Monday, April 23, 2012

Anonymous Analytics Uncovers Huabao (0336.HK) Alleged Pump & Dump Scam

Last time around, Anonymous Analytics found that Chaoda Moderm (0682.HK) may have lied about their assets and since then, the company stock (listed in Hong Kong) has been suspended.

Today, they have released a new report on another stock listed in Hong Kong: Huabao International Holdings Ltd (0336.HK), a flavor & fragrance (F&F) and Tobacco company. They view the company as "a pump and dump scheme with the primary objective of enriching its Chairwoman, Chu Lam Yiu and her proxies at the expense of shareholders. Since the inception of Huabao, Ms. Chu has sold nearly US$1.2 billion in stock, bringing her ownership of the Company from 97.6% to 37.7%"

In the 44-page report, the research team reviewed Huabao’s backdoor listing, its history of related party transactions, massive insider selling, and suspiciously strong financial metrics.

They found the company has a much higher profit margin than peers (close to 75% vs 40 to 50 %) which is not an issue in itself, but may raise eyebrows. The disturbing part is that AA contacted their alleged customers and many claimed they did not do business with Huabao or even did not know the company.

One "funny" part (except for investors in the company) is the way they altered the picture of one of their facility in Africa to make it look much larger than it actually is.

And that's not the only place AA found where management has grossly exagerated the scale of their operations as the multi-billion US dollars R&D center in Germany with at most 12 staff.

The history of the company shows a fair amount of resignation of key manager as well as audit companies.

Their conclusion is that "management is materially overstating Huabao’s earning power. The genesis of this overstatement was the Chemactive acquisition dating back to 2007, when management reported a questionable explosion in gross margins."

There is much more in-depth analysis in the report which is available at

Investing in individual stock can be very risky, it is safer to either buy stocks in a (large) basket of companies if you have enough capital or more simply invest with ETF or mutual funds.

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