MAYBANK KE - 26 AUG 2013
Trading calls here -
http://singaporetradinginsights.blogspot.sg/
China Minzhong: ($0.53) Shares plunge 50% on short seller report alleging fraud
Shares of China Minzhong slumped 48% to $0.53 on high volume, after short-seller, Glaucus Research Group recommended a Strong Sell on the stock.
Glaucus believes that Minzhong resembles HK-listed Chao Modern Agriculture, another Fujian-based vegetable producer which shares have been halted since Sep ’11 under widespread allegations of fraud. The short-seller says that Minzhong has “so significantly deceived regulators”, and inflated the scale of its business and its financial performance, that it expects trading in Minzhong’s shares to be halted and the “shares to be worthless”.
Glaucus has received much investor attention of late, particularly after its successful and high-profile unraveling of HK-listed China Metal Recycling as a fraud case. The stock has since been suspended, and the company Chairman investigated for alleged false accounting.
The market’s response to past short-seller reports by names with successful track record (eg. Muddy Waters), has been to “sell the stock first, and ask questions later”. As such, we remove China Minzhong from our Value portfolio, and close the position with a 47% loss.
This event may trigger spill-over negative sentiment and investor suspicion on other S-Chips. In particular, we highlight risk in China Minzhong’s peer, Sino Grandness ($1.32), a Chinese canned food and juice maker. We remove the latter from our Growth portfolio.
<not vested>
unlike Olam case, allegations here seem to be much more specific ... look more scary.
and unlike Olam case, where GIC was strong supporter, here GIC oledi soldout... and so did some other early founding sharehldrs,
and timing of report could not been better...
even if IndoFood still believe CMZ is good value, it can't buy more now without triggerring a GO at $1.22 (the price it paid Tetrad Ventures in Mar)
(26-08-2013, 11:56 AM)AlphaQuant Wrote: [ -> ]Tks for the report, it was a good read.
to me, the most important part on Pg 34:
Investors in Singapore capital markets are already sadly familiar with the difficulty of recovering anything from Chinese-based companies whose shares are halted under investigation for fraud (e.g. FerroChina). Singapore lacks an extradition treaty with China, leaving management beyond the reach of local authorities and creditors alike.
SGX, unfortunately is also lppl.
I do have a 6lots' stake in CMZ. Half of the issues highlighted by Glaucus are not new - ie. increasing trade receivables, generous EBITDA margins at IPO, negative FCF and jurisdiction mismatch.
What alarms me are allegations of 'top customer incorporated after IPO' and 'SAIC filings indicate faked sales', which indicates serious failings in due diligence of the IPO auditors/underwriters and auditor Crowe Horwath respectively.
100 marks for CMZ's management on CREATIVITY
two weeks ago there was this interview on Glaucus in TheEdge Magazine.......They are now looking at Singapore and HK markets......I bet more questionable companies will appear....
Glaucus's price target $0.
http://chinaminzhong.com.sg/analyst_coverage.htm
(26-08-2013, 01:22 PM)weijian Wrote: [ -> ] (26-08-2013, 11:56 AM)AlphaQuant Wrote: [ -> ]Tks for the report, it was a good read.
to me, the most important part on Pg 34:
Investors in Singapore capital markets are already sadly familiar with the difficulty of recovering anything from Chinese-based companies whose shares are halted under investigation for fraud (e.g. FerroChina). Singapore lacks an extradition treaty with China, leaving management beyond the reach of local authorities and creditors alike.
SGX, unfortunately is also lppl.
I do have a 6lots' stake in CMZ. Half of the issues highlighted by Glaucus are not new - ie. increasing trade receivables, generous EBITDA margins at IPO, negative FCF and jurisdiction mismatch.
What alarms me are allegations of 'top customer incorporated after IPO' and 'SAIC filings indicate faked sales', which indicates serious failings in due diligence of the IPO auditors/underwriters and auditor Crowe Horwath respectively.
if i am not wrong, auditors are not held liable as they were merely providing an assurance service. based on IIA standards, auditors cannot even prevent fraud? is this true
(26-08-2013, 01:36 PM)Behappyalways Wrote: [ -> ]100 marks for CMZ's management on CREATIVITY
two weeks ago there was this interview on Glaucus in TheEdge Magazine.......They are now looking at Singapore and HK markets......I bet more questionable companies will appear....
Glaucus's price target $0.
http://chinaminzhong.com.sg/analyst_coverage.htm
That's good. I like to see bearish reports instead of bullish reports from the analysts.
(26-08-2013, 01:58 PM)pianist Wrote: [ -> ]if i am not wrong, auditors are not held liable as they were merely providing an assurance service. based on IIA standards, auditors cannot even prevent fraud? is this true
Auditors are only paid to EXPRESS AN OPINION that the accounts are "true and fair". These opinions come with the usual disclaimers that they are reliant on documents as provided by management etc.
Auditors are not paid to CERTIFY that the accounts are "true and fair". Such certification puts the auditor at risk of a lawsuit if it turns out that the accounts are not "true and fair".
Many people assume that auditors do certify the accounts, when in fact they expressly do not. The only time auditors get into trouble is when they are grossly negligent e.g. ignoring obvious red flags, or when they are actively complicit e.g. Enron where Arthur Andersen helped to destroy evidence.
Which is to say, if the auditors decline to issue an unqualified opinion, there is definitely a problem with the accounts. But if the auditors issue an unqualified opinion, it doesn't mean there is nothing wrong, it just means the auditors didn't
find anything that was of concern.
Frauds are usually uncovered by whistleblowers, whether disgruntled employees, customers or suppliers, who may or may not also be participants in the fraud. Auditors seldom uncover frauds, for the simple reason that the checks undertaken by auditors would suffice only to uncover the most basic/stupid frauds. Then again, many of the S-chips were/are what I consider "stupid frauds" and it still took the auditors ages (sometimes never) to figure out that something was amiss. So it looks like auditors do even less work than that.
whose bread i eat, whose song i sing.
I dont really blame the auditors, in my own line of job, if i express my unbiased view all the time, i would end up offending many people and be out of job pretty soon.
Sometimes when i suggest what is the best course of action in my area of expertise, and my boss who obviously knows nothing in these areas, insist that i follow his instructions. I smile and i say "yes boss". Such is life. Haha when i earn enough to buy small pieces of good businesses, then i can kiss my boss goodbye. That was my thoughts when i was younger, now, i take great pleasure in gloating over silly views by my boss, afterall, it is to his disadvantage, not mine.
if u read the glaucus report, you will start to ponder....was due diligence done by GIC when they invest in CMZ.........scary....although this time round they kinda lucky......