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Duoyuan Global Water (DGW)Disclaimer and Independence:
Asofthepublica0ondateofthisreport,TheDavianLe9er,LLC
hasNOposi0onorinterestinthiscompany,butourclientsmayormaynothaveexposure.
Thisreportdoesnotpurporttobeacompletestatementofallmaterialfactsrelatedtoany
company,industry,orsecuritymen0oned.Theinforma0onprovided,whilenotguaranteedasto
accuracyorcompleteness,hasbeenobtainedfromsourcesbelievedtobereliable.Theopinions
expressedreflectourjudgmentatthis0meandaresubjecttochangewithoutno0ceandmayor
maynotbeupdated.Pastperformanceshouldnotbetakenasanindica0onorguaranteeoffuture
performance,andnorepresenta0onorwarranty,expressorimplied,ismaderegardingfuture
performance.Thisno0ceshallnotcons0tuteanoffertosellorthesolicita0onofanoffertobuy,
norshalltherebeanysaleofthesesecuri0esinanystateinwhichsaidoffer,solicita0on,orsale
wouldbeunlawfulpriortoregistra0onorqualifica0onunderthesecuri0eslawsofanysuchstate.
ThisresearchreportwasoriginallypreparedanddistributedtoclientsofTheDavianLe9er,LLC.
Our Recommendation: Sell/Sell Short $2.50 price target
About the Company:
DuoyuanGlobalWaterInc.,throughitssubsidiaries,engagesinthemanufactureanddistribuAonofwaterenvironmentprotecAonequipment
andwatertreatmentproductsinthePeoplesRepublicofChina.Itsproductcategories
comprisecirculaAngwatertreatmentequipment,includingelectronicwatercondiAoners,
automaAcfilters,circulaAngwatercentralprocessors,cyclonefilters,andwatersoJeners,
whichareusedintheprocessoftreaAngwaterandremovingbuildupincirculaAngwater
systems;waterpurificaAonequipmentthatuseultraviolet,ozone,membrane-based,and
electrodeionizaAontechnologiesintheprocessoftreaAngandpurifyingwaterforvarious
applicaAonsandend-usercustomerscomprisingresidenAalcommuniAesandcommercial
businesses;andwastewatertreatmentequipment,suchasgritseparators,microporous
aerators,andbelt-typethickener-filterpressmono-blockmachines,whichareusedinthe
processoftreaAngwastewater,suchasmunicipalsewage,andindustrialandagricultural
wastewater.Thecompanyscustomersprimarilyconsistofwastewatertreatmentplants,
waterworksfaciliAes,manufacturingplants,commercialbusinesses,residenAal
communiAes,andindividualcustomers.Itsellsitsproductsthroughdistributors.The
companywasfoundedin1992andisheadquarteredinBeijing,thePeoplesRepublicof
China.1
DuoyuanGlobalWater
5/FDuoyuanBuildingNo.3JinyuanRoad
DaxingIndustrialDevelopmentZone
Beijing,126
PeoplesRepublicofChina
Tel:+86()16212222
URL:www.duoyuan-hq.com
1Yahoo!FinanceCompanyProfile;DGW
In Focus:
boutthecompany
WhenwasDGWfounded?
Whydoestheaddresslookfamiliar?
SharedfaciliAes?
DYPoverlap
TheLangfangfacilityisfarmland!
[email protected]
http://www.duoyuan-hq.com/mailto:[email protected]:[email protected]://www.duoyuan-hq.com/http://www.duoyuan-hq.com/
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When was DGW founded exactly?
Yahoo!Financeseemstobelievethecompanywasfoundedin1992,butonthecompanyswebsiteitsaysthatitwasfoundedin
1989ND1992.Whyistherea3-yeardiscrepancyandhowcanacompanyNOTknowwhenitwasfounded?
1992?
1989?
DYPALSOentersmarketinsa
period,1993?!?
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8/8/2019 The DGW crookery updated & it looks even worse
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DuoyuanGlobalWa
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Tuesday,December21,
closerexaminaAonofthecompanys
websiterevealsthatthecompany
itselfdoesNOTknowwhenitwasformallyfounded.
Why does the companys address look familiar?
Theaddresslooksfamiliarbecauseitisthesameaddress
thatDuoyuanDigitalPresslists
ontheirwebsiteastheir
corporateHQ.
Thecompanysimplyremoves
onelinefromtheaddress,but
wehavebeenassuredbyreal
estatesourcesinBeijing,thatit
isindeedthesameaddress.
Doesitmakesensethatawater
companyandaprinAng
companywouldsharethesame
headquarters?
Backto1992
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Tuesday,December21,
DuoyuanGlobalWaterliststheLangfangfacilityasaplantorareaofoperaIons.Thismustbewherethecompany
producestherequiredmaterialsandequipmenttocarryouttheirwaterbusiness.DuoyuanDigitalPressalsolists
LangfangManufacturingbaseasanareaofoperaIons.Coulditbethatthisplantcreateswaterequipmentanddoubles
asaprinIngfacility?Wefindithighlyunlikely.
Contacted investor relations (IR) about who owns the Langfang
facility?
OurteamcontactedRon12.17.10andwespoketoapleasantwomannamedAshleywholistenedtoourconcerns
aboutoverlapandwhoownedtheLangfangfacility.OurworryisthattheassetisbookedbybothDYPandDGWonthebalancesheetundertheproperty,plant,andequipment(PPE)secIon.Theotherlargeconcerniswiththeequipment
insideoftheplantandtherevenuesIedtoanythingproducedandsold.ShealsoacknowledgedthatDYP&DGWhave
thesameaddress.
WedecidedtoexamineDYPs10-KstodetermineiftheymenIonthisfacilityandsureenoughtheydo.naForm10-Q
fortheperiodendingMarch31,2010thecompanystatesthattheyhaveconstrucIon-in-progressattheLangFang
Duoyuanfacility.UnderthePPEsecIonofthat10-Q,DYPclaimstohave$4,292,379USassociatedwiththe
construcIon-in-progressattheLangFangfacility.
Aplantthatproduceswater
equipmentandaprinIngbusiness?
WhoownsthisassetDYPorDGW?
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fDYPistakingconstrucIonexpensesassociatedwiththeLangfangfacility,doesthatmeantheyownitanddoesDGW
alsoLangfangclaimitontheirbalancesheetasanasset?WhydoesDGWshowthisfacilityontheirwebsiteasasource
ofoperaIons?Thisishighlysuspectinouropinionandfearthecompanyisdoublebookingrevenues&expensesassociatedwiththeLangfangplant.
FromDYPsForm10-QfortheperiodendingDecember31,2009:LangfangDuoyuanislocatedinaSpecialEconomic
andHighTechnologyZoneandthePRCtaxauthorityhasofferedaspecialincometaxratetoLangfangDuoyuanfordoing
businessinthespecialzone.Withtheapprovalofthelocalgovernment,LangfangDuoyuanisexemptfromincometaxes
forfiveyears,commencingwiththeirfirstprofitableyearofoperaIons.LangfangDuoyuanhasoperaInglossespriorto
thecalendaryearendedDecember31,2002,andbegangeneraInganetprofitforthecalendaryearended
December31,2003.Therefore,LangfangDuoyuanhadanincometaxexempIonfortheyearsendedDecember31,
2003,throughDecember31,2007.LangfangDuoyuanhasbeensubjecttoanincometaxrateof25%starIngJanuary1,
2008,underthenewlyunifiedcorporateincometaxrate.2
2 Duoyuan Printing Inc. December 31, 2009 Form 10-K (filed
February 11, 2010), page 11
FromDGWswebsite.tisthe
onlyfacilitytheyhavelisted!
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With massive overlaps to Duoyuan Digital Press (DYP) investors
should stay away.
Earlierthisyear,DYPsawitsstockdropmassively,aerthecompanyfireditsauditorattheIme,Deloie&Touche
(Deloie).DYPcitedthatDeloiewashangingupthecompanys10-Kfilingandwethinkrighullyso.Deloiewas
requesIngaccessfromDYPtocertainexpensereports,bankaccounts,etc.,linkedto$3MMinexpenses.Thecompany
wouldnotgrantthefirmaccesstotheserecordsandDeloierefusedtosignoffonthereport.AshortImeaer,
Deloiewasfired.
Sincethereismuchoverlapbetweenthesetwocompanies,DGWsawtheirstockselloffinthewakeoftheDYPfiasco.
ManagementhassincehiredathirdpartyauditcommieetoreviewtheirpracIcesandthiswillmostlikelycomeback
posiIve,whichshouldbenosurpriseandtakenasagrainofsalt.
Wenhua Guo, the founder and chairman inks deals between his
companies. How are investor
interests protected?
Mr.Guoisthefounder,chairman,andatonepointtheCEOofDYPandDGW.Arecent10-QfromDYPshowsthat
WenhuaGuohasrelatedpartytransacIonsinbetweenhiscompanies.nthisexampleDYPrentsofficespacefrom
DuoyuannformaIonTerminalManufactureCo.,ofwhichWenhuaGuoisthesoleshareholder.TheleasebetweenDYP
andMr.Guoisfor$990,000USoverthree-years.ThispropertywasownedbyDuoyuanWaterRecycleTechnology
ndustryCo.,whowasalsoarelatedparty.
Mr.GuohasalucraIvearrangementinplacehere.DYP,acompanythathehasasignificantinterestin,leasesfrom
anothercompany,whichMr.GuoisthesoleshareholderofDuoyuannformaIonTerminalManufacture.3
3 Duoyuan Printing Inc. December 31, 2009 Form 10-K (filed
February 11, 2010), page 18
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When asked, management cannot provide utilization rates?
WhenrecentlyaskedonaconferencecallwhattheuIlizaIonrateisatthecompanysfaciliIes,managementhadno
answerforthisinquiry.Wefinditoddthatacompanysupposedlycashrichandgrowinglikecrazycannotcitea
uIlizaIonrate.fDGWwasinfactgrowinglikemanagementreports,wewouldanIcipateuIlizaIonratestobeinthe
70-80%range.Thisisnotadifficultnumbertocomputeandanycompanywithagoodenterpriseresourcesystem(ERP)
andefficientoperaIonsshouldbeabletoreportageneralnumberwithrelaIveease.
HerewasMr.Guo,DGWsChairmanandCEOfromtheirlastconferencecallonuIlizaIonrates:
MichaelCoxofPiperJaffray:Okay.Thankyou.Andthen,waswondering,ifyoucouldtalkaboutyourcapacity
situaIonorwhereyouarefromauIlizaIonstandpointatyourLangfangfacility?
WenhuaGuo,CEOandChairman:wanttosharethreepointswithyou,firstly,giventhecurrentbasicproducIon
situaIonwehavearoundthewholeyear,weareoperaIngatalmostmaximumcapacityandatthebeginningofthe
givenyear[inaudible]itcomestotheendofthegivenyear,ourcapacityuIlizaIonwillusuallybelowerthanthedifficult
monthsofthegivenyear.Andsecondlyfromaprofessionalexpertprofessionalspecialistpointofview,weare
transformingourfacilityfromamanuallyoperatedfactoryintoanautomatedassemblyline.Andthirdly,weare
transformingourfacilityfromamulI-productlineintoaprofessionaldiversifiedproductporoliobasedoperaIon.feel
itisveryhardformetogiveyouaposiIvenumbertodescribetheuIlizaIonraIoofourcapacity.Thankyou.4
The Langfang facility is farmland.
DGWliststheLangfangfacilityatNo.6
XiangYunRd,Economicand
TechnologicalDevelopmentZone,LangfangCity,HebeiProvince,China.
Aquicksearchforthisaddresson
Googlemapsshowsusthatthe
addressdoesexist,butthereis
nothingthere.tisanemptylotina
manufacturingarea.
4 Bloomberg Earnings Call Transcript, 11.17.10, DGW US
6XiangYunAve.LangfangYiliRupin
Limited12XiangYunAve.
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Tuesday,December21,
DGWclaimstobefoundedin1989/1992andliststhisfacilityastheirsolesourceofmanufacturingandoperaIons.How
canitbethatthereisnofacilityatthisaddressin2010?fthereisnobuilding,howisDYPtakingconstrucIonexpenses?
Ourmapshows
weareatthe
EXACTsame
locaIontheylist
ontheirwebsite.
X536
fDYP&DGWsplantsinLangfangare
atdifferentaddresses,whydobothsites
showthismaptotheemptylandat6
XiangyunAveintheLangfangEconomic&
TechnicalDevelopmentZone?
ThereisNOXiangyun
Road,itisXiangyunAvenue!
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Conclusion
tisourconclusionthatifDGWisnotcommingfraudbydoublebookingassetsandexpensesIedtocertainassets,we
wouldbesurprised.TherearesimplytoomanylooseendsandsmallthingsthatdonotaddupatbothDYPandDGW.
Mr.GuohasdoneeverythingtomakehimselfuntrustworthyandunIlheprovidesmoreclarityintohiscompaniesbook,wethinkbothcompaniescouldbeafraud.
Bothcompanieshavebecomesloppyandhaveevenmadeerrorsontheirwebsites.Acompanyshouldknowwhenit
wasfoundedandensurethatthecorrectdataisonthewebsite.ThefactthatDYPisalreadyunderscruInyforits
accounIngpracIcesshouldmakeinvestorsinDGWveryconcerned.NotonlydothesecompaniesshareMr.Guo,but
headquarters,plants,etc.
Disclaimer and Independence:
Asofthepublica0ondateofthisreport,TheDavianLe9er,LLChasNOposi0onorinterestinthiscompany,but
ourclientsmayormaynothaveexposure.
Thisreportdoesnotpurporttobeacompletestatementofallmaterialfactsrelatedtoanycompany,industry,orsecuritymen0oned.The
informa0onprovided,whilenotguaranteedastoaccuracyorcompleteness,hasbeenobtainedfromsourcesbelievedtobereliable.Theopinions
expressedreflectourjudgmentatthis0meandaresubjecttochangewithoutno0ceandmayormaynotbeupdated.Pastperformanceshouldno
betakenasanindica0onorguaranteeoffutureperformance,andnorepresenta0onorwarranty,expressorimplied,ismaderegardingfuture
performance.Thisno0ceshallnotcons0tuteanoffertosellorthesolicita0onofanoffertobuy,norshalltherebeanysaleofthesesecuri0esin
anystateinwhichsaidoffer,solicita0on,orsalewouldbeunlawfulpriortoregistra0onorqualifica0onunderthesecuri0eslawsofanysuchstate.
ThisresearchreportwasoriginallypreparedanddistributedtoclientsofTheDavianLe9er,LLC.
DYPswebsiteshouldshowamaptoabuildingonthisroadin
theLangfangEconomic&
TechnicalDevelopmentZone.
NOThere!
