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Carson Block's Mystery Short Target Roils Hong Kong Stocks
by Sofia Horta E Costa and Kana Nishizawa
June 6, 2017, 11:37 AM GMT+8 Updated on June 6, 2017, 4:57 PM GMT+8
Where will Carson Block strike next?
For traders in Hong Kong, it’s a suddenly pressing question. Block, the short-selling founder of Muddy Waters, told Bloomberg News he identified a new target in the former British colony and will reveal the company’s name at the Sohn Hong Kong Conference just after 2 p.m. local time on Wednesday.
His comments triggered an immediate flurry of speculation in the city’s $4.6 trillion equity market. The Hang Seng Composite Index dipped as he spoke on television, with stocks including Tongda Group Holdings Ltd., Man Wah Holdings Ltd. and Sunny Optical Technology Group Co. sliding on concern they could be in the short seller’s crosshairs.
“Some of the mid- and small-caps are falling quite a lot as Muddy Waters may have frightened some investors or speculators,” said Sam Chi Yung, a senior strategist at South China Financial Holdings Ltd. in Hong Kong. “They’re afraid that the stock they’re holding will be the next target.”
More details in https://www.bloomberg.com/news/articles/...y-j3l0l5v0
Specuvestor: Asset - Business - Structure.
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He is smart. Assuming his target is one of the companies listed in the article, then he will already be making profits even before the public know which company it is.
This move is in response to the target companies' usual reaction of suspending their share trading and then coming out with their own defend strategy.
Even if Carson Block is right, all the liquidity is loss once the trading is suspended. And the longer the suspension, the less influence, surprise and panic it will create in the minds of investors. So all potential profits are reduced.
You can be sure his staff will be busy closing out the short positions as he unveil the target company at the Sohn Hong Kong Conference.
There are no good stocks. Stocks are only good when they go up after you bought them.
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While i am (positively) biased towards short sellers for their research, temperament and "going against the grain" mentality, somehow i feel Carlson Block's delivery methodology this time is now out of wack.
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There are no good stocks. Stocks are only good when they go up after you bought them.
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Shocking to find out that Man Wah is the target. Long term shareholders would remember that Man Wah was listed in SGX b4 delisting and going to HKSE. Made some good money when they delist and met Mr Wong a few times at AGM. Couldn't tell through the interaction that he would do this kind on thing.Just another typical HK businessman. There lies the difficulty for OPMI to detect any fraud. Lesson learn is no matter how sure you are, best to be discipline and control your allocation.
Have been following this counter ever since they moved to HK and was impressed by the results every year and dishing out good dividends to boot. Glad I dodge(phew!) this one as the price was always on the up and up. Looking back, the numbers were pristine. If you don't invest in this kind of supposely fundamentally strong co's then we are left with the mediocre ones. It's quite a minefield for FA investors for VB forummers. Looking at my analysis now, their net margins, ROE, ROA is extraordinarily good. This would be the red flag but aren;t we supposed to search for very profitable co's? sigh!
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http://www.barrons.com/articles/sohn-hon...1496817034
Block presented a five-point thesis on why he's short on Man Wah:
1. Man Wah has undisclosed debt that shows the company is likely less profitable and generates much less free cash flow than it reports.
2. Man Wah has inconsistencies in its taxes, which Block alleges is a strong indicator of fraud.
3. Man Wah has a subsidiary in Macau that books over half of consolidated net profits. Block alleges that, at best, is an indicator of possible tax evasion and, at worst, used to overstate profits.
4. Block also casts doubt on its China sales growth story.
5. Block says data casts doubt on Man Wah's export sales.
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(07-06-2017, 05:01 PM)yawnyawn Wrote: http://www.barrons.com/articles/sohn-hon...1496817034
Block presented a five-point thesis on why he's short on Man Wah:
1. Man Wah has undisclosed debt that shows the company is likely less profitable and generates much less free cash flow than it reports.
2. Man Wah has inconsistencies in its taxes, which Block alleges is a strong indicator of fraud.
3. Man Wah has a subsidiary in Macau that books over half of consolidated net profits. Block alleges that, at best, is an indicator of possible tax evasion and, at worst, used to overstate profits.
4. Block also casts doubt on its China sales growth story.
5. Block says data casts doubt on Man Wah's export sales.
Am not convinced on pt 2 & 3.
The reason for pt 2 may be caused by the amount of revenue they wanted to book in offshore countries over the years (pt 3).
Apple has booked $181.1 billion in offshore profits, more than any other company. Yet, it pays a 2.3% effective tax rate on it.
American Express officially reports $9.7 billion offshore for tax purposes on which it would owe $3 billion in U.S. taxes.
Nike officially holds $8.3 billion offshore for tax purposes on which it would owe $2.7 billion in U.S. taxes.
I don't see investors trying to call them fraudsters and shorting the shares..........
The only thing suspicious is the excellent margin they get by selling sofas/furniture and the store sales numbers not stated above.
Researchers at Muddy Waters found that 15 of the 57 company-owned stores were out of business, and at least 15 closed but are still registered as stores. For those that remain open, sales seem to fall short of the reported sales.
Until i see more details/evidence, i shall reserve my judgement (innocent until proven guilty).
There are no good stocks. Stocks are only good when they go up after you bought them.
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https://www.chinamoneynetwork.com/2017/0...h-holdings
A more detailed article.
Block said that Man Wah Furniture Manufacturing (Huizhou), a subsidiary of Man Wah, received a preliminary approval for a preferred tax rate from local government in January 2013, but was retroactively effective to one year earlier.
Mah Wah also books over half of its consolidated profits from an entity in Macau, and claims that a Macau preference gives it a 0% tax rate. But it's difficult to see how Man Wah could get away with a transfer pricing scheme that has booked profits in Macau greater than ten times those of the Huizhou factory. This is tax evasion at best, but is more likely a major component of financial fraud, Block said.
When researchers at Muddy Waters visited Man Wah's 57 company-owned and 39 distributor-owned stores in China that sells sofas, mattresses and other furniture, they found that sales are poor and unlikely to have generated claimed revenues.
According to Man Wah's filing, company-owned stores recorded HK$5.3 million on average per store in 2016, up from HK$4.48 million in 2015 and HK$3.66 million in 2014. But researchers at Muddy Waters found that 15 of the 57 company-owned stores were out of business, and at least 15 closed but are still registered as stores. For those that remain open, sales seem to fall short of the reported sales.
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(06-06-2017, 06:01 PM)cyclone Wrote: Carson Block's Mystery Short Target Roils Hong Kong Stocks
by Sofia Horta E Costa and Kana Nishizawa
June 6, 2017, 11:37 AM GMT+8 Updated on June 6, 2017, 4:57 PM GMT+8
Where will Carson Block strike next?
For traders in Hong Kong, it’s a suddenly pressing question. Block, the short-selling founder of Muddy Waters, told Bloomberg News he identified a new target in the former British colony and will reveal the company’s name at the Sohn Hong Kong Conference just after 2 p.m. local time on Wednesday.
His comments triggered an immediate flurry of speculation in the city’s $4.6 trillion equity market. The Hang Seng Composite Index dipped as he spoke on television, with stocks including Tongda Group Holdings Ltd., Man Wah Holdings Ltd. and Sunny Optical Technology Group Co. sliding on concern they could be in the short seller’s crosshairs.
“Some of the mid- and small-caps are falling quite a lot as Muddy Waters may have frightened some investors or speculators,” said Sam Chi Yung, a senior strategist at South China Financial Holdings Ltd. in Hong Kong. “They’re afraid that the stock they’re holding will be the next target.”
More details in https://www.bloomberg.com/news/articles/...y-j3l0l5v0
Just based on information from the article itself, it is interesting to see why Man Wah was 1 of the candidates to be of "concern to be on the short seller's crosshairs" 2 days ago. Based on Bloomberg's Top10 short interest and short interest increase, it did not appear in either. So what was the reason why Man Wah was suspected in the first place? (and subsequently later confirmed to be on MW's crosshair 1 day later) It doesn't seem to have exorbitant margins to start with (although the 10-18% NPM are quite impressive).
Man Wah's last 5 years financial highlight:
http://manwah.todayir.com/html/ir.php
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