Research

TELECOM TOWERS

Telecom tower companies (towercos) are not what they seem. Tower ownership and rental is being mixed with money lending. Ultimately, while this might be profitable, it is distorting asset prices, the towercos’ financial statements and their growth prospects. National tower populations are surprisingly mature and total tower numbers may actually fall in the coming years, even as the towercos expand. To generate value, towercos need to improve tower tenancies rather than build ever larger tower empires and associated lending businesses. Our top BUYs are Inwit in Italy and Cellnex in Spain. Top SELLs are Bharti Infratel in India, Tower Bersama…
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Insights

ON THIN ICE

Cash flow shortfall risks are rising

Mark Webb · 17 July 2019

An inability to generate operating cash flow will, at best, cap dividends and long-term investment; however, it can indicate more serious problems, such as profit manipulation or solvency. We have scanned across almost 1,300 large Asian companies and highlight nine that have either suffered from prolonged operating cash flow weakness, or recently reported a sharp deterioration. We have concerns that China Everbright Intl, Beijing Enterprises Water and China State Construction Int. are front-loading profits; CR Pharma, CIMC, Shanghai Pharma and Vipshop look to be window-dressing balance sheets and cash flows; meanwhile, there is alarming inventory accumulation at Celltrion Healthcare and…
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THE US EQUITABLE ACT

Nuclear option

Nigel Stevenson · 11 July 2019

Recently announced draft legislation could result in Chinese companies being delisted from US exchanges if they fail to allow US regulators access to their audits. While companies are not in any immediate danger, it is another sign of rising tensions between the US and China which investors should not ignore. In the near term, the proposed law could increase the popularity of Hong Kong and mainland exchanges for new listings, and may ultimately result in existing stocks transferring to these markets. GET PDF A long-running dispute between securities regulators in the US and China over the auditing of US-listed Chinese…
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FAKING CASH 3

Kangde Xin Composite and Xinyi Glass

Gillem Tulloch · 8 July 2019

Xinyi Glass’ rebuttal to our report confirms what we already knew: (i) that dividends have been primarily financed with offshore debt and (ii) the company has never transferred onshore profits offshore, making it difficult to validate domestic profits. Other than that, the rebuttal was uninformative. Again, we ask management to respond to the questions provided to them. On a related note, last week’s disclosure that Kangde Xin Composite faked four years’ worth of profits adds to concerns over companies running highly liquid balance sheets, like Xinyi. We would like to see Xinyi transfer surplus cash from China to Hong Kong…
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