Shandong Molong Is Suspected of Manipulating Share Prices With False Earnings Data
Yicai Global
/SOURCE : Yicai
Shandong Molong Is Suspected of Manipulating Share Prices With False Earnings Data

(Yicai Global) Feb. 6 -- Shandong Molong Petroleum Machinery Co. [SHE:002490], a company listed on both the A-share and H-share markets, has puzzled financial markets, reporting dramatic changes in earnings for two consecutive years. In both 2015 and 2016, the company projected positive net profits in third-quarter results but ultimately posted hundreds of millions of yuan in losses for the full year. Lawyers believe the company may have been involved in false representations and insider trading.

This time, the company has even put on new acts of agility while reporting dramatic ups and downs in earnings. Both its controlling shareholders and persons acting in concert cut their holdings for cash during the same period.

Shandong Molong may have been involved in false representations and even insider trading, given the substantial changes in its earnings and share offloading by its stakeholders, legal experts told Yicai Global. The company's profit forecast issued late last year was most likely a move to help shareholders cut their holdings, said Zang Xiaoli, a lawyer at Yingke law firm.

Per public data, Shandong Molong projected full-year net profit at CNY4.05 million (USD582,000) to CNY14.16 million in its third-quarter 2015 results. However, it turned out to be net losses of CNY260 million when its annual report was released.

Shandong Molong had been projecting positive results in its earnings forecasts since the beginning of 2016, prompting its share prices to go up. The company expected full-year net profit of CNY6 million to CNY12 million in third-quarter 2016 results. Its shares had shot upward since mid-September, reaching a high of CNY13.55 per share on Nov. 2, 2016, after its third-quarter results were released.

However, Shandong Molong issued an earnings revision forecast last week, warning it expects net losses of CNY480 million to CNY630 million for the full-year 2016.

The company's controlling shareholders and persons acting in concert sold their shares when its share price rose after announcing positive profit estimates, as well as right after the issuance of the latest revision announcement. On Jan. 13, 2017, Zhang Enrong, the company's controlling shareholder, sold 30 million shares for CNY278 million. Zhang had cut his holdings by more than 5 percent since September 2014 but failed to publicly disclose it in a timely manner as required by regulations, according to a regulatory document issued by the Shenzhen Stock Exchange on Jan. 18.

Zhang Yunsan, vice chairman and general manager of the company, also sold 7.5 million shares for CNY82.28 million on Nov. 24, 2016.

Shandong Molong is a listed company engaged in the manufacturing and sales of petroleum machineries. Its A-share price was down 1.53 percent at CNY8.38 this morning, and its H-share price was down 3.70 percent at HKD2.34 (USD0.30).

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