361 Degrees Securities Drop Most on Record on Auditor Change

(Bloomberg) -- Shares and bonds of 361 Degrees International Ltd. slumped on Thursday after KPMG quit as
auditor of the Hong Kong-listed sportswear company, raising concerns about its financials.

Shares fell as much as 38%, a drop not seen in the 10 years the Xiamen-based firm has been public. They were down 14% as of 2:22 p.m. at HK$1.38, moving back above the record closing low seen on Aug. 15. The company’s dollar bonds due 2021 also fell a record 9.7 cents on the dollar to 73.2 cents in morning trading, according to Bloomberg-compiled prices.

The company and KPMG couldn’t reach consensus on the service fee for the upcoming audit of 2019 results, 361 said in a filing late Wednesday to the Hong Kong stock exchange. The company’s board has appointed Moore Stephens CPA as the new auditor.

The change is a “credit negative, especially as we are fast approaching” year-end, Lucror Analytics’ Chuanyi Zhou, wrote in a note. “We are skeptical about the credibility of 361’s financial information,” she added, amid concerns that include reported capital spending by the company being far below peers on a percentage-of-revenue basis in the first half of this year. The company’s reported operating margins are above industry leaders despite selling low-priced products, said Zhou, while 361 has what she calls an “excessive cash position that generates very little interest income.”

In its filing, 361 said, “KPMG has provided a confirmation to the Company that there are no matters in connection with its resignation as the auditor of the Company that need to be brought to the attention of the shareholders.”


By Ken Wang