And you should beware the S-Chip
I won't lie to you and say that I do not enjoy bashing S-Chips. The reason that I do not like S-Chips is that they generally belong to crappy industries, have poor and declining ROEs as a result of huge cash piles, as well as a lot of supporters in the forums and the media (particularly small PR companies). I say generally because there are a few S-Chips that have managed to stay out of trouble. COSCO and Yangzijiang are two of them.
Given my dislike for this type of counters, I was taken aback to see that the CFO of China Hongxing, has come out to talk to the media even though the company is still pending suspension and a special audit. In an article written in TheEdge, Kelvin Yeung, CFO of China Hongxing, hinted that the problem might lie in the amount of information requested by the newly-appointed auditors, Ernst & Young, versus what the company was willing to disclose.
There are a few questions arising from his statement. One, why did not the previous auditors ask for the same questions? Two, there must be a way to work out with the auditor that the said material information would not be disclosed? Three, why is the CFO talking to the media rather than doing his job taking charge of financial matters?
The CFO is right to say that the newly-appointed auditors may have been overzealous in doing their jobs, but they are doing their jobs are not they not? Secondly, based on my limited understanding, assuming that the material requested is literally material and may cause the company to lose their competitive advantage, there must be a way that the company or the auditor can work it that it tells the truth without giving away everything. Some manufacturing companies do not present information like margins for certain business segments, but still get an all clear for their books.
Finally, why does the CFO find it necessary to talk to the press before matters are cleared up? If you re-read what was written, the article seems to imply that it is much ado about nothing. Someone can refresh my memory, not so long ago when another S-Chip had this cash issue and the independent director wanted to do a special audit, an executive director actually called David Gerald, the head of SIAS, to tell him that the money is there (which company is it?). While the reproduced article was a thinly veiled attempt to allay investors' aversion of buying S-Chips, it actually raises more questions than it answers.
The biggest lie is the lie you tell yourself. Buyer beware.