Hollysys: Office Space

(This blog post only explains very minor red flags.  I think I see much bigger red flags with Hollysys but I will not explain them.  This will be a lower quality post compared to other posts on this blog.)

According to HOLI’s SEC filings, it owns Bond M&E and CE Concord.  Hollysys decided to buy one of these companies and then the other.  Here’s Google street view showing their neighboring offices:

office-budies-google-street-view

The latest 20-F provides dates on the purchases.  It also states that both companies are headquartered in Singapore:

On July 1, 2011, the Company acquired 100% equity interest of Concord Corporation Pte. Ltd (including Concord Corporation Pte. Ltd., Dubai branch) and its subsidiaries, Concord Electrical Pte. Ltd., and Concord Electrical Sdn. Bhd. (collectively, “Concord”). Concord is a Singapore headquartered integrated construction and installation services provider to rail and industrial companies in Southeast Asia and the Middle East.

[…]

On April 1, 2013, the Company acquired 100% equity interest of Bond Corporation Pte. Ltd. and its subsidiaries, Bond M & E Sdn. Bhd., Bond M & E (KL) Sdn. Bhd. and Bond M & E Pte. Ltd (collectively, “Bond”). Bond is a Singapore headquartered mechanical and electrical solution service provider for building construction and renovation projects in Malaysia and Singapore.

Hollysys does not seem to acknowledge the neighboring offices.  Here is a slide from their latest presentation:

HOLI-presentation-slide

Bond M&E has offices in both Malaysia and Singapore.  (Malaysia and Singapore are neighboring countries.)  Whoever made this presentation decided to show Bond’s Malaysia office but not the Singapore office that sits beside Concord’s Singapore office.

Here is a cropped photo of Bond’s website which shows their offices:

bond-m-e-offices

Concord also happens to have international offices in Dubai, Malaysia, and Saudi Arabia.  For whatever reason that isn’t shown in the presentation.

The “Singapore office”

The presentation seems to suggest that Hollysys’ Singapore office takes up the entire building.  That is unlikely.

An older 20-F states that Hollysys bought a Singaporean company in 2007 for less than a million dollars USD:

On November 19, 2007, HLS entered into a sales and purchase agreement with Fulbond Systems Pte Ltd., or Fulbond Systems, a Singapore based company partially owned by Mr. Kiam Fee Yau, one of our directors, to acquire a 100% interest of Fulbond Systems for a price of SGD$1,066,234 (approximately $744,596).  Pursuant to the sales and purchase agreement, the closing day of this acquisition was November 30, 2007 and after the ownership transfer, we changed the name of Fulbond Systems to “HollySys (Asia Pacific) Pte Ltd.”  The purchase price was paid in cash on December 11, 2007.  As a result of the transaction, Singapore HollySys becomes our wholly owned subsidiary and the operating results of Singapore HollySys is included in our consolidated financial statements, effective from December 1, 2007.  We acquired Singapore HollySys to serve as our Asia Pacific headquarters to market our automation products within the region as well as in other overseas countries.

The hollysys.com.sg website, which is currently broken (but check out Google’s cached version of it), has a blurb about the Asian headquarters that was “established at the end of 2007”.  It also contains a picture of a really big building with a fancy entrance.

website-blurb-about-HQ

I doubt that a company purchased for less than one million US dollars occupies the entire building.

Is Hollysys a short?

You’re going to have to do your own homework and look at the following:

  1. Are insiders selling?
  2. Do Hollysys shareholders have clear title to ownership of Bond and Concord?
  3. Does the word Hollysys appear on Bond or Concord’s website?
  4. Do the related party transactions disclosed in Hollysys’ financial statements make sense?

*Disclosure:  No position in HOLI at this moment.  I have too many short ideas and not enough margin.

Links

Hollysys – a blog post inspired by the railway crash – This 2011 Bronte Capital blog post is a satirical piece on Hollysys.  The post shows a picture of Hollysys’ Chinese headquarters from the Hollysys website.  Hempton figured out long before I did that these guys are probably exaggerating their offices and headquarters.

EDIT(4/24/2015): Bond M&E’s website can be found at bmesb.com.my

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2 thoughts on “Hollysys: Office Space

  1. Pingback: A recap of ideas on this blog – Glenn Chan's Random Notes on Investing

  2. Pingback: Hollysys: these guys are really good at putting up phenomenal numbers – Glenn Chan's Random Notes on Investing

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