Muddy Waters has issued a SELL call on China's Anta Sportswear over the weekend.
Indeed, Anta has been able to enjoy a much longer lifespan (as a listed company) than former S-chip China Hongxing. In the end, however, it may also succumb to the fraud disease so prevalent among China companies. It is almost like a culture, a way of life (systemically perpetuated by the Chinese Communist Party and infected almost the entire population).
In the report, Muddy Waters wrote:
"..... 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.
We have “Smoking Gun” evidence that ANTA secretly controls a material number of its distributors. In this report, we present documentary evidence that ANTA secretly controls 27 distributors. At least 25 of these of these appear to be Tier 1 distributors. The total number of Tier 1 distributors ANTA controls could be over 40 of the approximately 46 the company has. The secretly controlled distributors collectively appear to account for approximately 70% of ANTA brand sales.
ANTA resolutely claims that its Tier 1 distributors are independent third parties. This is a lie. The fact that ANTA controls its Tier 1 distributors is well-known among senior ANTA executives. ANTA’s senior executives know that ANTA conceals its control of the distributors by using proxy owners. However, this notion of independent distributors is such a charade that ANTA’s senior executives frequently refer to the distributors as “subsidiaries”. We believe ANTA controls these subsidiaries in order to manipulate its reported financials......."
Does it ring a bell?
That's why I believe (I'll let the investigators prove) Best World's distributorship operations follow a similar model, used to inflate revenues figures without actually having sold the products to end users. While we can say that whether the distributors can sell to consumers is their problem as the distributors have already "bought" the products from Best World, it gets murky and complicated when distributors are closely related to producer.......