Biotech company, NH Health, was listed on the HKSE in 2021. In August 2023, news outlet CapitalWatch alleged that NH Health had inflated revenue using round tripping. The company denied the allegations and published of its interim financial statements at the end of that month, which had been reviewed by the auditor Deloitte. However, just prior to the March 2024 filing deadlines, the company revealed a delay in the publication of its results due to concerns raised by the auditor, a trading halt and the launch of an independent investigation. Resumption of trading conditions set by the HKSE, include the publication of all outstanding financial results, and an appropriate independent forensic investigation. While the forensic investigation has not been completed, the terms of the resumption of trading set by the HKSE suggest the allegations may have been at least partially proven.
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New Horizon Health Ltd, (NH Health) is a China-based company principally engaged in the research, development, clinical development, test operation and commercialisation of screening products for colorectal cancer, gastric cancer and cervical cancer. The company distributes its products to customers through its own network, contracted sales organisations (CSOs) and Internet sales or e-platform operated by healthcare clinics.
NH Health listed on the Hong Kong Stock Exchange (HKEx) in February 2021 and raised HK$2.35bn in its IPO. The managers of the offering were BOCI Asia Ltd, China Industrial Securities International Brokerage, Daiwa Capital Markets Hong Kong Ltd, Goldman Sachs (Asia), Haitong International Securities Co Ltd, UBS Securities Hong Kong Ltd and VMS Securities. Additional share offerings in September 2022 and January 2023 raised HK$818.87m: (i) 1-Sep-22: HK$37.20m, (ii) 18-Jan-23: HK$781.67m.
On 16 August 2023, a 17 page report, in Chinese, titled “Investigation on Financial Data Fraud of New Horizon Health” was circulating online. The report had been written by CapitalWatch, a financial news outlet based in the United States with Chinese services on Capitalwatch.com in Hong Kong. The report alleged that NH Health had inflated its 2022 revenue. NH Health reported RMB765m in revenue for 2022, CapitalWatch believed the actual figure was closer to RMB77m and its sales volume was far lower than reported.
On 16 August 2023, NH Health issued an announcement which rejected the report and said that the allegations in the report were blatantly false.
On 17 August 2023, NH Health issued a further announcement with a more detailed rebuttal of the allegations. It confirmed that its published financial information in previous disclosure were true and accurate and had been audited by the company auditors and reviewed by the audit committee.
On 21 August 2023, NH Health released its 2023 interim results. At the results meeting, commenting on the report, Zhu Yeqing, CEO / chairman, said "We will no longer respond to (short-selling) reports without any source in the future."
On 22 August 2023, CapitalWatch commenting on-line said that the investigation report released previously had not been officially released. The investigation report was still being updated and improved. The exact timetable for the release of the report was not yet confirmed.
On 4 September 2023, CapitalWatch released the completed 69 page report, "Investigation Report on the True Situation of Financial Data of NH Health (06606.HK)". It was published on the home page of the Chinese version of the CapitalWatch website. CapitalWatch confirmed its allegation that NH Health had overstated its 2022 revenue by approx. nine times from RMB77m to RMB765m. It believed that the company was operating a Ponzi scheme. CapitalWatch believed that NH Health was using a round tripping scheme to boost its sales figures. It also believed that most of NH Health's account receivables were bad debts that would be difficult to collect. Lastly, CapitalWatch questioned the company's sales and marketing expenses which had grown, reaching RMB555m by 2023; an increase of up to 7.5 times. It concluded that the company's true market value was in a range of HK$1.8bn to HK$2.5bn. The market value as of 4 September 2023 was roughly HK$7.7bn.
On 22 January 2024, NH Health issued a positive profit warning. Based on a preliminary review of the Group’s unaudited management accounts, the company expected revenue to be up by approximately 160% to 170% and gross profit up by by approximately 180% to 190%.
On 28 March 2024, the company announced a delay in the publishing of its 2023 annual report which was due by end of March. Trading in the company's shares was halted on the HKEx. The reason given for the delay was that Deloitte, the company's auditor, raised a number of concerns in a letter to the audit committee and the board of directors. Deloitte's concerns were the:
- validity of certain sales transactions of ColoClear and commercial substance and business rationale of the relevant sales models;
- validity of certain sales transactions of Pupu Tube or UU Tube; and
- validity of certain selling and marketing expenses and commercial substance and business rationale of the relevant underlying marketing activities;
Deloitte recommended that an independent investigation should be conducted into these issues. The company said it had engaged third-party specialists to conduct an independent investigation.
On 28 March 2024, the trading of the company's shares on the HKSE was halted and the audit committee announced an independent investigation into the issues raised by the auditor.
On 8 April 2024, the Board of Directors of NH Health announced the appointment of two independent directors.
On 28 May 2024, the company reported the resumption of trading conditions set by the HKSE. These include the publication of all outstanding financial results, and an appropriate independent forensic investigation.
As of the date of our last update, the independent forensic investigation has not been completed and trading in the shares remain suspended.
CapitalWatch: Investigation on Financial Data Fraud of New Horizon Health, 16 Aug 2023 (Original)
New Horizon Health: Announcement, 16 Aug 2023
New Horizon Health: Announcement, 17 Aug 2023
AIGC: New Horizon Health Denies Accusations in a Short Selling Report, 18 Aug 2023
laohu8.com: The Investigative Report caused financial fraud (Translated), 28 Aug 2023
CapitalWatch: Investigation Report on the True Situation of Financial Data of NH Health (06606.HK), 4 Sep 2023 (Translated)
JRJ.COM: The full text of the short-selling report is posted online, 5 Sep 2023
New Horizon Health: Positive Profit Alert, 22 Jan 2024
New Horizon Health: Delay in 2023 Annual Report, 28 Mar 2024
GMT Research: New Horizon Health - AGS FY 2022
New Horizon Health: Interim Report, PE Jun. 2023
New Horizon Health: Annual Report, YE Dec. 2022
HKEx: New Horizon Health filings