Fri, May 12, 2017 - Page 11 News List

AAC shares tumble 10% on short-seller’s report

NO HARD EVIDENCE:Analysts called the Gotham City Research report ‘groundless’ and ‘speculation,’ saying many suppliers to Apple Inc enjoy high profit margins

Bloomberg

AAC Technologies Holdings Inc (瑞聲) shares sank the most in seven years after short-seller Gotham City Research questioned the Apple Inc supplier’s accounting.

The shares fell 10 percent in Hong Kong yesterday, wiping out HK$14.2 billion (US$1.8 billion) of market value.

Gotham, founded by New York-based Daniel Yu, questioned AAC’s profit margins and alleged that the company engaged in undisclosed transactions with related parties that are not listed in Apple’s supplier list.

Before yesterday, AAC was this year’s best-performing stock on Hong Kong’s Hang Seng Index with a 58 percent gain.

“We’re intrigued by it because its margins are higher, smoother than some of the best companies in the world,” Yu said in a telephone interview. “In my experience, that usually means that the company is a truly world-changing, excellent, high-competitive company — or something else, and based on our investigation, we think the facts support the latter possibility.”

AAC denied the allegations, calling the report “inaccurate and misleading.”

The company is seeking legal advice and reserves the right to take action, it said in a statement to the Hong Kong Stock Exchange.

The Shenzhen-based producer of miniaturized speakers and receivers for mobile phones is scheduled to report its first-quarter results today.

Some analysts questioned Gotham’s conclusions.

BOC International Holdings Ltd’s (中銀國際控股) Tony Zhang, who has a buy rating on AAC, called the report “groundless” and said many of Apple’s suppliers enjoy high profit margins.

His critique was echoed by Sanford C. Bernstein & Co’s David Dai.

“I read the report,” said Dai, who has a market perform recommendation on AAC. “There is no hard evidence there, only speculation.”

Gotham’s report on Quindell PLC triggered a 39 percent one-day drop in the UK technology firm shares in April 2014, while its July 2014 report on Let’s Gowex SA preceded the Spanish Wi-Fi provider filing for insolvency and its chief executive resigning after admitting he reported false financial results for at least four years.

Gotham said it plans to publish more reports on AAC “in the near future.”

Yu declined to provide further details on the timing.

The outlook for AAC’s shares would depend on the company’s success in responding to Gotham’s allegations, Hong-Kong-based KGI Asia Ltd (凱基證券亞洲) executive director Ben Kwong (鄺民彬) said.

“Some investors are skeptical of their earnings after the report, while some are finding [an] excuse to sell after [the] share price has gone up a lot,” Kwong said. “No one likes uncertainty.”

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