J Capital Research ("J Cap") is an investment advisor to private funds. J Cap has analyzed the U.S.-listed company Uxin Limited (“UXIN”) and is hereby publishing the outcome and the conclusions of our analysis, based on publicly available information. We may be short shares of UXIN, and, for this reason, there might be a conflict of interest.
- Overstated transaction volume: We believe that Uxin exaggerates the volume of auto sales processed by the company by as much as 40%.
- Undisclosed debt: Financial statements for Uxin’s operating companies in China show a staggering level of debt that puts the company at risk of collapse. The debt has not been reported to U.S. investors.
- Fake values: The price of cars sold is artificially elevated to raise loan values, which are sometimes twice the actual value of the car. This means that the loan collateral is far below what’s needed to cover defaults. We believe the elevated values have been used to obtain more debt than the company really needs, perhaps to enable insiders to take out cash. Management has pulled far more money out of the company than is justified by cash flows.
- Circular transactions: We have learned that Uxin’s secret sauce for “revenue growth” is a special POS machine that embeds Uxin’s proprietary software and routs unrelated transactions through Uxin accounts. Evidence suggests that Uxin is counting these third-party transactions as its own revenue. Uxin has provided transaction subsidies to induce dealers to use the POS.
- Overstated inventory: We had software built that shows the number of unique automobiles management say are available for sale is overstated by half. Even the more modest number of listings over-represents Uxin’s inventory. We conducted more than 40 interviews with dealers, former Uxin executives, and salespeople from competing companies, and all concurred that Uxin is basically a Craigslist of autos, listing cars that are being offered on multiple websites. For free.
- Siphoning cash: Uxin’s founder has taken about $280 mln out of the company by sleight of hand. Founder Dai Kun could not even wait for the IPO before enriching himself: he took the first chunk of $100 mln before the company listed then got about $180 mln in December 2018, while the shares were still in lock-up. Two other insiders made about $270 mln in the same sale. This money did not come out of Uxin cash flows—far from it.
- Well-known in China as a cheat: Uxin’s truly awful public reputation is well hidden from Western investors, but a simple search in Chinese turns up hundreds of news articles, blog posts, and lawsuits alleging that Uxin is a cheat. The company is absolutely plagued with consumer lawsuits and has been repeatedly reported to consumer watchdogs in the Chinese government for improper fees added to the loans it sells.
- Sell: Uxin is so dishonest that we would not know how to attach a valuation. We urge Uxin shareholders to race to the exits.
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