Wednesday, April 25, 2012

Huabao Suspends Trading After Falling on Short-Seller Report

Huabao - a Chinese flavours and fragrances company in Hong Kong - has suspended trading after falling on a short-seller report. To quote a Business Week article:

Huabao International Holdings Ltd. (336), a maker of flavors and fragrances used in cigarettes, suspended trading in Hong Kong after the stock plunged on a short-seller report that questioned its finances.
 
Huabao fell 8.1 percent to HK$3.98 at the close in Hong Kong yesterday after short seller Anonymous Analytics said the company “reports absurdly high margins, which industry sources say should not be possible.” 
The company didn’t give a reason for the suspension. In a Hong Kong stock exchange filing late on April 24, Huabao said it wasn’t aware of any reasons for the changes in its share price and trading volume.

Readers of this blog should be familiar with the stock as I blogged about it here. I also blogged about the (now in excess of a) billion US dollars the CEO had cashed out and the derivative transactions that she had used to do so.

The suggestions in my blog post - and a few other things - were covered in the short-seller report.




John Hempton


Disclosure: We remain short this company - albeit in modest quantity.

9 comments:

Sambo said...

Nice work. That looked an interesting short. My only concern was can you close the short given the tendency of HKEX stocks to remain suspended forever. I remember thinking 2339.hk Norstar Founders Group looked too good to be true. It got suspended and remained so for years afterwards!

I'm still arguing with IB about the mark taken on a short of yours - Universal Travel Group - why it can't be written down is annoying!

Sambo

Ita said...

So who is the official behind the Chairwoman??

lmenwe said...

Hi John kudos for the good work from you and AA. Base on the report from AA I am pretty sure HuaBao is a fraud but I can't understand why they are able to generate such fabulous financial statements. Thanks for your help to clear my doubts

Anonymous said...

Fab financials are because when Deloitte signs off on them, it's really a local firm that is affiliated with Deloitte, and may not conform to international audit standards. It's just one way that rampant fraud in China stocks is allowed to occur. See also http://money.msn.com/investing/the-big-fraud-in-chinese-stocks-jubak.aspx?page=2

escoffield said...

Hi John, long time reader here based in Toronto. What do you think of Aussie dollar currently? Contemplating a shift sway from the C$.

Anonymous said...

Einhorn must make you kinda jealous. That is a pretty easy way to realize a short position.

http://dealbreaker.com/2012/05/david-einhorn-is-doing-all-of-his-management-calls-publicly-from-now-on/

Mark T said...

Anonymous didn't mention th epoint you made in October about the derivative transaction. Makes me wonder if some idiot IB is long all of her stock having sold a devillishly clever put call strategy!

MTH Investments said...

There remains much opportunities for shorts in the Asia environment and thanks to your blog, I can live in some of the action! Its easy to spot them but everyones saying Im crazy, only time will tell.

Nathan said...

Just got around to reading this article about the AA research on Huabao
http://www.integrity-research.com/cms/2012/05/01/rogue-firm-embarrasses-sell-side-research/

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The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.