BearCaution

ITP Muddy Waters Initiating Coverage on ONP – Strong Sell

We are confident that ONP is a fraud. Its purpose is to raise and misappropriate tens of millions of dollars. Approximately $30 million has been misappropriated since October 2009. ONP overstated 2008 revenue by 27x. ONP overstated 2009 revenue by 40x. ONP’s claims about its top 10 customers support our fraud conclusion. ONP overvalues its assets by at least 10x. The value of ONP’s Production Lines is greatly overstated. ONP’s inventory is overstated by millions of dollars. ONP’s claim of inventory turnover of 32.5x and 16.8x in 2008 and 2009 (respectively) are without credibility when compared to those of China’s industry leaders, which range from 4.3x to 7.7x. ONP overstates its gross profit margin by hundreds of basis points.

RINO Muddy Waters initiating coverage on RINO – Strong Sell

Muddy Waters LLC has initiated coverage on RINO International Corp. (RINO) with a Strong Sell rating and a $2.45 price target. RINO claims to be the leader in selling desulfurization (“FGD”) and other environmental equipment to Chinese steel mills. It reported 2009 revenue of $193 million. In reality its revenue is under $15 million, and its management has diverted tens of millions of dollars for its own use. We value RINO based on the cash we believe remains in the company after the most recent raise.

CCME Muddy Waters Initiating Coverage on CCME – Strong Sell

Muddy Waters LLC has initiated coverage on China MediaExpress Holdings, Inc. (CCME) with a Strong Sell rating and an estimated value of $5.28.

DGW Muddy Waters Initiating Coverage on DGW – Strong Sell

Muddy Waters LLC has initiated coverage on Duoyuan Global Water Inc. (DGW) with a Strong Sell rating and an estimated value of less than $1.00.

TRE Muddy Waters LLC has initiated coverage on Sino-Forest Corporation (TRE.TO, OTC:SNOFF) with a Strong Sell rating and an estimated value of < $1.00.

Muddy Waters LLC has initiated coverage on Sino-Forest Corporation (TRE.TO, OTC:SNOFF) with a Strong Sell rating and an estimated value of < $1.00.

SPRD Open Letter to SPRD Chairman re: MW Concerns

Muddy Waters, LLC has begun researching Spreadtrum, Communications Inc. (NASDAQ: SPRD), and we have taken a short position in it. (Please see our disclaimer below.) We have identified a number of issues in SPRD’s filings, and we believe that there is a high risk of material misstatement in the reported financials. Our concerns are gravest regarding 2010 and 2011 numbers.

FMCN Muddy Waters Initiating Coverage on FMCN – Strong Sell

Muddy Waters rates Focus Media Holding Ltd. (NASDAQ: FMCN) shares a Strong Sell because of significant overstatement of the number of screens in its LCD network and its Olympus-style acquisition overpayments. The $1.1 billion in write-downs from its acquisitions exceed one-third of FMCN’s enterprise value, making FMCN’s acquisitive behavior more destructive than Olympus’s to shareholder value. FMCN insiders have sold at least $1.7 billion worth of stock (two-thirds of FMCN’s enterprise value) since FMCN’s IPO. At the same time, the insiders and their business associates further enrich themselves by trading in FMCN assets, while costing FMCN shareholders substantial sums of money.

EDU Initiating Coverage on EDU – Strong Sell

Muddy Waters rates New Oriental Education & Technology Group (NYSE: EDU) shares a Strong Sell because it is probable that EDU will have a significant restatement and possible that its auditor will resign.

OLAG Muddy Waters Reaction to Olam Frantic Response

Please read the full text through the detail link.

AMT Initiating Coverage on AMT – Strong Sell (Full Report)

We rate American Tower Corp. (NYSE: AMT) a Strong Sell and value it at $44.57 per share, representing downside of 40%. AMT has serious challenges domestically and internationally that have not been factored into the stock price. It has engaged in a value destroying investment binge overseas, and we have identified a significant material misstatement in the Company’s accounts that could amount to fraud.

LKM Initiating Coverage on NQ Mobile Inc. (NYSE: NQ) – Strong Sell

NQ is a massive fraud. We believe it is a “Zero”. At least 72% of NQ’s purported 2012 China security revenue is fictitious. NQ’s largest customer by far is really NQ. Our research estimates that NQ’s real market share in China is only about 1.5%, versus the approximately 55% it reports. We estimate that its China paying user base is less than 250,000, versus the six million NQ claims.

1228 Muddy Waters is Short Superb Summit (1228.HK)

In “Superb Summit (Part I): It’s a Long Way Down from Here” Muddy Waters explains why we are short 1228.HK. In this 18-page report, we show that virtually all of its reported 2012 and 2013 revenue belongs to a different company, its recent acquisition of a stake in coal liquefaction company Beijing Jinfeite (“JFT”) is utterly without substance because JFT is effectively a one-man operation, and Superb has an unbroken seven-year track record of completely failing in every new line of business it has purportedly pursued. In short, Superb’s raison d’etre is being a public company.

NOBGY Muddy Waters is Short Noble Group Ltd (NOBL:SP)

Muddy Waters is short Noble Group Limited (“Noble”). Noble seems to exist solely to borrow and burn cash. According to Bloomberg, Noble has been free cash flow positive only four out of 20 years – in other words, it literally generates positive free cash flow once every five years! According to Bloomberg, since 1997 Noble has raised from banks and markets net $7.7 billion. Noble’s debt is now almost four billion dollars. (A recent estimate, which Noble has not contested, is that due to repo-style transactions, Noble’s intra-quarter debt is approximately $3 billion greater than reported.)

TELIA Muddy Waters is Short TeliaSonera (TLSN.ST)

We are short the securities of TeliaSonera (TLSN.ST) because we believe information that is being withheld from investors, along with the current board and management’s (in)actions, will significantly impact the company’s shares and credit profile. While TeliaSonera has provided some transparency into its misdeeds in Uzbekistan, it has not made public the likelihood that the company’s other Eurasian and Nepal operations suffer from similar problems, and on a massive scale. It appears that TeliaSonera made corrupt payments in Uzbekistan exceeding SEK 3.1 billion (US$380 million). Uzbekistan appears to be only the tip of the iceberg. We estimate – perhaps conservatively – that TeliaSonera could have made corrupt payments throughout its Eurasia and Nepal operations that exceed SEK 17 billion (US$2.1 billion). In addition, TeliaSonera is potentially obligated to make additional payment to a problematic partner in Azerbaijan of up to SEK 7.6 billion (US$934.5 million).

CO Muddy Waters is Short Groupe Casino (CO:FP)

Groupe Casino (CO FP) is one of the most overvalued and misunderstood companies we have ever come across. The basic problem with Casino is that its financial statements are literally meaningless to understanding the company’s (poor) health. They do not distinguish between what Casino owns and what it owes. (Spoiler: we estimate Casino’s LTM leverage ratio at 8.9x.)

SAX Muddy Waters is Short Ströer (SAX:GR)

Ströer went public in 2010 as a Germany-based operator of billboards, with the founders Dirk Ströer and Udo Müller floating 47.8% of the company’s shares – they still hold about 42% of the shares today. The business was steadily growing, but perhaps a bit boring. The stock price languished. At the end of 2012, it was down 40% from its IPO, and trading at 7x EV / EBITDA. But something big changed in 2013. Ströer unveiled a “digital” strategy based on three pillars – acquiring a group of online businesses in Turkey and Poland, buying a couple of online ad exchanges, and buying a few online advertising businesses from Dirk Ströer and Udo Müller, who is still the CEO of Ströer. This all seemed to make sense – old world advertising meeting the new, Ströer striving to become number one in Germany in online and offline, a bold company that grasped what others weren’t yet seeing…

STJ MW is Short c (STJ:US)

Muddy Waters Capital is short St. Jude Medical, Inc. (STJ US). There is a strong possibility that close to half of STJ’s revenue is about to disappear for approximately two years. STJ’s pacemakers, ICDs, and CRTs might – and in our view, should – be recalled and remediated. (These devices collectively were 46% of STJ’s 2015 revenue.) Based on conversations with industry experts, we estimate remediation would take at least two years. Even lacking a recall, the product safety issues we present in this report offer unnecessary health risks and should receive serious notice among hospitals, physicians and cardiac patients.

6594 MW is Short Nidec Corp. (6594:JP)

Muddy Waters Capital LLC (“Muddy Waters”) is short Nidec, and we value its shares at JPY 4,764. We view Nidec as a gigantic stock promotion. The company’s management, led by Mr. Shigenobu Nagamori, repeatedly give uber-bullish predictions about Nidec’s business, and then massively misses them. Nidec missed a three-year forward sales projection by 29%. The company missed its 2015 sales target of JPY 2,000 billion by 41%, and now tells investors that number is its 2020 target. Nidec missed a two-year projected overall operating profit target by 27%. Nidec’s track record with short, medium, and long-term projections in its Automotive product group seems even worse.

6863 China Huishan Dairy Holdings Co Ltd

We are short China Huishan Dairy Holdings (6863 HK / “Huishan”) because we believe it is worth close to Zero. We conclude Huishan is a fraud. In this first report on Huishan, we detail the following conclusions and supporting facts. Since at least 2014, the company has reported fraudulent profits largely based on the lie that it is substantially self-sufficient in producing alfalfa. We found overwhelming evidence that Huishan has long purchased substantial quantities of alfalfa from third parties, which gives us no doubt that Huishan’s financials are fraudulent. We believe Huishan has engaged in CapEx fraud related to its cow farms. We estimate that Huishan has overstated the spending on these farms by RMB 893 million to RMB 1.6 billion. The primary purpose of the CapEx fraud is likely to support the company’s income statement fraud.

GAU Muddy Waters is Short Asanko Gold Inc. (AKG:CN)

We are short AKG because we believe it is highly likely to end up a Zero. On the back of flawed geology, AKG made investments in Nkran, its satellite pits, and Esaase that we believe will never be recovered. Nkran is already experiencing a serious collapse of its west wall that we believe is a sign of AKG’s desperation. We estimate AKG needs to spend $75 – $115 million soon to keep mining Nkran, or the mine will “pinch out”. Spending the money likely means AKG will run out of liquidity in 2018; not spending the money leaves the company without the cash flow to develop its largest deposit, Esaase.

1999 MW Response to Man Wah (1999:HK)

Muddy Waters, LLC (“Muddy Waters”) announced in a presentation on June 7, 2017 that we are short Man Wah Holdings Ltd. (“MWH”, 1999 HK). MWH promptly halted the stock and on June 9th issued a clarification announcement in response. MWH’s response accurately quotes the presentation slides, although it does not present the complete deck. We address MWH’s response. Our opinion remains that MWH is likely committing fraud. We presented six arguments in the presentation: MWH’s profitability is an outlier, Macau profits – a red flag, Panjiva data casts doubt on export sales, Fieldwork casts doubt on the China growth story, MWH has inconsistencies in taxes, a strong indicator of fraud, MWH has undisclosed debt

PRTA MW is Short Prothena Corp PLC (PRTA:US)

We are short PRTA. The publicly-available data, in our opinion, does not show that NEOD001 is efficacious. Our impression appears to run contrary to that of the sell-side. We believe that perceived positive responses to the drug are quite possibly – if not likely – due to previous plasma cell directed (“PCD”) therapy, and also to the manner in which some early trial data has been presented. Further, NEOD001’s proposed mechanism of action is not proven.

OSIS MW is Short OSI Systems (NASDAQ: OSIS)

We are short OSI Systems, Inc. (OSIS.US) because we think it is rotten to the core. We believe it obtained a major turnkey contract in Albania through corruption. It is likely that OSIS’s accounts are misstated as a result. We believe the pricing of its Mexico turnkey contract does not stand up to scrutiny. We estimate that the contract is so rich, it accounted for more than 50% of OSIS’s FY2017 EBITDA, despite being only 15% of revenue. Put another way, we estimate the Mexico contract’s EBITDA margin is approximately 55%, which would mean the rest of OSIS has an EBITDA margin of a paltry 7.5%. This contract is up for renewal in 2018, and non-renewal would seemingly have an enormous impact on OSIS’s profits. It also implies that there is significant room for price adjustment downward, which could have a material impact on profits. Former employees’ statements support our view that OSIS is rotting from the inside.

FRGT MW is Short China Internet Financial Services (NASDAQ: CIFS)

We conclude that China Internet Financial Services Inc. (NASDAQ:CIFS) is a King Zero – just another worthless China fraud. We believe zero to almost none of CIFS’s purported business is real. PRC financials show that CIFS overstated its 2016 revenue by 5x. Every one of the purported borrowers to which CIFS disclosed having made loans (accounting for 84.2% of loan balances) appears to be a sham counterparty. (The purported borrowers of the remaining 15.8% of reported loan balances were not disclosed; however, we strongly suspect that most – if not all – of these loans and associated income are also fabrications.) Therefore, the associated loans, revenue, and profits appear to be completely fake.

IQE MW is Short IQE (AIM: IQE LN)

Muddy Waters Capital LLC is short IQE. IQE is, in our opinion, an egregious accounting manipulator. We adjust downward the company’s reported net income for 2015 and 2016, respectively, by 58.5% and 25.4%. We believe it is reasonable to adjust 1H 2017 net income down by approximately £5 million or 69% to account for likely aggressive capitalization of expenses.

TAL MW is Short TAL Education Group (NYSE: TAL US)

Muddy Waters is short TAL Education Group. Investors might recall the dark days of 2010 and 2011, during which numerous U.S.-listed China companies went down as frauds. According to the recent documentary, the China Hustle, there were approximately 400 frauds from China listed on U.S. exchanges. Out of literally hundreds of blatant frauds, almost no company chairman did any prison time. Charlie Munger is fond of saying “Show me the incentive, and I’ll show you the outcome”. Defrauding U.S. investors from China has proven to be a “heads I win, tails you lose” proposition. So, it does not shock us when we see that TAL began fraudulently creating profits as early as FY2016. Since the beginning of FY2016, the value of Chairman Zhang’s shares have skyrocketed from $900 million to close to $7.5 billion. The prospect of becoming Bobby Axelrod rich is a powerful incentive, especially when you have no downside if caught.

MFC MW is Short Manulife Financial Corp. (NYSE: MFC US)

Muddy Waters is short Manulife Financial Corp. (“MFC”). MFC’s life insurance subsidiary, The Manufacturers Life Insurance Company (“Manulife”), just concluded a trial that could significantly damage its earnings, capital, creditworthiness, business, and solvency – per its own expert’s sworn affidavit. We believe a verdict is likely by the end of this year. There are therefore material risks to the financial wellbeing of MFC. We do not believe investors are aware of these risks, nor do we believe they have been priced into MFC shares.

INGN MW is Short Inogen, Inc. (INGN US)

Muddy Waters is short Inogen, Inc. (INGN) because we believe management has created an egregiously false narrative about the Total Addressable Market (“TAM”) size and growth. We estimate the U.S. market is 1.3 million users. The data shows us that the market is actually shrinking. We believe that even though POC penetration will continue to increase, because the market is near saturation and is shrinking on one hand and the long usable lives of equipment on the other, INGN will hit peak sales no later than next year.

2020 ANTA Part I: Turds in the Punchbowl (2020.HK)

We thought long and hard about the title of this report, which is the first in a series evidencing endemic fraud at ANTA. We kept coming back to “Turds in the Punchbowl.” ANTA is a real business, and in terms of operations and marketing, there’s much to be admired. Presumably, this is why accomplished sportswear entrepreneur Chip Wilson recently agreed to invest in it.[1] But within all this goodness, there’s a distinctly awful truth. Investors cannot rely upon ANTA’s financials. We believe that ANTA posts industry-leading operating margins not because it’s so well operated; but, rather because ANTA uses numerous secretly controlled Tier 1 distributors to fraudulently boost its margins.

BUR MW is Short Burford Capital Ltd. (BUR LN)

We are short BUR. For years, it was the ultimate “trust me” stock. Thanks to a light disclosure regime, the esoteric nature of its business, and unethical behavior by its largest shareholder, Invesco, it turned Enron-esque mark-to-model accounting into the biggest stock promotion on the AIM. This has all recently changed though. Just this year, BUR began publishing more detailed investment data. This data proves that BUR has been egregiously misrepresenting its ROIC and IRRs, as well as the state of its overall business. We have identified seven methods by which BUR manipulates Concluded Investment ROIC and IRR.

4587 Muddy Waters is Short PeptiDream, Inc. (4587.JP)

Muddy Waters Capital is short PeptiDream, Inc. because we believe it is more stock story than substance, and the market is deluded as to its potential for commercializing drugs. PeptiDream touts its 19 major partnerships and 101 discovery programs, but half of its partnerships are likely effectively dormant or dead. We see it being highly unlikely that the company’s own development attempts ever yield significant revenue. PeptiDream’s recent shift in focus to developing its own pipeline recalls once-beloved Sosei Group Corporation (“Sosei”), which has lost significant market cap over the past three years. We forecast PeptiDream will have at most one drug commercialized by 2027, versus investor expectations of eight to 15 by then.

NMC MW is Short NMC Health plc (NMC.LN)

We are short NMC Health plc. We have serious doubts about the company’s financial statements, including its asset values, cash balance, reported profits, and reported debt levels. At the worst of times, the company has invested in large assets at costs that we find too high to be plausible – including from parties we believe are de facto under common control. This behavior gives rise to concerns about fraudulent asset values and theft of company assets. At somewhat better times, the company seems to “only” materially mislead, such as by trying to give investors the (false) impression it does not engage in reverse factoring, and by understating (we believe intentionally) lease debt.

EHTH MW is Short eHealth Inc. (EHTH US)

EHTH’s highly aggressive accounting masks what we believe is a significantly unprofitable business. Based on variable costs alone, we estimate that EHTH will lose approximately -$135 from each MA member it enrolled in 2019. If also including fixed costs, our per MA member loss estimate becomes -$402. We adjust 2019 revenue down by $128 million or 25%. We adjust 2019 operating profit down by $263 million due to subjective and misapplied mark-to-model accounting, yielding an operating loss of -$181 million. EHTH’s persistence assumptions in its LTV model seem highly aggressive when compared to reality. After ASC 606 went into effect, member churn immediately skyrocketed. We conclude that EHTH is pursuing low quality, lossmaking growth while its LTVs are based on lower churn, pre-growth cohorts. We conclude that the key driver of growth since 2018 has been EHTH’s reliance on Direct Response television advertising, which attracts an unprofitable, high churn enrollee.

GOTU MW is Short GSX Techedu Inc. (GSX US)

We are short GSX because we conclude that it is a near-total fraud. We conclude that at least ~70% of its users are fake, and we think it’s quite likely that at least ~80% of its users are fake. Our conclusions are based on GSX’s own user and attendance data files (i.e., this is not from “scraping” data). We downloaded GSX’s data from more than 200 paid K-12 classes covering 54,065 unique users.

NNOX MW is Short Nano-X Imaging Ltd. (NNOX US)

We are short NNOX because we think it is a much bigger piece of garbage than Nikola will ever be. There are important similarities, though. Nikola rolled a truck down the hill to try to prove it’s real. NNOX almost certainly used somebody else’s chest images to try to make its ARC machine look real. Both Nikola and NNOX try to legitimize themselves by using the halo of respectable companies. Nikola gave a bunch of stock away to GM. Nanox issued options for 1.2 million shares at $2.21 per share (worth ~$32.1 million) to the president of SK Telecom after SK Telecom happened to invest in NNOX.

MPLN MultiPlan: Private Equity Necrophilia Meets The Great 2020 Money Grab (MPLN US)

Muddy Waters is short shares and credit of MultiPlan Corp f/k/a Churchill Capital Corp III. Our key reasons are: MPLN is in the process of losing its largest client, UnitedHealthcare (“UHC”). UHC has formed a competitor to MPLN that offers significantly lower prices and fewer conflicts of interest. The competitor is called Naviguard. We understand that by the end of 2022, Naviguard aims to convert all key UHC accounts, which constitute the majority of MPLN’s UHC business. We estimate that this defection and competition will decrease 2022E revenue by 35% and levered free cash flow by 80%, while net leverage should balloon to more than 8.0x. MPLN was already in financial decline, and its financial statements were engineered to obscure this existing deterioration. We understand that in 2018, MPLN released revenue reserves, dropping them from approximately 30% to 10% of revenue, which we believe enabled MPLN to show 2018 EBITDA growth amid shrinking sales.

YY MW is Short Joyy Inc. (YY US)

It was clear to us from early on that YY Live was almost entirely fake. YY Live is an ecosystem of mirages. Its supposedly high-earning performers in reality take home only a fraction of their reported totals. The purportedly independent channel owners are largely controlled by YY in order to facilitate continuous sham transactions. The legions of benefactor fans are almost entirely bots operating from YY’s internal network (~50% of YY Live gift volume), bots operating from external bot farms, and performers roundtripping gifts to themselves. We conclude that YY Live is ~90% fraudulent. YY’s international livestreaming business, Bigo, seems barely more real.

XL MW is Short XL Fleet Corp. (XL US)

Muddy Waters is short XL Fleet Corp. (NYSE: XL) because it strikes us as middle of the fairway SPAC garbage. We conclude that the real green technology at XL is duping investors into throwing money at this company through a collection of exaggerations, half-truths, and mistruths. XL’s previous equity raise (Series D) appears to have been at a valuation of approximately $73 million, which is a far cry from its SPAC valuation.

LMND Open Letter to Lemonade: Egregious Security Vulnerability (LMND US)

In the course of using Lemonade’s site to do fundamental business research, it was accidentally discovered that Lemonade’s site contains an unforgivably negligent security flaw that potentially exposes its customers’ personally identifiable information.

S30 Solutions 30 SE

We have been short S30 since May 2019, and it has been a long and strange journey. We analogize the present situation to this: Imagine if you thought your partner is cheating on you with another. You arrive at your house at a moment you believe the cheating is taking place, and see your partner’s car in the driveway, along with an another, unknown car. You enter and stop outside your shared bedroom. The door is closed, and you hear sounds from inside indicating both parties are putting in gold medal performances. But the door is locked – you cannot open it. You are now EY.

DNMR MW is Short Danimer Scientific, Inc. (DNMR US)

Muddy Waters is short DNMR. We conclude that DNMR has significantly misrepresented the state of its customer relationships, product development, readiness to scale, and TAM for PHAs. Both the money that DNMR spent buying Novomer and the cash it intends to spend on capacity expansion strike us as Hail Marys – spending money based on hope rather than on realism.

BEKE MW is Short KE Holdings Inc. (BEKE US)

We are short BEKE because we conclude the Company is engaged in systemic fraud, by our estimate, inflating its new home sales GTV by over ~126% and its commission revenues by approximately ~77–96%. We found massive discrepancies between the transaction volumes, store count and agent count reported to investors and the transaction data from our multi-month data collection program from BEKE’s platform. We corroborated these discrepancies by spot-checking our findings through primary due diligence on BEKE’s stores, including field interviews and site visits.

HASI MW is Short Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI US)

We are short Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) because its accounting is so complex and misleading that its financial statements are effectively meaningless. HASI is a prime example of how public market incentives can warp a company into relentlessly destroying value to feed a Wall Street growth narrative. Most of HASI’s income is both non-cash and unrealizable: It has little relationship with cash to be received in the future.

RUN MW is Short Sunrun Inc. (RUN US)

Muddy Waters is short Sunrun Inc. (RUN) because we see it as an uneconomic business built on three shaky pillars: The equity story of exaggerated “Subscriber Values” and “Gross / Net Earning Assets”, funding growth through abusing tax incentives, and issuing ABS that could be exposed to a RUN bankruptcy. These pillars, in turn, are built on a foundation of dubious financial models. If one of these three pillars wobbles, RUN would likely face a funding gap and would require equity issuances to continue growing. Insiders have already become ultra-wealthy, having net sold shares since July 2020 for $205.9 million. RUN is on its third CFO since January 2020.