Fujian has gained a bit of reputation for being home to a large number of frauds. As a result, we decided to see if the statistics supported the allegations. We have records of 13 alleged or confirmed Fake Cash Flow Frauds at listed companies from Fujian where investors have lost almost everything. That’s the highest number recorded for any Chinese province and accounts for 17% of all alleged Chinese Fake Cash Flow Frauds in our database. And yet Fujian accounts for just 3% of China’s population, 3% of its large listed companies and 4% of its economy. Most of these…
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Research
Insights
CHINA EVERBRIGH INT
SELL: Paper Profits
Mark Webb · 5 July 2018
China Everbright Intl Ltd (CEIL) has one of the worst track records in Asia for cashflow generation relative to profit. CEIL gains this dubious distinction because it applies accounting rules for its service concessions in a manner that accelerates profit recognition relative to cashflow. Limited disclosure means investors may be unaware of CEIL’s lacklustre cash profit performance. If we strip out our estimate of front-loaded earnings, 2017 profit falls 61%, its PE rises to 36x and its ROIC is only 6%. Our target price of HK$5.40 is based on 2x adjusted book value and gives 50% downside. SELL. GET PDF…
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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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