I’ve been an interested observer on Muddy Waters first two reports on fraudulent Chinese companies.
So far Muddy Waters has been exactly correct on both. Today they have issued a “sell” on a third Chinese company. Shareholder beware:
Muddy Waters Initiating Coverage on DGW – Strong Sell
Published: April 4, 2011
Muddy Waters LLC has initiated coverage on Duoyuan Global Water Inc. (DGW) with a Strong Sell rating and an estimated value of less than $1.00.
· We estimate DGW’s actual revenue is no greater than US$800,000 annually, versus the US$154.4 million it claims. Our estimate is based on DGW’s PRC audit report, which is highly reliable.
· Muddy Waters caught DGW red handed forging its PRC audit report. DGW’s actions validate the audit report’s significance.
· Our extensive surveillance of DGW’s factory confirms our revenue estimates.
· We identified four errors in DGW’s US audit, which indicates the auditor was sloppy.
· DGW has much in common with its troubled sister company, DYP. We believe these commonalities further DGW’s fraud.
· DGW engages in improper undisclosed related party transactions that transfer money to its chairman.
DGW: Clean Water, Dirty Money
DGW:
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Muddy Waters, LLC estimates that Duoyuan Global Water’s (“DGW”) value is less than $1.00 per share. DGW is a massive fraud, overstating revenue by over one hundred times.
We estimate DGW’s actual revenue is no greater than US$800,000 annually. Our estimate is based on DGW’s PRC audit report, which is highly reliable (the audit report is different than the controversial SAIC financial statements). Subsequent to our obtaining DGW’s PRC audit report from its SAIC file, DGW replaced it with a forged audit report. DGW’s actions validate the audit report’s significance. Our extensive surveillance of DGW’s factory confirms our revenue estimates. We identified four errors in DGW’s US audit that indicate the auditor was sloppy.
DGW has much in common with its troubled sister company, DYP. We believe these commonalities further DGW’s fraud. DGW shows little evidence of using investor funds for capital expenditures. Its claimed distribution network is a sham. DGW engages in improper undisclosed related party transactions that transfer money to its chairman.
DGW is a Massive Fraud, Overstating Revenue by Over One Hundred Times.
DGW is overstating its revenue by over one hundred times. It recently reported 2010 revenue of RMB 1.0 billion (US$154.4 million), up from reported revenue of RMB 783.4 million (US$114.8 million) in 2009.1 In reality, DGW’s 2009 revenue was RMB 3.3 million (US$0.3 million) to RMB 5.6 million (US$0.8 million). Our research indicates that 2010 revenue did not meaningfully grow.
Head here for their full report:
http://www.muddywatersresearch.com/research/dgw/initiating-coverage-dgw/
As I wrote the last time when Muddy Waters issued their report on CCME, I think it is best to sell first and ask questions later.
I have no position and likely won’t take one.
