Ever since the Chinese government was rumored to be considering easing the one-child policy, it has been a mad, mad world out there.
So crazy, in fact, that the share prices of baby product companies have been going through the roof or going out of kilter. That’s what happens when investors looking for a good yarn actually buy into it.
And that’s why Goodbaby International Holdings (01086.HK) and Lerado Group Holdings (01225.HK) have had rich pickings this year.
However, investors can just as quickly turn on a market darling.
Take Prince Frog International Holdings (01259.HK), for instance. The maker of baby lotion had seen its share price go up more than 65 percent this year until United States hedge fund Glaucus Research called it out on Wednesday for allegedly exaggerating its sales data. The counter quickly plummeted more than 25 percent and was suspended from trading.
Glaucus said the stock was worth no more than HK$1 against its last traded price of HK$4.66 before the suspension. Prince Frog sold only 20 percent of the lotion products it claims to have cleared, according to Glaucus.
In its financial report for last year, Prince Frog said revenue from children’s moisturizing lotion was 723 million yuan (US$118 million), 46 percent of sales. However, the figure diverged widely from data provided by market data research firm Nielsen which showed actual sales of the product in question was just 135 million yuan.
Prince Frog describes itself as the market leader in the baby lotion sector and claims it sells more skin products in China than Johnson & Johnson.
Not so, said Glaucus. Quoting an official report, it said public awareness of the brand is lower than 7 percent in 30 major Chinese cities. Prince Frog sales were not good enough to put the company among the top eight brands in that category, it said.
In China’s supermarkets, Prince Frog products are ubiquitous but these are only about one-eighth to half of Johnson & Johnson’s product display, according to a reporter from the Hong Kong Economic Journal.
Amid all this, however, Prince Frog has not said a word.
Interestingly, Prince Frog is still up 43 percent for the year even after the sell-off. Lerado is ahead 10 percent, comfortably shaking off any negative impact from a profit warning Wednesday.
Prince Frog is just the latest in a long line of companies accused of massaging sales and financial data.
In March 2012, accounting firm Deloitte resigned from Boshiwa International Holding (01698.HK), saying it was not satisfied with the company’s response to questions about some of its transactions. The stock has been suspended since then.
Boshiwa has been selling its products at a discount of up to 70 percent. It has closed several outlets in Qingdao due to “higher rent and other reasons”.
Still, as long as the one-child policy U-turn remains a talking point, it will send investors every which way to make a profit. And anything resembling a baby product will be an easy sell as will any stock vaguely related to it.
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