Global Hunter Maintains 'Buy' on Deer Consumer Products (DEER); Recent Wuhu Site Visit and Diligence Related to Land Grant Acquisition

April 14, 2011 8:10 AM EDT
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Global Hunter Securities maintains a 'Buy' on Deer Consumer Products (NASDAQ: DEER), PT slashed from $18 to $12.

Global analyst says, "Deer has been under significant pressure in recent weeks as numerous accusations have been made against the company from several sources. The company has since responded with blanket lawsuits and an investigation into those responsible for the allegations. We note that we have not underwritten the company nor do we have a vested interest in the outcome of the company. The sole purpose of this note is to share the findings from our recent diligence trip. While the allegations are broad ranging, our intention is to address what we feel are the most significant accusations -- the potential misappropriation of funds relating to the Wuhu land rights acquisition. Though these accusations have evolved and softened over time as additional information has emerged, we still felt it necessary to address this issue first. The purpose of this note is simply to present our findings after having spent two days in Wuhu in an effort to gather factual information related to this transaction."

The government and bank representatives that we met with were:

  • Ji Xuemin: Director of Wuhu Economic and Technological Development Area (WEDA)
  • Deng Xiaohong: Deputy Director of the WEDA Investment Promotion Bureau
  • Xiaoming Ying: Senior Staff Member, Wuhu City National Land and Resources Economic
    Development Zone Bureau, Law Enforcement and Monitoring Office.
  • Gang Liu: President, Agricultural Bank of China, Wuhu Export Processing Zone Subbranch

"In our discussions with the WEDA and Wuhu City Land and Resources individuals we were able to present and verify the land grant certificate that had been previously disclosed by the company in an 8K and to discuss the validity of the ongoing public notice period for the second parcel of land. It was explained to us by Mr. Ying that the company acquired the land use rights through a bid process in which there were multiple parties (which could not be disclosed) but can somewhat explain the premium paid on a per Mu basis relative to other publicly posted transactions. Mr. Ying also stated that he would expect that Deer should receive the second land grant certificate in the near future. Given that Government officials are not the most forthcoming individuals, it was impossible to get a sense of the relative value of the parcels and requests for assistance in establishing comparable valuations were pushed off with a common answer to further questions: those issues are “not my responsibility.” It became clear that to establish a market value for those parcels the company will need to deposit them with a commercial bank at which time an appraisal will be conducted and the value determined will be used as a collateral basis by which the bank could then issue a letter of credit to the company. The attached pictures show the office building in which we held meetings with both the WEDA representatives and the representative from the Wuhu City Land bureau; the land grant certificate that
we verified with both Mr. Ji and Mrs. Deng (seen in the background of the picture); the plaque identifying the Wuhu City National Land and Resources Economic Development Zone Bureau and the second plaque identifying the Law Enforcement and Monitoring Office in which we also presented the land
certificate and verified its authenticity with their office representative, Mr. Ying."

For more ratings news on Deer Consumer Products click here and for the rating history of Deer Consumer Products click here.

Shares of Deer Consumer Products closed at $7.64 yesterday.

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Watching value stocks on 2011-04-15 11:00:55
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great to hear this from independent firm.Next stop for DEER will be 12 and than 18.

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