Chaoda Modern Agriculture

Chaoda (0682.HK) is one of China’s largest public agricultural companies and was listed on the Hong Kong main board in 2000 with a peak share price of HK$9.46 in April 2010. Its share price was HK$1.10 just before it was suspended.
Chaoda’s business model consolidates small pieces of farmland from farmers into large parcels, upgrading the infrastructure, diversifying products, and bypassing the middleman. Farmers are then re-hired and paid a higher salary to grow high margin produce on the improved land.

The first major allegation was from a Next Magazine report on 26th of May 2011, claiming that Chaoda had overstated its farmland holdings. On the 23rd of September, the Hong Kong Market Misconduct Tribunal accused Chaoda Chairman Kwok Ho and its Chief Financial Officer Andy Chan, of insider trading. Chaoda requested the suspension of trading of its shares on 26th of September, following the release of Anonymous Analytics’ report, alleging that Chaoda inflated their capital expenditures, was involved in related party transactions and had other infractions.

In Moody’s report released in 11th July 2011, Chaoda tripped several red flags. One of which was the extremely constant gross profit margin. Anonymous Analytics calculations revealed that Chaoda would report gross margin within a 65.7% - 68.5% range 99% of the time, which is very unlikely for a vegetable producer, implying that its financial statements were inaccurate. It also shows that Chaoda is unaffected by market movements, product quality issues and any form of natural disasters. Significant related party transactions were also discovered. Unlike its competitors who contracts a few fertilizer suppliers to ensure competition and quality, Chaoda only has a single source – Fujian Chaoda, which is owned by Mr. Kwok, through a holding company. Since 2001, approximately