Research

ZTO EXPRESS (ZTO US)

Parcel company, ZTO Express, delivers supernormal returns despite no apparent competitive advantage in an intensely challenging and commoditised industry. Alibaba accounts for 75% of its business but is building out its own delivery network and has invested in competitor YTO Express, which threatens longer-term prospects. Meanwhile, three-quarters of the delivery value chain is operated by ZTO’s related partnership networks that we think are barely profitable. Finally, a third of its trucking fleet is held by ZTO appointed employees but not consolidated. Overpriced at 32x 2016e PER, our conservative target price of US$10/share implies downside of 29%. Sell or Short. GET…
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SHORT SELLER’S SNAPSHOT

TIAN GE (1980 HK): Reasons for concern

Gillem Tulloch · 17 August 2017

The seventh short seller’s report in Hong Kong this year has targeted social video platform operator, Tian Ge (Mkt Cap US$1bn). The report was written by anonymous short seller, Emerson Analytics, whose 100% success rate for its six previous reports should be cause for concern in itself. Emerson alleges that more than half of Tian Ge’s revenues have been faked and this can be proven by monitoring its market share of various online metrics. Unfortunately, there are good reasons for concern. Tian Ge has many of the hallmarks of a fraud in that it is highly profitable and there is…
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NEWSLETTER 15:

Hong Kong needs short-sellers

Gillem Tulloch · 14 August 2017

It’s not just because Hong Kong allows short-selling that there are so many short-sellers’ reports, it’s because (by our estimates) Hong Kong is the corporate fraud capital of the world. A small but meaningful percentage of mainland companies seem predisposed to defrauding investors. In general, the sellside is not incentivised to uncover these frauds while auditors and regulators have been unsuccessful in spotting them. Meanwhile, as an accounting research firm, GMT Research is able to detect companies we suspect of being fake cash flow frauds but cannot definitely prove it. Given the expense involved in researching and uncovering frauds, short-sellers are…
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BYD (1211 HK)

SELL: Bury your debt

Nigel Stevenson · 3 August 2017

Take into account BYD’s hidden debt and its gearing rises from 74% to 122%. This raises the possibility of further capital increases in light of substantial cash outflows and deteriorating profitability due to fast declining subsidies. These purchase subsidies doubled in FY16, contributing over 40% of BYD’s revenue from electric vehicles, which led to a near 80% rise in profits. However, subsidies will be gone in three years. The company is already feeling the impact; analysts have reduced FY17 profit expectations by almost 20% so far this year. Add into the mix the company’s expensive valuation and a propensity to…
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