Blue Orca shorts Chinese infant milk formula company Feihe

Source: Global Times Published: 2020/7/8 23:50:01

Feihe, China's dairy products company is listed in Hong Kong on October 29, 2019.Photo: VCG


 
Feihe, a Chinese infant milk formula company, has strongly refuted Blue Orca’s report claiming it has been inflating its revenue. Feihe’s shares jumped more than 5 percent after its statement. 

Short seller Blue Orca Capital on Wednesday said it was shorting Chinese dairy company Feihe over inflating its revenue. Feihe issued a strong denial in response shortly after on Wednesday morning. 

The Blue Orca report cited data from a market research firm and a government department, and concluded that Feihe’s actual revenue was 49 percent less than reported in 2018-19. 

Feihe said the report was inaccurate and misleading, according to a statement published on the Hong Kong Stock Exchange. The company said it expected an over 40 percent revenue increase as of June 30 this year, largely thanks to an increase in sales of its high-end products. 

In the 64-page report, Blue Orca claimed Feihe had been overstating its infant milk formula (IMF) revenue, understating its operating costs along with other expenses such as labor and logistics, and inflating its profitability “materially.” 

Feihe’s shares plunged over 8 percent on Wednesday morning but climbed back up by more than 7 percent by 4 pm after the company issued its rebuttal. 

It is not the first time the Hong Kong-listed company has been targeted by short sellers. In 2019, soon after its listing in Hong Kong, Feihe was shorted by GMT Research, a short seller focused on the Asian and Hong Kong markets. Feihe strongly refuted that shorting report and its shares remained largely unaffected.

Several overseas-listed Chinese stocks have been the target of short sellers following Muddy Waters’ successful disclosure of Luckin Coffee’s fraud scandal. 

TAL group has twice been targeted by Muddy Waters, which accused it of inflating its net revenue by 43.6 percent. The NASDAQ-listed education company saw its shares drop over 15 percent in April following the attack, but in July the company hit a record high stock price. 

NASDAQ-listed internet company iQiyi was shorted by Wolfpack Research in April. It soon refuted the report as “unsubstantiated” and “misleading,” and its shares soared by 39.8 percent in June. 

Yan Qiang, an IMF and dairy industry expert told the Global Times on Sunday that although Feihe has seen exponential growth in its market share in recent years, the overall IMF industry’s growth is significantly slower than Feihe’s reported 54 percent. 

The overall IMF market is growing at around 10 percent annually, according to Yan, and Feihe’s market share ranks second in China at around 13 percent, after Nestle’s 15 percent, according to Yan.

However, judging by the market’s response in the afternoon, the short seller’s claim that Feihe has been inflating its sales figures has not been widely accepted by investors, said Zhu Danpeng, another food industry expert. 

Global Times 


Posted in: COMPANIES

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