Sino Grandness

[specuvestor]

The main point by Newman9 of Value Investor Club is that Sino Grandness has inflated its sale.

Is this possible?

From Portuser post in this forum:

Garden Fresh booked the following sales in recent periods:
2012……………………………RMB 865m
2013……………………………RMB 1,382m
First half 2014……..……..RMB 879m

If it inflated sales 2x, then it had to hide RMB 1,563m (half of the sum of RMB 865m, RMB 1,382m and RMB 879m) of fictitious sales in its balance sheet.

Reported assets of Sino Grandness (RMB 1,585m as at 30 June 2014) were not large enough to hide RMB 1,563m.

Short-seller’s claim is that sales inflation is 5x at least. In which case there was RMB 2,500m to hide in the RMB 1,585m balance sheet.


Assets - Liabilities = Shareholders' equity. Equity include share capital, retained earnings (accumulated P&L) and other reserves including revaluation reserves.

Inflating assets to cover inflated sales
Accounting double entry for recognizing sale is usually:
Dr Cash/trade receivables (asset)
Cr Sale (P&L)

Assets include inventory, PPE (fixed assets). Did customers of Sino Grandness barter trade with inventory/PPE such that the entry is Dr Inventory/PPE Cr Sale?

Is it possible that cash, receivables, inventory, PPE be overstated by RMB2,500 mil ?

There are probably 6 teams of professionals (some Big 4 accounting firms) that had scrutinized Garden Fresh accounts. They represented bondholders 1 & 2, HKSE, Thai investors, Asdew and the auditors of Garden Fresh. This should greatly reduce investors' risks and any concerns about subsequent write down/write off of asset values. So far there is only 1 Newman9 and we do not know if he is a professional consultant or not. 我们在明，他在暗。

Of course there are also the independent directors in Sino Grandness and Garden Fresh who I hope they had done their due diligence too.

With so many bad presses on Chinese companies' frauds and lessons learnt, these professionals involve in the due diligence work would have carried out more steps and going to the sources for direct verifications.

It is also unlikely that the inflated sales had been expensed off because that would mean the retained earnings of Sino Grandness will be much lower than what it is now.

Let's hope that Newman9 can share further where he thinks the inflated sales are hidden in the accounts.

Hi Adagio

Pls see my repost below.

^^^A/R hides sales but cash and FA hides EARNINGS. It is incorrect to just use the asset to approximate the "fake sales".

If you clean them out your earnings will be affected. In fact thats why u see some dubious companies go for disastrous acquisitions for "one-time write offs"

The issue with Auditors are 2 folds: Firstly they are employed by the company itself and the conflict of interest is as obvious as the LIBOR scandal. Anyone with any common sense can see these systems are flawed. I've suggested that listed companies should pay into a common fund with contribution adjusted by market cap and administered by SGX to hire and assign auditors independently to different listed stock.

Secondly auditors are concerned primarily with historic accuracy of accounts rather they make sense. They just match numbers and are not concerned about whether the large amount in the invoice make sense from a small company, or whether the market size of the industry can support such sales. End of day if numbers match but the invoices are fraud, they will claim they can't do much for forged documentations. Nonetheless we still need auditors to give us a first cut and more often than not, that IDs are awake, who presumably knows more about the business itself than just the numbers