New | China's Boer Power sees share price tumble amid reports of inflated earnings

Shares of Boer Power Holdings on Tuesday plunged by up to a quarter after mainland media reports accused the electrical equipment firm of inflating its earnings by almost five times.

The net profit of the Jiangsu-based seller of electrical distribution equipment and software could not have exceeded 80 million yuan last year, compared to the 458.9 million yuan it reported, said a report by the influential mainland business magazine in a July 31 report.

Boer's shares fell nearly 6 per cent in the two trading days after that report, before plunging on Tuesday morning. After dropping 24.5 per cent, the stock recovered to close 7.1 per cent lower at HK$13.28 - still 92 per cent higher than at the start of the year.

The company refuted the allegations in an analyst conference call for a closed group. According to a person who attended the conference call, the management said the report was "false" and "far from reality", adding that the firm had defied difficult economic conditions and outperformed its rivals through its "unique" business model.

According to its financial results for the year's first six months, Boer's net profit surged 2.5-fold in the past four years while sales have more than doubled.

The report alleged that Boer's gross profit margins - exceeding 35 per cent since its Hong Kong listing in late 2010 - was "majorly inflated".

It cited Shenzhen-listed and Guangdong-based rival Zongyeda Electric's 18 per cent gross margin for the same business since 2007 as reason for believing Boer's margins were doubtful.