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

TRADITIONAL CHINESE MEDICINE

AVOID/SELL: A scandal too far

Gillem Tulloch · 21 February 2019

Traditional Chinese Medicine (TCM) has lost eight directors and a CFO in less than a year. Predictably, the company is playing down these departures. TCM has a troubled history. The original business had a disappointing US listing and was subsequently privatised; it gained its current Hong Kong listing through a reverse takeover, circumventing regulatory scrutiny. Financials are problematic owing to poor working capital, possible cost capitalisation and fraud-like traits. Furthermore, acquisitions from related parties, including the current MD, raise additional governance issues. Given these concerns, we recommend investors AVOID/SELL. The possibility of a major corporate governance event, such as the…
Read more ›

PINDUODUO (PDD US)

AVOID/SHORT: Risks rise from surprise fund raising

Mark Webb · 12 February 2019

PDD’s surprise announcement of a secondary share offering in the middle of Chinese New Year is not just surprising but has a whiff of desperation about it. Fund raising during a public holiday and so soon after its IPO is a concern. At best, it’s an opportunistic measure to raise cash it doesn’t need. Other explanations are more problematic; disclosure in the accompanying prospectus suggests underlying profitability and cash generation may be even weaker than headline figures suggest. The revelation that new revenue recognition rules will be applied a year earlier than previously thought may also have encouraged PDD to…
Read more ›

NEW DOGS, OLD TRICKS 

Frauds in 2018

Mark Webb · 30 January 2019

Accounting irregularities and alleged frauds led to some spectacular share price declines in 2018. Allegations were confirmed at seven companies globally, with claims made against a further 11 Asian companies, leading to an average share price decline of 40%. The most frequent fraud involved faking revenues and profits with the evidence hidden as cash or other current assets. Meanwhile, the inflation of profits through the abuse of acquisition accounting is an increasingly common occurrence. Our Accounting & Governance Screen successfully identified problems at targeted companies, and we highlight those with similar characteristics within this report. Transactions with connected but off…
Read more ›

Free Newsletter

GET OUR FREE NEWSLETTER

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