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

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

DuPont investing $100 million for more ethylene copolymer capacity

September 16, 2014 1:51 pm ET

Increased packaging demand is leading materials giant DuPont Co. to spend more than $100 million to increase capacity for ethylene copolymers at its...    More

Image

Latvian plastics recycler Nordic Plast boosts capacity

September 16, 2014 10:15 am ET

Latvian plastics waste recycler Nordic Plast Ltd. has invested more than 2.5 million euros ($3.2 million) to expand capacity and modernize production ...    More

Image

Toy supplier sues maker in reshoring fight

September 15, 2014 3:18 pm ET

An Arkansas toy supplier is suing a Taiwan-based manufacturer for breach of contract and other civil allegations in a legal dispute that not only...    More

Image

ZF finalizes deal to buy TRW, creating another global auto supply giant

September 15, 2014 1:09 pm ET

TRW Automotive Holdings, in a supply chain megadeal that has been in the works since mid-July, said Sept. 15 it has agreed to be acquired by German...    More

Image

Sabic, Chinese Academy of Sciences sign five-year development agreement

September 15, 2014 11:54 am ET

Ties between one of the world's biggest oil producers and one of its biggest consumers grew tighter Sept. 12 with the announcement of a five-year agre...    More

Market Reports

Shale Gas Market - Analysis of North American Region

This report highlights the impact of shale-based natural gas on the North American plastics market and features an in-depth analysis of production trends in the United States during 2013 and a forecast for 2014 and beyond.

Learn more

Thermoformed Packaging 2014 Market Review & Outlook North America

This in-depth report analyzes economic and market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as growth strategies being implemented by thermoformed packaging companies.

Learn more

Pipe, Profile & Tubing Extrusion in North America 2014

U.S. demand for extruded plastics is expected to grow by 3 percent in 2014, with PVC remaining the largest segment.

Plastic pipe will post the strongest gains through 2018, continuing to take market share from competing materials in a range of markets.

Our latest market report provides in-depth analysis of current trends and their financial impact on the pipe, profile and tubing extrusion industry in North America.

Learn more

Upcoming Plastics News Events

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

More Events