Research

FULLSHARE HLDS (607 HK)

Well, that was annoying. We had been planning to issue a brief note on Fullshare given the 200x increase in its market cap since its backdoor listing but were beaten to it. The well-known short-seller, Glaucus Research, issued a report on 25th April claiming that it is “one of the largest stock manipulation schemes…anywhere in the world”. While we are in broad agreement with the conclusions, our view on the details is slightly different. Fullshare’s shares have been suspended (at the company’s request) pending a clarification announcement, giving it time to regroup. We thought it would be worthwhile giving our…
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Insights

CARILLION (CLLN LN)

Worrying parallels

Gillem Tulloch · 19 July 2017

You might be wondering what a UK contractor’s woes have to do with Asia. First, Carillion’s has a similar supplier payment arrangement to Sinopharm but, unlike Sinopharm, it does not reclassify repayments as a financing activity which materially overstates Sinopharm’s operating cash flow. This re-enforces the view presented in our recent report that Sinopharm’s cash flow statement misrepresents its financial position. Second, Carillion’s surprise share price collapse shows that subjective contract accounting can inflate reported profits and asset prices. It is only when banks want their money back that shareholders find out there’s nothing left. The UK contractors might look…
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SINOPHARM (1099 HK)

SELL: Not what it seems

Gillem Tulloch · 11 July 2017

Sinopharm is not the lowly geared, cash generative company it seems. Operating cash inflows have been entirely manufactured through two methods: First, trade creditor repayments have been reclassified from operating cash flows to financing activities…an accounting first. Second, the company has sold ever greater quantities of receivables. Adjust for this and there are no operating cash inflows while leverage is worryingly high. Add into the mix the pursuit of growth through acquisitions, reduced financial disclosure, management’s failure to address our concerns, and we believe that the stock is virtually uninvestable. For those wishing to short, there is likely at least…
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THE DIRTY DOZEN

Stocks to avoid in Asian infrastructure

Mark Webb · 29 June 2017

Competition for infrastructure has grown, project returns fallen and policy interference is rife in Asia. However, against this backdrop, some Asian infrastructure companies have been able to offer strong growth and decent ROEs. Unfortunately for investors, most owe their superior financial performance to the aggressive application of accounting policies rather than infrastructure investment prowess. The dirty dozen: Beijing Cap Co (600008 CH), Beijing Origin (300070 CH), Canvest Env (1381 HK), China Com Constr (1800 HK), China Everbright Gr (1257 HK), China Everbright Int (257 HK), Dynagreen (1330 HK), Henan Zhong (600020 CH), IRB Infra (IRB IN), Sichuan Road (600039 CH),…
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