Vitasoy issued its first full clarification to our report, calling our points baseless and completely false. Instead of clarifying, they have continued to fudge - raising more questions than answers.

They have conveniently dodged the questions that mattered most.

The most salient points in our report remained unanswered. They are:

  • Over-reporting of profits

  • Lack of bottom line growth in relative terms

  • Capex remains in question and ‘newly acquired leasehold properties’ seems worrying

  • Unsustainable China growth amidst strong competition

Let’s just focus on one key point - the clear discrepancy between SAIC filings and its reported numbers.

The company has stated that inter-company sales is the main reason for the differences between its reported numbers and SAIC figures. But this creates more questions than answers. Here’s why:

Source: SAIC filings, Vitasoy Annual Report

The table above compares the consolidated SAIC operating profit with what is reported by the company in their annual reports. The first thing to note is that operating profit was done on a consolidated basis where all of the 5 disclosed local subsidiaries’ operating profit numbers are added up together in comparing with the reported numbers by the company (see below for all of the SAIC snapshots for verification). We are comparing apples to apples.

Second, is the difference in accounting period. However, we don't think this small timing difference could drive such a large difference in absolute profitability, especially in the context of the low seasonality of the business from January to March.

If it indeed was inter-company transactions that account for the difference, the difference between the SAIC and reported numbers should grow or fall by a similar percentage. Yet, the opposite is true.

If you pay attention to the operating profits of SAIC filings from 2018 and 2019, you will see that while the profit numbers are relatively the same (RMB 368.57 m vs. RMB 389.10 m), the difference between the reported numbers has jumped from RMB 91.23 m to RMB 227.80 m.

This staggering difference is simply explained by the company as ‘inter-company transactions’ from a group level. What inter-company transactions would allow you to drum up additional profits of hundreds of millions? Given the fact that this happened during an already slowing sales on the local level (i.e. 14%), we find this even more problematic for Vitasoy. Are they going to conduct more inter-company transactions to fabricate more profits?

One convenient explanation again would be the licensing fees from China to Hong Kong. But that is a lot more licensing fees – c.140 Million RMB more – for roughly the same operating profits to the HK entity, and a large percentage increase from the previous year!

What’s more is that we have taken into account the discrepancies in the inter-company transactions that may have occurred between the Hong Kong and China subsidiaries.

Source: Vitasoy Annual Report

Given what was disclosed above is the inter-segment revenue (red-circled) – and it barely makes up 2% (77m / 4,628m) of Mainland China’s total sales. Also, the same for the Hong Kong operation, the inter-segment revenues only makes up 3% (67m / 2,264m) of total Hong Kong revenues. This must mean that most of the inter-company transactions happened between the China local entities.

Also, the big discrepancy in capital expenditures is attributed to the fact that the supposed leasehold properties that are excluded from the SAIC filings. This is worrying.

What about the fact that, as CLSA said, that SAIC’s “main function is for corporate registration and licensing, not the verification of company financials or investments"?

Does this mean that the company can put up fake numbers on SAIC?

Vitasoy has not answered any of our questions and their replies give us even more reason to believe that they have been dishonest with their reporting. If anything, it is time for the authorities to start investigating the company.


Below are the snapshots of the SAIC filings for the five disclosed subsidiaries for verification purposes:

Shanghai Subsidiary Income Statement:

Shenzhen Guangming Subsidiary Income Statement:

Foshan Subsidiary Income Statement:

Wuhan Subsidiary Income Statement:

Dongguan Subsidiary Income Statement (non-revenue generating and excluded from calculations):


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