Research

IN-BRIEF: CHINA HONGQIAO (1378 HK)

China Hongqiao’s post-suspension share price appreciation might lead some to believe that fraud allegations have been addressed, but we are not entirely convinced. Even if investors can accept that the company had four different auditors in two years, they still have to grapple with a less than satisfactory response to fraud allegations and a very worrying set of financial statements containing similar traits to past frauds. The stock might be trading on 5x 2018 PER (assuming profits are real) but we would still be sellers. The cost of shorting is expensive at 9% but might be a strategy for risk…
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Insights

ON THIN ICE

Healthy profit, flimsy cashflow

Mark Webb · 25 June 2018

When operating cashflow consistently fails to match profit, there is normally a problem either with a company’s accounting, or their business model. Therefore, our screen of Asian domiciled companies (excluding non-financial and property) highlights plenty of potential concerns. Almost a third of Asian companies had operating cashflows at least 20% lower than like-for-like profit over the last five years. We highlight 15 stocks with huge discrepancies and the six we believe represent the highest risk are AviChina, BYD, Celltrion Healthcare, China Everbright Int’l, Samsung SDI and True Corp. GET PDF VIEW SLIDES CEIL EXTRACT GMT Research cashflow screen We screened…
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IN-BRIEF: TAL EDUCATION

What's going on?

Nigel Stevenson · 18 June 2018

Muddy Waters’ allegations against Chinese tutoring company, TAL Education (TAL US) raise serious concerns regarding several transactions as they clearly appear to have been engineered. This casts doubt on the integrity of TAL’s financial statements and management. However, so far, we think there is limited evidence to support the specific claim that TAL faked relatively small amounts of deferred revenue. Nonetheless, it is possible the transactions are part of a complicated round-tripping exercise, although we have found no direct evidence to support this. We have considerable concerns about the company given its financial statements display traits which are similar to…
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SPORTSWEAR REBUTTAL

His Master's Voice

Gillem Tulloch · 15 June 2018

Before we respond to some of the sell-side’s reactions to our Anta report, we need to warn you not to forward our research outside of your firm. It’s against our agreement with you, devalues our product and raises the chances of expensive legal and/or regulatory action against us. On to business… Much of Anta’s rebuttal came from selective disclosure to a group of analysts rather than anything published. Arguably, this is peddling potential insider information and stops us tackling their points head-on. Sell-side analysts have responded as expected. So far, of the reports we have seen, they have, in general, simply regurgitated…
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