We initiate coverage on Tibet Water Resources Ltd (HKG.1115).
Our main findings include:
– Tibet Water is the most profitable brewer in the world, but we struggled to find its beer products in Tibet although the region represents 98% of its sales in the beer segment.
– The brewery is mainly an OEM that works for another brand, Lhasa beer. This makes its sky-high margin even more inexplicable.
– Financial numbers between Tibet Water and Lhasa Beer do not make sense.
– The water business is also very suspicious. For example, we believe the advertising cost is substantially understated.
– Although the Company is supposed to generate ample cash flow and have comfortable liquidity, it maintains a high level of debt.
– The main shareholder has been steadily reducing its stake in Tibet Water.
– Serious doubts over Tibet Water’s accounting and the high probability of fraud make this company uninvestible. We call for HKEx to take immediate disciplinary action
The report can be found here in English and Chinese.