Chinese sportswear firms reject allegations of improper accounting (updated)

China Dongxiang (Group) Co

15/06/2018 08:28

* Shares of sportswear companies fall after research report
    * Companies say allegations "groundless"
    * Investors still confident in companies -analyst

 (Adds analyst comment, updates shares)
    HONG KONG, June 15 (Reuters) - ANTA Sports Products Ltd
 2020.HK  and three other Chinese sportswear firms have hit back
at a research report that has questioned their accounting
practices, saying the allegations were groundless.
    ANTA shares have lost around 5 percent since a June 12
report by Hong Kong-based GMT Research, issued to its
subscribers, said ANTA's operating margins were so high that it
was either the world's best-run sportswear firm or its
accounting practices were questionable. 
    A copy of the report was obtained by Reuters.
    GMT, an Asia-focused accounting research firm, says on its
website that its goal is to use financial statements to judge
whether a company is overstating or understating its profits
through the exploitation of accounting standards. 
    ANTA, China's biggest sportswear firm by market value, said
the report contained certain factual errors, misleading
statements and unfounded speculation that may lead to unusual
moves in its stock.
    "The board vigorously denies the speculations contained in
the report and considers them to be inaccurate and misleading,"
Chairman Ding Shizhong said in a statement late on Thursday,
adding the company reserved the right to take legal action.
    Xtep International Holdings Ltd  1368.HK  and 361 Degrees
International Ltd  1361.HK , whose operating margins were also
questioned, also issued statements saying the GMT report was
incorrect and misleading.
    "The board considers that the report contained certain
factual errors, misleading statements and unfounded
speculations," Xtep Chairman Ding Shui Po said. 
    "No accounting fraud has ever been committed."
    Xtep shares have lost 2.5 percent since the report, while
361 Degrees has eased 1.2 percent.
    GMT also questioned accounting practices at China Dongxiang
(Group) Co Ltd  3818.HK . The company said in a statement that
the report contained unfounded allegations regarding its
financial performance, in particular regarding its inventory
management and cash flow.
    Dongxiang's stock has lost 1.3 percent since the report.
    Analysts, however, do not expect the GMT report to pressure
sportswear stocks in the longer term. 
    "Investors were digesting the news, but the impact was not
as bad as expected, suggesting many investors still believe in
the companies' earnings stories and profit margin," said Linus
Yip, chief strategist at First Shanghai Securities. 

 (Reporting by Donny Kwok, Anne Marie Roantree and Jennifer
Hughes; Editing by Edwina Gibbs and Himani Sarkar)
 ((donny.kwok@thomsonreuters.com; +852 2843 6470; Reuters
Messaging: donny.kwok.reuters.com@reuters.net))