part of the portfolio since 11/2011
Beside Asian Bamboo there were several other Chinese companies which had a german listing. Who will remember those fancy names and business models? Ultrasonic, Kinghero, United Power, Haikui Seafood, Ming Le, Goldrooster, Yubisheng Green Paper, Joyou. All of them failed, some of them spectacularly.
One of those companies was called Powerland. Powerland aspired to become the next Louis Vuitton and claimed to be a leading china bag and leather manufacturer. Not one of those Vietnamese fake market - no! A real one!
Their "luxury brand" called "Sotto" was claimed to be produced in Italy in the same factory as Armani. The bags and purses were sold trought an network of company owned stores and they distribution in Airports and malls. The company was founded by Shunyuan Guo who remained CEO during that whole period.
When they hit the market in 2011 (just before german/chinese companies obviously for everybody became a "no go") they sold a cool EUR 95mn in Shares at around EUR 15. While EUR 75mn went to the company the remainder was sold directly by Guo. As they say IPO... Insider Public Offer... The marketcap was a nice EUR 225mn.
The proceeds were earmarked for an massive expansion into 300 new stores, marketing and for an nice dividend too.
Most of those chinese companies had several things in common:
1) Pristine balance sheets with pleny of net cash
2) high revenue growth and fat margins.
3) unbelievable high Returns on tangible capital.
From far away it seemed that all those chinese companies had the same consultant to guide how the Germans wet dream of a fine company would look like.
The first 2011 Annual Report of Powerland for example showed
1) +30% Revenue growth to EUR 147mn.
2) 19,4% EBIT-Margin and EBIT of EUR 32mn.
3) Net Cash of EUR 50mn
4) ROCE (EBIT / tangible capital) was a whopping 43%
The Stock trading at an EV of 100mn and 3x EBIT? What a no-brainer...
Well things went different.
In 03/2013 they had to announce that they would have to delay their Annual Report due to increased scrutiny by auditor BDO. At the same time the CFO abruptly resigned. Always a good start.
A few month later in 07/2013 the full extent of the mess became clear. BDO refused to sign of the audit. The ad-hoc is a good read. They stated that there were "Prüfungshemmnisse" and clear sign that Powerland was likely cooking the books. Trade recievables went up and up. They also claimed that one south african customer paid USD 800k directly to Shunyuan Guo and not to the customer.
There were still some years as an living dead. In 2015 the company announced to delist the shares.
Today there are still Powerland and Sotto bag sold. So I guess the company is still active and alive. So shareholders are literally those bagholders...
This "emotional short" worked out nicely with an decline of -100%.
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