{ "docId": "019dd923-622c-750b-8b95-e3e00ae06848", "docSlug": "178a93b2534e", "documentTitle": "Sino-Forest Corporation (TRE)", "authorId": "51_Muddy_Waters", "authorName": "Muddy Waters", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2011-06-13 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 1, "pageCount": 3, "prevPage": null, "nextPage": 2, "slideType": "executive_summary", "function": "summarize", "density": "overcrowded", "nDataPoints": 0, "notes": "This is a research note from Muddy Waters, LLC regarding TRE (Sino-Forest Corporation).", "elementsJson": [ "headline_text", "bullet_list", "paragraph" ], "metadataConfidence": 1, "imagePath": "https://imgproxy.kitesheet.com/UNboF9oIKJp6SWI7CrpY7wEovb5iIqymy_86WtJTAJ4/rs:fit:1200:1200:0/q:82/f:webp/czM6Ly9raXRlc2hlZXQvY29ycHVzL3NsaWRlcy8xNzhhOTNiMjUzNGUvcDAwMS5wbmc", "slideHref": "/slides/019dd923-622c-750b-8b95-e3e00ae06848/1", "deckHref": "/decks/019dd923-622c-750b-8b95-e3e00ae06848", "deckJsonHref": "/decks/019dd923-622c-750b-8b95-e3e00ae06848.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b95-e3e00ae06848#slide-1", "components": [ { "bbox": null, "kind": "callout", "text": "A consistent theme of TRE's stated business practices is that they are unnecessary, overly complicated, and risky for a legitimate business.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-ee37-76cb-846e-5f9fdf1b8ca3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.7, "x": 0.15, "y": 0.27 }, "kind": "list", "text": "Ernst & Young has been unable to complete its review of TRE’s Q1 numbers.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3ba363ca-95fd-474c-81c5-829d6c55729e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.7, "x": 0.15, "y": 0.76 }, "kind": "list", "text": "TRE still refuses to disclose its AIs’ identities for “competitive reasons.” It cited an example from the 1990s when an AI’s identity was disclosed, and then smaller competitors undercut TRE’s prices and won business. This explanation strikes us once again as TRE relying on everybody in the chain (e.g., the farmers) being ignorant.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "54fcb6aa-377d-46c3-86dd-bda8ed7b9550", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.7, "x": 0.15, "y": 0.46 }, "kind": "list", "text": "TRE added an odd twist to its disclosed business model. AIs now apparently do not pay TRE directly (see our discussion of the various problems in doing so). Rather they pay TRE indirectly by paying TRE’s “designated purchasing agents”, which then purchase more parcels. As we wrote in our initial report, a consistent theme of TRE’s stated business practices is that they are unnecessary, overly complicated, and risky for a legitimate business. Is the designated purchasing agent an AI-squared? We look forward to more detail on this new facet so that we can analyze the legal and practical issues.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "632d08b9-f8b5-4131-b4b4-a2633df83a9e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.13, "w": 0.7, "x": 0.15, "y": 0.62 }, "kind": "list", "text": "Mr. Chan explained that the AI model came into being because TRE could not form WFOEs in the 1990s to conduct this business. As we pointed out in our report, after TRE’s EJV with the Leizhou Forestry Bureau terminated (due to TRE’s failure to contribute its capital), TRE had a WFOE that had a business scope that permitted it to do business directly. Aside from that point, management did not explain why it continues to use an AI model today. Thus the AI model makes no more sense now than it did before this explanation.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "65cc7588-c276-4f60-b8bd-8c0aca725a12", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.7, "x": 0.15, "y": 0.31 }, "kind": "list", "text": "Chairman / CEO Allen Chan personally guarantees that TRE has disclosed all related party transactions. However at no time did management address TRE’s relationship with Lei Guangyu, the only disclosed AI. Mr. Chan stated that Mr. Lei is a major AI.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8f079dd2-2e7d-4d42-9b13-be5eb584f87d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.7, "x": 0.15, "y": 0.39 }, "kind": "list", "text": "TRE’s suppliers (agents) and buyers (AIs) are two different parties. As shown by our analysis of five suppliers, none of which were capable of selling nearly the volume of timber TRE claims, TRE had made this point clearly before.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f25e7e32-d184-4354-af68-f0a59ca6210a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.7, "x": 0.15, "y": 0.22 }, "kind": "paragraph", "text": "The selloff in TRE shares following this morning’s call illustrates our overall feelings about management’s responses to questions. The highlights are:", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "306f7371-2d08-4479-8e07-ce7dbf87ca0f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.28, "x": 0.36, "y": 0.18 }, "kind": "title", "text": "Reaction to TRE Q1 Earnings Call", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "501b1511-4728-4363-8bb2-75eb94e6416d", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 1, "from": 1, "beatId": "d95bb8dd-7075-4da0-a0b8-8a9520988e0c", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Problem (Identify pain)", "beatSlug": "problem-agitate-solution-problem-identify-pain", "evidence": "The executive summary likely sets up the issue", "position": 0, "confidence": 0.6, "parentBeatName": "Complication", "parentBeatSlug": "complication" } ], "loops": [], "imagePathAlt": "https://imgproxy.kitesheet.com/bE9-WktnpgyfedBcrhdTq0Y_BeVnWTIbCWiTcbex3PM/rs:fit:1200:1200:0/q:82/f:webp/czM6Ly9raXRlc2hlZXQvY29ycHVzL3NsaWRlcy8xNzhhOTNiMjUzNGUvcDAwMS5qcGc", "thumbSrc": "https://imgproxy.kitesheet.com/c0Vu5Gi9oeMpzfdNMnrn-viIAzQ3D9bW1rw87xxztps/rs:fit:480:480:0/q:78/f:webp/czM6Ly9raXRlc2hlZXQvY29ycHVzL3NsaWRlcy8xNzhhOTNiMjUzNGUvcDAwMS5wbmc", "thumbSrcAlt": "https://imgproxy.kitesheet.com/5Nyuq_8TgI2I5yj0m4LxxO7ycRZgmCCqnCA1JbAGwGQ/rs:fit:480:480:0/q:78/f:webp/czM6Ly9raXRlc2hlZXQvY29ycHVzL3NsaWRlcy8xNzhhOTNiMjUzNGUvcDAwMS5qcGc" }