Techtronic rejects short-seller’s report as stock rebounds from US$4 billion sell-off in Hong Kong
- The stock jumped by as much as 8.1 per cent in early Friday trading, after sinking 19 per cent on Thursday
- Little-known Jehoshaphat Research is shorting the stock, alleging the Hong Kong company inflated its profits
The stock jumped by as much as 8.1 per cent to HK$81 on Friday, before closing at HK$78.25. The stock sank 19 per cent on Thursday, the biggest rout since a 22 per cent plunge in November 2008.
In a report published on Wednesday, Jehoshaphat Research questioned how Techtronic’s historical profit margin could be consistently higher than its peers in a cyclical industry, alleging that it could be achieved by accounting irregularities. The short seller said that Techtronic’s shares would slump by as much as 80 per cent.
“The company vigorously denies all the allegations made in the report as it contains multiple defamatory, biased, selective, inaccurate and incomplete statements,” Techtronic said in a stock exchange filing on Thursday. “The report contained misleading statements and unfounded allegations,” it added.
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Reports by short-sellers, with many targeting Chinese companies, usually cause outsized losses as traders dumped affected stocks indiscriminately. Sino-Forest went into bankruptcy after Carson Block’s Muddy Waters shorted the stock in 2011, alleging fake accounting.
This year, a report by short-seller Hindenburg Research alleging accounting manipulation shook the port-to-commodity empire of Gautam Adani, wiping out US$130 billion of market values from 10 listed companies controlled by the Indian billionaire.
Techtronic, which has a 1.2 per cent weighting on the Hang Seng Index, did not specifically address the allegations. The firm is in the midst of a news blackout, pending its financial results due on March 1. Net income may have increased 5.8 per cent in 2022, Bloomberg data shows.
The firm’s higher profit margin was supported by early investment in battery-powered cordless products, an agile product cycle and more expenditure in research and development, Hong Kong-based analysts including Karen Li at JPMorgan Chase said in a note to clients on Thursday.
“Techtronic’s superior gross profit margin expansion trend may have diverged from peers, but the sector has showed a convergence in operating profit margin, which has been trending up over the past one decade,” they wrote. “The sector’s overall improving operating profit margin trend is supported by corded-to-cordless transition as governments across the world are pressing ahead with decarbonisation and productivity push.”
JPMorgan has a HK$130 year-end price target for the stock. The consensus 12-month target stands at HK$116.93, based on forecasts by 13 analysts tracked by Bloomberg. Among 22 analysts with stock recommendations, 20 rated it a “buy” or its equivalent rating, one recommended a “hold” while one called it a “sell”.
