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My name is Chris Wu. I work for a long and short equity hedge fund with a value oriented investing philosophy. My long investments focus on conservative long term investments in quality businesses with solid, sustainable long term growth prospects and accountable management. My short investments... More
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  • Photos of China Green Agriculture's facilities - Myth vs Reality 25 comments
    Oct 18, 2010 4:55 AM | about stocks: CGA

    Recently there have been a lot of negativities and attacks about China Green Agriculture (NYSE:CGA).  For investors without the resources to see the company’s facilities in China, it’s hard to judge the merits of the arguments from both the long and short sides, especially with all the talks with relatively complex accounting, tax and business jargons.

    Therefore, I decided to share some of the photos from my visit to CGA’s production plant and greenhouse facilities in Xi’an earlier this year.  To be honest, the trip has been very disappointing to say the least.  My discoveries are summarized with following key points with photos during the trip.

    1. Two of the three production lines were completely idled at the time of my visit (the day I visited was not, or close to the beginning or end of a public holiday in China.  The time I arrived at the factory was 10:30am in the morning). Management's excuse was the lines were shut down for maintenance, what a nice coincidence.
    2. Their seemed to be very little activity at the factory.  The plant’s operation also looked quite disorganized and inefficient.
    3. Warehouse was quite empty with only a handful of inventories dated over 6 months old.
    4. Greenhouse facilities are “low tech” and messy.  It doesn’t look like it’s going to cost anywhere close to the $38M proposed investment!  The facility is located in the middle of some undeveloped rural region, not an "industrial" park as management claimed on its 4th quarter conference call.

    CGA has posted a number of pictures of its own production facility on its IR website at www.ir-site.com/cgagri/productionfacility.asp . I'll post them in comparison to the photos I've taken on my tour.

    Myth #1: CGA posted a picture of its busy liquid fertilizer production line filled with bottles. URL of this picture is www.ir-site.com/images/library/cgagri/pr...
    CGA

    Reality: The same liquid fertilizer production line was clean but idle.  It appeared to be idiled for quite some time.  What a nice coincidence they happened to have two of the three production lines down just the day I visited.

    Picture #1: The old liquid fertilizer production line was idle and appeared to be idiled for quite some time


    Myth #2: CGA's IR website has a picture of more than 6 people working on a packaging line full of finished liquid fertilizer bottles.  URL of this picture is www.cgagri.com/investor/fac09-max.JPG


    Reality: The same packaging line shown in CGA's own picture was idled.  You can see from the photo below the boxes at the end hallway are all unsealed empty ones.




    Myth #3: CGA's 10-K states one of the company's advantages being the highly automated production lines.



    Reality: There seemed to be very little activity at the production plant.  The one-manned manual packaging job was the only noticeable activity ongoing at the factory.  Does this look like the highly automated factory that produced $45,816,377 fertilizer revenue in 2010?

    Picture #2: There seemed to be very little activity at the production plant.  The one-manned manual packaging job was the only noticeable activity ongoing at the factory.  Does this look like the factory that produced $45,816,377 fertilizer revenue in 2010?

    Myth #4: CGA's website has a picture of a warehouse full of finished goods inventory.

    Reality:  I asked to see the finished goods inventories and was taken to this room as shown in the photo below.  Less than a quarter of the room space is occupied with inventories.  The dates on the inventories went back to over 6 months old.

    Picture #3:  Less than a quarter of the warehouse space is occupied with inventories.  The dates on the inventories went back to over 6 months old.

     Myth #5: In its 10K, CGA stated its subsidiary Xi’an Hu County Yuxing Agriculture Technology Development Co., Ltd is to invest $38 million to build a "state-of-the-art" new R&D center.

    Reality: Billboard showing greenhouses facilities and other unknown facilities under construction.  Does the surrounding area look like an industrial park (like what CGA claimed on its Q4 earnings call)?

    Picture #4: Billboard showing greenhouses facilities under construction

    Reality: Completed greenhouses with strange looking exteriors. Does this look like something that’s going to $38 million investment to build? 

     

    Reality: Uncompleted greenhouse with simple brick, concrete structure

    Picture #6: Uncompleted greenhouse with simple brick, concrete structure

     Reality: Close inspection of these "hi-tech" greenhouses under construction reveals they're made of simple, cheap bricks, motar, steel wire and foam insulation.

    Reality: Uncompleted greenhouse.  Does this look like something that’s going to $38 million investment to build?  The facility is not located in an industrial park like CGA claimed on its conference call.

    Picture #7: Uncompleted greenhouse.  Does this look like something that’s going to $38 million investment to build?

    Reality: Inside one of the completed greenhouses.
    Picture #8: Inside one of the completed greenhouses.

    I will have more pictures from my trip for upload once I move them from the other camera to my pc.  However, I suggest everyone who think I'm exaggerating visit CGA's facilities and see the truth with their own eyes.

    Disclosure: Short CGA
    Stocks: CGA
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Comments (21)
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  • Chris Wu
    , contributor
    Comments (248) | Send Message
     
    Author’s reply » Updated with more photos.
    19 Oct 2010, 04:21 AM Reply Like
  • System Trader
    , contributor
    Comments (471) | Send Message
     
    Well done!
    19 Oct 2010, 10:35 AM Reply Like
  • Waldo Mushman
    , contributor
    Comments (445) | Send Message
     
    You must be a lying, thieving, baby robbing, conterfeiting, pawn of the manipulating short sellers. Who are wise investors going to believe, the blessed company or their own lying eyes? Don't you understand this is part of the China miracle and it will be bigger than Baidu within 2 or 3 months. They have an internal growth rate of nearly 400% annually and my $1600.00 investment will make me richer than Gates.

     

    Just because they don't seem to actually produce anything is no reason to suspect that the revenue is not accurate. I know plenty of companies like ONP, CHBT, CMFO and CSKI that don't actually make anything either and they are all doing just fine, thank you very much. If you want to take pictures of something why don't you take a picture of the latest press release that clears all this up. They are hiding all signs of activity to confuse the competition and protect the ultra valuable trade secrets on how to make fertilizer.

     

    John
    19 Oct 2010, 02:52 PM Reply Like
  • Chris Wu
    , contributor
    Comments (248) | Send Message
     
    Author’s reply » Great sense of humor. Haha.
    20 Oct 2010, 02:46 AM Reply Like
  • louca
    , contributor
    Comments (41) | Send Message
     
    OK, you give some pictures of CGA's plants and factories.
    How do I know that these pictures you put for CGA, are real and not fakes?
    25 Oct 2010, 11:16 AM Reply Like
  • Chris Wu
    , contributor
    Comments (248) | Send Message
     
    Author’s reply » You don't have to trust me. Like I said in the article, book the next flight to China to see it with your own eyes. If you have substantial amount of money invested in CGA, the benefits from DD trip will easily justify the cost of a round trip ticket.
    29 Oct 2010, 02:05 PM Reply Like
  • Biscuit12s
    , contributor
    Comment (1) | Send Message
     
    CGA is going to announce the hiring of a Big 4 auditor soon. I was told this in an email by the public relations firm.
    27 Oct 2010, 05:41 PM Reply Like
  • Chris Wu
    , contributor
    Comments (248) | Send Message
     
    Author’s reply » I'd love to see how that is ever possible. Don't you feel strange especially considering they had plenty of time to upgrade but never chose to do it? I'd suggest your check out DYP as an example of what could have happened to CGA if they did upgrade in the past. Trust me, CGA management is smart, so they knew from the beginning it was never a good idea to upgrade. I'm 90% sure the bs the PR firm was talking about was hiring a "big 4" as a CONSULTANT, not an auditor, to help CGA to sort out the mess so they can be SOX compliant. Again, having a "big 4" as consultant meant nothing. Check out what kind of epic failure E&Y had, not being able to catch the CEO treating the company like his personal ATM, AFTER the company declared they were SOX compliant. This whole "big 4" talk is a joke.
    29 Oct 2010, 02:10 PM Reply Like
  • Chris Wu
    , contributor
    Comments (248) | Send Message
     
    Author’s reply » Correction: was referring to the epic failure E&Y had at CHNG, not catching the CEO treating the company as his personal ATM.
    3 Nov 2010, 09:01 AM Reply Like
  • flaunt
    , contributor
    Comments (17) | Send Message
     
    Good call on this one. That is exactly what they did:

     

    "Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. and Beijing Gufeng Chemical Products Co., Ltd., today announced that it has engaged Ernst & Young(China) Advisory Limited ("Ernst & Young") as advisor on internal auditing and SOX 404 compliance for the fiscal year 2011."

     

    How do you see this playing out in the near term? With the J Capital Research report and the fact that Muddy Waters has also taken a short position?
    9 Jan 2011, 01:51 PM Reply Like
  • louca
    , contributor
    Comments (41) | Send Message
     
    I know that: Mootley Fool had sent a team to China and after their visit there, they recomend strongly CGA. I learn about CGA from MF. I can read their basic Balance Sheet and Profits Statement from wherever are available (for examble from yahoo!finance). And CGA shows outstanding growth! That is a FACT.
    Can anyone deny that MF's team went in China and recomend CGA? Can anyone deny that CGA's profits statements shows all that sales and profit growth? No!

     

    I live in Greece and I can not travel to China, to see if all these accusations of mr Little and some other dudes, are real because such a trip is very expensive. ... and as you know, here in Greece, we are bankrupt.
    But just because I live in Greece, that is a country full of corrupt crooks, I have the experience to recognize them.
    Let's go to mr Little: he recites some accounting type accusations for CGA. Can I check if all these are true? I can not check them. And I do not consider myself to be silly. I guess I have above average IQ.
    So, mr Little's accusations are not facts... are just rumors, maybe true, maybe false.
    But I wonder what is the "background" of mr Little, that seems to be so well informed. This is something I can check out. I just google it.... And gues what? I found nothing.
    So I can rightly wonder: Is mr Little really exist? If yes, where are his internet traces???
    I google him in every way:
    "Alfred Little, accountant", "Alfred Little, SAB Consultants", etc, etc, etc....
    NOTHING.
    So, I think it's logical to assume that if mr Little really existed, I should have found something. But no... zero.... 0!
    So what does it remain? The logical conclusion is that mr Alfred Little is just a nickname. He is not real. If he is real, lets show us his internet traces for himself and SAB Consultants.

     

    Furthermore, if all these accusations were true, why US market authorities (and chinese market authorities) are not have intervened so far? Why???
    Why mr Little does not answer to my reasonable questions? When in everything else, he is like a singing bird???
    Don't you wonder about it?
    9 Nov 2010, 11:39 AM Reply Like
  • Chris Wu
    , contributor
    Comments (248) | Send Message
     
    Author’s reply » "Can anyone deny that MF's team went in China and recomend CGA? Can anyone deny that CGA's profits statements shows all that sales and profit growth? No!"

     

    No. But from all the evidences and inconsistent SEC filings I've seen so far, you simply can't trust the earnings and growth reported by CGA. Why do Chinese regulators have any incentive to punish people that defraud US investors? US regulators have too many items on their agenda to worry about tiny companies like this.

     

    Don't you ever wonder CGA could really be a fraud? Guess you haven't. Judging from what you said so far, the RTO stock game is not for you. Read my other blog entry: seekingalpha.com/insta...
    9 Nov 2010, 11:54 AM Reply Like
  • Freedoms Truth
    , contributor
    Comments (1044) | Send Message
     
    A simple solution if you cannot trust either the long promoters or the short promoters. Stay away.

     

    If you know less than the others involved, you will get hurt.
    24 May 2011, 01:24 PM Reply Like
  • DrRufus
    , contributor
    Comments (7) | Send Message
     
    Gee what a surprise! A fertilizer company is located in a very rural area and is messy and has some down time. Go inside shiny new Google headquarters at a random time and you will see a lot of empty desks and some employees goofing off too. Must be something wrong there too. Actually Google won't let you in their facilities like innocent CGA did. CGA has nothing to hide. If you are waiting for some huge finding of real fraud here you may be waiting decades and forever. Nothing is going to happen. The company will just continue to make a big profit by selling fertilizer to a robust market. CGA is honest and has no intentional fraud. The company has called the charges against it "ridiculous" and they are.
    16 Nov 2010, 04:58 PM Reply Like
  • BuddhaHead
    , contributor
    Comments (60) | Send Message
     
    CHRIS, please consider the following as constructive questions:
    You state that the greenhouses don't look like $38 million, yet in your quoted company caption, they say the $38 million is for greenhouse AND research/training center. You don't mention the research/training center. High tech is in the eye of the beholder. I would guess that CGA's green houses are pretty fancy compared to green houses I've seen here in China. Most are bent bamboo sticks in the ground with plastic tossed over them. So, a cement perimeter base, insulated brick back, and what appear to be metal supports are certainly a step above what I think is a typical Chinese greenhouse. Maybe not your vision of a high tech greenhouse, but maybe for the Chinese this is hi-tech? You show a photo of a "completed strange looking greenhouses". Your photo looks more like housing, maybe employee housing? Did you ask them how the various structures compared to the artist rendering of their new facilities? My son owns a small tech business here in Shenzhen and it is common practice for medium to large companies to provide housing, food, and insurance. I don't know the circumstances on the 'empty' production line, but I do know that in my son's case when the company is switching over to a different product run, the lines are empty. When the company is expanding, some of the line goes idle while employees move things around, when there are no orders, some lines are idle. Re inventory, actually that empty warehouse could be good. It is not good business to have a lots of idle inventory, in fact my son tries to keep his inventory close to zero. They build to production order or to quarterly quotas. They buy parts in real time keeping inventory of in-process parts to less than one week. You say you are an analyst and do not trade, but on another page you state that you are 'short' CGA? Also, most industrial/tech parks are in rural areas, ie what used to be farm land. When a park is new, it does indeed look very rural. After full tenency, they look pretty good. Most parks specialize in a specific field of effort, ie some are software parks, some biotech parks, and in my son's case a tech manufacturing park or zone in Shenzhen. I don't doubt the authenticity of your photos but it would have been nice if you had talked to management while you were there about your perceptions. I have no position in CGA long or short., just came across your site on a link from a contributor on the CHBT discussion board (Yahoo) trying to prove the case that Chinese Reverse Merger companies are a fraud.
    BTW are you aware that Xian is the home of the 'Terra cotta warriors'? Xian was the capital for the Zhou, Qin, Han, and Tang dynasties.
    18 Nov 2010, 12:38 AM Reply Like
  • Didican
    , contributor
    Comments (4) | Send Message
     
    Hey, which subsidiary did you visit?
    14 Jun 2013, 12:50 AM Reply Like
  • BuddhaHead
    , contributor
    Comments (60) | Send Message
     
    CHRIS, suggest you read the following articles. Hope you are not part of the smear campaign. I think your DD visiting was excellent on your part but you need an objective view of how you interpret the data. If you are truely a 'shorter', you data is also suspect:

     

    www.prnewswire.com/new...

     

    geoinvesting.com/forum...
    18 Nov 2010, 03:25 AM Reply Like
  • wind4me
    , contributor
    Comments (870) | Send Message
     
    and one wonders WHY all this so called NEW PLANT and shipments to India dropping the price ???
    13 Apr 2011, 11:56 AM Reply Like
  • Wall Street Titan
    , contributor
    Comments (619) | Send Message
     
    Did you attend CGA's plant tour today open to investors and analysts? If so what are you impressions?
    29 Jun 2011, 04:47 PM Reply Like
  • Chris Wu
    , contributor
    Comments (248) | Send Message
     
    Author’s reply » I'd be very happy to check it out, if the management ever allowed me to visit them. Anyhow, given what the world has seen, there're only two kinds of person who will actually go to such a "tour" - short sellers and idiots.
    1 Jul 2011, 04:32 PM Reply Like
  • Wall Street Titan
    , contributor
    Comments (619) | Send Message
     
    What do you mean "if the management ever allowed me to visit them." I thought you did visit them. Isn't your trip the basis of this post?
    6 Jul 2011, 06:01 PM Reply Like
  • Chris Wu
    , contributor
    Comments (248) | Send Message
     
    Author’s reply » Not sure you're intentionally twisting what I said (like Arthur_Big clown does all the time) or just in the mood for some fun. Okay, here's the deal. I did visit their old factory, in the past. This time the fraudsters at CGA turned down my request to go on this Beijing factory tour.

     

    BTW, have they ever come up with a valid explanation on how little VAT they paid to SAT (i.e. how little sales they really had) and what happened to the money stolen by them through that farm land purchase? Pretending the issues don't exist won't make them go away.

     

    Having seen and shorted so many of these RTO scams such as RINO, CCME, DGW, CBEH, LFT and SCEI, I still have to say none is a bigger fraud than CGA.
    13 Jul 2011, 02:26 PM Reply Like
  • Didican
    , contributor
    Comments (4) | Send Message
     
    Chris, did you visit Jintai, Yuxing, Jinong, or Gufeng? Can you please just answer my question?
    19 Jun 2013, 09:50 PM Reply Like
  • Didican
    , contributor
    Comments (4) | Send Message
     
    Chris, did you visit Jintai, Yuxing, Jinong, or Gufeng? Can you please answer my question?
    20 Jun 2013, 03:42 AM Reply Like
  • Didican
    , contributor
    Comments (4) | Send Message
     
    Chris, which subsidiary did you visit?
    14 Jun 2013, 04:52 PM Reply Like
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