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CHINA MINZHONG / SINO GRANDNESS / YAMADA
In response to Glaucus Research Group?s
(GRG) accusations and allegations of accounts
falsifications, huge discrepancies between
Minzhong?s reported results in Singapore versus
that in China (SAIC), inaccuracies between what
Minzhong had disclosed in their IPO prospectus
and financial statements compared to that in China
(SAIC), ballooning receivables, consistent negative
free cash flows since 2010 and huge capex spending
of Rmb1.2bln, Minzhong?s management said that
they are in the process of reviewing the report
and will provide its response shortly.
Minzhong added that it will take all necessary steps
to defend its reputation and will not hesitate to
take legal action against those who put up and
disseminate false or misleading statements without
due regard to their truth and for the purpose of
inducing others to deal in the securities.
COMMENTS
1. We have gone through the 49 page detailed
report that GRG has put up detailing their
arguments why Minzhong is a ?strong sell? and
find that their arguments carry some weight.
Although we will not be able to verify if their
SAIC (registered filings with the China authorities)
documents are accurate.
2. Admittedly, such detailed forensic research which
requires a lot of time and resources is beyond
the reach of local analysts like myself.
3. Notwithstanding this, we were already getting
increasingly uncomfortable with the company
when its key pre-IPO investors such as GIC,
Olympus and CMIA has been consistent sellers
of the stock since its IPO in 2010 and has since
gotten out completely on 1 Mar?13. They were
selling at lower and lower prices and also at very
depressed valuations. We had downgraded the
stock to Sell then (in Mar?13 when the stock was
at $1.22) when both GIC and Olympus got out
completely from their holdings.
4. While one can argue that GRG?s research is bias
to the negative side due to their short position,
their track record based on 2 past cases show
that they have credibility in their calls.
5. China Medical Technologies, a former Nasdaq
listed Chinese medical company was delisted a few
months after GRG accused them of fraud while
China Metal Recycling was also alleged by them
to have misled the market regarding their size of
operations and trading in the stock was
immediately suspended. After investigations by
the Hong Kong?s Securities Exchange and Futures
Commision, the company was wound up and the
board was sued for fraud.
6. In Minzhong?s case, we were also uncomfortable
with the fact that their key competitor in China
Chaoda Modern Agri and China Green Agri
are also embroiled in similar accusations by media
in Hong Kong and China.
7. And Minzhong has not been able to get a big 4
auditor to take over from their current auditor
Crowe Horwath despite having tried for sometime now.
8. We thus are no longer confident in our
investment recommendation and will cease
coverage on the company henceforth.
9. The sad thing for minority shareholders who have
held on to Minzhong in the hope of a privatization
effort by Indofood given that they are just under
the 30% GO level is that they have to go through
a period of extreme share price volatility.
10. Given the numerous blow-ups of S-Chips (close
to 20) since 2006-2007 and that their key
management team not being able to be taken to
task in Singapore, unlike Singapore based fraud
cases such as ACCS and Citiraya where the
former?s CEO and CFO had to serve prison
sentence and the latter had to flee Singapore to
escape prison sentence, we believe the lack of
accountability by S-Chips management makes it a
very weak investment case for S-Chip investors
in Singapore, notwithstanding their attractive
growth prospects and valuations.
11. Even a former GIC-backed S-Chip like Minzhong
could fall 50% (on 24mln shares traded, above
their usual 5mln) in one morning just because of
a short seller?s report makes it meaningless for
us to continue covering S-Chips in general, hence
besides Minzhong, we are also ceasing coverage
on our other S-Chip coverage such as Sino
Grandness and Yamada, rendering our previous
HOLD recommendations on them irrelevant
henceforth.
CIMB ceases coverage, as house shares Glaucus Research?s concerns about MINZ?s reliance on capital markets for cash generation and ballooning receivable days. House note that it has been have been sharing Glaucus?s concerns for some time. Minzhong had issued new shares (98m) to Indofood on 15 Feb 13, at $0.915 apiece or 0.7x its FY12 book value. It soon followed this up with an unsuccessful attempt to issue bonds on 8 Mar 13.
House found this intensive capital-raising worrying. The co?s willingness to dilute EPS at such an unfavourable price suggests the desperate need for cash when this shouldn?t have been the case. Capex was supposed to be lower this year (according to guidance) with positive free cash flow anticipated by us. Further, Olympus Capital, one of its major shareholders before IPO, had disposed of its remaining 10.3% stake on 6 Dec 12. It is hard to believe management was not aware of both Indofood?s and Olympus Capital?s intentions, considering their transactions were back-to-back. If Indofood?s expertise had been what MINZ was solely after, mgt could have arranged for Indofood to take over Olympus?s stake.
Pressure from investors to pay dividends probably weighed on the co. House also worried by its spiking receivable days. FY12 receivable days were 85, up from 45 in FY10 and 43 in FY11.
" We have been sharing Glaucus?s concerns for some time, especially the first two."
...this line do not show CIMB in good light ....:-(
pfood being affected by CMZ...drop 6cents...
from CIMB, turning around after their last report which called for outperform..
We share Glaucus Research?s concerns about MINZ?s reliance on capital markets for cash generation and ballooning receivable days. We cease coverage of MINZ, with our last rating being Outperform with a target price of S$1.27 (5x CY14 P/E, its peer average).
What Happened
Glaucus Research, an independent US-based research house, this morning issued a sell report on MINZ, alluding to its reliance on debt & equity financing as a primary source of cash generation ballooning receivables ?fabricated? sales and ?suspicious? capex. MINZ?s stock subsequently tanked 50% and trading in its shares has been halted.
What We Think
We have been sharing Glaucus?s concerns for some time, especially the first two. MINZ had issued new shares (98m) to Indofood on 15 Feb 13, at S$0.915 apiece or 0.7x its FY12 book value. It soon followed this up with an unsuccessful attempt to issue bonds on 8 Mar 13. We found this intensive capital-raising worrying. The company?s willingness to dilute EPS at such an unfavourable price suggests to us a desperate need for cash when this shouldn?t have been the case. Capex was supposed to be lower this year (according to guidance) with positive free cash flow anticipated by us. Further, Olympus Capital, one of its major shareholders before IPO, had disposed of its remaining 10.3% stake on 6 Dec 12. It is hard to believe management was not aware of both Indofood?s and Olympus Capital?s intentions, considering their transactions were back-to-back. If Indofood?s expertise had been what MINZ was solely after, management could have arranged for Indofood to take over Olympus?s stake. Pressure from investors to pay dividends probably weighed on the company. We sensed that it was going to pay dividends for the first time this quarter, which could have catalysed its share price hence, our previous Outperform. However, we believe raising equity from Indofood to pay dividends would have compromised the quality of any payout, as it could have represented a mere ?transfer? of cash. We were also worried by its spiking receivable days. FY12 receivable days were 85, up from 45 in FY10 and 43 in FY11. See our report: Look beyond the stellar earnings.
What You Should Do
We are ceasing coverage of the stock.
all depends how CMZ handle this situation..
if interpreted to be good and allegations are false then once the flood gates open prices will move up frantically as shortist cover positions..
if otherwise then continue to freefall.. but this scenario has a smaller chance of happening.
oldflyingfox ( Date: 27-Aug-2013 09:08) Posted:
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Buy on panic, no risk no gain. I may move in small position when it resume. Short sellers will chase up the price when covering it to take this big profit. |
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...is it possible to make resume price be at least $1.00...
...so those fraudsters will be injured badly and never come back again hopefully...
Buy on panic, no risk no gain. I may move in small position when it resume. Short sellers will chase up the price when covering it to take this big profit.
If what the Glaucus said is right , i think Auditors and underwriter for the IPO really need to take a responsibility on it as it is very obvious that both parties not really perform their task and just blindly believe the evidence provided by their client and care about the $$ . If it is really happen, hope there is sanction to relevant parties like last time what happened in Hong Kong.
http://www.deacons.com.hk/eng/knowledge/knowledge_486.htm
By Jonathan Burgos & Michelle Yun - Aug 27, 2013 1:00 AM GMT+0800
China Minzhong Food Corp. (MINZ) lost half its market value in less than two hours after short-seller Glaucus Research Group questioned the vegetable processor?s accounts, reviving investor concern about Chinese companies traded overseas.
Glaucus said in a
report the Putian, China-based company had been ?significantly deceiving? regulators and investors, sending the stock 48 percent lower in Singapore trading yesterday and wiping S$318 million ($249 million) off its market value before it was suspended. Minzhong said it?s seeking legal opinion and will comment as soon as possible.
Minzhong is the latest target of short sellers betting against Chinese companies trading in markets such as Hong Kong, Singapore and New York, even as five of the six analysts covering the stock
recommend buying it. Minzhong is among the 143 China-based firms listed on Singapore?s S$967.4 billion stock market at the end of July, according to the exchange.
?The reputation of Chinese companies in Singapore has now rock-bottomed,? said Mou Hua Lee, Singapore-based analyst at
CIMB Group Holdings Bhd. (CIMB) ?With these new allegations, it?s going to be a very long while before anyone trusts Chinese companies here.?
Minzhong shares were halted at 53 Singapore cents, after tumbling the most since the company?s listing in April 2010. Short interest in the vegetable processor rose to a record 7.2 percent of the outstanding stock on Aug. 19 from this year?s low of 3.8 percent in March, according to the most recent data from research company Markit Group Ltd.
Fabricated Sales
Singapore Exchange Ltd. queried Minzhong on the share price decline and will continue to closely monitor developments, according to an e-mailed statement.
The company said late yesterday it's reviewing the Glaucus report and will respond " shortly." It's also taking steps to defend its reputation and won't hesitate to take legal action, it said in an e-mailed statement.
Minzhong may have fabricated sales and payments to its largest supplier, doctored historical accounts and overstated capital spending, Glaucus said in the report. It also questioned the food processor?s reported receivables and cash balance.
?Evidence indicates that Minzhong fabricated sales to its top two customers, suggesting that the Company overstated revenues in its IPO prospectus by at least a third during the track record period,? Glaucus said, citing corporate registry records.
Avoid S-chips
At least 29 Chinese firms on Singapore?s exchange, where one in five stocks are China-based companies, have been halted or ordered to delist since 2008. The FTSE ST China Index of 37 Chinese stocks traded in Singapore, commonly known as S-chips, has lost 14 percent in the past six months, more than twice the 5.2 percent slide in the benchmark
Straits Times Index. (FSSTI)
?We typically avoid S-chips,?
Daphne Roth, head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion, said from Singapore. ?There is room for Chinese companies to improve corporate governance. That will help improve investor confidence.?
Minzhong?s biggest
investor isn?t concerned. PT Indofood Sukses Makmur, the parent of
Indonesia?s biggest instant-noodle maker and Minzhong?s largest shareholder, is comfortable with its investment, director Thomas Tjhie said yesterday by telephone from Jakarta.
Indofood, which doubled its stake in Minzhong to 29.3 percent in March, conducted due diligence on the company before it made its investment, Tjhie said, adding that he has spoken to Minzhong?s chief financial officer about the Glaucus report.
Response Needed
Minzhong needs to respond to the claims made by the Glaucus report, said Wei Bin, an analyst at Maybank Kim Eng Holdings Ltd. in Singapore.
?There?s still some value in the S-chips but we need to be conservative in ours views,? he said. ?I don?t have enough facts to prove the report right or wrong at this point.?
Other companies that have been the focus of reports by Glaucus include
China Metal Recycling Holdings Ltd. (773) and China Medical Technologies Inc. The short-seller claims to ?help investors navigate treacherous financial waters in search of great investment opportunities,? according to its website.
Provisional liquidators were appointed to China Metal in July and its Hong Kong-traded stock has been suspended since January. China Medical filed for Chapter 15 foreign-firm bankruptcy protection in New York last year.
Olam Bets
The claims against Minzhong come less than a year after short-seller
Carson Block said he was betting against
Olam International Ltd. (OLAM), the Singapore-based commodity trader, sparking a slump in the stock. Block?s research firm Muddy Waters LLC later said Olam was likely to fail in a report. The commodity traded rejected the allegations.
Olam had recovered from the 7.5 percent slump after the report, rising as much as 9.2 percent as of May 22. Since the peak in the past year, the stock has dropped 20 percent, compared with the 5.7 percent decline in the MSCI AC Asia Pacific Commodity Producers index.
Muddy Waters has also targeted Chinese firms including Sino-Forest Corp., which plunged 74 percent before eventually filing for bankruptcy protection. Shares of New Oriental Education & Technology Group Inc. and Focus Media Holding Ltd., rebounded after initial slumps when Block questioned their accounting. Both companies have denied wrongdoing.
This CMZ case which causes more disappointment to s-chips future growth. Going forward who dare buy this s-chips? How are they going to list here?
Sorry, I think they profit or did not lose much in the 2009 crisis. They make billions of citi as they convert their preference share to common share at 3.25. The only stock they lose badly is ML which I think they paid very high ( I think it either 48 or 32 dollar) it was converted to BAnk if America share which they sold of at average $4
victortan ( Date: 27-Aug-2013 03:54) Posted:
Temasek are smart? Ask them how much money they lose in 2008 and 2009 buying American bankrupt entity.
dippyboy ( Date: 27-Aug-2013 01:36) Posted:
After reading the report..........
Alot of big fraud allegations based on regulatory fillings in china. No substantial evidence yet, all based on deductions and guesses from contradictions in fillings.
1stly, Temasek is initial investor and would have done some due dilligence before they invest. However they had already sold out now. Still , Fraudster would likely not choose to defraud a govt body like temasek if they wanted to cheat since it would be far harder and has bigger repercussions cheating a sovereign fund than small time investors.
2ndly, Capex is invested in the new plant as planned. To make it up is not so easy since the plant has to be missing or severely over valued.One only needs a independent valuator to verify the investment.
3rdly ,Company chairman and supplier has made personal pledge for the bank loan in place of CMZ company assets reflecting the high level of trust in the business dealing .This is a good thing. CMZ would not have been the sole guarantor for a simple reason because the supplier is also a party to the deal and should shoulder some risk and the best way to proof their faith in the deal is for all parties to be personally liable to the risk.
4thly ,company cashflow is improving since IPO and its a good sign. Companies do not generate free cashflow right out of the box, they need time to buildup the business by investing the IPO proceeds so this improving FCF is a good sign.
lastly company has about 4.6b asset but only 1b liabilities making the possibility of $0 laughable and a gross exaggeration .
Hence there is good opportunities in this panic to make easy short coverings profits for the savvy trader, when the worst is being priced in but did not materialize. The question is At What Price?
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First of all, any changes or selling from major shareholders can be seen almost immediately.
Secondly, that action itself will only send its own share price lower.
Thirdly, Temasek/GIC is not vested anymore.
Have you not been reading?
matrixxx ( Date: 26-Aug-2013 22:45) Posted:
Frankly speaking, there is no smoke without fire.
For something to happen like this, it means that even insiders or aka big shareholders are also throwing away their shares, supporting the fact that something is happening big time, just like kong hee being in the limelight now.
There is totally no buying support, everyone is fear to buy.
So...... until they can come out with tons of evidence, or get temasay's help to support them, just like Olam, if not, they will keep suffering without new cash injected into it again. |
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Temasek
are smart? Ask them how much money they lose in 2008 and 2009 buying American bankrupt entity.
dippyboy ( Date: 27-Aug-2013 01:36) Posted:
After reading the report..........
Alot of big fraud allegations based on regulatory fillings in china. No substantial evidence yet, all based on deductions and guesses from contradictions in fillings.
1stly, Temasek is initial investor and would have done some due dilligence before they invest. However they had already sold out now. Still , Fraudster would likely not choose to defraud a govt body like temasek if they wanted to cheat since it would be far harder and has bigger repercussions cheating a sovereign fund than small time investors.
2ndly, Capex is invested in the new plant as planned. To make it up is not so easy since the plant has to be missing or severely over valued.One only needs a independent valuator to verify the investment.
3rdly ,Company chairman and supplier has made personal pledge for the bank loan in place of CMZ company assets reflecting the high level of trust in the business dealing .This is a good thing. CMZ would not have been the sole guarantor for a simple reason because the supplier is also a party to the deal and should shoulder some risk and the best way to proof their faith in the deal is for all parties to be personally liable to the risk.
4thly ,company cashflow is improving since IPO and its a good sign. Companies do not generate free cashflow right out of the box, they need time to buildup the business by investing the IPO proceeds so this improving FCF is a good sign.
lastly company has about 4.6b asset but only 1b liabilities making the possibility of $0 laughable and a gross exaggeration .
Hence there is good opportunities in this panic to make easy short coverings profits for the savvy trader, when the worst is being priced in but did not materialize. The question is At What Price?
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This is one time I more than agree with
u.
But trading also dangerous, because
u do not know when it gap down big and got halted.
Nextinsight are
suck, they recommend ppl to buy them, saying they are very
unvalue.
True enough CMZ is going not under value but total ZERO.
at nextinsight, there are
lot of s-chip supporter, saying CMZ is very good.
and sound global is very sound.
But
i think now they cannot make any sound, except the sound of silence cry inside.
warrenbegger ( Date: 26-Aug-2013 23:02) Posted:
| To me, S-chip is for trading, not for investing... |
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After reading the report..........
Alot of big fraud allegations based on regulatory fillings in china. No substantial evidence yet, all based on deductions and guesses from contradictions in fillings.
1stly, Temasek is initial investor and would have done some due dilligence before they invest. However they had already sold out now. Still , Fraudster would likely not choose to defraud a govt body like temasek if they wanted to cheat since it would be far harder and has bigger repercussions cheating a sovereign fund than small time investors.
2ndly, Capex is invested in the new plant as planned. To make it up is not so easy since the plant has to be missing or severely over valued.One only needs a independent valuator to verify the investment.
3rdly ,Company chairman and supplier has made personal pledge for the bank loan in place of CMZ company assets reflecting the high level of trust in the business dealing .This is a good thing. CMZ would not have been the sole guarantor for a simple reason because the supplier is also a party to the deal and should shoulder some risk and the best way to proof their faith in the deal is for all parties to be personally liable to the risk.
4thly ,company cashflow is improving since IPO and its a good sign. Companies do not generate free cashflow right out of the box, they need time to buildup the business by investing the IPO proceeds so this improving FCF is a good sign.
lastly company has about 4.6b asset but only 1b liabilities making the possibility of $0 laughable and a gross exaggeration .
Hence there is good opportunities in this panic to make easy short coverings profits for the savvy trader, when the worst is being priced in but did not materialize. The question is At What Price?
S-chip INTRADAY trading only for me...
To me, S-chip is for trading, not for investing...
Frankly speaking, there is no smoke without fire.
For something to happen like this, it means that even insiders or aka big shareholders are also throwing away their shares, supporting the fact that something is happening big time, just like kong hee being in the limelight now.
There is totally no buying support, everyone is fear to buy.
So...... until they can come out with tons of evidence, or get temasay's help to support them, just like Olam, if not, they will keep suffering without new cash injected into it again.
