Research

SCANNING FOR TROUBLE

You can now download our Excel-based, Bloomberg-linked screen that identifies companies globally that have similar characteristics to past fake cash flow frauds. We discussed this in detail in our report, FAKING CASH FLOWS: And how to spot it (10 May 2017). The model is set up to allow users to paste in a selection of companies or to hunt for stocks in a specific region. A live Bloomberg terminal is not required for this latter screen. Download Screen Fake Cash Flow In our report, FAKING CASH FLOWS: And How to Spot it (10 May 2017), we devised a system to…
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Insights

IN BRIEF: CHINESE SUBSIDIES

Handouts continue to prop-up PRC corporates

Mark Webb · 17 May 2018

Subsidies paid to Chinese companies are back in the spotlight due to the ongoing trade dispute with the US and their escalating cost to Chinese taxpayers. The majority of subsidies are probably hidden but our work on the top 100 Chinese companies suggests that explicit subsidies have risen by 38% between 2015 and 2017, to US$24bn, equal to 12% of pre-tax profit on average. Any sustained reduction in handouts would create significant earnings risks for a wide range of companies (highlighted within). Four of the most exposed include BYD (Sell), Unisplendour (NR), China Eastern Airlines (Sell) and ZTE (NR). GET…
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NEWSLETTER 18: CELLTRION INC

Billion dollar write-down?

Nigel Stevenson · 9 May 2018

Artificial sales from Celltrion (068270 KS) to its sister company Celltrion Healthcare (091990 KS) have led to a massive build-up of unsold inventories on the latter’s balance sheet. A billion dollar write-down could be on its way. By selling almost all of its drugs to Healthcare, Celltrion has been able to consistently overstate revenue and profits. It recognised sales even before its drugs had received regulatory approval, when no-one else would – or could – buy them. Sales to Healthcare continue to significantly exceed underlying demand; Healthcare has been unable to sell half or more of all the product it…
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IN-BRIEF: GREE ELECTRIC (000651 CH)

Show me the money!

Nigel Stevenson · 2 May 2018

Gree’s recent decision to suspend its dividend despite record profits, cash balances and free cash inflows is the latest in a series of incidents that raise concerns over the credibility of its financials and, specifically, whether its cash exists. We have three additional concerns. First, the large accruals for sales rebates that never get paid give the impression that sales have been artificially inflated. Second, aggressive discounting of receivables is at odds with the company’s supposedly strong cash generation. Third, back in 2016, the company proposed paying for an acquisition by issuing new shares for almost double the required consideration,…
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