Kingdee International Software Group Co. (268.HK)

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Hong Kong's Most Painful Short Keeps on Breaking Record Highs

By Kana Nishizawa  and Sofia Horta E Costa
April 9, 2018, 12:20 PM GMT+8 Updated on April 9, 2018, 4:20 PM GMT+8

Investors shorting Kingdee International Software Group Co. are feeling the pain as they watch the shares soar to a record.

The stock jumped 13 percent on Monday in Hong Kong, capping its biggest two-day gain since July 2015. Bulls are betting on its cloud strategy, and further gains could prompt MSCI Inc. to include it in its benchmark indexes, said Alex Wong, Hong Kong-based director of asset management at Ample Capital Ltd., which oversees $170 million.

As the stock has soared, bearish bets have risen as well. Short interest as a percentage of shares outstanding climbed to a four-year high of 8.6 percent last month from 5 percent at the end of last year, according to IHS Markit Ltd. data. While bearish wagers have fallen since the peak, Kingdee still remains one of the most shorted stocks in Hong Kong.

“Shorting this kind of stock is not a good strategy," said Wong. The cloud strategy is “a global concept now. The short interest could propel a very sharp, brief rise."

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Specuvestor: Asset - Business - Structure.
Inside the Kingdee bubble

18 March 2019
Webb-site Reports

On the face of it, Kingdee International Software Group Co Ltd (Kingdee, 0268) might seem like a made-in-Shenzhen success story, a demonstration of what its Chairman, CEO and largest shareholder Robert Xu Shao Chun (Mr Xu) calls "the Chinese management model". Who knew that there is a better way of doing things, unique to China? The stock has more than tripled in the last 2 years.

Dig deeper, and you will find that it's a bubble stock, in a company which has relied on sector-specific tax breaks, government grants, property investment gains and questionable transactions with related parties to book any profit at all. Pour yourself a coffee and we'll explain.

At the closing price of $10.62 on Friday (15-Mar-2019), Kingdee has a market value of HK$35.08bn. The 2018 results published last week show revenues of CNY2.81bn (HK$3.20bn at the year-end rate), so it is trading on 11.0x revenues. You read that right: revenues, not earnings. We'll get to whether there is any E in the P/E later.

Note 4 of the results shows an alarming increase in the "loans to related parties", up from CNY164m to CNY722m. All of this increase happened in the second half of the year, and without any announcement of new connected transactions, if these are. The 30-Jun-2018 interim report showed a balance of  CNY134m, because CNY30m had been repaid in the first half. At that point, these loans were to 2 companies controlled by Mr Xu but formerly controlled by Kingdee. The results do not include any explanation for the increase, or any discussion of the balance sheet at all.

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Specuvestor: Asset - Business - Structure.
A Hong Kong Stock Slumps After an Activist Calls It a Bubble
> Kingdee sinks 14 percent at the close after critical report
> Company says it is confident about its strategy, future

By Sofia Horta e Costa  and Jeanny Yu
March 18, 2019, 2:38 PM GMT+7 Updated on March 18, 2019, 3:38 PM GMT+7

Hong Kong’s most famous stock picker is on the attack again, criticizing the accounts of one of the city’s top performers this year.

Kingdee International Software Group Co. dropped 14 percent at the close Monday as the worst performer on the Hang Seng Composite Index after David Webb published a critical report calling it a “bubble stock.” Webb did not specify whether he had a short position in the shares, nor what he thinks they should be worth.

The company “has relied on sector-specific tax breaks, government grants, property investment gains and questionable transactions with related parties to book any profit at all,” Webb wrote in a post tweeted during the city’s one-hour lunch break. An external representative for Kingdee said management is confident about the company’s future and considers its strategy a success.

Webb, a former Barclays Plc banker, founded a well-followed website two decades ago that gives away his research on Hong Kong’s publicly traded companies. He often advises readers to stay clear of certain firms due to corporate governance issues -- and is often right. Stocks on his “not to own’’ lists have lost $16 billion of their value since he warned against buying them.

Kingdee had rallied 53 percent this year through Friday’s close to near a record high, trading at a whopping 60 times projected earnings. Its annual report last week was welcomed by analysts, many of whom raised their price targets on the stock after Kingdee said revenue from cloud services surged almost 50 percent.

More details in
Specuvestor: Asset - Business - Structure.

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