Prince Frog Plummets on Short Seller’s Report: Hong Kong Mover

Prince Frog Plummets on Short Seller’s Report: Hong Kong Mover

Prince Frog International Holdings Ltd. (1259) plunged 22 percent as it traded in Hong Kong for the first time since allegations from short-seller Glaucus Research Group dropped the stock by a record last month. The shares of the Chinese maker of children’s care products such as bath soap and lotion fell HK$1 to HK$3.63, the lowest in eight months.Some Chinese businesses that have drawn attention from short sellers have seen their market value eroded. In October, Carson Block’s Muddy Waters Research LLC drove down the stock of NQ Mobile Inc. (NQ), saying it inflated sales. Glaucus on Oct. 16 initiated coverage of Prince Frog at a strong sell, saying tax records indicate the company’s net income was less than reported.

“It took Prince Frog over one month to respond to the most basic questions about its business,” Glaucus said on its Twitter feed today.

Prince Frog has started buying back shares, Chairman Li Zhenhui said in an investor conference call today, adding he will also repurchase some shares. The stock had slumped 26 percent on Oct. 16, the biggest decline since its listing in July 2011, before being halted.

“It would take time to re-establish investors’ confidence,” Howard Wong, a Hong Kong-based analyst at Sunwah Kingsway, wrote in a note to clients today. The stock “may continue to suffer some short-term selling pressure,” he said.

Nielsen Data

Prince Frog’s reported sales figures didn’t match independent data available from Nielsen, Glaucus said in its Oct. 16 report. The total retail sales of Prince Frog’s children’s moisturizing lotion products in 2012 was 135 million yuan according to Nielsen, or less than 25 percent of reported figures, the short seller said in its report.

“The company believes that the claims made in the report to be without merit and not supported by evidence,” said Prince Frog, which is based in Zhangzhou, a city in the southern Chinese province of Fujian. An audit committee “unanimously agreed that the allegations are misconstrued, erroneous and inappropriate,” it said.

Nielsen hasn’t authorized Glaucus to use its data, the market research firm said in an e-mail today, responding to questions on the short-seller’s report.

Glaucus also said the Chinese government’s tax records indicate Prince Frog’s net income is “a fraction of reported figures.”

Prince Frog today said its rapid sales growth was “highly plausible and achievable” based on “solid” fundamentals.

Soren Aandahl, Director of Research at Glaucus, referred queries to the company’s Twitter feed.


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 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 outlets such as those operated by Wal-Mart Stores Inc. and Carrefour SA.

Separately, NQ Mobile, a Chinese mobile-services provider with headquarters in Beijing and Dallas, has battled the fraud allegations from Muddy Waters. It held a conference call to rebut the criticism within a day and transferred about $103 million in cash to an account at Standard Chartered Bank to demonstrate its reserves.

NQ Mobile dropped 47 percent on Oct. 24, the day Muddy Waters initiated coverage, and the stock’s last price of $13.92 is 39 percent lower than the Oct. 23 closing price.

Vegetable processor China Minzhong Food Corp. 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.

To contact the reporter on this story: Vinicy Chan in Hong Kong at


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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