Prince Frog's market value plummets after accusations of fake sales data

Sales growth of 700 per cent from 2007 to last year 'too good to be true', says US short seller

PUBLISHED : Wednesday, 16 October, 2013, 3:37pm
UPDATED : Thursday, 17 October, 2013, 4:37am

Prince Frog International, the mainland childcare product maker that hired pop singer Kelly Chen as its advertising spokeswoman, saw more than a quarter of its market value disappear in two hours yesterday after US short seller Glaucus Research said its sales data was fake.

Headquartered in Zhangzhou, Fujian province, the company reported sales growth of 700 per cent from 2007 to last year, a period when the wider industry reported growth of about 100 per cent.

Glaucus said in a 44-page report yesterday that the data seemed "too good to be true".

One key allegation is that Prince Frog's actual sales were less than 25 per cent of the reported figures. For example, the company claimed to have sold 723 million yuan (HK$919 million) worth of children's moisturising lotions last year, but in fact it only sold 135 million yuan worth, the report said, citing Nielsen, which acquired independent data directly from retailers.

Prince Frog shares plummeted by as much as 26 per cent to HK$4.66 before trading was suspended yesterday morning.

Glaucus' price target for the company is 74 HK cents, with a "strong sell" rating.

The firm's actual sales last year should be no higher than 393 million yuan, much less than the stated 1.57 billion yuan, Glaucus said.

Foreign short sellers have in recent years targeted mainland Chinese companies listed in Hong Kong, Canada, the United States and Singapore, citing irregularities. The last target of Glaucus was Singapore-listed China Minzhong Food, which lost half of its market value after the research company accused it of releasing misleading sales data.

Glaucus said Prince Frog had also exaggerated its brand awareness.

In the company's listing prospectus, it claimed it was the No2 brand in lotions and body wash on the mainland, just behind the global babycare giant Johnson & Johnson.

However, according to an official survey conducted by the central government, Price Frog was not even in top eight brands in the baby-child bath and moisturising category.

Growing market share was one of the biggest selling points when the company came to Hong Kong in July 2011 to conduct its initial public offering, through which it raised 536 million yuan.

CCB International, the lead underwriter for Prince Frog's Hong Kong listing, gave the company an "outperform" rating less than a month ago, with a price target of HK$6.30.