26 August 2013

China Minzhong

Once again, the short sellers have targeted a company listed on the SGX. China Minzhong lost almost half its value today after the report was published. A trading halt was called on the SGX. The allegations suggested that China Minzhong had cooked up their sales to their supposed top two customers. The accusations if true would suggest a pretty unethical (and likely illegal) cooking of the books to make their sales look good.

It's interesting that up till recently, several brokers were making the call to buy this stock. I must say that I have been watching this and another S-Chip (Sino Grandness) for some time but have not yet found the reason to invest into either. I have been looking for a good food company to invest in ever since Hsu Fu Chi was taken private.

At various forums, some posters were lamenting that they had invested a significant chunk of their money into this company. Strange why they have not learnt from Lehman Brothers, Mini-bonds, and various misadventures of S-Chips? Some even went on to say that they vested in today before the trading halt as they felt that even if the two top customers were negated, the impact would not be significant.

Who knows if they might be right? But it's a no go by my books - definitely an OB marker! When the management cannot be trusted to be doing the right thing, it is no longer a company I would want to own any part of. History has shown time and again that things would not come to a good ending. Consider Enron and others like it that have gone the way of the dodo bird. Other indicative signs (though not necessarily a show-stopper) - absence of any dividends, high PE ratio.