Glaucus Research Issues Sell on Prince Frog, Questions Accounting

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Glaucus Research Group California LLC is initiating coverage on PRINCE FROG INTERNATIONAL HOLDINGS LTD (HK: 1259) with a Strong Sell rating,

Details from Glaucus Research‘s report below

Prince Frog International Holdings Ltd (HKG:1259) (OTCMKTS:PFGHF) (“Prince Frog” or the “Company”) is a People’s Republic of China (“PRC”) based producer of childcare products that raised RMB 536mm in a 2011 Hong Kong IPO. In this report, we present Nielsen retail sales data, a PRC government survey on consumer brand awareness, public tax records, and SAIC filings that, in our opinion, all independently indicate that Prince Frog’s actual sales are less than 25% of the figures reported in the Company’s public filings. We expect trading in the Company’s shares to be halted and its equity to be worth between HKD 0.74 to HKD 0.98 per share.

Glaucus Research Issues Sell on Prince Frog, Questions Accounting

  1. Nielsen Data Indicates Sales are less than 25% of Reported Figures. According to Prince Frog investor relations, the Company’s sales in its most important product category, children’s moisturizing lotions (ages 4-12), were RMB 723mm (46% of total revenues) in 2012. After a distributor markup, implied 2012 retail sales in the category must be at least RMB 1.205 billion for Prince Frog’s reported figures to be true. But according to independent data available from Nielsen (, the total retail sales of Prince Frog’s children’s moisturizing lotion products in 2012 were only RMB 135mm.
  2. PRC Government Survey: Prince Frog Not Even Top 8 in Brand Awareness. Prince Frog claims to be the #1 brand in children’s lotions and the #2 brand in children’s bath and shampoo products. However, when the Chinese government surveyed a random sampling of 13,500 Chinese consumers across 30 cities for the 2013 China Brand Power Index, the survey found that less than 7% of consumers sampled were aware (unprompted) of Prince Frog’s brand, meaning that Prince Frog did not even place in the Top 8 brands in the Baby/Child Bath and Moisturizing category.
  3. PRC Government Tax Records Indicate Net Income a Fraction of Reported Figures. The Zhangzhou government publishes an annual list, available to any investor online, recognizing local businesses that pay over RMB 10mm in taxes. Prince Frog, whose headquarters, production base and sole PRC operating subsidiary are based in Zhangzhou, claims to have paid over RMB 10mm in taxes every year since 2008. Yet Prince Frog appears on the government’s list only once (in 2012) and is conspicuously absent every year from 2008 through 2011, suggesting that it has paid far less in taxes than it claims in its public filings.

Glaucus Research full report below

Glaucus Research-Prince Frog Intl-HK 1259-Strong Sell Oct 16 2013

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