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  • Why The Market Is Missing The Point On Ambow Education, A Strong Buy [View article]
    The programming was based on one student's experience, mainly. The company denies overstating its results and hiring teachers who are not pedigreed as advertised, so it will indeed be interesting to see how this unfolds.

    CCTV has a history of doing exposes on companies and I cannot remember anytime when the temporary drop in share price did not recover. Baidu was the latest company to be attacked by CCTV: http://bit.ly/TYItm4
    Sep 6, 2012. 08:53 AM | Likes Like |Link to Comment
  • Ctrip Q2 Recap: Staying On The Sidelines Due To Margin Deterioration And Intense Competition [View article]
    I spoke to the management teams of CTRP, LONG, and BIDU/Qunar. I suppose they all could have been lying to me... but I choose to believe them. Note that I did not say they all are going out of business, but a lot of them are. I am referring to small OTAs (the ones without corporate support like Mangocity, which is hurting badly but has a parent that is wiling to keep it alive) too but mainly wholesalers and mom/pop travel agents, some of which use the Qunar "website in a box" booking page interface. The really little guys whose only source of competitiveness is a small inventory of low-priced corporate rates or group rate inventory that is sold piecemeal or side deals with their hotel manager buddy, etc. Testament to this is the fact that a surprisingly high percentage of very cheap inventory that is shown on Qunar leads to inventory that no longer exists or is not honored (CTRP and LONG management teams estimate that this is in the high single to low double digits for 3-star hotels and under).
    Aug 22, 2012. 07:49 AM | Likes Like |Link to Comment
  • Ctrip Q2 Recap: Staying On The Sidelines Due To Margin Deterioration And Intense Competition [View article]
    I speak Mandarin and believe double-digit growth is not only sustainable but extremely likely. I also don't agree that Mandarin skills are required to invest in CTRP. While it's not possible to follow local news (e.g. microblogs of folks on the management teams, etc.) unless you can read Chinese, it's no hard to deduce that for CTRP to fall to single-digit growth would take not only sudden and enormous share loss, but also a massive contraction in Chinese online travel consumption. With the majority of long-term government stimulus squarely focused on consumption, it takes a serious China bear to believe that will happen.

    CTRP has roughly half the share of all online travel booked in China. Not only is the market growing at double-digits, the players who gained share in the past 18 months did it primarily through price (reduction). A lot of these businesses are ankle-biters and tweeners who do not have the scale or balance sheet required to sustain a price war, and a lot of them are already going out of business.

    While it's not easy to call the bottom on margins for CTRP, it's also not that hard to see the writing on the wall as other competitors such as LONG might have to operate at negative margins to sustain the price war.
    Aug 19, 2012. 08:41 PM | Likes Like |Link to Comment
  • Why The Market Is Missing The Point On Ambow Education, A Strong Buy [View article]
    No new news on AMBO, only very brief mentions alongside various other companies in the space. The stock ended up on the day, it's totally troughed out. Once the second quarter earnings are released in August and the $10 million of share buybacks is put to work when the company's insider trading window opens, the shorts who drove the stock from $4 to current prices are going to feel the mother of all squeezes. $10 million represents like 25-30x the average daily volume of this illiquid stock, so you do the math on what will happen then, excluding the 1-2 million shares that were likely shorted from $4 downward.
    Jul 19, 2012. 01:28 AM | Likes Like |Link to Comment
  • Ambow Education: 50% Plunge = 100% Opportunity [View article]
    No new news on AMBO, only very brief mentions alongside various other companies in the space. There won't be much sympathy damage, if any. The stock ended up on the day, it's totally troughed out. Once the second quarter earnings are released in August and the $10 million of share buybacks is put to work when the company's insider trading window opens, the shorts who drove the stock from $4 to current prices are going to feel the mother of all squeezes. $10 million represents like 25-30x the average daily volume of this illiquid stock, so you do the math on what will happen then, excluding the 1-2 million shares that were likely shorted from $4 downward.
    Jul 19, 2012. 01:25 AM | Likes Like |Link to Comment
  • Ambow Education: 50% Plunge = 100% Opportunity [View article]
    Trhodes3, I am the author of the article you referenced. Walk though it in detail and you will see that the company actually had a pretty good quarter.

    Regarding your question about insider buying, you are correct. Insiders who are privy to material non-public information (MNPI) must buy shares in the open market under SEC Rule 10b51. Insider trading windows are opened for a limited amount of time upon release of MNPI to the public. Typically, this happens two business days after such release of information. However, if these buyers continue to possess MNPI beyond the disclosed information, they cannot buy. Historically, Baring has always bought in their legally allowed trading window.

    If they do not buy this time, then one must wonder why. And to me at least, the answer is obvious: they may be trying to buy the entire company to take it private. Joe has alluded to the possibility of this many times and I mentioned it in my original article as well. Again, over 40% of the shares are owned by PE already. The CEO owns another 10% or so. The public float is less than 25% of the outstanding shares. And yet the public market has caused the stock to lose 75% of peak value. The PE investors all bought in at prices from $5.20 (over three years ago now) to over $8 (Baring, just a few months ago). The CEO herself bought at over $8 a few months ago alongside Baring. What would you do if you were the PE guys? The answer is obvious.

    Here is more information to support your "simple logic," as you call it:
    1. Not only is PWC their auditor, they've audited the company thrice: pre-IPO audit, FY2010 audit, FY2011 audit.
    2. Further, Baring PE also audited the company through their Big 4 advisor.
    3. Further, the World Bank's IFC division not only audited the company for several months before issuing $50M of credit, they issued 40% of that credit in the form of a convertible bond with a strike price of $10!!! That means that they wanted the option to go from the top of the capital structure (senior debt) to the very bottom (common stock) at $10 because they saw upside beyond $10.
    4. Not only is the CEO an American citizen, so is the #2 officer, Jenny Zhan, who has been going around the world (literally, US, Asia, Middle East) trying to tell the AMBO story to investors and verifying the facts that people seem to be missing.

    The evidence points to the company being legitimate.

    Be patient with this stock, ignore the noise, continue your fundamental fact-based research, and let the forced selling subside. You will be rewarded.
    Jul 11, 2012. 09:02 AM | Likes Like |Link to Comment
  • Why The Market Is Missing The Point On Ambow Education, A Strong Buy [View article]
    Rather than spouting off about how clueless I am, how about contributing substantive, fact-based commentary? You sound like a petulant, angry child.
    Jul 11, 2012. 08:06 AM | 1 Like Like |Link to Comment
  • Why The Market Is Missing The Point On Ambow Education, A Strong Buy [View article]
    Sure. Actually, I should've written about this in my article, so I appreciate the good catch and the intelligent questions. Not only do I have thoughts on them, I know the answers, so here they are.

    To your first question: It is not abnormal for companies that have seller financing terms for channel partners on products that have physical inventory (and thus have liquidation value and can be tracked) to offer what are effectively credit extensions if they see opportunity. Why does a company issue seller financing to begin with? Answer: to increase the throughput of their distribution channel. If by offering your channel partners some liquidity, the volume goes up (say) 25% and you believe they are creditworthy, why wouldn't you offer them 90 days? Now what if offering an extra few weeks will allow them to sell more? Think about who these distributors are. They are generally mom 'n pop operations, though not always, that have a certain fixed cost base to cover and do not have ample resources or liquidity. There is an efficient frontier of sales volume, liquidity, and the need to collect cash that is different for each channel partner. Even though AMBO sells through distributors at net 90 terms, their cash collection period is a bit longer.

    This is why by the time of the announcement of the 20-F results, PWC had audited over 85% of deferred 2011 revenue as collected in cash, but not 100%. Since 2010, when distributors were first used (at scale anyway) the company has always collected from distributor partners.

    Since you only partially understand the distribution model, let me give you a full understanding. AMBO originally used e-commerce. So switching to e-commerce is not new; rather, it's going back to their original mode. They started using distributors around the time of their IPO when they first got into the CE segment for two reasons. First, it takes time and capital to build out training centers, recruit qualified instructors, and canvas locations with high student traffic to decide where to expand to. Distributors offer a low-risk alternative to this. As the company has built its cash balance through operating cash flow and succeeded in investing in stores with high rates of return, they have expanded more aggressively. Look at the historical store buildout I laid out in my article. The trend is obvious: they are increasingly selling more CE directly. Secondly, the Chinese government passed regulation that they required distributors of media for the education and healthcare (not relevant to AMBO) sectors to be licensed. The company expects to get its license this September. Due to these new accounting regulations, which force the company to understate performance, and the fact that selling directly is higher-margin, the company will switch to a model where students pay directly in cash upon purchase. Distributors will still be used, but over time, the company expects them to help more with payment products (e.g. study cards, similar in concept to the time cards that online gaming companies sell in physical stores for gamers to pay for online gaming time).

    Your second question is easy. Due to the new accounting regulations, for conservatism, the company only reported enrollments associated with booked revenue. If you look at the size of the deferred revenue and extrapolate the actual enrollments, the growth is very robust. Quoting from the Wells Fargo team's report (the MD who wrote the article was the head of education research at Wunderlich a few months ago before joining WF): "The demand environment for Ambow's services remains robust and seemingly unaffected by any slowdown in consumer spending. Tutoring enrollment expanded 23.5% to 221,000 and experienced ASP growth of 15.0%. Same-store sales for mature tutoring centers grew 8%, and was derived primarily from ASP increases as most mature centers are near capacity. Total enrollment growth in the career enhancement business, including enrollments related to revenue to be recognized in future quarters, was over 50%."
    Jul 11, 2012. 08:03 AM | Likes Like |Link to Comment
  • Ambow Education Holding: A High Growth, Deep Value Opportunity With Imminent Catalysts [View article]
    I am going to write an article tomorrow that does a deep dive on the financials. I maintain everything I said above. When you look at the earnings apples to apples (not one accounting standard versus another) and understand the ROIC of new training centers, if you are willing to put bias aside and look at numbers objectively, you'll come to a very different conclusion than what people are freaking out about.

    On an apples to apples basis, i.e. without the accounting change where all the cost for new distributor revenue is borne in 1Q12 but none of the revenue, the company actually beat both top and bottom line. But the more important analysis is what's going on with same-store-sales and the investment in new centers. Just a quick preview is that 15 new training centers were opened, I believe the most ever in one quarter, and it takes one year for the stores to be cash-flow break-even and about 1.5 years to achieve a full return in post-tax earnings of all invested capital (capex and opex). Simply, this is why AMBO's quarterly margins and earnings and cash flows are lumpy. When they expand stores aggressively, there is an investment period of a few quarters and then the stores, when fully operational, deliver very high cash flow. So what you'll see this year is that in the second half of 2012, the stores that were opened in the first half of 2011 will all be at full capacity generating full cash flow and the margin profile of the business will look very different than this quarter when lots of stores were opened. Anyway, look out for my new post on this and more....
    Jul 7, 2012. 10:51 AM | Likes Like |Link to Comment
  • Ambow Education Holding: A High Growth, Deep Value Opportunity With Imminent Catalysts [View article]
    For someone who continues to post so confidently, you sure are not willing to put your money where your mouth is. Hard to respect that. If you knew this stock was going to 0, no matter how long it took, you'd be short it. If anyone knew Olympus would end where it did, as you seem to know about AMBO, EDU, XRS, and all the other industry peers, you'd be short it, and even 50% borrow would not deter you. The truth is you suspect the stock will go up, which is why you cannot short it. But that's beside the point, so let's address this great public American education system you keep talking about.

    Education is a top 3 national crisis in the US. I think, after entitlements, it's by far the most concerning national issue. While the US has the best private education system in the world (Ivies, etc.), it has one of the least effective, and on a cost-adjusted basis, hands down the worst public education system in the world. It's a complete disaster. Here are some stats from a Milken Institute conference I attended that discussed education and the state of American human capital:

    1. US reading skills, % of 4th graders below "basic" levels in 2007 (probably worse now):
    D.C. 69%, LA 65%, Atlanta 63%, Chicago 60%, Houston 52%, NYC 47%... centrally located urban cities in total 45%, national total 38%.

    2. Math skills, test of 15 year-olds from 40 largest countries by GDP, 2003 (probably a lot worse now):
    Asian countries (where the crooked government makes the poor families pay for education, which is ineffectively delivered by private businesses, as you suggest) crushed the world, by far the best-ranking continent. Hong Kong and South Korea tied for #1, Japan came in at #3, and China was #7. The US, the top spender on public education, came in at #25 in a 3-way tie (so statistically, squarely in the bottom half). Even the Polish beat the Americans! (Joke, I have nothing against Polish.)

    3. Same test, for reading skills in native tongue:
    Both South Korea (#2) and China (#7) beat the US (#12).

    4. Same test, for basic science skills:
    South Korea, China, Japan all top 3. US, bottom half (multiway tie for #20).

    5. The US public high school dropout rates are among the worst in the entire developed world (bottom 5), and on par with some undeveloped/emerging countries.

    6. In a separate OECD report, which ranks the pre-college education system in 65 major industrialized nations, South Korea was #1, Japan was #5, and the US was #14.

    7. The share of college-educated people in OECD's annual survey a few years ago for the US shrank from 36% of total to only 21% of total. The key driver of this was the surge in Chinese college graduation rates. The private education sector in China has grown in line with this accelerated rate of education. I think you won't debate that Chinese global competitiveness and GDP has risen very quickly throughout that period, in large part driven by a more educated labor pool. Increasingly more of this education is private.

    In summary, as Milken and his presenters noted in the conference, here is the most salient quote, from the FT:

    “Everybody knows governments cannot run factories, farms or shops. But many still expect them to do a first-rate job delivering education. They are deluded. Private schools for the poor perform far better than their public counterparts … Private schools have lower teacher absenteeism, lower costs and better results than public competitors. Education is not too important to be left to the private sector … it is too important to be left to failing public monopolies.” -- Financial Times, 2/17/07

    I wonder which education system is not sustainable. That of the Asian countries that dominate world rankings... or that of the US, the most developed and industrialized country in the world (and also among the most debt-ridden) with atrocious relative performance in education despite the highest public spend as a % of GDP. American public education is in the same state as the national healthcare system: it's a disaster.

    I've lived in Asia most of my life, and throughout that time, the private education sector has increased in size every year in every country I've lived in. % of household income devoted to education has risen steadily and continues to do so. Students in Asia during that time went from the worst in the world to the best in the world, so much so that the Ivy Leagues now have effective quotas on each major Asian country. The University of California system is now more competitive for entry than ever before because they are accepting more Chinese applicants who are paying full fare over CA locals who pay substantially reduced in-state tuition rates--they have to, to try to get out of their budget deficits given the government's inability to forever support such a huge education budget in light of the nation's ridiculously overlevered balance sheet. As a result, Chinese are increasingly turning to Europe and the public American colleges for enrollment. The country that most recently has seen the biggest influx of Chinese into their top colleges in the past decade is the UK. Imperial College of London, a top school globally, saw a surge in foreign students as % of total enrollment: from 20% in 2000 to over 30% now, mainly due to a 10-fold increase in Chinese student enrollment.

    Those crappy private education systems in Asia sure don't seem to work at all. Those Asian families are just pouring precious funds down the drain because their crooked governments will not let them get the great public education that much better-educated countries like, say, the US, offer their citizens.

    Regarding the Wikipedia article you read where you are quoting 70k South Korean hakwons, etc. you can surf the Web all you want for data, but how about you go there and pay a visit to the top hakwons. They have never been better-attended. The Wikipedia article you got your data from even states that the hakwons' popularity has caused a sharp rise in real estate prices due to their proliferation. Most hakwons are run by mom-n-pops who attended a prestigious foreign school such as an Ivy or SNU (the "Harvard of Korea") and make millions by opening up one or a handful of training centers. The fact that the industry is thusly fragmented has nothing to do with its fundamental attractiveness. The hakwon industry is a source of wealth creation for many of the millionaires.

    Also, the hakwons are different than AMBO, which is again, more analogous to a Kaplan. AMBO has proprietary IP, co-developed by its partners (leading multinational technology companies and local universities) and offers a combination of both in-class as well as technology-supported distance learning. The only piont regarding the hakwons that I was making was that private education in Asia has thrived for several decades and shows no signs of abating; to the contrary, its growth is sustaining even in times of economic distress.

    Time will tell whether Asia will fold its private education sector and go the way of the US. By being long the best value in Chinese private education, I am betting that the industry thrives.

    You, on the other hand, by not shorting and repeatedly making broad, generalized comments that have very little to do with the stock price performance of the company in question, are just writing words on a Web forum and thus have little credibility.
    Jun 30, 2012. 12:21 PM | Likes Like |Link to Comment
  • Ambow Education Holding: A High Growth, Deep Value Opportunity With Imminent Catalysts [View article]
    That's where we differ. It's absolutely not true of developed Asia. The hakwons in Korea for example, are some of the most consistently profitable and sustainable businesses in the country.

    Regarding being forced, absolutely not true. It's because in these economies, extra education pays off. Better jobs, better success entering competitive schools (much more about pedigree there than here), better pay, etc Nobody forces the moms and the professional trainees to pay. They increasingly choose to. These private education businesses have nothing to do with the public system at all. They are completely complementary and supplementary and enrollment is 100% voluntary.

    Anyway, let's check in by end of year to see how this fraudulent, 40% PE-owned, unattractive business is doing in the markets. I offer you my shares at 10% borrow like the other naysayer.
    Jun 27, 2012. 04:22 PM | Likes Like |Link to Comment
  • Ambow Education Holding: A High Growth, Deep Value Opportunity With Imminent Catalysts [View article]
    If you've ever spent meaningful time in Asia, you'll know that for-profit education there is very different than in the US. These are not jucos or degree-by-mail businesses. They are much more analogous to education companies such as Kaplan or Princeton Review, both for-profit education companies that have not only survived but thrived without government loans or other exogenous support. Similarities include proprietary curricula, in-class and technology-enabled delivery method, and a very low student-to-teacher ratio (the one-on-one tutoring obviously has the ultimate ratio of 1:1). The more developed Asian countries, like Japan and Korea, are culturally much more similar to China than the US, at least from a consumer standpoint, and they all have large sustainable for-profit education markets that exhibit similar trends: very high % of household income spent on education (top 4 category, in Korea, top 2 or 3 depending on the city) with several dominant brands controlling majority share of the market and lots of industry consolidation.
    Jun 26, 2012. 10:27 PM | Likes Like |Link to Comment
  • Ambow Education: 50% Plunge = 100% Opportunity [View article]
    Cash flow is one of over two dozen reasons why I like AMBO. There are plenty of companies that generate cash flow that I'm short. The point is not that cash flow makes a good investment. The point is that PWC's adjustments are at the P&L level and mainly have to do with revenue recognition, which does not impact the fundamental cash flow performance of the company.

    It's the overreaction and misunderstanding of people like you that creates this opportunity, so I suppose I should stop arguing with you. Again, I'll loan you my stock. 10% borrow--really cheap for a surefire fraud.
    Jun 20, 2012. 10:53 AM | Likes Like |Link to Comment
  • Ambow Education Holding: A High Growth, Deep Value Opportunity With Imminent Catalysts [View article]
    Someone just pointed out to me that Berkshire Hathaway, though not a Chinese company that files 20Fs, does in fact have very similar language in their annual report.

    Here you go, as requested:

    "A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and financial officers.... [it then goes on to explain exactly what internal controls are in detail] Because of the inherent limitations of internal controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis."

    There you have it. Warren Buffet must be involved in collusion and fraud.

    Your passage does not read the way you quoted, by the way. It's not that management doesn't expect internal controls to be effective. No. It's that they don't expect any process to catch ALL errors and ALL fraud.

    It's not different than Warren and his CFO not expecting to prevent ALL errors and ALL fraud and ALL collusion and whatever else was in the disclaimer.
    Jun 20, 2012. 03:09 AM | Likes Like |Link to Comment
  • Ambow Education: 50% Plunge = 100% Opportunity [View article]
    We are talking about 20F filings. S&P 500 companies don't file 20Fs and are thus irrelevant to the discussion of AMBO's report.

    More importantly, the passage you quote is standard accounting language that states the obvious: a company either had zero issues with their financials and so no adjustments or changes were necessary (then, it is deemed to have maintained... "in all material respects") or it had greater than zero issues (at which point, it is deemed to not have maintained "in all material respects"). That exact language is found in all 20F filings and accountant-audited annual documents. It is binary and worded precisely for a reason.

    The auditor decision tree is incredibly simple. It has three paths:
    1. For companies that had no issue, the auditor signs off with no changes
    2. For companies that had >0 issues that were addressable through adjustments or changes, the auditor makes those adjustments or changes and then signs off
    3. For companies that had issues of fraud or serious financial issues that were not addressable through clear explanations to investors, the auditor does not sign off and instead resigns so as not to be implicated with an official SEC document that contains information that they may not want to be associated with.

    Guess which of the three applied to AMBO?

    Not to patronize you or anything, but what did you expect? There was a restatement and some minor accounting adjustments that were required. Did you expect #1?

    You really believe that PWC, to get business from a company they consider fraudulent, decided to sign off anyway and risked marring their heretofore pristine reputation? Is that why they took the extra 30 days and asked for two SEC extensions to the filing deadline? So they could draw even more attention to the filing?

    Gimme a break. PWC signed off because to the best of their extensively researched professional opinion (inclusive of an extra month), AMBO was not a fraud. It was, however, as you point out, deficient in some ways that they deemed noteworthy and thus, PWC's version of the financials had some P&L adjustments that pushed forward revenue for which the cash was already in AMBO's hands, i.e. collected. This is why the CFS and B/S barely changed but their P&L changed and was restated.

    I took a quick look and found similar language for various ADRs who filed 20-Fs on time and have never had any issues with people alleging fraud. To list just a few of many (I stopped after literally 10 minutes of research dug up more than a handful of examples):

    Starting with the 2nd largest player in Chinese education, XRS: "... our independent registered public accounting firm identified a material weakness... 'a material weakness' is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected..."

    RENN: "in the course of preparing our consolidated financial statements, one material weakness and one significant deficiency in our control over financial reporting were identified... Based upon that evaluation, our senior management has concluded that our disclosure controls and procedures were ineffective because of the material weakness and significant deficiency that existed... "

    TAOM: "we and our auditors, an independent registered public accounting firm, identified certain material weakness and significant deficiencies in our internal control over financial reporting..."

    FENG: "in the course of preparing our consolidated financial statements, one material weakness and one significant deficiency in our control over financial reporting were identified... The material weakness resulted in audit adjustments and corrections to our financial statements...

    Well, it's clear as day! These companies are all frauds, and their respective auditors must all wish to make a quick buck in spite of that.

    Or not. If an accounting firm signs off on an audit, it tells you something: that they don't think the company is a fraud to the best of their professional ability and research within their audit time frame. Otherwise, they resign.
    Jun 20, 2012. 02:31 AM | Likes Like |Link to Comment
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