Research

IN BRIEF: CHINESE SUBSIDIES

Subsidies paid to Chinese companies are back in the spotlight due to the ongoing trade dispute with the US and their escalating cost to Chinese taxpayers. The majority of subsidies are probably hidden but our work on the top 100 Chinese companies suggests that explicit subsidies have risen by 38% between 2015 and 2017, to US$24bn, equal to 12% of pre-tax profit on average. Any sustained reduction in handouts would create significant earnings risks for a wide range of companies (highlighted within). Four of the most exposed include BYD (Sell), Unisplendour (NR), China Eastern Airlines (Sell) and ZTE (NR). GET…
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Insights

CKH HOLDINGS (1 HK)

Wind Tre accounting adds to earnings concerns

Mark Webb · 14 May 2019

CKH Holding’s (CKHH) recently released annual report reveals that accounting adjustments relating to the acquisition of Wind Tre, combined with the residual impact of the 2015 reorganisation, boosted FY18 profit by approximately HK$13.2bn, or 38%. These non-cash adjustments explain why operating cash flows lag cash profit, and why capex consistently exceeds depreciation and amortisation. Furthermore, by deeming a portion of its assets as held-for-sale, CKHH may be concealing HK$57.7bn of debt in liabilities associated with assets held-for-sale. Presumably, this aggressive accounting is being used to give CKHH a higher market rating and access to cheaper credit than it would have…
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NEWSLETTER 19: CIMIC (CIM AU)

Engineering profits

Nigel Stevenson · 30 April 2019

We estimate that Australia’s largest construction company CIMIC has inflated profits by around 100% in the last two years through aggressive revenue recognition, acquisition accounting and avoidance of JV losses. A lack of supporting cash flow has been obscured by the increased sale of receivables and reverse factoring of payables. While reported net cash was 69% of equity at YE18, we estimate adjusted net debt-to-equity of 74%. CIMIC’s refusal to provide substantive answers to our questions suggests it has something to hide. Get PDF version Dominant shareholder CIMIC came to our attention owing to a large restatement of its shareholders’…
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58.COM (WUBA US)

Hidden losses show performance has stalled

Mark Webb · 30 April 2019

58.com’s recently released annual report provides further evidence that it has hidden losses by deconsolidating subsidiaries. It has treated 58 Home as an associate since 2015 despite retaining 88% of its ordinary shares. Furthermore, in FY18, it stopped recognising most of 58 Home’s losses as its carrying value had fallen to zero. Without this, 58.com’s profits would have fallen 36% in FY18 rather than the reported increase of 55%. In another engineered transaction, 58.com transferred its loss-making Finance Business to its CEO in 2017, but appears not to have received any net consideration since, and continues to support the business…
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