Download ReportsJuly 16, 2015 - Glaucus Research issues a Rebuttal to China LNG (HK: 931). Maintains Strong Sell Rating July 13, 2015 - Glaucus Research is Short China LNG
These are interesting times for the Hong Kong stock market. On July 8, 2015, amid fears over plummeting PRC stocks and uncertainty over a Greek exit from the Euro, the Hang Seng Index recorded its largest single-day fall since November 2008. In such a volatile market environment, companies with unproven and speculative business models are most vulnerable to capital flight from skittish investors. We believe that we have identified a stock poised for collapse which, despite recent price depreciation, remains wildly overvalued.
China LNG Group Limited (“China LNG” or the “Company”), until recently known as a failed IT firm called Artel Solutions Group, is a Hong-Kong based business with minimal recurring revenue, limited assets and, inexplicably, an HKD 16.69 billion (US$ 2.15 billion) market capitalization.
Other than its name (recently changed), China LNG has virtually no connection to the natural gas industry or to mainland China. The Company’s LNG business has generated only HKD 131,750 in total revenues since inception. Its operating business remains insignificant. China LNG’s management team has no experience in the natural gas industry. Rather, China LNG’s only meaningful source of revenue in its last fiscal year was from the appreciation of bonds, issued by a related party, which it purchased at below market price from its Chairman.
Despite an unproven and deeply speculative business model, China LNG currently trades at 33.9x price/book value. Yet China LNG is essentially a startup without any proprietary intellectual property, a meaningful operating business or tangible experience in the industry. As such, we believe that it should be valued at or very close to book (like other energy companies), meaning we value the Company at HKD 0.08 per share, 95% below China LNG’s last traded price.