Chances are that if you’ve owned a company accused of profit shifting through related party transactions, you’ve lost a ton of money. The problem is that this is somewhat of a national sport in Hong Kong and Singapore with over 90% of large listed companies engaged in it. So at what level should investors become concerned? To answer this, we’ve downloaded the financials of 360 companies and derived a shortlist of 15 private ones where related party transactions exceed 20% of combined sales and expenses. As you would expect, recent scandals, Hanergy and Silverlake, are on the list…but not at…
Read more ›
Research
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 ›
Follow Us