Short Sellers Were Right, Tech Pro Sales Down 50%, Bleeding Cash


After numerous negative reports on Tech Pro, 3823 hk, the company finally proved them right.  After giving a vague profit warning on August 5, its newly-released first half financials showed another big loss.  On the balance sheet, its cash dropped by 46.8 million rmb taking it down to 81.7 million rmb.

tech pro first half


On the surface, the revenue drop is marginal. Digging deeper, from the segment breakdown, the predictions of the downsizing of the LED business are proven true with a drop of 50%. Despite the drop in sales, there is an outsize increase in administration costs. The company attributed this primarily to an 81 million rmb increase in pro-team expenses. (The team, Sochaux-Montbéliard SA, (FCSM), was acquired in July 0f 2015. It has a listed asset value of 132.9 million rmb against liabilities of 53.3 million rmb. It was acquired for 7 million euros or about 52.5 million rmb.)

tech pro segments

The company gives little explanation for the marked decline in LED sales.  It hopes to improve that segment by attending exhibitions in Europe.

Rental JV Uncertainty

As Glaucus reported in August, the company’s 50% JV interest in Shanghai Fuchao represented a sub-lessor in a building in Shanghai called Universal Mansion.  The building was owned by the Logistics Department of the Chinese People’s Armed Police Force.  In the first half report, Tech Pro stated:

On 30 May 2016, the Group announced that the Central Military Commission (“CMC”) of the PRC issued a notice (the “Notice”) on 27 March 2016 on the stopping of all paid services of the People’s Liberation Army (“PLA”) and the People’s Armed Police Force (“APF”) (關於軍隊和武警部隊全面停止有償 服務活動的通知), pursuant to which, the PLA and the APF are set to stop providing all paid services, which is expected to be completed in three years. The Group has been carrying out study on the impact of the Notice on the business and operations of the sub-leasing services business. The Group has consulted its PRC legal advisers and was advised that since the CMC has not yet specified on how to deal with existing contracts regarding real estates of the military, there are uncertainties as to when and how the rental arrangement under the leasing agreements would be affected by the Notice.

The Group expects that the property market in the PRC remains favorable. As the location of the premise that the Group operates the sub-leasing business is at the prime area in Shanghai, the vacancy rate is low and the rent is stable. It has less sensitive to the volatility in the PRC economic situation.

It’s interesting to note that the company was informed in May in 2016, but has continued its proposed the buyout of the other 50% of the JV despite this glaring uncertainty.

To recap the bellwethers of Tech Pro’s Fall:


The Wall Street Journal noted the strange trading movement at end of day plus the tripling in stock value in 2 years despite repeated, declining losses.



  • The LED business is deteriorating with poor margins
  • Revenue growth in the LED business is suspect
  • The soccer team will need big investments
  • It will continue to need debt or equity financing to fund its operations



Strong sell, no value

Accused of fraudulently over-reporting transactions and income.  Stock dropped over 90% in one day on that announcement; dropped all the way to .14 but has since recovered to .25. (Was 2.27 before the fall).





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