The accounting research firm, GMT Research

Lisa Mangkornkarn

The accounting research firm

GMT Research

GMT Research provides independent insight into markets, sectors and companies throughout Asia. Our unique method of mining a comprehensive collection of corporate financial statements for key data allows us to evaluate the financial health of a company, sectors and the market at large. We also investigate the application of accounting standards by companies and sectors, shedding light on the quality of reported profits. Armed with this information, we help investment professionals navigate the financial landscape.

China Greenland Broad Greenstt Grp Co / ESG

China Greenland Broad Greenstt Grp Co (1253 HK)

<div class="content-highlight"><p>The problem with companies recognising profits well ahead of payment is that you’re never really sure if the money’s going to turn up. Take <a href="https://www.smartkarma.com/entities/19299" target="_blank" data-smartkarma-citation="entities:19299:1">China Greenland Broad Greenstt Grp CoLtd (1253 HK)</a> (CGBG) for example. It looks like a no-brainer…Who wouldn’t want to invest in a company with 30% operating margins and profits forecast to quadruple over the next few years? But scratch below the surface and it gets murkier.</p><p>How can a gardening company generate such high margins which have somehow bucked industry trends? And it never seems to get paid. In fact, we estimate cash sales in 2016 to be 25% of reported sales. This is confirmed by the miniscule amount of cash tax paid. Also, backward engineering company issued profit guidance suggests numbers are unachievable under its current capital structure, requiring substantial quantities of new debt and equity. Add into this mix a worryingly level of pledged shares, evidence of possible share price manipulation and an incredibly high valuation.</p><p><em>Maybe this explains why the Chairman has recently halved his stake?</em></p></div>

The problem with companies recognising profits well ahead of payment is that you’re never really sure if the money’s going to turn up. Take China Greenland Broad Greenstt Grp CoLtd (1253 HK) (CGBG) for example. It looks like a no-brainer…Who wouldn’t want to invest in a company with 30% operating margins and profits forecast to quadruple over the next few years? But scratch below the surface and it gets murkier.How can a gardening company generate such high margins which have somehow bucked industry trends? And it never seems to get paid. In fact, we estimate cash sales in 2016 to be 25% of reported sales. This is confirmed by the miniscule amount of cash tax paid. Also, backward engineering company issued profit guidance suggests numbers are unachievable under its current capital structure, requiring substantial quantities of new debt and equity. Add into this mix a worryingly level of pledged shares, evidence of possible share price manipulation and an incredibly high valuation.Maybe this explains why the Chairman has recently halved his stake?

CHINA GREENLAND (1253 HK): How Bizarre, How Bizarre...