Another HK stock slumps after activist calls it a bubble

Hong Kong’s most famous stock picker is on the attack again, criticizing the accounts of one of the city’s top performers this year.

Kingdee International Software Group Co. dropped as much as 14 percent Monday as the worst performer on the Hang Seng Composite Index after David Webb published a critical report calling it a “bubble stock.” Webb did not specify whether he had a short position in the shares, nor what he thinks they should be worth.

The company “has relied on sector-specific tax breaks, government grants, property investment gains and questionable transactions with related parties to book any profit at all,” Webb wrote in a post tweeted during the city’s one-hour lunch break. An external representative for Kingdee said management is confident about the company’s future and considers its strategy a success.

Webb, a former Barclays Plc banker, founded a well-followed website two decades ago that gives away his research on Hong Kong’s publicly traded companies. He often advises readers to stay clear of certain firms due to corporate governance issues – and is often right. Stocks on his “not to own’’ lists have lost USD16 billion of their value since he warned against buying them.

Kingdee had rallied 53 percent this year through Friday’s close to near a record high, trading at a whopping 60 times projected earnings. Its annual report last week was welcomed by analysts, many of whom raised their price targets on the stock after Kingdee said revenue from cloud services surged almost 50 percent.

“Investors are taking this excuse to lock in the profit as the valuation of Kingdee is at demanding level,” said Kingsway Group Services Ltd.’s Steven Nie, one of only two analysts tracked by Bloomberg who recommends selling the stock. “There has been concern about its cloud business after it decided to acquire the cloud segment from its parent, as it doesn’t make money.” MDT/Bloomberg