Cartoon by Christopher Moss for J Capital
ACM Research (ACMR): Dirty Business
Initiation Report: October 8, 2020
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 just 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.
J Capital Research ("J Cap") is a stock-research company. J Cap has analyzed the U.S.-listed company ACM Research, Inc.. (“ACMR”) and is hereby publishing the outcome and the conclusions of our analysis, based on publicly available information. We may be short shares of ACMR and, for this reason, there might be a conflict of interest.
"Blue Heron": SOSI report supporting SMIC's addition to the U.S. "entity list." SMIC is a material customer for ACMR.