(Yicai Global) March 19 --  The equity of Chinese financial technology provider Kingdee  International Software Group has slumped due to a bubble warning issued  by an independent Hong Kong stock analyst.

Kingdee "has relied on  sector-specific tax breaks, government grants, property investment gains  and questionable transactions with related parties to book any profit  at all," David Webb published on his personal website yesterday. The  stock [HK: 268] fell over 14 percent to HKD9.11 (USD1.20) at the close  yesterday. 

Shenzhen-based Kingdee's  equity has more than tripled in the past two years, but  off-balance-sheet financing and one-off gains lurk behind the success.  An earnings report published on March 13 shows that even with  value-added tax refunds the company's software business hardly makes a  profit. Moreover, Webb exposes questionable lending to firms controlled  by Chairman and Chief Executive Xu Shao Chun. The earnings report shows  that "loans to related parties" rose to CNY722 million from CNY164  million (to USD107.6 million) in the second half. 

Kingdee made CNY2.8  billion (USD417.1 million) in revenue last year while its net profit  increased almost 33 percent to CNY412 million, which prompted buying  that amplified the firm's market capitalization up to HKD35.1 billion  (USD4.5 billion) on March 15. New York-headquartered Citibank gave the  equity a 'buy' rating and hiked the target price nearly 17 percent to  HKD11.8 after the earnings report was published.

Editor: Emmi Laine