Glaucus targets Prince Frog (2)

It is already eight days ago that Glaucus published its report about Prince Frog, but the company still hasn't officially responded.

However, as "Imenwe" pointed out in the comments of my previous posting:

• BFM paid attention to this case (worrisome were some negative comments at the end about short sellers);
• Kim Eng (Hong Kong) wrote a company update about Prince Frog

Until now, the company has hinted (during conference calls) at several scenario's, but I find them not very convincing. Also, the longer it takes for the company to officially reply, the more worrisome it will get. A strong, confident company should first of all never have been in this place (especially since several rumours have been aired before), secondly should have quickly come with an accurate and strong riposte.

The reports both by Nielsen and the government of China are too different from what Prince Frog reports. I find it hard to reconcile them.

The extremely high margins and short "average days inventory turnover" versus industry players are worrisome.

The issue of Prince Frog having more sales in the lower tier cities, and less sales in the Tier 1 and 2 cities in China: I find that strange. Glaucus writes that Prince Frog has previously mentioned themselves that that was not the case. Also, a company that claims it grew eight fold compared to the industry only doubling its revenue, to me the way to do that is to aggressively market ones products in the bigger cities. In the smaller cities it is possible to do, but it would depend on huge manpower, and it takes a long time for that network to grow. In the areas of branding (getting good quality shelve space), marketing and distribution lots of effort have to be done.

If I had to make a choice which party to believe, based on the information that I now have, I would definitely choose Glaucus. For the shareholders of Prince Frog, I hope I am wrong.