NetPosa's Terrible Situation Worsens

By Charles Rollet, Published May 19, 2020, 08:12am EDT (Info+)

NetPosa is fighting for its existence as the situation worsens for what was once the PRC's largest VMS provider. The firm is being investigated by Chinese securities regulators, has suffered another 90% sales drop, and has seen its embattled and debt-ridden founder resign from the board of directors.

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Last year, NetPosa was already under crisis for its many financial and legal issues. In this note, we examine the latest developments for this troubled firm, including:

  • NetPosa Background: Already Under Crisis
  • 2019 And Q1 2020 Report Dismal
  • Lower Government Spending, Strong Competition
  • Police Provider Subsidiaries Hit Hard
  • CSRC Investigation Of Liu Guang, NetPosa Announced
  • Investigation Impact Examined
  • Stock Price Mystery
  • Bad Look For Sichuan SASAC
  • NetPosa Response to Crisis

******* ******* ***** ******

** "****** ** *******" (******* ****), **** ******** ***** how ******* *** ******** ******* ****** bills **** *** ****** ***** ********** clients, **** *******'* ***** ******** ********** standing ****** **** *** ****** ******* of $**** ** ****, ***** *** made ** *****'* ******* *** ******** at *** ****.

*******'**** *** ***** *** **** ***** to **** **** ******** ****** ** debt ** *** *******'* ****, ********* in ******** **** ********* *** *** shares ******* ******, * *********** ********** ***** *** ******* ********** government *** ****** * *********** ***** in *** ****.

* ***** *****, **** ******** ***** how*******'* ** **** ********* **** **** **%*** **** ** ********* ***** *** ********** *** **** *******.

2019 *** ** **** ****** ******

** ******* ******* ******** ******* ****** ******,******* * ****** ********* *********. *** **** *** ***** ** **** $51m **** ****, **** **% **** the **** ******, *** ***** ** losing $**** (******* ***** *** ** Chinese ****):

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* ***** ******* ** *** ****** bills *** ** ** ******* ***: of *** $*** ******* ** ****** bills ******* *** ** *** *** of **** **** **** **** *** customers, $*** ******* **** **********'*** *****'*.*., ************* *** **** ******* ** expenses.

***** ****, ****** ******** *******. *******'* ***** **** **% ** only $*.** *** *** **** ****** a **** ** $**.**. *** ********* unpaid ***** ********* **** ******** (*%) to $*** *******.

***********: ***** ********** ********, *** ***********

******* **** ***** **** ******* **** incurred ** "***** ******* ** *** security ********," ******* ********* ***** ********** resources ******* ******** ** ** ******* or **** *******, ** ********* ** ************:

*** ******** ****** ** **** ** not ** **** ** ******** [...] S******* ******** *** ********: ******** ******** in ******** ******* *** ******* ** bidding ** **************, *** *** **** of ********** ******** *** ****** **** significantly. ******* ******* ** ********, *** the ******* ****** ** **** ** long ** *-* ***** [...] *** to *** ******** ** ********** ****** of ***** ***********, **** ******* ******** projects **** **** ********* ** **** terminated, *** *** **** ** ******* for ********* ******** ** ****** **** expected.

** ** **** **** *** ********** spending ** ***** ************ *** ****** in ****** *****. *** *******, ********* executives******** **** ************* **** *** "************ ****** **** the ****** [**********] ******** ******** *** fewer *** ********" ***** *********'* ********** sales **** *****% ** $*.* *******. *******, *****'* no ******** ** * ***********, **%+ style **** *********** ** *******.

******** ** ********** ***** **** *** the **** ****** ******* ******: ** also ******* ** *** ****** ***** *********** **** ******* (*****'* ******), Huawei, *** "** ********" **** ****** and *********:

*** ******** ***** ** ********** ** the ******* ** ***** ** *** security ********. ***** ******* ****** **** as ******* *** ******, **** ** unicorns, *** ******** *** ******** ** the ******** ********, ***** *** *********** competition

Police ******** ************ *** ****

******* **** **** **** *********** *** two ************ ********** ****,***********************,**** *** ****** ***** ************ ******** providers.

*********, * ******** ********, **** **** making ****** $** ******* ** ******* in **** ** ****** $** ******* of ****** ** ****. ***********, ***** focuses ** ***** ******* ********, **** $4.3 ******* ** ******* ** **** but **** $**.* ******* ** ****:

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*** ********* *** ***** **** *****, Hikvision, *******, ******, ******, *** ********* is *** **** ****** ********* **** PRC ******/**********, *** **** ***** ******* sector *****, ********* ******* *****.

**** ************* *********, ***** *******

** ***** **, ******* ********* **** its ******* *** ***** *** *** company ****** **** ***** ************ ** the***** ********** ********** ********* (****):

**. *** *****, *** *******'* ****** controlling *********** *** ******* ********, ******** the "***** ********** ********** ********** ********** Notice" (******* ************* ****** **. *******), due ** *** ******* ’* ******* information ********** ********* ** **** *** regulations [...] *** ******* *** **. Liu ***** **** ******** ********* **** the **** ** *** ***** ********** Regulatory ********** *** ********* *** ******** comply **** ********** ************ ** ******* information ********** ***********.

*** **** *****, *** ************* **** *******'* ***** ** *********. ******** ***** *** ** ***********, PRC ***** ******** **** *** ******* to *** *************'* ************.

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CSRC ** *******; ***** ** ******* ** ************ *****

*** ****, ** *********, *** *** announce ******* **** ** *** ************* Guang *** ******* ****. *******, *** possibility *** *** ******** ************ ***** Liu ***** ******** **** ****.

** ************, ***** *** '*******' *** ******* shares *** ****. ** *******'* ***** price ********, ** ****** **** ** cover *** *******. ** *** **** cash, ** ******** ******** ***** ** NetPosa's **** ******* ****** ***** *************. Guang **** ******** **** ** **** manner ** *** **** *******'* ******** accounts ********** *******.

** * ****** ** ***** *****, Guang *** **** ** *** **** creditors, *** *** ****** **% ***** in ******* *** ******. ** *** time, ***** ***** ******* * ******** $220 *******, ** ***** **** $** million *** **** **** ** ***. IPVM ***** *** **** ** ****** from ******* ** ******* ***** **** figure ****** ** ** *****.

Investigation ****** ********

* **** ************* ** *** *********** fatal. *********'* *** *** ********** ** *** **** ****,*** ***** *** **** * ******* ********* ******* ****.

*******, ******* ** ** *** ***** financial ***** **** *********, *** *** potential ***** *** *** ************* (**** unpaid *** ************ *****) ** **** serious **** *** ********* (*********** ***** sales).

Bad **** *** ******* *****

*** **** ******** **** **** ******** over *******'* ***** (*** ********** ************ overseeing *****-***** *********) *** ****** * controlling ***** ** ******* **** ****. PRC ********* ***** **** ********* ** this,**** ******"****'* ***** **** ******* *****?" *** saying ** "******* ** * ****".

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******, ******* ***** ****** * *********** 26% ***** ** ******* ** *** 2019 ** *** ***** ** $*.** per *****, ***** ******* ********* ****** at ******** **** **** ** *****, a -**% ******.

** *** ****, ******* *****'* ******** was **** ** * ******** ********** trying ** ******* * ********* **** business **** *** ****** ** ***** times *** ********** * ******* **** for *******.

******* ***** *************

*******'* ***** ***** *** ****** ************** is ********, ** *** *** *****. Despite *** ******* ********, ******* ********* has * ****** ************** ** ******$*** ******* (*** *.** ******* *** highlighted *****):

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**** ** ******** *** * ******* that ********* **** ******** ** **** $51 *******, *** ***** *** **** legal ******. ******* ** ******* ** nearly *** *******, ***** ** **** consistent **** ********* ********** ******* **%, instead ** *******'* ****** **% *******.

*** ******* ********* **** ******************** ***** *******'* *********** *** **** reputation **** *********, ** "*** ** delisted" **** *** ******** ***** ********. However, ** ***, ***** ** ** sign ** **** *********.

******* ******** ** ******

******* **** ** ** ********** ** its **** **** **** ******* **** various *****:

  • ******* ** ***** **** $** ******* for *** **** ** *** ********* subsidiary ***** *********** ***** ************ ****** **** ****** ***** ** selling *** ****** ** *** **** on *** **** ******. ** ***, this **** *** *** ********* ***.
  • ********* ********* *% ***** ** **** ** a ***** ***** ****,*** *****,** ********** ** ***** ** ****** a $** ******* ****.

***** **** ** ****, *** **'* not ***** ** ** *** **** can **** ** *** *** *******'* fundamental ********, ******* * **** ** paying *********.

******* ** ********

******* *** *** ******* ** ****'* repeated ******** *** *******.

******* ****

***** *******'* ********* ******** *** ***** from *** *** ********* *******, ** are *** ***** ***** *** *******'* problems ******* *** ******* ***** ************ market. *******, **** ***** ***** ************ companies *** ********** ** ******* ******* including **** ******** *** ****** ** coronavirus (****** ******* ******** ******* ******* that).

**** **** ** ********** ** ***** is ******* ******* ** **** ** an ******* ** * **** ** fundamental ******* *** *** **** ****-****** 2010s ***** ***** ************ ******.

Comments (6)

Charles, good reporting!

One thing I find fascinating is the stock price. We have long noticed that the valuations for China video surveillance companies were far higher than non-China companies with similar revenue and profits. A few years ago, a reasonable case could be made about the projected growth, i.e. the valuation may seem 'high' but assume, e.g., the company increases revenue by 30% annually for 5 years, that company's revenue will roughly quadruple. Often this does not come true but some times it does.

Now, with a company like Netposa, it's hard to justify anything close to this valuation. Purely on the fundamentals, a company that did $51 million in revenue, dropping 80%, while losing $370 million would be hardly worth anything - it would be hard to justify paying $10 million for such a company, compared to Netposa's actual market cap of ~$470 million.

So do these companies just keep artificially high valuations indefinitely or?

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But what about their stake in Knightscope? That's got to be at least worth $100MM... lol

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Update: The US government has just announced sanctions against Netposa for human rights abuses.

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Knightscope took $5M from Netposa... it's unbelievable they can raise this much money from retail investors with no questions or concerns on all the shenanigans with Netposa to include having sanctions. That CEO is good!!!

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Update: the Shenzhen Stock Exchange has issued a "public condemnation" of NetPosa for its massive unpaid loans and non-disclosures, stating:

The above guarantees failed to fulfill the review procedures and information disclosure obligations in a timely manner [...] Major events were not disclosed in a timely manner.

This notice carries no legal weight, so functions as more of a warning to investors. NetPosa is still being investigated by the CSRC, which does have law enforcement capacity.

The Securities Times, a news publication affiliated with the stock exchange, reported that if the CSRC ultimately gives NetPosa an administrative penalty, investors that bought NetPosa's shares during a certain period of time may be entitled to compensation.

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