RINO Plunge Accelerates As Sell-Siders Join The Bash Fest
A week ago we presented a comprehensive research piece by Muddy Water Research, that slammed the Chinese company, essentially calling it a scam, and slapping a token price target of $2.50 on it. Some took this as nothing but a glorified book talking attempt by the two-man research outfit. Yet this morning's horrendous earnings release and outlook cut seems to be validating the bear thesis. And now, adding fuel to the fire, is Canaccord analyst Michael Deng who has just downgraded RINO from Hold to Sell, stating the obvious, namely that "Fraud allegations are difficult to clear." With countless Chinese IPOs having recently gone public on the NYSE, is the world's once most reputable stock exchange about to be deemed the stomping ground for an endless supply of Chinese boiler room names as more and more Muddy Waters' type reports emerge dissecting how the NYSE allowed fraud after fraud to take advantage of its gullibility?
From Canaccord note:
We are moving our recommendation on RINO to SELL from Hold and placing our target price Under Review, after reviewing the Muddy Waters report and information available to us. We believe these allegations are difficult to dismiss, and RINO’s real business could indeed be significantly smaller than its reported financial statements suggest. Therefore, given the significant potential downside, we recommend investors SELL the stock.
- The Muddy Waters report claims that they contacted nine FGD customers disclosed by RINO, and six of them denied hiring RINO. Our findings from checking with one of these steel companies, Yueyufeng, also contradict management’s explanation. Therefore, we have serious doubts about the existence of some of the customer relationships claimed by RINO.
- The value added tax (VAT) records revealed on the internet and the SAIC numbers shown in Muddy Waters report could reflect the real revenue level of the company.
- RINO reports significant lower inventory level than its Chinese industry peers. We think RINO may have recorded the raw materials delivered to its construction sites directly into costs, a practice that may lead to overstatement of revenue.
Of course, the question of why Canaccord, or anyone else who may have at some point had a buy rating on the company (Deng had a Buy on RINO until 10/29/2010 with a $25 PT), did not do its own due diligence on RINO in the first place, and now is shamed by a two-man outfit into admitting they pumped companies on a completely clueless basis, is obviously moot.