China Fiber Optic Network Systems, a Hong Kong-listed, Shijiazhuang-based fiber optic patch cord maker, halted its shares from trading yesterday after a research firm accused the company of exaggerating profits since 2008.
Emerson Analytics, a short-biased research firm known for its calls on Shenguan Holdings and China Lumena, called China Fiber Optic “an outrageous fraud,” adding that despite its smaller capitalization compared to the two, it has “a shockingly higher degree of forgery.”
“China Fiber Optic, the self-proclaimed market leader of fiber optic patch cords, is in fact in the business of fabricating lies. It has been exaggerating its revenue, and therefore profit and other financial data, by many, many times from its IPO track record period of 2008-2010 all through the years till now.”
Emerson apparently got a hold of a sales contract and invoice showing that the company sold patch cords at just RMB 6.32 – an eighth of the average price they were claiming. The price also appeared to be in line with what Emerson’s investigators got quoted on by China Fiber Optic staff as well.
They also claim that the company fabricated all their export data, adding that Sifang Telecom staff, as well as customs, were able to confirm this allegation. As for the company’s client base, here’s what Emerson had to say:
“Sifang Telecom SAIC filings reveal that China Fiber actually had very few telecom carrier clients. Over the years, the trend has been one of shrinkage – shrinking from two carriers (China Mobile and China Telecom) to just one (China Telecom), and from several provinces (Hunan, Guizhou, Guangdong, and Hebei) to merely its home province (Hebei). Such a small client base cannot possibly sustain China Fiber’s relentless revenue growth that amounted to Rmb8.55bn over seven years.”
They are currently betting on China Fiber Optic to delist.
Photo: Rob Pongsajapan