YMM headquarters in Guiyang: registration locations for "trucking company" offices and YMM offices. Photo by J Capital
Full Truck Alliance (YMM)
A Round Trip for Investors?
Initiation Report: January 24, 2023
- YMM has hallmarks of notorious Chinese round-tripping schemes. We believe transactions might be overstated by 6-10X.
- Former salespeople have told us they set up shell companies to churn bank loans back and forth. These boomerang transactions would create the appearance of rising transaction volumes. The cash ultimately appears to get routed back.
- The reported revenue and transaction volumes don’t line up with tax payments, commission revenue, or basic logic.
- We struggle to reconcile “Gross Transaction Value” with YMM’s revenue.
- YMM’s acquisitions look highly suspicious. $185 million has been written off or impaired to date, with some investments impaired just months after they were made. We believe these write-offs potentially fill out and complete the round tripping.
- We expect a phase-out of VAT rebates for trucking this year. Interviewees say they believe the refunds will be phased out. That would reduce gross profit by about 75% and create a heavy drag on cash flow. We think the margin degradation that would result from a phase-out has not been reflected in analyst estimates.
- We think some of the short-term assets could also be inflated as a result of round-tripped cash. Short-term assets include ¥3.8 billion held by subsidiaries and VIEs in China.
- Insider sales ahead of U.S. HFCAA accounting reviews by the PCAOB are a key red flag. The PCAOB says it has gotten access to inspect Chinese firms for the first time ever.
J Capital Research ("J Cap") is a stock-research company. J Cap has analyzed the U.S.-listed company Full Truck Alliance Co. Ltd. ("YMM") and is hereby publishing the outcome and the conclusions of our analysis, based on publicly available information. We may be short shares of YMM and, for this reason, there might be a conflict of interest.