SMC (6273): Accounts Beg Questions; SMC Keeps Plug on Answers

SMC responses, dated December 13, 2016 and December 14, 2016, to our original report “SMC (6273): Puncturing the Myth” barely address the key issues we have raised. The company claims there is “no problem” with their accounts and offers no evidence to support its position. The company’s comment on Seiyo is simply that they “have been with the auditor since 1987.” We didn’t expect anything else. We and the investment community have yet to hear any empirical response on the important issues.

  1. Pledged sharesby TON Finance BV.  The pledge could be oddly similar to the Satyam fraud case in India where the Chairman pledged shares to use cash to inject into the company.
    1. Why are these shares pledged and where has the cash gone?
    2. Why are the Dutch and Japanese regulatory disclosures different in terms of how many shares were pledged and when?
    3. Which disclosure is correct?
    4. Kazumasa Yajima is listed as the Resona representive for TON finance in the 2009 Edinet filings. What role does he play?
  1. We believe that interest income ex. Japan and China being negative is a smoking gun.  SMC conveniently claim that the missing cash sits in USA, Hong Kong, Taiwan and Brazil. As we demonstrated in the report, however, it is unlikely that those entities hold any significant cash.
    1. This should not be difficult to verify. SMC, when can we expect to see notarized copies of cash balances for the remaining subsidiaries?
    2. Why should investors rely on the audit of SMC’s manufacturing subsidiary in Singapore, which holds JPY49 billion in cash(JPY41 billion in 2014), when its audit takes less than 14 days to complete and the company secretary is married to a recently retired partner of the audit firm overseeing the account?
    3. A significant portion of SMC’s purported cash, JPY24 billion in SMC (Beijing) Mfg. Co. Ltd. (in 2014), sits in its manufacturing subsidiary in Beijing China. Considering that a large portion of sales from this subsidiary are to Japan, why does SMC want to park cash in China from where it is difficult to extract cash?

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