tag:blogger.com,1999:blog-4815867514277794362.post2139781379010358377..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: More comment on Longtop's capital efficiencyJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger24125tag:blogger.com,1999:blog-4815867514277794362.post-40498364897046429402011-08-17T01:29:07.136+10:002011-08-17T01:29:07.136+10:00Longtop raised 127 millionLongtop raised 127 millionAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-1212466460098905562011-05-19T05:34:13.519+10:002011-05-19T05:34:13.519+10:00Good Call on Longtop - I'm sure you've see...Good Call on Longtop - I'm sure you've seen the latest ADR news.Jackhttps://www.blogger.com/profile/02525435109618097127noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-38769460642884440012011-05-18T20:09:04.434+10:002011-05-18T20:09:04.434+10:00I manage a company in China and have Chinese accou...I manage a company in China and have Chinese accountants with plenty of experience.<br /><br />If asked, they would state very clearly that Chinese companies do not have trust worthy accounting practices, as a rule. Simple as that.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-38391730261642002332011-05-17T09:23:34.382+10:002011-05-17T09:23:34.382+10:00Gotta love the most recent press release.
"W...Gotta love the most recent press release.<br /><br />"We just signed a big new contract! With a major bank! No, we won't tell you who it is or any sort of expected revenue, why do you ask?"<br /><br />It's press releases like these that make me more confident as a short.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-26826362490868259832011-05-16T16:15:27.375+10:002011-05-16T16:15:27.375+10:00Who do you think you have to know to get contracts...Who do you think you have to know to get contracts with the four state policy banks in China to do this type of work? Probably nothing less than Wen JiaBao, and I'm not exaggerating or using hyperbole. <br /><br />This isn't to say the Company can't do the work, but so could others and for cheaper. There is simply an unidentified intangible asset here. If the Company is wise, it will use this money to build a real company, which to some extent it clearly it has. It will also take the opportunity to raise capital at a time where investors believe long-term returns are capital are higher than they probably will be.<br /><br />You can look under the rocks of capex per employee all you want -- but 2-3k vs 5-6k doesn't seem like it would move the needle in terms of capital costs for their growth. Real estate office rents in China are dirt cheap and there are plenty of empty office buildings to occupy.<br /><br />My opinion is that this simply a case of getting very favorable contracts.J.J.noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-63430622652701530572011-05-11T12:34:50.610+10:002011-05-11T12:34:50.610+10:00There is less than 1% chance that there is not som...There is less than 1% chance that there is not something rotten. Companies simply dont put forward these types of structures and ridiculous returns if they are real. Its like claims of unaided levitation , they can be as bold and open as they want, they can show is pictures but physics says they can float above the ground unassisted . You dont need anymore proof than the accounts, all those massive margins and the majority of transactions opaque behind a related party. They claim its not a related party despite having common signatories and a common address.Zorrohttps://www.blogger.com/profile/08752280680285281639noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-75717390270736663562011-05-11T04:00:14.691+10:002011-05-11T04:00:14.691+10:00Longtop has been gamely refuting assertions that h...Longtop has been gamely refuting assertions that have been put forth publicly by some short sellers and appears to have made a priority of open communication with its investors. This company's management with its openness, not evasiveness, is strikingly unlike the other Chinese companies that Bronte and others have targeted with accusations of fraud to great success, and this behavioral difference leads me to suspect that the short sellers may be misguided about this one. I don't claim to know what the truth is, but if I were a gambling man, which I am, I would be inclined to short the short sellers in this case. In short, I think it's possible that the critics are overreaching or grasping at straws.<br /><br />Mr. Hempton, I've been a reader of this blog beginning a month or two after its inception and am a great fan of yours. I read everything you write and have been inspired by your investment ideas on a number of occasions. I rarely post publicly, so I thought I would take this occasion to let you know how much I enjoy your blog: long may it live!<br /><br />P.S. Since Paul Krugman has referred to your blog on his, I've wondered on occasion if you and he ever connected directly, or if he's been too aloof.TheCompleatAnglernoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-60577092106668263372011-05-07T13:49:32.509+10:002011-05-07T13:49:32.509+10:00The short answer to that anon is they a haven'...The short answer to that anon is they a haven't been audited yet. The HR company is like s siphone, it makes what should be apparent form an accounting perspective opaque. Companies who do this kind of thing have a bad track history when the covers are lifted, these kinds of structures are put in place for a reason....that is usually to stop transparency....the question is what are they hiding, the margins are impossible....not just high but completely impossibleZorrohttps://www.blogger.com/profile/08752280680285281639noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-10445376167649154082011-05-06T21:53:38.020+10:002011-05-06T21:53:38.020+10:00Actually, the business I wrote about wasn't in...Actually, the business I wrote about wasn't in SV but Eastern Europe (and they were paying peanuts even by EE standards). <br />Infosys in India wasn't exactly paying peanuts, but if they continue to be India's "IT university" (Infosys trains them, competition poaches them), they as well might start doing it.<br /><br />As for why they raised the capital - well, here's a scenario:<br />- we know they like to sit on a lot of cash (they had over 200m in account even before they raised the cash).<br />- they wanted to do an acquisition (in fact, they did 2010-03, and it cost them 70m). They wanted to do it with stock, but couldn't for whatever reasons - so instead they sold stock and used the cash for acquisiton.<br />- they over-estimated how much they would have to spend on the acquisition - yes, I know they would likely know the price before they extra capital raising, but it's hard (and expensive) to stop a running train, plus we know they like cash, so why not?<br /><br />What I'd like to know is why they like to hoard this much cash over long term? Sure, having a nice cushion is good - but not having two+ years of it unless you expect to grow very very quickly. <br /><br />If the management was to go and defraud it, it could have done so by now (say by doing misvalued small acquisitions). That of course doesn't mean they don't have something fancier up their sleeves, but on the evidence so far I'd say it's not obvious.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-30026619234298577182011-05-06T20:11:11.997+10:002011-05-06T20:11:11.997+10:00He might be publishing these bits and pieces to le...He might be publishing these bits and pieces to learn from commentors who have actual relevant experience.<br /><br />For me it is clear that John is stating that based on his experience the numbers don't make sense. And that experience is on financial statement analysis. As a good analyst you can draw three conclusions: <br /><br />1) Numbers are wrong e.g. fraud<br />2) Numbers are right e.g. miracle<br />3) You as an analyst don't understand the underlying business, therefore your conclusions are not meaningful<br /><br />You can close the last point out by speaking with people who actually understand the business and testing your hypothesis with them.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-73991449221409163422011-05-06T12:27:42.040+10:002011-05-06T12:27:42.040+10:00The last two articles about LFT are just absurd on...The last two articles about LFT are just absurd on most topics. Do you have any experience on SW development? I used to like to read your analysis on your web site. But these two are really disappointing<br />.Jiehttps://www.blogger.com/profile/10151351302189565632noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-33158700926141184602011-05-05T19:57:31.995+10:002011-05-05T19:57:31.995+10:00John,
This is pretty how most software outsourcing...John,<br />This is pretty how most software outsourcing companies work at their growth stage.<br />They are not a product company who need to invest in superstar programmers. They need bodies who can do basic coding, especially given they service Financial Services clients, most of the work will be either COBOL Mianframe or AS/400. Mostly maintenance work which doesn't require complicated machines.<br />For the talk about cloud computing etc enterprises still run stuff inhouse and outsource support and maintenance.<br />And $1000 sounds about right for a new employee. That's what we used to to budget for a getting a new hire on board for outsourcing contracts. The space is usually leased and in some cases provided by the local govt.Mustafa Sabuwalahttps://www.blogger.com/profile/15541655835900447401noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-57186454135587802462011-05-05T18:31:05.345+10:002011-05-05T18:31:05.345+10:00A long comment I wrote just got FUBARed by blogger...A long comment I wrote just got FUBARed by blogger.<br />The summary:<br />The puffery doesn't matter since no one is ever going to ask them to run a PB in the cloud.<br /><br />The capital lease payments are too small to account for any meaningful equipment purchases - perhaps another $1k per employee.<br /><br />The stock option payments are too high nearly $200k per employee.<br /><br />So the "unrelated" HR company must be providing both human and some fixed assets to allow the human to do some programming.<br /><br />And the HR company is probably getting paid in stock somehow.Nickhttps://www.blogger.com/profile/01164675502109841117noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-18594052921187851452011-05-05T17:25:08.563+10:002011-05-05T17:25:08.563+10:00The facebook photos have to be stored somewhere th...The facebook photos have to be stored somewhere that can be recovered. The Yahoo database required roughly 1000 pcs to run. <br /><br />The amount of storage you can attach to a single PC is finite.<br /><br />--<br /><br />No I think the Facebook database is MUCH more complicated as well as larger.<br /><br />And the question was about whether the Petabyte claim was absurd. I think it is.<br /><br />The second question was whether the it mattered whether the petabyte claim was absurd (or whether it was marketing puffery). I am not sure about the answer to that.<br /><br />And my readers identified the second question as the key one - the one I could not answer.<br /><br />For that I thank them.<br /><br /><br />JohnJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-32504356081470354002011-05-05T17:00:21.903+10:002011-05-05T17:00:21.903+10:00Obviously the really big databases (eg Facebook wi...<i>Obviously the really big databases (eg Facebook with all those photos)</i><br /><br />Facebook doesn't really have that many more photos than Mastercard has transactions, does it? The photographs themselves take up a lot of memory, but that shouldn't really be counted as part of the size of the database - a library doesn't need to get bigger index cards if it buys bigger books.dsquarednoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-75009536873819940302011-05-05T16:19:30.264+10:002011-05-05T16:19:30.264+10:00Do you understand that you keep citing sizes of SQ...Do you understand that you keep citing sizes of SQL databases while the fluff piece explicitly said this is not what they are using? ("As a result, it can overcome the inherent deficiencies of traditional Relational Database Management System products...") You are comparing apples and porridge.IFnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-91609389830550129942011-05-05T13:18:28.279+10:002011-05-05T13:18:28.279+10:00On your point on capital efficiency, if you compar...On your point on capital efficiency, if you compare asset turnover of peers in the US and China they are comparable at about 6 - 7x. Advent, VanceInfo and Kingdee all generate proportional revenues for their fixed asset base, and so I don't think Longtop's fixed asset base is out of whack.Anuroophttps://www.blogger.com/profile/17317769937525329709noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-8519404464146037722011-05-05T13:15:32.827+10:002011-05-05T13:15:32.827+10:00On capital efficiency, if you compare asset turnov...On capital efficiency, if you compare asset turnover of US and Chinese peers, they are in line at about 6.0 - 7.0x. Check ADVS US (look all the way back to 1995), VIT US and 268 HK which are all comparable in some ways, and you will see that all of them have generated proportional revenues from their asset base. <br /><br />Longtop's profitability is a different issue which you haven't raised but is justifiable given their current actions, but will have to come down over time.Anuroophttps://www.blogger.com/profile/17317769937525329709noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-63879673999606289652011-05-05T12:08:26.121+10:002011-05-05T12:08:26.121+10:00John
Peta-byte systems dont have to exist entirel...John<br /><br />Peta-byte systems dont have to exist entirely within the Database, cheque image archives for instance use very large storage capicity which have comparatively small databases that contain the indexing . First Data Corp for instance have 30 petabytes of cheque records in their archive...the really large systems are the big image archives that contain images of business records (contracts, cheques, transactions) so the reference maybe to either building a large archive system (all the banks have them) or possibly a Teradata installation System 12 which have a capacity of 50 P compressed.<br /><br />Having a look a their site though does raise eyebrows, the dont list any customers by name? it not unusual to have say 50% of your customer wins by reference "Longtop wins contract with a big 4 bank in China" its very unusual though to never (well not in the last few years) announce a named customer.<br /><br />They are also not in theZorrohttps://www.blogger.com/profile/08752280680285281639noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-5688020730855114802011-05-05T09:54:35.053+10:002011-05-05T09:54:35.053+10:00While looking at this company I am reminded of tha...While looking at this company I am reminded of that synical principal: <br />"If you are going to tell a lie, make sure that it is a big one!"Richardnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-88225275451339224272011-05-05T05:58:18.123+10:002011-05-05T05:58:18.123+10:00I guess Citron's explanation is they are hidin...I guess Citron's explanation is they are hiding all of their costs off balance sheet, which would make sense relative to your criticism. But one would think that would show up on the cash flow statement, which I am not seeing when I look at their latest release at least. I guess Morgan Stanley's contention is that their margins are inflated because they pay their employees more in stock. The disclosure below may add some credence to that?<br /><br />"If we had included share-based compensation expenses in our Non-GAAP Adjusted Net Income for the nine months ended December 31,2010, Adjusted Net Income would have been US$94.2 million lower or Adjusted Net Loss of US$15.0 million for the nine months ended December 31, 2010, and our Adjusted Net Income margin would have been negative." <br /><br />Not that this is a positive, just trying to understand it same as you present.Bennoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-486316078133975182011-05-05T04:27:42.115+10:002011-05-05T04:27:42.115+10:00'I've seen a very successfull business tha...'I've seen a very successfull business that was effectively hiring grads to do the coding, paying them peanuts for top quality work - because then they could put work experience there on their CV and after 2-3 years of "apprenticeship" get 3-5x their original salary within week of leaving.'<br /><br />That happens in SV because you can leave FB/twit/goog/Gpon and get that multiplier after 3-4 years *if* you are good at your job.<br /><br />There's no similar model in China.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-8947885609474389212011-05-05T00:49:01.347+10:002011-05-05T00:49:01.347+10:00Anon 12:30
OK, your explanation sounds great, but...Anon 12:30<br /><br />OK, your explanation sounds great, but then why the rush to raise all that capital?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-69383008848797182332011-05-05T00:30:35.055+10:002011-05-05T00:30:35.055+10:00John,
I can't say I see into SW industry that ...John,<br />I can't say I see into SW industry that much anymore, but I know that a bunch of angel/PE investor friend of mine still love it for exactly the thing you talk about - capital efficiency. You can run multiM SW company with zilch fixed assets - you can even lease the computers you develop on if you're really into it (which can even be a better deal, due to the extremely fast obsoleteness).<br /><br />You generally need quite a bit of cash outlays (most of it spent on salaries), but once you have an installed client base that is regularly upgrading you can even end up with nice positive free cash.<br /><br />I've seen a very successfull business that was effectively hiring grads to do the coding, paying them peanuts for top quality work - because then they could put work experience there on their CV and after 2-3 years of "apprenticeship" get 3-5x their original salary within week of leaving.Anonymousnoreply@blogger.com