After my latest article on China Valves Technology (OTC:CVVT), many questions have been raised regarding the company’s corporate structure. Fearful investors wonder whether CVVT truly owns its claimed subsidiaries. In fact, many believe that such a big profitable company cannot be trading at this low valuation and market cap. I have thus decided to perform online due diligence to confirm the relationship between different subsidiaries and CVVT.
One encouraging finding was the presence of Chinese websites for the claimed CVVT subsidiaries. Those web pages don’t seem to be directed to US investors, but instead to customers and business partners in China. That’s why the English translation was often incomplete or outdated. My strategy was to collect evidence of a relationship between the subsidiaries’ Chinese websites and CVVT.
- Zheng Zhou City Zhengdie Valves Co. (ZD Valve) was established in 2001 as a high-tech enterprise in Henan Province. The company specializes in the manufacture of middle and low-pressure butterfly valves used in the water treatment industry. ZD valve is a Gold Supplier for Alibaba.com (OTC:ALBCF), which means completing an authentication and verification process by a reputable third-party security service provider. The company website introduction affirms that it’s one of the CVVT six subsidiaries.
- Kaifeng High-Pressure Valve Corporation (KF Valve) was founded in 1959 in the Henan Province. It used to be a large scale state-owned valve factory in China. The company is a supplier of high pressure and temperature valves used in fossil power, nuclear power and other industries. The "KF" brand was labeled as "the most competitive brand’’ by the Chinese Ministry of Commerce. The company website contact email is email@example.com, which belongs to the CVVT English domain.
- Shanghai Pudong Hanwei Valve (Hanwei Valve) was established in 1992 and is located in Shanghai. Hanwei Valve is one of the two suppliers who can provide 24-way rotary valves in the world. The Hanwei fully welded pipeline ball valve is well-known in the China oil and gas industry. The company also entered the market in the Middle East, Southeast Asia and Central Asia. In April 2010, the company was acquired by CVVT. In a Hanwei Valve press release dated March 2011, the contact information mentioned is firstname.lastname@example.org and email@example.com. Those emails belong to the CVVT Chinese domain.
- Changsha Valve Works was set up in 1958 and is located in the Hunan Province. The company is best known for its large diameter butterfly valves used in hydropower and water treatment industries. It was acquired by Watts Water (WTS) in 2005. At that time, Patrick S. O'Keefe, Chief Executive Officer of WTS commented "Changsha Valve Works is one of the leading companies addressing the water works and water distribution markets in China. It comes to us with a well-known brand name and a significant level of technical expertise”. The company was then known as Watts (Changsha) Valve (Link). In January 2010, the company was sold by WTS (Reuter’s source) and was acquired by CVVT using Able Delight Investment Limited as a transitory vehicle. The company was then known as China Valves Technology (Changsha) Valve. At the bottom of the company website, we can find several links to other CVVT subsidiaries.
- Yangzhou Rock Valve Lock Technology was founded in 2006 and is based in the Jiangsu Province. Yangzhou Rock is the only valve mechanical interlock manufacturer in China. Its products are used in the chemical and petrochemical industries. In August 2009, the company was acquired by CVVT. On the company website homepage, one can find links to other CVVT subsidiaries as well as several contact emails using the cvvt.cc domain.
- Taizhou Taide Valve is also located in the Jiangsu province. It was acquired by CVVT in April 2009. Its product line includes gate valves and butterfly valves used in the water treatment industry. I could not find a working company website, although some details can be found on the Chinese version of Alibaba.com.
It’s important to note that the above mentioned six firms are the “manufacturing” subsidiaries of CVVT. This is to be distinguished from the holding companies that belong to CVVT. The following figure in form 10-A (CVVT annual report, 2010) explains this corporate structure:
click to enlarge
(1) Shanghai Hanhuang Valve Co., Ltd. and Hong Kong Hanxi Investment Co., Ltd were former shareholders of Hanwei Valve, both of which were acquired during the acquisition of Hanwei Valve by CVVT and are shell companies without any active operations.
During my investigation, I have found out that CVVT has great exposure to the Chinese media. It would be impossible to list several thousands of important Chinese search results for 中国阀门技术 (China Valves Technology in Chinese) plus the CVVT symbol. However, this is a “translated” link from Baidu Baike (Baidu Encyclopedia) which provides reference details about CVVT manufacturing facilities. Another interesting finding is this Chinese comprehensive analysis of CVVT provided by Guoyuan Securities (Hong Kong) Ltd.
From the English literature, this PDF file from Yangzhou Rock Valve website is probably one of the best references about CVVT corporate structure and business.
Finally, I have performed this extensive online work to “see what is behind the scenes”. I feel very comfortable that CVVT is a reputable company with well-known subsidiaries. Indeed, accusing such a company of being “fake” is clearly baseless, ignores the facts and is simply nonsense.
Disclosure: I am long OTC:CVVT.