Hengan (1044 HK): Issues to consider
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Background
Bonitas Research has accused Hengan of fraud. In essence they say that: Hengan is overstating profits which end up on the balance sheet as fake cash. Hengan then borrows money to cover the dividend. Hengan disputes the claim and posted an announcement on the HKEX saying the claims were groundless and that the accusations were misleading and malicious. Having reviewed both documents, we note that Bonitas' arguments are very much in-line with our original report. But they provide extra detail and documents which Hengan makes no effort to deny. Worse, Hengan pointedly failed to answer their detailed accusations. Their answers appeared to be both very economic with the truth and leaving enough wiggle room should the issue go to court. Two simple quotes illustrate the point. “We have documentary evidence of cash” Everyone knows that these can be faked and there are numerous examples in the past of this. It would be far simpler to give details of the banks and amounts. This is what other companies do. The deal counterparty was not related “to the best of our knowledge” - they should know this as fact. The main accusation, inflated profits leading to fake cash, was simply left unanswered. Hengan talked about the China business being split with different margins, but did not explain how it is; that the revenue matches while the profits don't. Short-seller concerns, Hengan's response and our comments:
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Important
This note is written with the sole purpose of highlighting some issues we think are important.
It is not a recommendation to BUY or SELL any of the securities mentioned and should not be taken as such.
Readers should form their own opinions about the company and seek appropriate advice.
Please read the Bucephalus disclaimer.
This note is written with the sole purpose of highlighting some issues we think are important.
It is not a recommendation to BUY or SELL any of the securities mentioned and should not be taken as such.
Readers should form their own opinions about the company and seek appropriate advice.
Please read the Bucephalus disclaimer.