Chinese sportswear firms reject allegations of improper accounting

ANTA Sports Products Ltd and three other Chinese sportswear firms have hit back at a research report that has questioned their accounting practices, saying the allegations were groundless.

ANTA shares have lost around 5 percent since a June 12 report by Hong Kong-based GMT Research, issued to its subscribers, said ANTA’s operating margins were so high that it was either the world’s best-run sportswear firm or its accounting practices were questionable.

A copy of the report was obtained by Reuters.

GMT, an Asia-focused accounting research firm, says on its website that its goal is to use financial statements to judge whether a company is overstating or understating its profits through the exploitation of accounting standards.

ANTA, China’s biggest sportswear firm by market value, said the report contained certain factual errors, misleading statements and unfounded speculation that may lead to unusual moves in its stock.

“The board vigorously denies the speculations contained in the report and considers them to be inaccurate and misleading,” Chairman Ding Shizhong said in a statement late on Thursday, adding the company reserved the right to take legal action.

Xtep International Holdings Ltd and 361 Degrees International Ltd, whose operating margins were also questioned, also issued statements saying the GMT report was incorrect and misleading.

“The board considers that the report contained certain factual errors, misleading statements and unfounded speculations,” Xtep Chairman Ding Shui Po said.
“No accounting fraud has ever been committed.”

Xtep shares have lost 2.5 percent since the report, while 361 Degrees has eased 1.2 percent.

GMT also questioned accounting practices at China Dongxiang (Group) Co Ltd. The company said in a statement that the report contained unfounded allegations regarding its financial performance, in particular regarding its inventory management and cash flow.

Dongxiang’s stock has lost 1.3 percent since the report.

Analysts, however, do not expect the GMT report to pressure sportswear stocks in the longer term.

“Investors were digesting the news, but the impact was not as bad as expected, suggesting many investors still believe in the companies’ earnings stories and profit margin,” said Linus Yip, chief strategist at First Shanghai Securities.