Sandalwood company Quintis has conceded its biggest sales contract is under a cloud because its core Chinese buyer has not requested any shipments this year amid a Beijing probe into customs evasion.
The admission comes as the group formerly known as TFS looks to fend off arguably the most aggressive short-selling campaign in Australian history and allay fears of traders and the markets regulator alike.
The company entered a trading halt yesterday after the ASX threatened to force it into a suspension unless further details were provided on its customer contracts and apparent inaccuracies in a report from activist short-seller Glaucus Research.
It was the second time in less than a week that the market regulator had requested extra information in light of a scathing 39-page commentary from Glaucus on Wednesday.
In the view of Glaucus, which stands to profit by Quintis underperformance, the group is “worthless” and that it has used “Ponzi-like marketing materials” to allegedly draw investors into the company.
Quintis responded by reaffirming guidance last week but it was not enough to soothe market worries and its valuation was slashed by almost a quarter.
The Chinese customer that is its largest buyer of Indian sandalwood, Shanghai Richer Link, is little known. Glaucus alleges it is “a tiny commodities importer with minimal operations and a small balance sheet”.
In a response to the market after the close yesterday, Quintis said the owners of Shanghai Richer Link “operate a large and established timber import and processing business in China”.
It defended the contract announced in February last year, saying it received $US2.25 million last year as an upfront payment for the first shipment.
However, no requests for shipments have been made this year and Quintis said it had last year begun searching for other buyers.
The chase appears to have been kickstarted by news that Shanghai Richer Link had been questioned by Chinese authorities over alleged customs duty avoidance. That investigation has led to a report on the issue from state-run CCTV, with video footage released last week including an office door with a TFS logo. The footage is believed to be from 2016.
“If Quintis becomes aware the customer has been charged or has been engaging in customs evasion, it will immediately terminate the contract and begin supplying these other customers who are seeking our wood products,” the company said.
“Quintis is monitoring this issue, reviewing its commercial relationship, and is likely to begin supplying additional customers in China.” Quintis said there was “no credit risk”, given all payments for deliveries were set to be made upfront.
Question marks over the deal, which has an annual volume of 150 tonnes, have not been enough for the group to push guidance down. It came amid a broader defence of its operations in the wake of the Glaucus report. Quintis said the short-seller had made several “unfounded allegations” based on “cherrypicked facts”.
Among its qualms was Glaucus’s purported misrepresentation of prices for sandalwood oil. Quintis said the activist investor had failed to note the differences in valuation for higher quality product.
“All of Quintis’s plantations are of the premium Indian sandalwood variety,” the company said. “By failing to make the distinction between pricing levels for oil derived from the various sandalwood botanical species, Glaucus has performed a highly flawed and misleading pricing analysis.”
QIN Price at posting:
$1.10 Sentiment: None Disclosure: Not Held
