Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Actress Zhang Ziyi in China Feihe promotional material. Photo:

Chinese baby milk maker endorsed by film star Zhang Ziyi suspends shares after just seven days’ trading as report urges investors to steer clear

  • A report by GMT Research advised investors to avoid the stock because the company hadn’t paid a dividend in the five years before IPO
  • China Feihe rejected the report’s findings as ‘groundless’ and said it plans to distribute to shareholders at least 30 per cent of its net profit each year after the listing

China Feihe, the mainland’s largest domestic maker of baby milk formula, suspended trading of its shares before the market opened on Friday, a day after an independent research firm urged investors to avoid the stock as it may become the target of short-sellers.

A report by Hong Kong-based GMT Research on Thursday warned investors that the company hadn’t paid a dividend in the five years prior to IPO despite being highly profitable, something it described as a “fraud-like trait”.

China Feihe, which had only been trading in the Hong Kong stock market for seven days, refuted the claims in a statement uploaded to the Hong Kong stock exchange on Friday evening.

“[T]he allegations against the company in the report are groundless or untrue statements,” it said.

The company did not distribute any dividends for several years “in order to facilitate the group’s business development and fund management”, it said.

China Feihe plans to distribute to shareholders at least 30 per cent of its net profit each year after the listing, according to the statement. Furthermore, the sponsors of its IPO as well as independent auditors Ernst & Young had conducted independent due diligence on the group’s financial and business conditions, it said.

China Feihe priced its IPO at HK$7.5 per share, the lower end of an indicative range, to raise HK$856 million, making it the seventh-largest offering in Hong Kong this year. The company started trading on the Hong Kong exchange on November 13. Its share price fell 16 per cent to close at HK$6.28 on Thursday.

China Feihe aims to raise US$1.14 billion in Hong Kong IPO

The GMT report, which was aimed at subscribers only, recommended investors “avoid” the stock as it may be a target of short-sellers in the future. A copy of the report, authored by analyst Nigel Stevenson, was obtained by the Post.

Beijing-based China Feihe, whose products are endorsed by the actress Zhang Ziyi, who starred in Crouching Tiger, Hidden Dragon, has strong revenue and profit but had not paid any dividends to its shareholders during the five years before its flotation. Instead, the company used part of its IPO proceeds to pay a dividend to its pre-IPO shareholders.

“Unfortunately, high levels of profitability combined with a lack of dividends are fraud-like traits,” Stevenson said in the report.

“There is a risk Feihe is more fake than fabulous. It is not currently possible to short the shares, but Feihe is an obvious future target for short-sellers. Investors should be cautious and verify Feihe’s market position before investing; otherwise, we recommend they avoid the stock.”

China Feihe told Chinese media it rejected the report’s allegations.

Kasen plunges 90 per cent in Hong Kong trading after report by short-seller

GMT Research is an accounting research firm based in Hong Kong. It is regulated by the Securities and Futures Commission (SFC) and has held a licence to give financial advice since 2014.

“We make our money from subscribers who pay an annual fee and are all institutional investors. We are not a short-seller and do not take positions in any of the companies we write about,” Steveson said in a in a written reply to the Post.

“Specifically, we do not have any position in China Feihe’s shares or any related securities.

“We stated in the report that it is not currently possible to short the shares. This was a factual statement: the stock has only just listed and is, therefore, not on the Hong Kong Exchange’s list of securities eligible for short selling.”