3 months ago
Stock Market

Shares of Hengan Dive Amid Short Seller’s Allegation

Investing.com - Sanitary napkins and baby diapers maker Hengan International Group (HK:1044) saw its stock price dropped 3.68% to HK$54.95

Investing.com - Sanitary napkins and baby diapers maker Hengan International Group (HK:1044) saw its stock price dropped 3.68% to HK$54.95 after resuming trading on Thursday in Asia.

The fall in prices came after short seller Bonitas Research accused the company of fabricating income and profitability, deeming Hengan’s equity “ultimately worthless.”

Hengan was suspended from trading for a day in the previous session. The company released a statement on Thursday refuting the allegation.

Bonita accused Hengan of fabricating RMB 11 billion (U.S.$1.6 billion) in net income since 2005 and claiming to achieve a return on sanitary napkin assets of 72% in 2016. Hengan described the accusation as “speculative and baseless.”

The value of the stock is ultimately zero because it has taken on a staggering amount of debt, Bonita said in the report.

Hengan contended that it accounts for 27% of the market share of sanitary napkin sales in China in 2017 and the first half of 2018. It said that it benefitted from early market entry and that its “broad customer base and effective cost control measures” help with the reported profit margin.

Bonitas alleged that Hengan “orchestrated [a scheme] using a web of inter-company related transactions to artificially inflate profits and conceal fake cash balances,” but the Chinese company argued that the intra-group trades between the subsidiaries are “genuine transactions.”