Zoomlion Drops Even After Countering Anonymous NoteSandi Liu and Simon Lee
Zoomlion Heavy Industry Science & Technology Co., China’s second-biggest construction-equipment maker, fell the most in eight months in Hong Kong trading after a newspaper said an anonymous letter questioned its sales.
Zoomlion plummeted 6.4 percent to HK$11.04 in Hong Kong, the biggest decline since May 7, 2012. Its Shenzhen-traded shares slid 3.2 percent to 8.9 yuan.
The company yesterday said it doesn’t exaggerate earnings and that allegations about its financial information are “false, groundless and misleading.” Construction-equipment makers face a glut in China, and Chinese companies’ finances are under heightened scrutiny after short seller Carson Block’s Los Angeles-based Muddy Waters LLC uncovered irregularities including those at now-bankrupt Sino-Forest Corp.
“The bigger thing is no one really knows who this letter is from,” said Vik Chopra, analyst at Sun Hung Kai Financial Research, who recommends selling the shares. “People may be thinking the stock has gone up quite a bit for a while -- let’s take profit, sit back and see how the whole thing plays out.”
The Hong Kong-traded stock’s 14-day relative strength index, measuring how rapidly prices have advanced or dropped during a time period, was at 63 yesterday and hit 74 three weeks ago. Readings above 70 indicate a price may be poised to fall, according to some traders.
Zoomlion statements to the Shenzhen and Hong Kong stock exchanges were in response to the report about the letter in Ming Pao Daily, which said the note was also sent to the company and Hong Kong’s Securities and Futures Commission.
The maker of cranes and concrete pumps said its sales follow Chinese accounting rules and that its financial report for the six months ended June was prepared in compliance with international accounting standards. Zoomlion, based in Changsha, China, had its stock halted from trading yesterday.
“The market will not see the full-year audited report until March, so meanwhile, there will be concerns on whether the SFC would launch an investigation on the back of those allegations,” said Saiyi He, analyst at Macquarie Capital Securities.
Construction equipment makers including Komatsu Ltd. and Caterpillar Inc. have built enough capacity in China, the industry’s biggest market, to satisfy global demand twice over while sales in the country are falling, according to Off-Highway Research.
Capacity in China is almost 600,000 excavators a year while the worldwide market is about 300,000, the London-based researcher said. Inventories of crawler excavators in China are about 100,000, almost equal to projected 2012 domestic sales, Off-Highway Research’s Managing Director David C.A. Phillips said in an interview last month.
Phillips forecast annual demand growth in China slowing to as little as 5 percent for the next 3 to 5 years, after growth of as high as 25 percent for some types of equipment in the decade through mid-2011.
Yields on Zoomlion’s 6.125 percent U.S. dollar-denominated debt due in 2022 rose 42 basis points to 6.22 percent yesterday, before falling to 6.12 percent at 5:18 p.m. today, according to data compiled by Bloomberg. Yields on its 6.875 percent notes due in 2017 rose to 5.68 percent yesterday from 4.89 percent, before declining to 5.35 percent today.
Ernest Kong, a spokesman for the Securities and Futures Commission, declined to comment yesterday when asked if the agency had received a letter regarding Zoomlion, citing the regulator’s policy of not commenting on individual cases.
Sany Heavy Industry Co. is China’s biggest machinery maker. Its Shanghai-traded stock fell 1 percent to 9.98 yuan.
Zoomlion’s Hong Kong-listed shares rose 37 percent last year, compared with the 23 percent gain in the benchmark Hang Seng Index. Its Shenzhen-listed shares climbed 20 percent in 2012.