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- 2011-5-26
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10#
发表于 2011-7-13 16:48
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Hi all,
I have owned Sino-Forest for the last 6 years. Bought about 100 shares at $6.50, so not a large investment for me but it is higher risk. It went up to $24 at one point but I'm busy and didn't get around to selling. About 2 weeks ago I took a break from studying for level II to read a Canadian Business article about the China bubble and that the government has been building excess capacity in infrastructure which boosts their GDP and is unsustainable. You should take a look, it was quite interesting. I thought, hmm, maybe I should sell my only China play, Sino-Forest, but right now I don't have time to look into it, I'll wait until after the exam.... Then I kept getting trading alerts Thursday and Friday but ignored them to study. Probably just as well.
I've just spent the morning reviewing what is available online, so here is a quick summary (not complete, just a cursory view):
Carson Block is not a CFA, he is listed as Carson Block, Esq. on his reports.
His background is law and his father owns a hedge firm. Block has multiple websites under different names than Muddy Waters that cover different micro-cap China companies.
With regards to Sino-Forest
His basis is that he has researched contracts in China and believes their asset holdings are incorrect. Not really a Ponzi scheme as he says, but misrepresentation of their financial statements. He says their Free Cash Flow from Operations has been negative for 16 years and it is only through equity and debt issues that it continues operations.
Their use of RTOs to conduct business, as shell companies:
Reverse Takeovers (RTOs) are common in China, but I don't know if that has been covered in our studying. A Dundee Analyst says many companies in China do this to get around the restrictions on foreign dealings with domestic Chinese companies.
Block was incorrect with regards to how Sino-Forest can meet revenues in that he refers to quota restrictions, while Sino-Forest replied that he doesn't understand their business and that it is not selling cut lumber but rather standing forests, so not subject to quotas. His team of 10 analysts spent only 2 months gathering their information, and do not say whether they have interviewed management prior to trying to pre-sell their report to hedge funds, setting up their large short positions, and then releasing the report to the public. Oh, and usually during their quiet perior a couple of weeks before they release their annual report (as with Orient Paper as well).
My opinion:
Even if Sino-Forest is clean, the share price will be seriously impacted for several years due to this report, as management will be less focused on operations and rather on legal and regulatory issues. And investors will likely stay away as Forbes has issued a warning to investors to get out now. Who knows what is the truth? Speculation will continue:
The share price today has moved from $4 to over $5 in the last 5 hrs. Even if the allegations are true there is short term trading opportunities due to the volatility. Their Annual report is coming out June 14 and an analyst visit to their operations is set for July.
What will I do? I don't know, I'm slow to change course on such news, and I don't have a large stake anyway. I was thinking of selling in the first place, so I suppose I'll wait for the share prices to rise and then sell. Just wishing I had taken the time to get to it earlier when it was $18.
For those who have nothing to do now the exam is over.....
I have a bigger stake in a company called MicroPlanet, when I bought their IPO back in 2006. It is a new venture in Canada that reduces electrical voltage and saves energy. Again I've held it even though it's dropped significantly, but Their Annual Report just came out and is a good read if you want to review what you have been studying. The management Discussion and analysis especially. I like their premise, and am thinking about attending the AGM in Calgary June 23rd. |
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