEF: GDS (GDS US)

SELL: Too bad to fake

Mark Webb · 15 August 2018

GDS was targeted by short-seller Blue Orca in a report published on 31st July, prompting a 47% share price decline. We find the claims regarding revenue and profit manipulation weak. After all, who would fake something that looks this bad? As for the allegations concerning overpriced acquisitions and undisclosed related parties, they have not been adequately addressed by management. Meanwhile, the practice of holding surplus cash offshore is not uncommon although it is undermining profitability. Our A&G Screen suggests that the company has likely manufactured operating cash flows and under-stated capex in order to present the most favourable cash flow…
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