Research

IN-BRIEF: SINOPHARM

An apparently spectacular 4Q17 result for Sinopharm but, as usual, nothing’s quite what it seems. Earnings were distorted by numerous one-off and downright curious items which gives the impression that management was trying hard to impress. As usual, the main action was in the balance sheet with record amounts of assets sold at the year-end, seemingly to give the impression of operating cash inflows and lower reported leverage. The company’s financial statements are something of a riddle owing to the adoption of questionable accounting practices and inexplicable anomalies. We’ll find out more when the full annual report is released by…
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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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