{
  "docId": "019dd923-622c-750b-8b96-835a69513742",
  "docSlug": "c47ae4d76596",
  "documentTitle": "China Huishan Dairy Holdings (6863 HK)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
  "documentKindSlug": "research-note",
  "documentKindLabel": "Research note",
  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2016-12-16 00:00:00",
  "orientation": "portrait",
  "aspectRatio": 0.77272725,
  "pageNumber": 3,
  "pageCount": 47,
  "prevPage": 2,
  "nextPage": 4,
  "slideType": "executive_summary",
  "function": "diagnose_problem",
  "density": "overcrowded",
  "nDataPoints": 0,
  "notes": "This is a research note page from a short-seller report on Huishan Dairy.",
  "elementsJson": [
    "paragraph",
    "callout_box",
    "footnote"
  ],
  "metadataConfidence": 1,
  "imagePath": null,
  "slideHref": "/slides/019dd923-622c-750b-8b96-835a69513742/3",
  "deckHref": "/decks/019dd923-622c-750b-8b96-835a69513742",
  "deckJsonHref": "/decks/019dd923-622c-750b-8b96-835a69513742.json",
  "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-835a69513742#slide-3",
  "components": [
    {
      "bbox": {
        "h": 0.065,
        "w": 0.764,
        "x": 0.118,
        "y": 0.655
      },
      "kind": "callout",
      "text": "What is alfalfa? Alfalfa is a protein and vitamin rich grass that boosts milk yield and protein content, a key determinant in the selling price of raw milk. It is the “grass” in Huishan’s much-heralded fully integrated “Grass to Glass” model.",
      "attrs": null,
      "subkind": "primary",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "c42b6da1-8ee3-4fd8-b911-b3da2bed9000",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": null,
      "kind": "callout",
      "text": "We conclude that Huishan has fraudulently inflated its gross margins and reported profits since at least FY14 by lying about being self-sufficient in alfalfa.",
      "attrs": null,
      "subkind": null,
      "toolName": "Visual emphasis",
      "toolSlug": "visual-emphasis",
      "confidence": null,
      "componentId": "019dd953-2b64-7193-87f4-e18db47bf39c",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.115,
        "w": 0.764,
        "x": 0.118,
        "y": 0.095
      },
      "kind": "paragraph",
      "text": "Although Huishan has a “real business” in contrast to a typical Zero, its massive leverage cause us to conclude that its equity is close to worthless. It is our view that Huishan’s asset values and reported profits are inflated by significant amounts...",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "2a2bf76f-2421-4a00-8b98-4d49950b04c9",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.055,
        "w": 0.764,
        "x": 0.118,
        "y": 0.215
      },
      "kind": "paragraph",
      "text": "CCASS data strongly suggests that a significant portion of Huishan’s outstanding shares has been pledged as collateral for loans. If we are correct, this presents a significant risk to long holders if the borrower(s) is / are unable to meet margin calls.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "5dde9a82-cd75-4511-9552-1f07021795f2",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.135,
        "w": 0.764,
        "x": 0.118,
        "y": 0.48
      },
      "kind": "paragraph",
      "text": "We conclude that Huishan has fraudulently inflated its gross margins and reported profits since at least FY14 by lying about being self-sufficient in alfalfa. Huishan cites self-sufficiency in alfalfa production as the main driver of its industry-leading gross margin...",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "7a24b917-05b7-44b5-8065-6cfe310f2d3b",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.115,
        "w": 0.764,
        "x": 0.118,
        "y": 0.28
      },
      "kind": "paragraph",
      "text": "We researched Huishan for several months. During this time, our investigators visited 35 farms, five production facilities (including one that was halted mid-construction), and two announced production sites that had no evidence of construction...",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "97a397ba-122a-46b7-acd0-9f01159a46ef",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.035,
        "w": 0.764,
        "x": 0.118,
        "y": 0.795
      },
      "kind": "paragraph",
      "text": "Huishan implied self-sufficiency in alfalfa as early as FY13 by reporting an alfalfa crop surplus. The slide below from Huishan’s FY15 annual presentation repeats this claim.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "c3d4498b-e7cd-45eb-951f-deaad59a3659",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.035,
        "w": 0.36,
        "x": 0.118,
        "y": 0.895
      },
      "kind": "source-note",
      "text": "1 Huishan Prospectus, p. 1\n2 Huishan FY15 Annual Presentation",
      "attrs": null,
      "subkind": null,
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "f1df700e-db4f-4341-881d-e00948ee2885",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.02,
        "w": 0.63,
        "x": 0.185,
        "y": 0.445
      },
      "kind": "title",
      "text": "Fraudulently Inflating Margins by Falsely Claiming Alfalfa Self-Sufficiency",
      "attrs": null,
      "subkind": "action-title",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "7744aa7f-993c-4fd9-b7e3-3950301cebf0",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.02,
        "w": 0.59,
        "x": 0.118,
        "y": 0.76
      },
      "kind": "title",
      "text": "Huishan has claimed to be self-sufficient in producing alfalfa",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "54f5adb6-a26b-4f51-bf65-1cc0d718cdae",
      "frameworkName": null,
      "frameworkSlug": null
    }
  ],
  "metrics": [],
  "tools": [
    {
      "name": "Action Titles",
      "slug": "action-titles",
      "agent": "Architect",
      "layer": "slide",
      "matchId": "29402b6a-b8e9-4091-a3be-2279251fec9a",
      "evidence": "The slide title 'Fraudulently Inflating Margins by Falsely Claiming Alfalfa Self-Sufficiency' is an action title that highlights the key issue.",
      "confidence": 0.8
    }
  ],
  "frameworks": [],
  "arcBeats": [
    {
      "to": 5,
      "from": 2,
      "beatId": "b26b9f2e-8aa0-4d08-add4-c366bba7a320",
      "arcName": "Overcoming the Monster",
      "arcSlug": "overcoming-monster",
      "beatName": "The Monster",
      "beatSlug": "overcoming-monster-the-monster",
      "evidence": "Huishan's purported alfalfa self-sufficiency is the cornerstone of its margins",
      "position": 0,
      "confidence": 0.8,
      "parentBeatName": "Hook",
      "parentBeatSlug": "hook"
    }
  ],
  "loops": [],
  "imagePathAlt": null,
  "thumbSrc": null,
  "thumbSrcAlt": null,
  "locked": true
}