Hengan Internationgal Group's financial fraud has resulted in fictitious net income of 11 billion yuan since 2005, and the value of the stock is close to zero, according to Bonitas Research Research, a short seller.
As soon as the news came out, Hengan Internationgal Group's share price once plunged by more than 8%. Trading in the stock was then suspended. Hengan Internationgal Group issued a notice this morning that he would take legal action against Bonitas and resume trading at 9: 00 a.m. today (13).
For details, please refer to:Announcement
Mainly charged with five deadly crimes
1. Fictitious return on assets and operating profit of sanitary napkin business
Bonitas alleges that Hengan Internationgal Group's fictional net revenue has reached 11 billion yuan since 2005. Hengan Internationgal Group had an operating profit margin of 51 per cent in the first half of 2018, compared with about 15 per cent for its competitors, and its sanitary napkin business had a 72 per cent return on assets in 2016.
2. The incomprehensible difference in business profitability between Hengan China and Hengan Internationgal Group
We have reviewed the Hengan China bond prospectus and believe that the results disclosed by Hengan China support our view that Hengan significantly falsified the operating profit margin of its sanitary napkin business in its Hong Kong Exchanges and Clearing disclosure documents. In its prospectus, Hengan China disclosed that the average operating profit margin of its sanitary napkin business was about 31 per cent, which was 1215 to 1477 basis points lower than that disclosed by Hengan Internationgal Group in Hong Kong Exchanges and Clearing documents from 2015 to 2017.
3. False transaction
There are false related party transactions between Hengan Group and Hengan China.
4. Heavily indebted and fictitious bank balance
Hengan Internationgal Group has a large number of cash and goods equivalents of 19.8 billion, but he keeps raising money in bonds, so the cash is fake.
5. undisclosed related party transactions and revenue streams from the sale of the company to insiders
Hengan lied to investors about the independence of the purchasers of Hengan's Chinese subsidiary, and Hengan did not disclose that Hengan's chief executive's private family business was involved in the design, construction and operation of Fujian real estate projects. Specifically, Hengan insiders used Hengan's cash investment in Hengan Internationgal Group Square in Xiamen, Fujian Province, to transfer benefits to Hengan's chief executive's private family business without disclosing the relationship. Undisclosed transfers of benefits include cash from expenses and a low-price sale of a subsidiary to undisclosed related parties, which receives property management revenue from Heng'an Square in Xiamen and is sold at a low benchmark price of 0.7 times 2016 net profit. "
Hengan Internationgal Group fought back one by one.
1. Fictitious return on assets and operating profit of sanitary napkin business
Hengan Internationgal Group fought back:
Our company has been engaged in sanitary napkin business since 1985 when the market penetration rate of sanitary napkins was low. With a variety of sanitary napkins products from the basic ("Anle" brand) to high-end quality ("seven-dimensional" brand) to occupy a variety of markets, improve market penetration. The company still ranked first in terms of sanitary napkin sales in China in 2017 and the first half of 2018, accounting for about 27% of the relevant market share (about 8% higher than the second market share). Over the years, the company's extensive customer base and distribution channels from mid-to high-end products have helped to increase the company's source of revenue. At the same time, the company has a good bargaining power with suppliers and enables the company to maintain a stable supply of raw materials from reliable suppliers. The Company also benefits from production economies of scale, as well as a broad customer base and effective cost control measures that help improve disclosed profit margins. So the performance is very good.
Simply translate Hengan Internationgal Group's words:Our company was established in 1985. When I was founded, you Bonitas was a child, and I ate more salt than you ate. Our company occupies various market segments with various sanitary napkin products, and still ranks first in the sales of sanitary napkins in China in 2017 and the first half of 2018, accounting for about 27% of the relevant market share. Because of its large scale and economies of scale, negotiating with suppliers is also very bargaining power. That's why there are such high profits.
2. The incomprehensible difference in business profitability between Hengan China and Hengan.
Hengan Internationgal Group fought back:
Although Hengan (China) Investment Company Limited ("Hengan China" and its subsidiaries collectively referred to as "Hengan China Group") is the principal subsidiary of the Company, the two subsidiaries of the Company, Fujian Hengan Group Co., Ltd., and Fujian Hengan Household products Co., Ltd. (the "additional subsidiary") are not part of Hengan China Group. The additional subsidiary mainly produces "Seven Space" brand sanitary napkins and aims at the high end of the market, so its profit margin is significantly higher than that of other brands. Due to the different composition of the Group and Hengan China Group, it is understandable that there are different profit margins between the Group and Hengan China Group. This also explains the difference between the Company's information on the Stock Exchange and the Hengan China Bond offering prospectus.
Simple translation:Bonitas you are too unprofessional. The composition of our Group (Hengan Internationgal Group) and Hengan China Group is different, so the different profit margins of the two are understandable. Please study it carefully if you want to sell short.
3. False transaction
The accusation is malicious and groundless. The company strongly denies the allegation and makes the following statement with regard to the allegation.
The subsidiaries of the Company in Hong Kong, Macau and China are not subsidiaries of Hengan China and are used for the purchase of raw materials and production, and these subsidiaries will inevitably enter into transactions with other subsidiaries of the Group, including subsidiaries of Hengan China, thus constituting intra-group transactions between them, and such transactions are genuine transactions. These internal transactions and balance sheet items such as related receivables and payables have been offset in the course of the Group's consolidated accounts and will not distort or exaggerate the overall financial position of the Group.
Simple translation:Bonitas, don't talk nonsense, due to the heavy business, transactions with subsidiaries are normal, but I do not have false related transactions.
4. Heavily indebted and fictitious bank balance
In April 2017, ultra-short-term financing securities with a total amount of 5 billion yuan ("ultra-short financing") were issued. In August 2018, the company released the first batch of ultra-short financing. As of December 6, 2018, the company has issued a total of five independent ultra-short financing. All independent ultra-short financing are short-term loan notes with a maturity of no more than 270 days. In addition, in August 2016, the Company received approval from the China Securities Regulatory Commission to issue domestic corporate bonds ("domestic bonds") with a total amount of 5.75 billion yuan. In July 2018, the company issued the second issue of domestic bonds with a scale of 3 billion yuan and a maturity of 3 years.
All bank balances of the Company (including time deposits) can provide supporting documents and consider that the allegations against fictitious bank balances are totally incorrect. In addition, since the listing of the Company on the Stock Exchange, the Company has been paying a cash dividend of approximately 60% or more of its annual consolidated net profit. The Company considers that such consistent dividend payment practices bring stable and satisfactory returns to shareholders and provide indirect justification for the strong cash position and liquidity of the Company.
Simple translation:Bonitas, you're talking nonsense again.Division I have been distributing annual comprehensive net profit of about 60% or more cash dividends, do not make money, bank deposits are not much, how to pay dividends!
5. undisclosed related party transactions and revenue streams from the sale of the company to insiders
By the end of 2017, about 700 million yuan had been used for the development of Heng'an Square in Xiamen, including the cost of purchasing land. The contractor responsible for the development of the project is an independent third party. At the same time, the property is still owned by the Group. Although the Group sold the subsidiary responsible for property management for a consideration of approximately RMB 1.2 million, the buyer is an independent third party. The Company sold the subsidiary because the business of the subsidiary did not fall within the main business scope of the Group. Taking into account the scale of the sale, the Company is under no obligation to disclose matters relating to the sale under the listing rules. It is worth noting that Hengan China disclosed the sale because Hengan China, as a company incorporated in China, is required to disclose in accordance with the relevant rules and accounting standards. To the best of the knowledge of the Company and its directors, the Company has not breached any applicable listing rules or legal requirements in respect of any alleged transaction.
Simple translation:Bonitas, you are still talking nonsense. I am not breaking any laws and regulations. You are finding fault in the egg.
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(editor / Golden Forest)
