Research

CAR (699 HK)

All that stands between CAR and a disorderly liquidation of its shareholder base is a share buyback scheme which it can ill-afford. Since we wrote our in-depth SELL report in March 2016, CAR’s performance has been dire: Its largest customer and sister company, UCAR, the ride-hailing business, is struggling and has halved the number of cars rented from CAR. To offset the resulting lost revenue, CAR has slashed prices for its traditional self-drive rental business to boost demand. In 1H17, CAR’s total rental revenue was flat while adjusted net profit fell by a third. Its shares have fallen by 15%…
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Insights

IN BRIEF: TIBET WATER (1115 HK)

Tip of the iceberg

Mark Webb · 17 October 2017

Water and beer bottler Tibet Water Resources (TWR) has the dubious distinction of being accused of fraud by two anonymous short-sellers in just one week. Our analysis of its financials raises concerns that something is amiss: (i) Operating margins are super-normal despite minimal capex, which would appear to be a dichotomy. (ii) Free cash inflows have gone into acquisitions and, despite super-high cash balances, dividends have been reduced to zero. (iii) Unusually high investment flows are consistent with companies window-dressing their financials and, in some instances, past frauds. Management’s response to these accusations has been to threaten litigation as opposed…
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SPECULATIVE INVESTMENTS

Now you see them, now you don’t

Gillem Tulloch · 12 October 2017

It appears contradictory that Asia’s most leveraged corporate sectors, India and China, also have the highest incidence of companies likely to be window dressing their short-term investments. The removal of dubious assets prior to reporting periods may be a way of avoiding awkward investor questions. For companies engaging in such behaviour, risks should be re-evaluated and management held to account. Worryingly, our short-list of 125 Asian companies contains a disproportionately high percentage that have either been accused of fraud, or have fraud-like traits. The layering of short-term investments might be a means of obscuring the source of cash from auditors….
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IN BRIEF: ZTO (ZTO US)

Risks rising on Alibaba’s plans for Cainiao

Mark Webb · 4 October 2017

China has a fragmented and commoditised parcel delivery industry which is dominated by goods purchased on Alibaba’s (BABA US) platforms. This is ZTO’s key business which currently reports world-beating margins and returns on capital. Alibaba’s acquisition of an increased stake in Cainiao Network is probably not an attempt to take-over the delivery market itself; unlike Amazon and JD.com, it does not want to control the entire value chain. Instead, we suspect it is part of Alibaba’s strategy to ensure the delivery market is low-cost and efficient, and will help Alibaba monetarise Cainiao’s services. That’s good news for Alibaba and the…
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