(Bloomberg) -- Best World International Ltd. plunged to its lowest in six months after activist short seller Bonitas Research published a report questioning the company's accounting and sales.
The Singapore-based firm has overstated sales and profit in China, Matthew Wiechert's Bonitas said in the report, which was based on on-the-ground research on the Chinese mainland. Bonitas believes that Best World's “Chinese sales are a fraction of what was reported to shareholders,” it said.
Best World wasn't immediately available to comment. The firm received a query on trading activity from Singapore Exchange after shares dropped as much as 11 percent. Trading was then halted after a request from the company, pending the release of an announcement.
Singapore Exchange's regulatory unit expects "the company to call for a full independent review of all matters raised in the report," it said in a statement after market hours. "We expect to be consulted on the terms of reference of the review," it said.
Best World is the most-shorted stock in Singapore, with short interest standing at 13 percent of the free float as of April 22, according to data from IHS Markit Ltd. Short interest as a percentage of the free float has almost doubled this month, the data show.
Best World said in February that it conducts “all areas of its business ethically and in compliance with applicable laws and accounting standards,” in response to a report in the Business Times that said it was “challenging to figure” where in China the company is selling its DR's Secret line of premium skincare products. Best World also said it had appointed an independent auditor to review and address issues raised in the report.
Analysts have had concerns about the stock. DBS Bank Ltd.'s Carmen Tay suspended coverage in August, citing “limited visibility on underlying consumption trends under the new Franchise model” in China. CLSA Ltd.'s Horng Han Low maintained a sell rating in a report early this month, saying there is a “significant gap between consumer interest and revenue” in China.
Best World shares have tumbled 32 percent this year through Tuesday's close after almost doubling in 2018. Of four analysts covering the stock, three recommend selling, while one has a buy rating, according to data compiled by Bloomberg.
Bonitas, which Wiechert started after parting ways with Glaucus Research co-founder Soren Aandahl last year, previously published short reports on stocks in Hong Kong including Chong Sing Holdings FinTech Group Ltd., Hengan International Group Co., and Hosa International Ltd.
Read: Short Seller Hunts ‘100% Downside' as Chinese Firms Hit Back
Chong Sing lost about 85 percent of its value through Tuesday's close since Bonitas questioned the company's financial reporting in September and said the stock was worth zero. Hengan, however, gained almost 20 percent since the short seller said in December that its shares were worth “close to zero.” Both companies strongly denied the allegations made in the reports.
--With assistance from Benjamin Robertson.
To contact the reporter on this story: Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net
To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Tom Redmond
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