Shares in Samsonite plunged for a second straight day on Friday, bringing its losses to a fifth of market value, after a short seller accused it of questionable accounting practices and poor corporate governance.
Blue Orca Capital on Thursday questioned accounting at the world’s biggest luggage maker, including those used in its 2016 acquisition of the Tumi brand and argued it did not deserve to trade at similar premium valuations to other luxury brands.
Samsonite, one of most high-profile Hong Kong-listed stocks to be targeted by a short-seller, has called the allegations “misleading” and “one-sided.” Some analysts also say that while the report could hurt its share price for some time, Blue Orca was underestimating positive earnings upside for the company.
The stock was down 12 percent in Hong Kong afternoon trade at HK$26.90, resuming trade after the company called for a halt a day earlier. That compares with Blue Orca’s valuation of HK$17.59 a share.
“The company has handled the incident quite well and efficiently. It halted trade of its shares when it felt the pressure and issued a statement to clarify the situation,” said Steven Leung, a sales director at UOB Kay Hian.
He added Blue Orca’s argument that Samsonite was not a luxury brand was an old one, and the stock price plunge could be seen as a buying opportunity.
Analyst Lorraine Chan at Morningstar said in a report that Blue Orca’s target price did not factor in the company’s ability to generate sustained positive free cash flow.
Prior to the Blue Orca report, the average recommendation from 14 analysts on the shares was a “buy,” Thomson Reuters data showed. Its shares hit a record high of HK$38.60 just last month on strong sales of Tumi-branded goods and expectations of further improvement in the luxury retail sector.
In its report, Blue Orca was also critical of how Samsonite engages in a number of related party transactions with entities owned by CEO Ramesh Tainwala and his family and said that its South Asian joint venture with the Tainawala family needed to be subject to more auditing oversight.
Samsonite, now valued at around $4.8 billion, said in a filing late on Thursday it was reserving the right to take legal action and would provide additional information in due course.
“Samsonite maintains very high standard of accounting and every allegation…is mischievous and false,” Tainwala said in an emailed response to a Reuters request for comment.
All inter-related transactions with his family were fully disclosed and regularly audited, he added.
Headquartered in Massachusetts, Samsonite is one of the few major foreign stocks listed in Hong Kong, alongside Prada and cosmetics firm L’Occitane International.
Blue Orca was launched this month by Soren Aandahl, a Texas-based short-seller who previously co-founded Glaucus Research, which has attacked several firms in the Asia-Pacific region.
These include Australia-listed fund manager Blue Sky Alternative Investments, whose shares have fallen more than 70 percent since Glaucus claimed in late March that it had overvalued assets and exaggerated its performance. Blue Sky has said the claims were incorrect and misleading.