Shares in mainland vegetable farmer Chaoda Modern Agriculture tumbled 5 per cent yesterday after analysts raised strong questions about the company's high levels of capital expenditure, with one saying he had no idea where the money was going.
Fujian-based Chaoda, which supplies produce to supermarkets and wet markets on the mainland and in Hong Kong, told analysts after its interim results presentation on Monday it will spend 18 billion yuan (HK$21.34 billion) by 2013 on projects, including new irrigation systems and greenhouses.
Nomura analyst Emma Liu wrote in a research note issued late Monday night that this amount 'cannot be justified'.
Meanwhile, Macquarie analyst Jake Lynch wrote in a note yesterday: 'We cannot seem to get an answer to the question, 'where is the extra money going to?'' In the note, entitled 'Still confused', Lynch said Chaoda's capital expenditure was already 34,511 yuan per mu, which was 'too high' for a mainland vegetable grower. Both analysts declined to comment.
A Chaoda spokeswoman said she could not reach company directors and was not authorised to comment on their behalf.
It is unusual for investment banks to publish negative reports about large Chinese companies, which brings the risk of losing future opportunities advising on deals.
