From Briefing on DYP & DGW....Tgt $3&$9
Duoyuan Printing: Additional color on weakness in DYP and DGW (3.22 -3.33)DYP (Duoyuan Printing) is down by -52% after it announced it has removed its CEO and CFO, terminated Deloitte as its auditor after the accounting firm aired "open issues," and announced the resignation of several directors. With regard to DYP, Deloitte requested that the Company provide permission to access original bank statements to complete its audit procedures to verify the identity of certain individuals and entities associated with third party distributors and vendors. As of the time of Deloitte's dismissal, the Company had not granted such permission because it believed the method and scope of the request was overly broad for the purpose of verifying the identity of such individuals and entities. Deloitte informed the Chairman of the Audit Committee of such disagreement and the matter was not resolved by the time of Deloitte's dismissal. Additionally, according to a DYP filing, "In the course of its audit procedures, Deloitte identified supporting documentation for approximately RMB24 million of expenses related to advertising and tradeshow costs, the authenticity of which could not be verified to Deloitte's satisfaction. Deloitte suggested to the Audit Committee that it investigate these expenses. The Audit Committee has undertaken an independent investigation. At the time of its dismissal, Deloitte had not received subsequent information from the Audit Committee on the progress or outcome of the investigation... In the course of its audit procedures, Deloitte received information regarding certain distributors and vendors that appeared inconsistent with certain information that the Company had provided. Deloitte informed the Company and the Audit Committee of the inconsistencies. The Company worked to address these inconsistencies, but at the time of its dismissal, Deloitte had not received complete explanations from the Company to address all of its concerns... Deloitte advised the Audit Committee that it was informed by the Chief Executive Officer and Chief Financial Officer of the Company that they felt they did not have access to the information on the open matters referred to above nor were they in a position to assist the investigation. Deloitte expressed its concerns as to the impact of this on its ability to rely on the future representations from those members of management that it would otherwise seek to obtain as part of its normal audit procedures.
DGW (Duoyuan Global Water) is down 45% this morning, following DYP lower. Although the two companies operate in different industries, they are related by their majority shareholder -- Duoyuan Investments Limited. In a 20-F filing in June, DGW disclosed that Duoyuan Investments Limited, wholly owned by Chairman Wenhua Gao (chairman of both DYP and DGW) owned 48.6% of DGW shares.
Piper Jaffray has since downgraded DYP and DGW to Underweight from Overweight, setting their tgts at $3 and $9, respectively, as a result of this morning's news.
