Research

IN BRIEF: TIBET WATER (1115 HK)

Water and beer bottler Tibet Water Resources (TWR) has the dubious distinction of being accused of fraud by two anonymous short-sellers in just one week. Our analysis of its financials raises concerns that something is amiss: (i) Operating margins are super-normal despite minimal capex, which would appear to be a dichotomy. (ii) Free cash inflows have gone into acquisitions and, despite super-high cash balances, dividends have been reduced to zero. (iii) Unusually high investment flows are consistent with companies window-dressing their financials and, in some instances, past frauds. Management’s response to these accusations has been to threaten litigation as opposed…
Read more ›

Log In

Insights

CIMIC GROUP (CIM AU)

SELL/SHORT: Engineering profits

Nigel Stevenson · 10 April 2019

We estimate 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. Its shares trade on a premium multiple of 19x FY19 consensus earnings; however, we derive a target of A$23/share based on a double…
Read more ›

KINGDEE INT SOFTWARE

Questionable accounting, mediocre performance

Mark Webb · 26 March 2019

It’s difficult to find fault with David Webb’s conclusions that Kingdee struggles to make a profit once adjusting for government subsidies, one-off gains and questionable transactions with related parties. The company’s rebuttal attempts to allay investor fears by highlighting ample operating cash flows, but our analysis suggests that even these look inflated. We have additional concerns about the deconsolidation of Qingdao Xinrun Real Estate prior to the apparent completion of the deal, possibly to flatter financials. If government subsidies are considered core profit, Kingdee trades on a demanding 78x FY19e. It is a possible shorting candidate given expensive valuations, weak…
Read more ›

GUEST SERIES

Variable Interest Entities in China

Gillem Tulloch · 14 March 2019

It’s been close to three years since we last had a guest writer but when Professor Paul Gillis floated the idea of updating his views on Chinese Variable Interest Entities (VIEs), we jumped at the opportunity to publish. As the report explains, VIEs and the accompanying service agreements are the structure by which foreigners mimic the benefits of owning a restricted asset in China. Close to 70% of all China-domiciled companies listed on foreign exchanges use them but they are not without their controversies, after all, they are trying to enable something which strictly speaking is prohibited under Chinese law….
Read more ›

Free Newsletter

GET OUR FREE NEWSLETTER

Input your email address below to sign-up to our free newsletter.