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Chimin Sang's  Instablog

Chimin Sang
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I don't typically talk about my long positions but I do talk about the stocks that I either don't like or do not like enough.
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  • Red Flags At China MediaExpress: Article Published After Dispute
    The original article on CCME's SAIC/SAT mismatch with SEC filings has been revised and accepted by Seeking Alpha editors as article.  

    Red Flags at China MediaExpress: Significantly Mismatched Filings in China, U.S.

    The revised article has no mentioning of SAT documents not because I do not trust its numbers but because it was not obtained through the formal channel and thus lacked proper seals. This is as close as we can get to the CCME SAT document to date. 

    Several points:
    1. I trust the source where I got the information from.
    2. The numbers match SAIC documents I obtained from a separate reliable source, Qingdao Inter-Credit. 
    3. The formats of the documents make me believe that they are not forged. A forger will need a lot of imagination and solid knowledge to have them in somewhat different formats. A typical forger will produce three forms with similar format and would never make that 2008 mistake. 
    4. The documents were pulled from the SAT electronic storage, and are thus without seals. There is no good explanation to me for the "2008" error, but my source did tell me the problem in the very beginning and we present the documents the way we obtained it regardless.
    Anyone who would like to base their decision on verifiable documents can safely choose to ignore the SAT documents. 

    Anyone who would like to blame the documents being forged should complain to SAT and SEC. 

    Anyone who would like to question the authenticity of SAIC reports should ask the company to provide them a copy, especially for those who are long CCME. Since you are the owner of this company, you have rights to know the truth of what you own. The management has hinted in their open letter that their SAIC report does not agree with the SEC report. It surprises me that you are not interested in knowing at least by what order of magnitude these two filings differ. 

    Anyone who could not get proper response from the company, would like to know the truth and is not short of cash should ask for their own copy of SAIC report from Qingdao Inter-Credit for $250. The contact information can be found here. The people there understand English and are very efficient in providing you with professional service.

    A complete and untranslated copy of SAIC report I purchased from Qingdao Inter-Credit is available FREE for you here

    Anyone who do not trust Qingdao Inter-Credit can charter a lawyer at Fuzhou to obtain the SAIC report. According to Chinese law, any lawyer can obtain the SAIC report from the local SAIC bureau with his/her proper license presented. 

    Anyone who do not want to follow any of my suggestion above can certainly hold your shares and bet your future with CCME. I am not against your decision but I take the opposite side of your bet. 

    Final words to the long of CCME who are seeking some truth

    The sites that you longs aggregate into, such as ccme-info.xanga or your investorshub site, are merely your own biased club. For instance, bullmarkets asked you to refer to them for facts and truth (link) and yet he is deleting information on the boards that questions the legitimacy of CCME. Here is the proof.
    Some messages have been removed. If anyone needs anything more removed, please let me know. 
    In particular, he removed posts of rantobranco, who started to believe things were wrong with CCME, sold out his shares and explicitly complained that the investorshub did not entertain opposite opinions which did not help one to make rational investment decisions which require very sane mind.

    Money is yours and decision is yours. You may want to believe that Deloitte and Starr International are not likely to make mistake, but shorts also know these as well as you do, and yet they are willing to make the bet against you!

    Feb 16 10:59 PM | Link | 8 Comments
  • Red Flags At China MediaExpress: Original SAIC Filing
    A complete untranslated copy of SAIC report of China MediaExpress (OTCPK:CCME), which I purchased from Qingdao Inter-Credit is available here.  
    Feb 16 12:43 PM | Link | 5 Comments
  • Red Flags At China MediaExpress: Significantly Mismatched Filings In China, U.S.
    My last article on China MediaExpress (OTCPK:CCME) discussed why the "official document" provided by the company lacked the reference number needed and thus was without administrative power. I also presented evidence that the company faked national level science awards for its patent.

    The rumor has it that the company’s SAIC (State Administration for Industry and Commerce of China) filings mismatched its SEC numbers, and in this article I will present to the readers the original documents.
     
    “Fa Piao” Is How the Chinese Government Fights Fraud

    Before I delve into the evidences, I would like to comment on the significance of SAIC report. Many Chinese small-cap investors have been convincing themselves that the mismatch does not matter. In order to dodge tax, companies in China are under-reporting their revenues and thus such mismatches are common. If we were to believe that the SEC numbers are truer than the SAIC numbers, we would have to believe that the Chinese government is losing a lot of tax.
     
    While tax dodging is rampant, the Chinese government is no patsy. What it came up is “Fa Piao” (invoice) system. While companies in the U.S. can issue their own invoices, companies in China have to issue invoices using anti-forgery invoices purchased from the government. A good description is here.
     
    For the advertising business, the government charges 3-5% of revenue as business tax for the service rendered. The government knows the revenue of a company from the invoices. If a company is able to under-report its revenue number, it will have to issue less amount of “Fa Piao” than it rendered service to its customers. However, if the customer receives no “Fa Piao” for the service it purchased, it will not be able to count the amount in its cost, and thus will have to pay 25% corporate income tax for the under-stated cost. The economic loss for not receiving “Fa Piao” motivates the business customers to ask for “Fa Piao”; thus the government would know the true revenue.
     
    The point here is that it is not easy for a company to significantly under-report its revenue to the Chinese government. It is as difficult (if not more so) for a U.S. company to under-report its revenue to the IRS.
     
    SAIC and SAT Numbers Do Not Match SEC Filings

    Below are the SAIC and SAT (State Administration of Taxation) filings I can gather for China MediaExpress. The original copy is available here and a translated copy here. The SAIC filing covers 2008 and 2009, including the balance sheet and the income statement. I purchased the SAIC filings from Qingdao Inter-Credit. The SAT filing covers 2008-10, which was obtained from within the SAT system. The SAIC and SAT filings match very well, but they represent only a fraction of the
    SEC numbers. 


    While China MediaExpress claimed $63m revenue to the SEC for 2008, it only reported $0.3m to the Chinese authorities. The difference is 210-fold. While it claimed $96m revenue to the SEC for 2009, it only reported $0.8m to the Chinese authorities. The difference this time is 120-fold. While it is estimated to reach $214m revenue to the SEC for 2010, it only reported $0.6m to the Chinese tax authority; that difference is 356-fold.
     
    China MediaExpress told the SEC that it paid $8.9m to the Chinese tax authority; the China source check showed $200. The difference is 44,500-fold. It reported it paid $15m to the Chinese tax authority in 2009, but the Chinese document shows that it did not pay any. No ratio can be calculated due to the denominator being zero. For 2010, Global Hunter estimated that it would report $35.6m in tax, but the SAT number we have shows zero.
     
    What China MediaExpress Has to Say About the Mismatch

    When I found the disagreement between the SAIC numbers and SEC numbers, it was a shock. I emailed Jacky Lam, the CFO, on why the difference existed. Lam gave me a one-line answer:
    However, the quick answer to your question is that Fenzhong is not the only sub. in our group.
    I later pushed Lam several times for further explanation on what other subs exist in the group, but my questions fell upon deaf ears.
     
    The latest 10-K for the company clearly indicates that Fujian Fenzhong is the only sub of China MediaExpress. The organization graph can be found here.
    Feb 11 4:24 AM | Link | 14 Comments
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