China Yurun Food Group (1068), which makes pork products, on June 27 responded to rumours by hosting an unscheduled analysts' briefing. The company was addressing talk that the short-selling specialist Muddy Waters was about to issue negative research on the firm. The company's share price fell 20 per cent on June 27, largely because of those rumours, and short-selling volumes spiked.
Jacqueline Ko (Kim Eng) maintains a buy rating on the firm. 'I don't think many analysts will change their views because of the reports. The share price correction is overdone and it is not that likely that Muddy Waters will publish a report on Yurun,' says Ko.
She reflects a majority view. Only one analyst, at DBS Vickers, is known to have downgraded Yurun last week, from 'buy' to 'hold'.
While the specifics of the Muddy Waters report are unknown (or, indeed, whether a report exists), Yurun is the subject of speculation. The assumption is that Yurun relies too much on government subsidies.
Ko says that as management did not know what was alleged by Muddy Waters, it was difficult to rebut criticisms. Yurun reaffirmed previous market guidance.
Selina Sia (Mirae Asset) adds to the view that there is nothing on which to comment. She also maintained a 'reduce' rating on the stock. 'I have not changed my rating since November 15, 2010,' says Sia. 'Even if they [management] wanted to talk, there is nothing they can say [at the analyst presentation] ... Their data points were very much in line with previous guidance.'
