Research

CAR Inc

In just over a year, CAR’s founder and Chairman has transformed a minority shareholding in CAR (699 HK) into a controlling interest in UCAR. He recently resigned as Chief Executive of CAR to take up the same position at UCAR, which immediately filed for a listing that will probably give it a market value higher than CAR’s. Recent events provide more evidence that minority investors in CAR are likely to get a raw deal. CAR’s new CEO also has a significant shareholding in UCAR. We think CAR’s main role will be to finance UCAR’s fleet expansion, which may require it…
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Insights

PINDUODUO (PDD US)

AVOID/SHORT: Risks rise from surprise fund raising

Mark Webb · 12 February 2019

PDD’s surprise announcement of a secondary share offering in the middle of Chinese New Year is not just surprising but has a whiff of desperation about it. Fund raising during a public holiday and so soon after its IPO is a concern. At best, it’s an opportunistic measure to raise cash it doesn’t need. Other explanations are more problematic; disclosure in the accompanying prospectus suggests underlying profitability and cash generation may be even weaker than headline figures suggest. The revelation that new revenue recognition rules will be applied a year earlier than previously thought may also have encouraged PDD to…
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NEW DOGS, OLD TRICKS 

Frauds in 2018

Mark Webb · 30 January 2019

Accounting irregularities and alleged frauds led to some spectacular share price declines in 2018. Allegations were confirmed at seven companies globally, with claims made against a further 11 Asian companies, leading to an average share price decline of 40%. The most frequent fraud involved faking revenues and profits with the evidence hidden as cash or other current assets. Meanwhile, the inflation of profits through the abuse of acquisition accounting is an increasingly common occurrence. Our Accounting & Governance Screen successfully identified problems at targeted companies, and we highlight those with similar characteristics within this report. Transactions with connected but off…
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THE OVERSEAS CHINESE

Top 30 US-listed Chinese companies

Gillem Tulloch · 16 January 2019

It was all supposed to be so easy: just analyse the 30 largest US-listed Chinese companies and evaluate the risk. Well, it wasn’t. This share class has an unusually high historic track record of fraud and shenanigans, likely stemming from the deliberate avoidance of regulatory oversight through the exploitation of Foreign Private Issuer status. The accounting picture is further muddied by the use of Variable Interest Entities (VIEs) where we suspect there are large undisclosed tax liabilities. These issues are complicated and need explaining, hence the length of this report. Our analysts regarded over 70% of this sample as a…
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