China Zhongwang Holdings (tkr: 1333 HK)

Here is a good little summary (link: here) from South China Morning Post on the issues surrounding China Zhongwang, an aluminum extrusion company in China.  The company was *suspect* almost immediately out of its IPO gate.  For readers without access to SCMP, the issues include:

1. The company listed in May 2009.  Four months later, in September 2009, allegations emerged that the top 10 customers listed in their prospectus did not buy from the company in 2008 (or as I remember, far less)
2. Subsequently, the company hired Ernst & Young to look into these issues, but E&Y never completed its review (I wonder why...)
3. The company claimed to have produced and exported c.US$880million of aluminum extruded products  to the US in 2009.  However, US customs show that only US$514million of aluminum extruded product was imported from China in 2009
4. Third profit warning of the year (first two profit warnings in January and March)

wow...

I think a key point SCMP didn't mention is the margins of China Zhongwang stood at 38% (2010 operating income margin).  Aluminum extrusion is a simple and highly competitive business.  How is a simple commodity business capable of producing these eye-popping margins?  Understanding whether the business model and economics really make sense is one of the better ways of detecting fraud in China.  Numbers are deceiving, particularly in China.

This company is classic.