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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SINA (SINA US)

Your vote now means nothing

Nigel Stevenson · 9 November 2017

Sina’s management has taken control of the company without shareholder approval through the issue of new preference shares, as allowed under Cayman Islands law, taking its share of the voting rights to 55%, from 11% previously. This comes in response to attempts by a US hedge fund to place two directors on its board. Other companies have similar provisions in their articles of association, which we detail within. We recently wrote about the corporate governance risks of investing in foreign incorporated US-listed companies, and this incident further highlights those risks. It raises the question: what rights do shareholders in these…
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IN-BRIEF: SINOPHARM (1099 HK)

From bad to worse

Gillem Tulloch · 31 October 2017

Sinopharm’s 3Q17 net profit decline of 16% YoY means that consensus expectations for 12% growth in 2017 just became a whole lot more unrealistic. The company is suffering from a double whammy of rapidly deteriorating operating performance stemming from regulatory changes, while finance costs are ballooning as it sells ever-greater quantities of receivables in an attempt to flatter financials. We think these trends will become more acute in 4Q and would not be surprised if there were a material profit miss. Given high leverage and an inability to generate recurring operating cash flows, a capital increase is likely. Results are…
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NOT IN YOUR INTERESTS

Offshore incorporation (CBPO and Cogo)

Gillem Tulloch · 25 October 2017

How did China Biologic Products (CBPO) persuade shareholders to allow it to redomicile from the US to the Cayman Islands, and then downgrade to foreign private issuer status? This new structure means that shareholders are getting substantially poorer disclosure, less accountability and limited legal redress in return for nothing. Last time it happened, with Cogo, investors lost everything. While CBPO does not appear to have abused minorities since the change, an expensive acquisition has led to a 20% share price decline and is hardly a ringing endorsement for greater management freedom. Redomiciling is extremely rare but 35 large Asian companies…
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