Yurun shares plunge amid talk of Muddy Waters report
Updated: 2011-06-28 07:36
By Li Tao(HK Edition)
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Meat producer falls 19.8 percent as short sellers cash in
China Yurun Food Group Ltd said it is not aware of any reason for the 20 percent plunge in its share price during Monday's trading in Hong Kong.
However, Asia-focused investment bank Mirae Asset Securities said in a note released the same day that markets were betting the company would be the target of the next Muddy Waters report. The company also reiterated its "reduce" call on Yurun, partly on potential government intervention to stem pork price increases.
Muddy Water has denied the rumor, however. On Monday, Muddy Waters research director Carson Block told Reuters in an e-mail that the rumors weren't in the company's interests and that investors should be "wary" of them.
"We take pains to keep our research activities confidential, and a widespread market rumor would either represent a significant failure on our part, or is false," Block wrote.
Shares of Nanjing-based Yurun, one of the biggest meat producers in the country, took a heavy blow on Monday. It tumbled as much as 21 percent before closing down 19.8 percent at HK$20.60 amid worries about government moves to curb inflation.
Turnover in Yurun's shares surged on Monday with over 11 times its average 30-day volume changing hands. Short-selling was 17 percent of the turnover, making it the second-most shorted stock in value for the second successive trading session, rare for a small-cap.
Bearish bets have picked up steam this past week lifting the average daily shorted volume for June to 28.6 percent of turnover compared with about 9 percent for the Hong Kong market. And according to Bloomberg data, the ratio reached 55 percent during one trading day last week.
The company was "not aware of any reason for such decrease in the price and increase in the trading volume", Yurun said in a statement filed with the Hong Kong Stock Exchange on Monday evening, adding that its business operation remains sound.
Yurun said its revenue for the period to end-May posted significant growth from a year ago due to higher hog prices and a bigger slaughtering volume.
The gross profit margin for the period declined slightly year-on-year due mainly to the faster growth in the upstream slaughtering business, which has a lower gross profit margin compared with the downstream meat processing business, it noted.
Yurun is facing pressure from surging pork prices, which will erode the profit margins, mainland finance news portal JRJ.com reported on Monday, without identifying the source.
According to a statement on the website of the National Bureau of Statistics on June 24, the price of marbled pork meat on the mainland rose 4.3 percent to 28.20 yuan a kilogram in the 10 days from June 11 to June 20, compared with the previous 10 days.
However, the "inflation-eroding-profit" explanation did not convince Vivien Chan, an analyst with Sinopac Securities, as the price pressure on the mainland has been present for quite some time.
The company encountered a very similar situation in 2007 and 2008 when pork prices rose dramatically, but its shares had never traded like today, said Chan.
"Apparently fundamental problems could not explain the slump in Yurun's share price since last Friday," Chan added.
Since June 23, shares of Yurun decreased more than 26 percent in just three days. Local reports on Friday said some hedge funds from the US may have built short positions on the stock.
"Compared with the inflation pressure conjecture, the short-selling story seems to be more convincing to me at least, the data told me so," said one Hong Kong-based analyst, who declined to give a name.
Whenever a stock plummets in the markets, rumors of various versions will pop out and it may not be easy to identify the truth, said Linus Yip, a strategist with First Shanghai Securities.
"Yurun encountered some short selling activities when it was trading around HK$27 to HK$28 per share recently, which may exacerbate the volatility in its share price this time," said Yip.
Shares of Toronto-listed Sino-Forest Corp have plunged more than 85 percent this month, following accusations of fraud leveled by Hong Kong-based short-seller Carson Block and his firm Muddy Waters.
Shares of a number of overseas-listed mainland companies, especially those in North America, have plunged substantially recently after they've been accused of fraud in accounting practices by Muddy Waters.
Reuters contributed to this story.
litao@chinadailyhk.com
China Daily
(HK Edition 06/28/2011 page2)