Be warned. We are short-sellers. We are biased. We do our best to find and present facts, based on extensive primary research and using public sources. But we will profit if these stocks decline in value. We do not offer advice on how to trade a stock. We present our views.
J Capital is short ACM Research (ACMR US)
Cartoon by Christopher Moss for J Capital
Dirty Business
We believe ACM Research (ACMR) is a fraud, over-reporting both revenue and profit. What real profit the company has is apparently being siphoned off to related parties.
ACMR faces a cash crunch even with a reported $86 mln in the bank. ACMR is borrowing at high rates of interest, and the company is pushing to IPO substantially all the company assets in Shanghai in order to raise cash. This will significantly dilute U.S. investors.
We visited ACMR sites in China, Korea, and California, accessed credit reports on ACMR subsidiaries, reviewed ACMR’s exchanges with Shanghai regulators, and conducted more than 40 interviews. This work brings us to conclude the following:
• ACMR reports industry-beating gross margins of 47%. We believe the real gross margins are half that at best. That would wipe out the company’s net profit.
• We estimate that revenue is overstated by 15-20%.
• We have evidence that undisclosed related parties are diverting revenue from the company.
• Key means by which ACMR tunnels over-reported profit out of the company may be through about $20 mln in overstated inventory costs and through cash that is inflated or simply compromised. We think least $11 mln in warranty and service costs are understated.
• ACMR appears to be strapped for cash in spite of the $86 mln reported on the balance sheet. ACMR had $25.77 mln in short-term borrowings in Q2 2020, up by $21.88 mln QoQ and at average annualized borrowing cost of 6.1% compared with annualized interest income of 1.3%. ACMR’s CEO has personally guaranteed 11 of 13 short-term “lines of credit” issued on the mainland.
ACMR faces a cash crunch even with a reported $86 mln in the bank. ACMR is borrowing at high rates of interest, and the company is pushing to IPO substantially all the company assets in Shanghai in order to raise cash. This will significantly dilute U.S. investors.
We visited ACMR sites in China, Korea, and California, accessed credit reports on ACMR subsidiaries, reviewed ACMR’s exchanges with Shanghai regulators, and conducted more than 40 interviews. This work brings us to conclude the following:
• ACMR reports industry-beating gross margins of 47%. We believe the real gross margins are half that at best. That would wipe out the company’s net profit.
• We estimate that revenue is overstated by 15-20%.
• We have evidence that undisclosed related parties are diverting revenue from the company.
• Key means by which ACMR tunnels over-reported profit out of the company may be through about $20 mln in overstated inventory costs and through cash that is inflated or simply compromised. We think least $11 mln in warranty and service costs are understated.
• ACMR appears to be strapped for cash in spite of the $86 mln reported on the balance sheet. ACMR had $25.77 mln in short-term borrowings in Q2 2020, up by $21.88 mln QoQ and at average annualized borrowing cost of 6.1% compared with annualized interest income of 1.3%. ACMR’s CEO has personally guaranteed 11 of 13 short-term “lines of credit” issued on the mainland.
LATEST REPORTS
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May 28, 2020
NG TSXPipe DreamFor the last 15 years, NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built. Over those years, they’ve been treating this 12-person concept company like an ATM, awarding themselves base salaries that rival those of the CEOs at Newmont and Barrick and total compensation packages comparable with those at Rio and BHP. If the information from the company’s feasibility studies were presented in a more honest light, investors would understand that the Donlin deposit, of which they own 50%, is not feasible to put into production at any gold price.
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Champion of Stock PromotesIdeanomics (IDEX) (formerly Seven Stars Cloud Group, Inc. and before that WeCast and before that You on Demand Holdings and before that China Broadband) is a zero. The company changes its name and promotional story so frequently that it’s hard to keep up. One thing remains a constant, despite all the press releases, buzzwords and hype: shareholders get wiped out.
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GDS is a fraud. At least 25% of its revenue is fraudulent. Unlike most Chinese companies, GDS creates the fake revenue by round-tripping its own debt and capex. As GDS’s revenue line grows, so does the amount of debt it needs to raise to support the illusion.
In addition to round-tripping, GDS aggressively recognizes future revenues, a portion of which we believe will never be realized. Faked revenue comes without costs, so the ploy also increases reported EBITDA and reduces optical leverage. Using this and other strategies, GDS has persuaded investors to accept its highly customized metrics and argues that it will be the winner in a take-all market. That is simply not true. By examining dozens of financial statements submitted to the Chinese government, we’ve identified about ¥1.3 bln in unreported debt. We also question the cash balances. Interest income in 2018 was ¥19.2 mln, for an average 0.9% yield, although fixed-term deposits in China were yielding about 3% in 2018. Meanwhile, the company pays up to 9.7% for loans despite its large reported cash balances. No wonder GDS is “actively” seeking new sources of debt to get through the year. After about a year of research, more than 90 interviews, and visits to all but nine of the 70 data centers that GDS has reported in service or under construction, we have concluded that GDS is a sophisticated Ponzi. With financial markets repricing risk in the last few weeks, we believe the debt pyramid could collapse. |
No CureWe think BeiGene has no future, and management knows it. We have clear evidence that the company is faking sales in order to persuade investors that it can develop a successful sales platform in China for pharmaceuticals; we suspect management may also be skimming R&D and capital budgets. At best, this is a poorly managed company pursuing commoditized drugs, with internal controls, even in the context of Chinese companies, that we find to be lax. At worst, BeiGene executives may be robbing shareholders.
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Cartoon by Johannes Leak
Disclaimer
The reports and other commentary displayed are for information purposes only and should not be relied upon as investment advice. The information provided is not a complete analysis of every material fact regarding any country, region, or market. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this posting and may change without notice.
Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
Investments involve risk. The value of investments can go down as well as up, and investors may not get back the full amount invested. The information contained in these reports has not been reviewed in the light of your personal financial circumstances. Reliance upon the information is at your sole discretion.
The reports and other commentary displayed are for information purposes only and should not be relied upon as investment advice. The information provided is not a complete analysis of every material fact regarding any country, region, or market. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this posting and may change without notice.
Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
Investments involve risk. The value of investments can go down as well as up, and investors may not get back the full amount invested. The information contained in these reports has not been reviewed in the light of your personal financial circumstances. Reliance upon the information is at your sole discretion.