Shares of SMC, Nidec tumble after short sellers question accounting, valuation (updated)

SMC

13/12/2016 06:23

(Adds fund manager's comments, Nidec's comment) 
    By Ayai Tomisawa 
    TOKYO, Dec 13 (Reuters) - Shares of Japanese factory 
equipment maker SMC Corp  6273.T  and electric motor maker Nidec 
Corp  6594.T  tumbled on Tuesday after two short-selling 
research firms questioned the stocks' valuations and said they 
were set to slide.  
    SMC dived as much as 11 percent to a more than four-month 
low of 26,355 yen in morning trade after Well Investments 
Research, registered in the British Virgin Islands, said that 
SMC "has 'fake' cash and dramatically overvalued inventory on 
its balance sheet as a result of inflated margins if not other 
undisclosed losses." [http://www.wellinvestmentsresearch.com/en/smc1/ 
] 
    Well Investments also said that it rates the stock a strong 
sell with maximum downside of 85 percent. 
    SMC, which has a 2 trillion market value, refuted the report 
and released a statement saying that it follows an appropriate 
accounting method and has a completely different understanding 
from the short-seller's view.  urn:newsml:reuters.com:*:nTSXM6f5d1 
    Two fund managers - typical long term investors - told 
Reuters the short sellers' reports did not undermine their own 
research carried out before investment. 
    "We know that SMC keeps more inventory than an average 
manufacturer because it caters to the sudden needs of equipment 
replacement at factories as they can't stop operating just 
because their equipment is broken," said one of the fund 
managers who owns the stock. 
     "We've done interviews with SMC as well as its competitors 
overseas, and there is nothing that contradicts what their 
competitors say about SMC's strong position in the industry." 
    Nidec, which has a 3 trillion market value, fell as much as 
5.9 percent to 9,301 yen, near a two-month low, after U.S.-based 
Muddy Waters LLC criticised that the company, saying it has 
missed short-, medium- and long-term earnings projections. [http://www.muddywatersresearch.com/research/6594-jp/mw-is-short-nidec/ 
] 
    Nidec said in a statement that it has had transparent 
earnings and accounting procedures and disagrees with Muddy 
Waters' assertions.  urn:newsml:reuters.com:*:nTSXM6f635 
    The criticisms of SMC and Nidec come as short sellers, who 
made their names and fortunes wiping billions off Chinese and 
Southeast Asian companies, have been setting their sights on 
Japan in recent months after a series of accounting scandals 
amplified concerns about weak corporate governance there. 
 urn:newsml:reuters.com:*:nL3N1AX2M7    
    In late July, Glaucus Research Group took aim at Itochu 
Corp's  8001.T  accounting practices, triggering a slide in its 
shares and sparking angry denials from the Japanese trading 
house. In August, U.S.-based short-selling firm Citron Research 
attacked Cyberdyne Inc  7779.T  in its report saying that its 
stock price is set to fall sharply.  urn:newsml:reuters.com:*:nL3N1AX2RK  urn:newsml:reuters.com:*:nL4N1AP13D 
    Well Investments also criticized trading house Marubeni Corp 
 8002.T  earlier this year. 
 
 (Reporting by Ayai Tomisawa; Editing by Shri Navaratnam) 
 ((ayai.tomisawa@thomsonreuters.com; 81-3-6441-1875; Reuters 
Messaging: ayai.tomisawa.thomsonreuters.com@reuters.net)) 
 
Keywords: JAPAN SMC/SHORTSELLER