China XD refutes fraud allegations

By Nina Ying Sun
Assistant Managing Editor

Published: July 14, 2014 5:44 pm ET
Updated: July 14, 2014 5:46 pm ET

Image By: Nasdaq China XD Plastics Co. Ltd. officials, when the company was first listed on the Nasdaq exchange.

Related to this story

Topics Materials China Materials Suppliers
Companies & Associations

Automotive compounder China XD Plastics Co. Ltd. today fought back against an earlier report which has questioned its financial reports.

On July 10, Bleecker Street Research posted an article on SeekingAlpha.com saying that China XD’s, “numbers don’t add up.” After that report was published, XD’s share price on Nasdaq fell more than 20 percent.

On July 14, XD issued a detailed statement refuting some of the allegations.

Regarding the most data-based allegation Bleecker made on the consistency, or lack of, between XD’s SEC filings and the income numbers that the company reported to China’s State Administration of Industry and Commerce (SAIC), XD claimed Bleecker failed to include all of its subsidiaries in the calculations. In addition, XD said Bleecker’s methodology is flawed as it does not, for example, take into account any eliminations of inter-group transactions.

As well, XD dismisses Bleecker’s questioning of its gross margins being substantially higher (184 percent higher in 2013) than China’s largest compounder Guangzhou Kingfa Science & Technology Co. Ltd. Instead, it compared its margins with another Chinese automotive compounder, publicly listed Shanghai Pret Composites Co. Ltd. and said the numbers are in line.

It added that Kingfa’s lower margins can be attributed to its low-profit trading business and the broad range of compound materials for various end markets.

XD claimed that its New York-based Chief Financial Officer Taylor Zhang, albeit having worked for two Chinese companies that were accused of fraud by SEC, was not employed by either of them when those companies were accused of wrongdoing. XD also said there has not been any suggestion that Zhang was involved in any alleged wrongdoing.

In response to questioning of its increased days sales outstanding (DSO) in 2013, XD said it was resulted from in the Chinese economy and its “proactive marketing strategy to penetrate the East China market.” DSO indicates the time it takes a company to collect revenue after a sale.

XD also said its R&D expenditures, in terms of percentage of sales, are “reasonable and effective,” although Bleecker called it “relatively miniscule” compared to Kingfa’s.

About its fairly frequent change of auditors (three changes in five years), XD said those decisions were based on the company’s growth and are justifiable.

It’s not the first time China XD was under scrutiny on some of these issues. An August 2011 article on SeekingAlpha.com called for attention to the same issues — mismatched numbers between SEC filings and the financials they reported to the Chinese government, much higher margins than competitors’, CFO’s former employer, among other things. Some of the comments suspected the anonymous author, who claimed to be an investor in China, was a short seller. Other comments found Morgan Stanley’s investment in XD to be reassuring.

XD is based in Harbin in Northeast China with three plants there and is building a fourth production base in Sichuan province in Southwest China.


Comments

China XD refutes fraud allegations

By Nina Ying Sun
Assistant Managing Editor

Published: July 14, 2014 5:44 pm ET
Updated: July 14, 2014 5:46 pm ET

Post Your Comments


Back to story


More stories

Image

Dow Chemical to merge chlorine operations with Olin

March 27, 2015 12:43 pm ET

Dow Chemical Co. is combining a large part of its chlorine value chain with specialty chemicals and ammunition maker Olin Corp. to create a global...    More

Image

Eastman Chemical expanding Tritan co-polyester capacity

March 27, 2015 10:00 am ET

Eastman Chemical Co.'s Tritan-brand co-polyester business continues to grow, with 35 million pounds of capacity added late last year and a second...    More

Image

PolyOne's Patterson focused on keeping the momentum going

March 27, 2015 9:30 am ET

New PolyOne CEO Robert Patterson sees a lot of good things when he looks at his company, which ranks as North America's largest compounder and...    More

Image

Improvements to Radici's nylon line takes it into more applications

March 27, 2015 9:00 am ET

Radici Group, the Italian-headquartered materials firm, outlined the benefits of its Radilon and Radistrong nylon products at NPE 2015.    More

Sun Plastech, Plastics Color Corp. note major milestones at NPE

March 27, 2015 9:00 am ET

Sun Plastech Inc. and Plastics Color Corp. — two well-known materials firms — are marking anniversaries at NPE 2015.    More

Market Reports

Flexible Packaging Trends in North America

North America represents about 30 percent of the global consumption of flexible packaging. Annual growth in this region is forecast at 4 percent during the next 5 years.

For more insight on growth opportunities, drivers of growth and the outlook for 2015, download this report.

Learn more

Plastics Recycling Trends in North America

This report is a review and analysis of the North American Plastics Recycling Industry, including key trends and statistics based on 2013 performance. We examine market environment factors, regulatory issues, industry challenges, key drivers and emerging trends in post-consumer and post-industrial recycling.

Learn more

Plastics in Mexico - State of the Industry Report

This report analyzes the $20 billion plastics industry in Mexico including sales of machinery & equipment, resins and finished products.

Our analysts provide insight on business trends, foreign investment, top end markets and plastics processing activity. The report also provides important data on exports, production, employment and value of plastics products manufactured.

Learn more

Upcoming Plastics News Events

June 2, 2015 - June 3, 2015Plastics Financial Summit - Chicago 2015

September 16, 2015 - September 18, 2015Plastics Caps & Closures - September 2015

More Events