Burst: Anta Is Short Again, Pointing To Excessive Profit Margins And Financial Fraud.

Anta sports (2020.HK) was short again. The well-known short selling agency Muddy Waters Research muddy water released the report "ANTA Part I: Turds in the Punchbowl", accusing Anta sports is "the bowl of pun wine bowl stool".

With muddy water short report headlines, its short selling Anta sports report may follow, Anta sports has encountered Blue Orca Capital and GMT Research Limited two organizations short, short reports are pointing to Anta sports too high profit margins and financial fraud.

Muddy water said that the report and title of Anta sports were long thought, and the report released was only the first of a series of evidence of Anta fraud. The agency also acknowledges that Anta sports has many commendable aspects in its operation and marketing, and believes that this is also one of the reasons why Lululemon Athletica Inc. (NASDAQ:LULU) Lulu lemon founder Chip Wilson has recently joined Anta sports.

However, muddy water further indicated that in all good things, there is a terrible fact that investors can not rely on the financial situation of Anta sports, because Anta sports can achieve industry-leading operating profit rate, not because its operation is very good, but to use a lot of secretly controlled first-class distributors, deceitfully improve profit margins.

Muddy water cited 27 distributors of Anta sports control in the report, of which at least 25 were first-class distributors. According to the agency, at least 40 of the 46 first-class distributors owned by Anta sports are controlled by the company. These secret controlled distributors account for about 70% of Anta brand sales and may even reach 80%, while Anta sports claim that they are independent third parties.

After the short report was released, Anta sports shares plunged at HK $50.50, down 8.68%.

We have strong evidence that Anta has secretly controlled a large number of distributors. In this report, we provide written evidence of Anta's secret control of 27 distributors. At least 25 of them appear to be first tier distributors. The total number of Anta distributors of first tier distributors may exceed 40, while the company has about 46 distributors. These secret controlled distributors seem to account for about 70% of Anta brand sales.

In the report, mudshui also interviewed 4 senior managers of Anta sports pre distribution and former senior managers of the former large distributor, Guangzhou anda Trade Development Co., Ltd. According to 5 relevant personages, Anta sports has invested in distributors and has more control over personnel. The three positions of personnel managers, financial managers and deputy general managers in charge of placing orders must be Anta sports group.

At the end of May, Soren Aandahl, founder of Blue Orca Capital, the short selling agency of "killer whale", questioned Anta's sports enterprise governance and FILA's earnings opaque, and was overestimated. According to the agency's estimate, the actual income was less than 5 billion 200 million yuan, while Anta sports gave figures up to 8 billion 600 million yuan, and Anta sports share price had a drop of 34%.

However, although Anta sports issued a clarification report, it is considered that the calculation of Blue Orca is reasonable. Along with the announcement of the Clarification Announcement, Anta sports also announced the issuance of 15842000 shares to Chip Wilson, an additional HK $49.11, about 0.59% of the total share capital after the issuance, with a total price of HK $778 million. Chip Wilson has made a deal through its Anamered Investments Inc., while Anamered and Anta sports subsidiary Anta SPV are Mascot JVCo shareholders, and Mascot is the tool to acquire the parent of the original parent company.

For the introduction of new investors, Anta sports held a clarification call conference on the morning of 31, denying that it wanted to stabilize the share price, and said that in the investment of Amer Sports, Chip Wilson hoped to get more shares. The two sides hope to make further progress in enhancing strategic cooperation, and have been communicating for the past month, and finally decided to invest in Anta sports through the means of additional investment.

In June last year, the GMT Research Limited, the short selling organization, focused on the Chinese sports industry. GMT said that since 2005, 9 of 16 Chinese sporting goods manufacturers in the open market have been shown to be involved in financial fraud, all of which are from Fujian. The agency said that the remaining 7 companies had many similar characteristics with those already proven financial fraud. The most obvious examples included their profit margins even higher than the world's largest sporting goods group Nike Inc. (NYSE:NKE) Nike group.