Hollysys: these guys are really good at putting up phenomenal numbers

(*Disclosure: I am short.)

Hollysys is a Chinese company that designs high-tech stuff.  Interestingly enough, they were able to grow revenues, profits, and operating cash flow without having to increase capex.  See the chart on the left from page 31 from the latest investor presentation:

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CONN 10-K update

Key points in CONN’s latest 10-K

1. Omitted the static loss table found in previous 10-Ks and 10-Qs.
2. Removed the following sentence: “Under our current policy, the maximum number of months an account can be re-aged over the life of the account is limited to 12 months.”

I guess I will continue to hold my short position in CONN.  While I don’t entirely know what’s going on, this does not smell right.  (*The borrow is expensive.)

(Valeant) Shipping drugs knowing that you probably won’t be paid

Somewhere around July 27, 2015, Isolani became aware that Russell Reitz was withholding reimbursement checks from R&O’s accounts.  You might think that this would force the business to halt operations.  An Isolani court filing (page 8) against Reitz states:

As a result of Reitz’s and R&O’s material breaches of the MSA, Isolani will be forced to shut down operations at the Pharmacy within the next 10 days.

In fact, operations did not shut down.  Documents filed with the court suggest that Philidor continued to ship out drugs on R&O’s behalf until August 31, 2015.

I find this very strange.  Why send out drugs when it is highly uncertain as to whether or not your company will be paid?

Ever-Glory (EVK) – Domain registration + web footprint

EVK’s English/investor website is at everglorygroup.com.  The site’s domain registration shows the Registrant Organization as “JIANGSU EVER-GLORY INTERNATIONAL GROUP CORPORATION” and “JiangSu Ever-glory Group Co., Ltd.”.

According to EVK’s 10-K, this does not seem to correspond to any of EVK’s subsidiaries or the parent company (see the subsidiary diagram in the 10-K).

It does seem to correspond to Jiangsu Ever-Glory International Group Corporation (“Jiangsu Ever-Glory”) [emphasis mine].  The 10-K describes this related-party entity as follows:

Jiangsu Ever-Glory International Group Corporation (“Jiangsu Ever-Glory”)

[…]

Jiangsu Ever-Glory is an entity engaged in importing/exporting, apparel-manufacture, real-estate development, car sales and other activities. Jiangsu Ever-Glory is controlled by Mr. Kang.

This is a little strange.  Normally companies put their own information in their own domain registrations.  (To be fair, you can put in whatever you want for a domain registration.  One benefit of accurate domain registration information is that following ICANN rules can help companies in ownership and trademark disputes over a domain name.)

CBPO – What their joint venture partner is saying

CBPO’s Shandong Taibang subsidiary is 82.76% owned by CBPO (image).  I believe that the rest is partially or wholly owned by the “Shandong Institute of biological products” (山东省生物制品研究所).  The Institute’s website seems to say that their joint venture with CBPO has projected revenues of $900M annually (Renminbi) and projected income of $17.24M annually.  This works out to an income margin of 1.91%.  Gurufocus.com shows that CBPO’s net income margin for YE2013 was 26.85%.  The discrepancy seems large.

(*EDIT 5/8/2015: Changed the net income margin number from 2014 to 2013.)

CBPO’s strange web presence

CBPO is a Chinese reverse merger with a market cap of $2.45B.

The WHOIS record for Ctbb.com.cn shows “山东泰邦生物制品有限公司” under the registrant name.  This translates to “Shandong Taibang Biological Products Co., Ltd.” according to Google Translate.  According to CBPO’s SEC filings, “Shandong Taibang Biological Products Co., Ltd.” is a 83.76% owned subsidiary of CBPO.  That is weird because the SEC filings suggest that CBPO is the owner of Ctbb.com.cn.  Many of the 10-Ks such as the YE2014 10-K say something to the effect of:

In addition, we had registered three domain names as of December 31, 2014, namely, http://www.chinabiologic.com, http://www.ctbb.com.cn and http://www.taibanggz.com.

So if CBPO registered ctbb.com.cn, why does the domain registration show “山东泰邦生物制品有限公司” under the registrant name?  Why is the site registered to a partially-owned subsidiary?  Is this another case of multiple personality disorder?

RH may be a bad short in the near term

My theory is that RH’s capex guidance telegraphs what future earnings will be.  The latest guidance is for 27-45% higher capex than last fiscal year ($140-160M versus $110M).

1. If RH is the real deal, then the growth investments should generate high returns on invested capital.  If so, RH should rapidly grow earnings.  (Of course, anything can happen and RH may see poor or negative returns on its new investments.)
2. Suppose you believe that RH has been aggressively capitalizing costs that should more appropriately be expensed.  Such accounting practices would inflate earnings.  The high capex guidance may telegraph high reported earnings.

In either scenario, earnings will increase in the short term.  My theory (and it’s just a theory) is that short sellers may wish to wait until the company guides capex lower.

*Disclosure:  Short RH via common shares and put options.