This Apple Supplier Denies Allegations of ‘Dubious Accounting’ Practices

May 11, 2017, 11:31 AM UTC

China’s AAC Technologies on Thursday denied accusations of “dubious accounting” practices from short-seller Gotham City Research that sent shares in the Apple Inc supplier sharply lower.

Gotham City Research, which has a short position in the stock, said the acoustic parts maker used more than 20 undisclosed related parties to overstate its profits and to evade Apple’s labour standards. It said its report, published on Gotham City’s website, was based on publicly available information and field research.

“The Board vigorously denies the allegations in the report and considers the information contained therein to be inaccurate and misleading,” AAC Chairman Koh Boon Hwee said in a filing to the Hong Kong Stock Exchange.

AAC said it has released all necessary information to the market and was seeking legal advice on the matter.

Citi analyst Dennis Chan said the Gotham City report did not change its positive view on AAC, adding that it was one of only three acoustic component suppliers to Apple and had much better pricing power than other suppliers to the U.S. tech giant.

“Our first take is there doesn’t appear to be enough evidence for these allegations,” said Jefferies analyst Rex Wu.

The company’s stock fell by as much as 14% to an intraday low of HK$96. The benchmark Hang Seng Index, traded flat.

Shenzhen-based AAC is a maker of miniaturised acoustic components including speaker boxes, speakers, receivers and microphones. Apple is one of its main clients.

AAC is expected to report first quarter earnings on Friday after market close.

Nine analysts, polled by Thomson Reuters before the Gotham City report, gave a median forecast for AAC’s net profit of 1 billion yuan ($144.88 million) on revenue of 4.1 billion yuan.

AAC in March reported a net profit of 4.03 billion yuan in 2016, up 29.6% from the previous year. It had a net profit margin of 26%.

The group was founded in Shenzhen in 1993 by current CEO Benjamin Zhengming Pan and his wife Ingrid Chunyuan Wu, a non-executive director, who together own 40.34% of the stock, according to AAC’s annual report.

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