China LNG shares dive after research report says stock ‘wildly overvalued’
PUBLISHED : Friday, 17 July, 2015, 9:16pm
Brendan Clift brendan.clift@scmp.com
Stock recovers from 32pc drop to end 17pc down on claim it is overvalued
China LNG Group shares plunged 32.2 per cent at one stage yesterday as the energy firm swapped blows with a US-based research group which said its stock was more than 18 times overvalued.
In an email sent yesterday, Glaucus Research stood by its Tuesday assessment that China LNG shares were worth just eight HK cents, published in a report which drew parallels with Hanergy Thin Film Power Group, which saw its share price dive in May and was this week barred from resuming trading by the Securities and Futures Commission.
“It is our opinion that China LNG’s stock is wildly overvalued, and that its tiny underlying business in no way merits a HK$16.7 billion market capitalisation,” Glaucus said.
“China LNG is essentially a start-up without any proprietary intellectual property, a meaningful operating business or a tangible competitive advantage in the industry.”
[1]On Tuesday, China LNG voluntarily suspended its shares from trading at the midsession break in an attempt to stave off damage from Glaucus’ strong sell recommendation as the report went public. The shares had last traded at HK$1.46.
On resuming trading yesterday, the stock recovered from an early dip to 99 HK cents to close at HK$1.21, down 17.1 per cent on the day.
The Glaucus report said China LNG’s price-book ratio was 18.99 times greater than the average of Hong Kong-listed and global energy companies and its stock was trading at 19,917 times annualised sales of its LNG business.
It noted that Hong Kong and global energy companies trade at an average of 1.79 times book value. It said China LNG shares traded at 33.9 times book value, an “inexplicable” level almost twice as high as Hanergy’s at its peak.
Hanergy has been suspended from trading since the stock fell 47 per cent in May. On Thursday, it said it was seeking legal advice on the SFC’s decision to suspend trading indefinitely.
The SFC has demanded access to financial documents of Hanergy’s unlisted parent and chairman Li Hejun, with Hanergy branding the regulator’s actions “unreasonable” and “unfair”.
The Glaucus report criticised the fundamentals of China LNG’s mainland business, which it said had only 58 employees, minimal premises, no intellectual property or operating rights, no relevant expertise, a flawed business plan and just HK$131,750 in revenue as of July 3.
Francis Lun Sheung-nim, the managing director of Lyncean Securities, agreed with the negative assessment.
“They have no business,” Lun said. “All they have are something like 12 memoranda. They are yet to make a single investment in piping gas.”
Before trading opened yesterday, China LNG issued a rebuttal defending its business plan and outlining a range of agreements and leases entered into. It also labelled the Glaucus report “malicious” and reserved the right to take legal action.
Lun said it was possible for China LNG shares to fall to 10 HK cents, retaining just enough value to reflect the HK$600 million value of the shell company.
“It’s basically a paper company,” he said. “They just use their money to pump up the stock. They pump and dump.”
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