Research

COMING UP SHORT

Investors increasingly view the income statement as unreliable; instead modelling cash flows to gauge performance. But the cash flow statement is flawed from an investment perspective as it only aims to reconcile movements in cash. This means that purchases funded with debt or equity are excluded which can materially distort operating and free cash flows. In this report, we discuss the most common practices affecting cash flows and highlight those stocks most impacted, such as China Southern, JD.com, Ctrip.com, China Resources Pharma and CKH Holdings. GET PDF VIEW SLIDES Payments using debt Items paid directly with debt, rather than cash,…
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Insights

TICKING TIME BOMBS

Stocks with similar traits to Steinhoff

Mark Webb · 22 February 2018

Steinhoff surprised the market late last year with an admission of accounting irregularities which led to its share price collapse. Interestingly, its financial statements showed early warning signs, such as unusually high profitability which failed to translate into free cash flows or dividends. A number of acquisitions also showed evidence of asset write-downs which likely inflated profits. Indeed, the company triggered two of our proprietary accounting models, Acquisition Accounting and Fake Cash Flow. We screened 3,500 large companies globally for those with similar traits and found 84 stocks of which 35 were in Asia. We have major concerns over five…
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IN-BRIEF: IMPERIAL PACIFIC

How long before it goes to zero?

Gillem Tulloch · 16 February 2018

Gong Hey Fat Choy from Thailand! How long before Imperial Pacific (1076 HK) goes to zero? Now, don’t get too excited if you’re a short-seller as its market cap is only US$1.8bn and liquidity is just under a million US dollars a day; however, the story behind this casino stock is worthy of the annals of Asia’s craziest, and has just been exposed in a Bloomberg article titled “A Chinese Casino Has Conquered a Piece of America” (15 Feb 2018). It involves death, bribery, gambling, money laundering and lots more, all on the US-administered tiny island of Saipan in the…
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NEWSLETTER 17

Asia’s most manipulated market is…

Gillem Tulloch · 8 February 2018

Are Hong Kong-listed companies the most manipulated in Asia? Of the 6,000 largest companies in Asia, 16 rose by more than 10% in the ten trading days before New Year and then fell by more than 10% in the ten days after. Although Philtrust Bank in the Philippines took the top spot with a total 20-day swing of 71%, the list was dominated by companies listed in Hong Kong. Some familiar names appear, including China High Speed and China Greenland Broad Greenstate. We wonder whether the Hong Kong Stock Connect has created a regulatory blind spot that allows stocks to…
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