Research

ON THIN ICE

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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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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