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Monday,  December  20,  2010

Duoyuan Global Water (DGW)


Disclaimer and Independence: As  of  the  publica@on  date  of  this  report,  The  Davian  LeDer,  LLC  
has  a    posi@on  or  interest  in  this  company.  
TDL  Research
This  report  does  not  purport  to  be  a  complete  statement  of  all  material  facts  related  to  any  
info@davianleDer.com
company,  industry,  or  security  men@oned.    The  informa@on  provided,  while  not  guaranteed  as  to  
accuracy  or  completeness,  has  been  obtained  from  sources  believed  to  be  reliable.    The  opinions  
expressed  reflect  our  judgment  at  this  @me  and  are  subject  to  change  without  no@ce  and  may  or  
may  not  be  updated.    Past  performance  should  not  be  taken  as  an  indica@on  or  guarantee  of  future  
In Focus: performance,  and  no  representa@on  or  warranty,  express  or  implied,  is  made  regarding  future  
performance.    This  no@ce  shall  not  cons@tute  an  offer  to  sell  or  the  solicita@on  of  an  offer  to  buy,  
About  the  company
nor  shall  there  be  any  sale  of  these  securi@es  in  any  state  in  which  said  offer,  solicita@on,  or  sale  
would  be  unlawful  prior  to  registra@on  or  qualifica@on  under  the  securi@es  laws  of  any  such  state.    
When  was  DGW  founded?
This  research  report  was  originally  prepared  and  distributed  to  clients  of  The  Davian  LeDer,  LLC.

Why  does  the  address  look  familiar?


Our Recommendation: Sell/Sell Short $2.50 price target
Shared  facili@es?
About the Company: “Duoyuan  Global  Water  Inc.,  through  its  subsidiaries,  
DYP  overlap engages  in  the  manufacture  and  distribu@on  of  water  environment  protec@on  equipment  
and  water  treatment  products  in  the  People’s  Republic  of  China.  Its  product  categories  
comprise  circula@ng  water  treatment  equipment,  including  electronic  water  condi@oners,  
automa@c  filters,  circula@ng  water  central  processors,  cyclone  filters,  and  water  soSeners,  
which  are  used  in  the  process  of  trea@ng  water  and  removing  buildup  in  circula@ng  water  
systems;  water  purifica@on  equipment  that  use  ultraviolet,  ozone,  membrane-­‐based,  and  
electrodeioniza@on  technologies  in  the  process  of  trea@ng  and  purifying  water  for  various  
applica@ons  and  end-­‐user  customers  comprising  residen@al  communi@es  and  commercial  
businesses;  and  wastewater  treatment  equipment,  such  as  grit  separators,  microporous  
aerators,  and  belt-­‐type  thickener-­‐filter  press  mono-­‐block  machines,  which  are  used  in  the  
process  of  trea@ng  wastewater,  such  as  municipal  sewage,  and  industrial  and  agricultural  
wastewater.  The  company’s  customers  primarily  consist  of  wastewater  treatment  plants,  
water  works  facili@es,  manufacturing  plants,  commercial  businesses,  residen@al  
communi@es,  and  individual  customers.  It  sells  its  products  through  distributors.  The  
company  was  founded  in  1992  and  is  headquartered  in  Beijing,  the  People’s  Republic  of  
China.”1

Duoyuan  Global  Water


5/F  Duoyuan  Building
No.  3  Jinyuan  Road
Daxing  Industrial  Development  Zone
Beijing,  102600
People’s  Republic  of  China
Tel:  +86  (0)10  6021  2222
URL:  www.duoyuan-­‐hq.com

1  Yahoo!  Finance  Company  Profile;  DGW

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Monday,  December  20,  2010

When was DGW founded exactly?


Yahoo!  Finance  seems  to  believe  the  company  was  founded  in  1992,  but  on  the  company’s  website  it  says  that  it  was  founded  in  
1989  AND  1992.    Why  is  there  a  3-­‐year  discrepancy  and  how  can  a  company  NOT  know  when  it  was  founded?

1992?

DYP  ALSO  enters  market  in  same  


period,  1993?!?

1989?

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Monday,  December  20,  2010

Back  to  1992

A  closer  examina@on  of  the  company’s  


website  reveals  that  the  company  
itself  does  NOT  know  when  it  was  
formally  founded.  

Why does the company’s address look familiar?


The  address  looks  familiar  
because  it  is  the  same  address  
that  Duoyuan  Digital  Press  lists  
on  their  website  as  their  
corporate  HQ.

The  company  simply  removes  


one  line  from  the  address,  but  
we  have  been  assured  by  real  
estate  sources  in  Beijing,  that  it  
is  indeed  the  same  address.    
Does  it  make  sense  that  a  water  
company  and  a  prin@ng  
company  would  share  the  same  
head  quarters?

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Monday,  December  20,  2010

Duoyuan  Global  Water  lists  the  Langfang  facility  as  a  plant  or  area  of  opera@ons.    This  must  be  where  the  company  
produces  the  required  materials  and  equipment  to  carry  out  their  “water”  business.    Duoyuan  Digital  Press  also  lists  
Langfang  Manufacturing  base  as  an  area  of  opera@ons.    Could  it  be  that  this  plant  creates  water  equipment  and  doubles  
as  a  prin@ng  facility?    We  find  it  highly  unlikely.

A  plant  that  produces  water  


equipment  and  a  prin@ng  business?  
Who  owns  this  asset  DYP  or  DGW?

Contacted investor relations (IR) about who owns the Langfang facility?
Our  team  contacted  IR  on  12.17.10  and  we  spook  to  a  pleasant  woman  named  Ashley  who  listened  to  our  concerns  
about  overlap  and  who  owned  the  Langfang  facility.    Our  worry  is  that  the  asset  is  booked  by  both  DYP  and  DGW  on  the  
balance  sheet  under  the  property,  plant,  and  equipment  (PPE)  sec@on.    The  other  large  concern  is  with  the  equipment  
inside  of  the  plant  and  the  revenues  @ed  to  anything  produced  and  sold.      She  also  acknowledged  that  DYP  &  DGW  have  
the  same  address.

We  decided  to  examine  DYP’s  10-­‐Ks  to  determine  if  they  men@on  this  facility  and  sure  enough  they  do.    In  a  Form  10-­‐Q  
for  the  period  ending  March  31,  2010  the  company  states  that  they  have  construc@on-­‐in-­‐progress  at  the  LangFang  
Duoyuan  facility.    Under  the  PPE  sec@on  of  that  10-­‐Q,  DYP  claims  to  have  $4,292,379US  associated  with  the  
construc@on-­‐in-­‐progress  at  the  LangFang  facility.

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If  DYP  is  taking  construc@on  expenses  associated  with  the  Langfang  facility,  does  that  mean  they  own  it  and  does  DGW  
also  Langfang  claim  it  on  their  balance  sheet  as  an  asset?    Why  does  DGW  show  this  facility  on  their  website  as  a  source  
of  opera@ons?      This  is  highly  suspect  in  our  opinion  and  fear  the  company  is  double  booking  revenues  &  expenses  
associated  with  the  Langfang  plant.

From  DYP’s  Form  10-­‐Q  for  the  period  ending  December  31,  2009:  “Langfang  Duoyuan  is  located  in  a  Special  Economic  
and  High  Technology  Zone  and  the  PRC  tax  authority  has  offered  a  special  income  tax  rate  to  Langfang  Duoyuan  for  doing  
business  in  the  special  zone.  With  the  approval  of  the  local  government,  Langfang  Duoyuan  is  exempt  from  income  taxes  
for  five  years,  commencing  with  their  first  profitable  year  of  opera@ons.  Langfang  Duoyuan  has  opera@ng  losses  prior  to  
the  calendar  year  ended  December  31,  2002,  and  began  genera@ng  a  net  profit  for  the  calendar  year  ended  
December  31,  2003.  Therefore,  Langfang  Duoyuan  had  an  income  tax  exemp@on  for  the  years  ended  December  31,  
2003,  through  December  31,  2007.  Langfang  Duoyuan  has  been  subject  to  an  income  tax  rate  of  25%  star@ng  January  1,  
2008,  under  the  newly  unified  corporate  income  tax  rate.” 2

From  DGW’s  website.  It  is  the  


only  facility  they  have  listed!

2 Duoyuan Printing Inc. December 31, 2009 Form 10-K (filed February 11, 2010), page 11
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With massive overlaps to Duoyuan Digital Press (DYP) investors should be weary.
Earlier  this  year,  DYP  saw  it’s  stock  drop  massively,  aSer  the  company  fired  it’s  auditor  at  the  @me,  DeloiDe  &  Touche  
(DeloiDe).      DYP  cited  that  DeloiDe  was  hanging  up  the  company’s  10-­‐K  filing  and  we  think  righwully  so.  DeloiDe  was  
reques@ng  access  from  DYP  to  certain  expense  reports,  bank  accounts,  etc.,  linked  to  $3MM  in  expenses.    The  company  
would  not  grant  the  firm  access  to  these  records  and  DeloiDe  refused  to  sign  off  on  the  report.    A  short  @me  aSer,  
DeloiDe  was  fired.

Since  there  is  much  overlap  between  these  two  companies,  DGW  saw  their  stock  sell  off  in  the  wake  of  the  DYP  fiasco.    
Management  has  since  hired  a  third  party  audit  commiDee  to  review  their  prac@ces  and  this  will  most  likely  come  back  
posi@ve,  which  should  be  no  surprise  and  taken  as  a  grain  of  salt.

Wenhua Guo, the founder and chairman inks deals between his companies. How are investor
interests protected?
Mr.  Guo  is  the  founder,  chairman,  and  at  one  point  the  CEO  of  DYP  and  DGW.    A  recent  10-­‐Q  from  DYP  shows  that  
Wenhua  Guo  has  related  party  transac@ons  in  between  his  companies.    In  this  example  DYP  rents  office  space  from  
Duoyuan  Informa@on  Terminal  Manufacture  Co.,  of  which  Wenhua  Guo  is  the  sole  shareholder.    The  lease  between  DYP  
and  Mr.  Guo  is  for  $990,000US  over  three-­‐years.    This  property  was  owned  by  Duoyuan  Water  Recycle  Technology  
Industry  Co.,  who  was  also  a  related  party.  

Mr.  Guo  has  a  lucra@ve  arrangement  in  place  here.    DYP,  a  company  that  he  has  a  significant  interest  in,  leases  from  
another  company,  which  Mr.  Guo  is  the  sole  shareholder  of  Duoyuan  Informa@on  Terminal  Manufacture.3

3 Duoyuan Printing Inc. December 31, 2009 Form 10-K (filed February 11, 2010), page 18
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When asked, management cannot provide utilization rates?


When  recently  asked  on  a  conference  call  what  the  u@liza@on  rate  is  at  the  company’s  facili@es,  management  had  no  
answer  for  this  inquiry.    We  find  it  odd  that  a  company  supposedly  cash  rich  and  growing  like  crazy  cannot  cite  a  
u@liza@on  rate.    If  DGW  was  in  fact  growing  like  management  reports,  we  would  an@cipate  u@liza@on  rates  to  be  in  the  
70-­‐80%  range.    This  is  not  a  difficult  number  to  compute  and  any  company  with  a  good  enterprise  resource  system  (ERP)  
and  efficient  opera@ons  should  be  able  to  report  a  general  number  with  rela@ve  ease.    

Here  was  Mr.  Guo,  DGW’s  Chairman  and  CEO  from  their  last  conference  call  on  u@liza@on  rates:

“Michael  Cox  of  Piper  Jaffray:  Okay.  Thank  you.  And  then,  I  was  wondering,  if  you  could  talk  about  your  capacity  
situa@on  or  where  you  are  from  a  u@liza@on  standpoint  at  your  Langfang  facility?

Wenhua  Guo,  CEO  and  Chairman:  I  want  to  share  three  points  with  you,  firstly,  given  the  current  basic  produc@on  
situa@on  we  have  around  the  whole  year,  we  are  opera@ng  at  almost  maximum  capacity  and  at  the  beginning  of  the  
given  year  [inaudible]  it  comes  to  the  end  of  the  given  year,  our  capacity  u@liza@on  will  usually  be  lower  than  the  difficult  
months  of  the  given  year.  And  secondly  from  a  professional  expert  –  professional  specialist  point  of  view,  we  are  
transforming  our  facility  from  a  manually  operated  factory  into  an  automated  assembly  line.  And  thirdly,  we  are  
transforming  our  facility  from  a  mul@-­‐product  line  into  a  professional  diversified  product  porwolio  based  opera@on.  I  feel  
it  is  very  hard  for  me  to  give  you  a  posi@ve  number  to  describe  the  u@liza@on  ra@o  of  our  capacity.  Thank  you.”4

Conclusion
It  is  our  conclusion  that  if  DGW  is  not  commi|ng  fraud  by  double  booking  assets  and  expenses  @ed  to  certain  assets,  we  
would  be  surprised.    There  are  simply  too  many  loose  ends  and  small  things  that  do  not  add  up  at  both  DYP  and  DGW.    
Mr.  Guo  has  done  everything  to  make  himself  untrustworthy  and  un@l  he  provides  more  clarity  into  his  companies  book,  
we  think  both  companies  could  be  a  fraud.  

Both  companies  have  become  sloppy  and  have  even  made  errors  on  their  websites.    A  company  should  know  when  it  
was  founded  and  ensure  that  the  correct  data  is  on  the  website.    The  fact  that  DYP  is  already  under  scru@ny  for  it’s  
accoun@ng  prac@ces  should  make  investors  in  DGW  very  concerned.    Not  only  do  these  companies  share  Mr.  Guo,  but  
headquarters,  plants,  etc.  

4 Bloomberg Earnings Call Transcript, 11.17.10, DGW US


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Monday,  December  20,  2010

Disclaimer and Independence: As  of  the  publica@on  date  of  this  report,  The  Davian  LeDer,  LLC  has  a    posi@on  or  interest  in  this  company.  

This  report  does  not  purport  to  be  a  complete  statement  of  all  material  facts  related  to  any  company,  industry,  or  security  men@oned.    The  
informa@on  provided,  while  not  guaranteed  as  to  accuracy  or  completeness,  has  been  obtained  from  sources  believed  to  be  reliable.    The  opinions  
expressed  reflect  our  judgment  at  this  @me  and  are  subject  to  change  without  no@ce  and  may  or  may  not  be  updated.    Past  performance  should  not  
be  taken  as  an  indica@on  or  guarantee  of  future  performance,  and  no  representa@on  or  warranty,  express  or  implied,  is  made  regarding  future  
performance.    This  no@ce  shall  not  cons@tute  an  offer  to  sell  or  the  solicita@on  of  an  offer  to  buy,  nor  shall  there  be  any  sale  of  these  securi@es  in  
any  state  in  which  said  offer,  solicita@on,  or  sale  would  be  unlawful  prior  to  registra@on  or  qualifica@on  under  the  securi@es  laws  of  any  such  state.    
This  research  report  was  originally  prepared  and  distributed  to  clients  of  The  Davian  LeDer,  LLC.

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