Research

REVENUE RECOGNITION

Country Garden boasted that revenues were up 36% in 1H17 but neglected to tell investors that this was primarily due to an accounting change. The introduction of IFRS 15 in 2018 will result in major changes to how revenue is recognised and investors need to know which sectors and companies could be most affected. They also need to be aware that the transition could distort comparisons with prior periods. A small number of companies have implemented the standard early or quantified the impact on their financials. Not all companies will be revising up profits, other companies have experienced large profit…
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Insights

HAILIANG EDUCATION

SELL: Bad teacher?

Gillem Tulloch · 18 October 2018

In the best-case scenario, Hailiang Education (HLG US) is a financing vehicle for its parent company, with cash being siphoned into related parties. In the worst-case, it’s a fraud; and there’s a substantial body of evidence, although circumstantial, to support this: Its financials have similar traits to past frauds, such as unnecessary capital increases and a failure pay dividends; the replacement of a Big Four auditing firm with an obscure auditor; numerous concerns raised by auditors; three CFOs in two years; allegations of underhand dealings with ASA Resource; public listings possibly orchestrated to avoid proper scrutiny; and finally, a shambolic…
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A&G SCREEN UPDATE

And lessons learned from Folli Follie

Gillem Tulloch · 1 October 2018

The newly released forensic report on Greek jewellery retailer Folli Follie concludes that it was making up 90% of its sales in China. Our Accounting & Governance Screen suggests that the company had been faking sales since FY09, hiding the evidence in receivables, inventories, prepayments and cash. In reality, the company had been loss-making for close to a decade. Fortunately, only a dozen or so European companies have similar traits, which we detail within. The A&G Screen has expired and you must login and download the latest version if you wish to check your portfolio or search for companies with…
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IN-BRIEF: HAIDILAO (6862 HK)

Watch the relations

Nigel Stevenson · 28 September 2018

Half of Haidilao’s raw materials are bought from related parties, accounting for 25% of total operating expenses. This recently listed hot pot restaurant chain has a seemingly compelling investment story but there is huge scope to shift profits around the wider group. One of these related party suppliers, Yihai (1579 HK), reports that half its revenues come from Haidilao. Unfortunately, Yihai has similar traits to past frauds which could make it a short-seller target. This might undermine confidence towards the entire group. Instead of accumulating cash on its balance sheet like a fraud, Yihai needs to start investing, or increase…
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