Prince Frog International Holdings Ltd. plunged by the most on record after short-seller Glaucus Research Group questioned the company’s sales and branded the baby-care products maker a “strong sell.”
Prince Frog shares were halted in Hong Kong trading today after dropping as much as 26 percent to HK$4.66, headed for the biggest decline since its July 2011 listing.
The Chinese government’s tax records indicate Prince Frog’s net income is “a fraction of reported figures,” Glaucus said while initiating coverage of the shares at “strong sell.” Queenie Hung from Wonderful Sky Financial Group, Prince Frog’s public relations firm, declined to immediately comment and said the company will issue a statement to the Hong Kong Stock Exchange later today.
The allegations reflect the scrutiny that publicly traded Chinese businesses are drawing from short-sellers. Vegetable processor China Minzhong tumbled 48 percent, the most on record, in less than two hours on Aug. 26 after Glaucus questioned the company’s accounts in a report. Minzhong said it “strongly” denied the allegations.
Glaucus’s statements on its performance were made with the sole objective of driving down the company’s share price and gaining from the decline, Minzhong said in a September statement. Its shares have more than doubled since its Aug. 26 close, recovering from its decline after PT Indofood Sukses Makmur, controlled by Indonesian billionaire Anthoni Salim’s investment company, offered S$488 million ($393 million) cash for the rest Minzhong, which it already had a stake in.
Besides Minzhong Food, China Metal Recycling Holdings Ltd. and China Medical Technologies Inc. have each separately been the focus of reports by Glaucus. Liquidators were appointed to China Metal in July and China Medical filed for Chapter 15 foreign-firm bankruptcy protection in New York last year.
Glaucus, which has an office in Newport Beach, California, was founded by Matthew Wiechert, who has a background in investment banking, to probe companies that appear “too good to be true,” according to its website.
Prince Frog, based in southern China’s Fujian province, sells skin care, bath products, oral care items, and diapers for children, according to its annual report. It reported a 31 percent rise in profit to 241.1 million yuan ($40 million) last year. Marketing investments and advertising with popular Hong Kong singer Kelly Chen boosted awareness of its brand, it said in the annual report. It also cited sales gains from selling on Chinese e-commerce sites such as T-Mall and expanding in hypermarkets such as Wal-Mart Stores Inc. and Carrefour SA.
Prince Frog posted revenue of 1.6 billion yuan last year, double the 838 million yuan it reported in 2010, according to data compiled by Bloomberg. As of yesterday’s close, its stock had more than doubled from its IPO price of HK$2.60 a share.
Ten of the 11 analysts covering Prince Frog recommend investors buy the stock, while one rates the stock a hold, Bloomberg data show. The stock is still up 43 percent so far this year.