Their 'Financials Are Fake': Short Seller Calls Out Chinese Logistics Firm, Executives For 'Stealing'

U.S.-based short seller Grizzly Research issued a short report Thursday on ZTO Express Inc ZTO, one of the leading players in China’s domestic logistics market. 

ZTO fraudulently engineering its financial statements to achieve standout margins, the short seller said, alleging the company has been underreporting revenue and costs to falsify its financial results. In a tweet, Grizzly said they believe the company's financials are "fake" and that executives could be stealing. 

The short report by Grizzly Research said ZTO’s SAIC filings, which are the financial statements submitted to the State Administration for Industry and Commerce in China, present a completely different reality than its SEC financial statement.

Benzinga has contacted ZTO for comment on the short report. ZTO, which was listed on the New York Stock Exchange in 2016, has not publicly responded to Grizzly’s allegations.

The Details: According to Grizzly, ZTO’s margins, as per its SAIC filings, are on par with its express delivery peers. Yet the company’s SEC financial statements report much higher net margins, which Grizzly said have been achieved through accounting inconsistencies, incessant capital raising and conflicts of interest.

The report said ZTO inconsistently reports on its workforce, which Grizzly said is being understated to support reported labor costs and achieve exceptional margins. Grizzly estimates that ZTO’s true employee count and associated labor expenses may be more than double the figures reported to the SEC.

Grizzly also alleges that ZTO has reported bogus capital expenditures in its U.S. financials that the company attempts to justify by citing potential market share gains. The report argues that ZTO is amassing land with no strategic rationale and has no tangible shareholder value to show for its spending.

Grizzly further claims that ZTO used acquisitions to enrich insiders and/or make its accounts balance.

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Grizzly also said it discovered a web of undisclosed related parties that ZTO utilizes to shift operating expenses off its balance sheet. Several of ZTO’s counterparties are owned and controlled by individuals who are either employed by ZTO or are family and friends of its management team, the short seller said. 

Additionally, Grizzly said the related party transactions disclosed by ZTO are concerning, exposing public shareholders to risks in China’s real estate sector due to large loans used to fund insider property investments.

Grizzly concludes that ZTO is trading far above its fair value after adjusting for its artificially inflated margins and applying generous trading multiples. Grizzly estimates that ZTO’s fair value is at least 50% lower than its current trading price.

ZTO Price Action: ZTO Express shares were trading down 1.17% at $24 midday Thursday. 

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