Third Hong Kong-listed firm accused of inflating profits
PUBLISHED : Tuesday, 11 August, 2015, 1:41am
Eric Ng firstname.lastname@example.org
China Fiber Optic halts trading after Emerson Analytics alleges massive profit overstatement
China Fiber Optic Network System has become the third Hong Kong-listed firm in two weeks to have been accused of cooking its books. The Shijiazhuang, Hebei province-based firm, which makes fibre optic patch cords used in the telecommunications industry, requested the stock exchange halt trading of its shares on Monday morning after anonymous company researchers and short-seller Emerson Analytics published a report targeting China Fiber Optic.
“It has been exaggerating its revenue, and therefore profit and other financial data, by many, many times,” Emerson said in the report.
The allegation comes days after two similar allegations against mainland companies listed in the city. Liaoning-based aluminium extrusion products maker China Zhongwang was accused by short-seller Dupre Analytics of defrauding its investors through secret connected transactions and fabricating at least 62.5 per cent of revenue since 2011.
Meanwhile, electricity distribution equipment maker Boer Power was accused by a mainland media report of having inflated its net profit by almost five times.
Boer late on Friday issued a statement refuting the allegations that saw its share price rise 3.9 per cent on Monday. Zhongwang has yet to release a detailed rebuttal of the allegations and its shares remain suspended.
Emerson, which has only an email address and phone number as means of contact, said it may have short positions in firms it issues reports on.
It said it based its allegation on annual financial statement filings to the mainland’s State Administration of Industry and Commerce (SAIC) by China Fiber’s subsidiary Sifang Telecom, which Emerson called its “only manufacturing subsidiary that matters” for the years 2008 to 2012.
“Comparing Sifang Telecom’s SAIC filings and the data China Fiber disclosed to its shareholders, taking into account the non-existent ‘export business’, it is clear that during 2008-2012, China Fiber exaggerated its revenue by a whopping four to 10 times,” Emerson alleged.
It said mainland Chinese customs data showed that China Fiber and Sifang Telecom had no exports between 2008 and last year, in contrast to China Fiber’s claim of 1.4 billion yuan of exports in the period.
Emerson claimed Sifang’s net profit in 2012 as declared to the SAIC was just 7.4 per cent of that reported by China Fiber. It also said a sales invoice issued by China Fiber in this year’s first half and quotations allegedly given by its staff in taped conversations with Emerson’s investigators showed prices of some of the products were an eighth of what China Fiber claimed them to be.