Why Citron Believes This DEER Has a Target on its Head


Every day someone asks Citron, “So which Chinese RTO is the next to go?”  As we properly called China Media Express, and have publically stated and stand by our opinion that China Biotics is a complete fraud, we can’t help but add that Deer Consumer Products (NASDAQ:DEER) might become the next casualty of the Chinese RTO markets.  The similarities between CCME and DEER will be explained in this editorial piece.

Just like CCME — Growth too good to be true

DEER’s business is the manufacture and wholesale distribution of small electric kitchen appliances for household use.   This business is highly competitive worldwide, and especially  in China, where there are literally dozens of manufacturers of products such as juicers, blenders and rice cookers.   The company sells both to domestic markets, and private labeled products for export.   Deer is just another one of the smaller players in the Chinese low end kitchen appliance market.

Yet, DEER’s financial results would have us believe that the company’s domestic business has grown over 400% year over year, with increasing gross margins, accomplished with minimal to no expenditure on advertising, and no evidence of expenditure on representatives at the retail level to support sales.

Deer reports operating margins 46% higher than its strongest competitor, which is over 8x DEER’s size (Joyoung).  Nonetheless, a recent article in Chinese business news shows the difficulty in turning profits in the China small appliance market.


So just like CCME, we see a company with stratospheric growth, reporting a return on equity that is not consistent with other publicly traded companies in its space.  Furthermore, we see margins that are not consistent with the rest of the industry.

Must Give a “Little” Respect

Citron first read about DEER Consumer Products after reading the work of blogger Alfred Little.  We have to give credit where credit is due, as Little has done a definitive piece of work on this company.


In response, the company attempted to distract investors from the business operations and instead focused on a questionable land purchase that was researched by Little.  Citron does not even want to address this issue.  We also will not address the hidden subsidiary / related party allegations by Little.  Land purchase or not, we believe the company is not being honest about their underlying business.

Common Sense, People … Chilling Similarities to CCME

For those of you who remember Citron’s initial report on CCME, an initial red flag was the lack of internet presence for a company that was supposedly doing gangbuster business.  We see the same thing with DEER.  Alfred Little did a series of channel checks that you can believe or not believe (we tend to believe), but here is something that cannot be denied.  Here’s a channel check anyone can do without visiting dozens of department stores in China:  A simple check on the website Taobao, the consumer part of Alibaba, lists the rankings of small kitchen appliance makers in China.


If you notice…Deer is ranked #51 in their “Attention Index”.  By comparison, BBK, the company that exited the business because of low margins and competition in the aforementioned article, ranked #17.  To take it a step further, we can observe the number of transactions on DEER products.

If you go to this page, you will see that Taobao actually lists the amount of products sold in a recent period.  http://s.taobao.com/search?source=top_search&q=Deer%2F%B5%C2%B6%FB&style=grid&tab=coefp&ad_id=&am_id=&cm_id=&pm_id=

For Deer, the top selling item only sold 9 and most items have sold 0.  Does that sound like a company who is growing domestic sales by over 400% year over year?  Compare this to Joyoung, who has sold thousands of their items per week.


Yet, as mentioned above we are to believe that DEER has an operating margin that is 46% greater than Joyoung.  http://www.cninfo.com.cn/finalpage/2011-03-16/59125304.PDF

Does this make any common sense?

As a funny aside, we encourage you to listen to this video of Ben Wey where he refers to DEER as the “world largest manufacture of juicers and blenders”   (1:09).


The Writing Is On the Wall!

In a time where every day there seems to be another Chinese RTO stock that is imploding, the SEC has finally taken notice and established a task force to fight fraud.


The SEC is looking for, “Individuals with direct knowledge of the investigation say the SEC is focusing on stock promoters, investment bankers, auditors and law firms that have been active in recruiting Chinese companies to U.S. stock exchanges and raising capital for those companies by selling new shares”

Unlike any other of the recent RTO implosions, DEER actually gives us a group of people who work together as an actual “network”.

It is no secret that Benjamin Wey from New York Global Group is the “mastermind” behind this whole operation.  So it appears to Citron that Wey stacked the deck by putting in his auditor and his Audit Committee Chairman.

Auditor Goldman Kurland & Mohidin, LLP (GKM) and Audit Committee Chairman Arnold Staloff serve several of the same New York Global clients.  GKM audits include Bodisen Biotech (BBCZ, -95% from its high), Agfeed Industries (FEED, -90%), Smartheat (HEAT, -78%) and most recently Cleantech (CTEK.PK, already -52% from its high and delisted from NASDAQ on March 1, 2011 for a serious disclosure violation related to a December financing).

Arnold Staloff, DEER’s audit committee chairman, is also the audit committee chairman of FEED, HEAT, and CTEK.

And speaking of audits and the committee that is supposed to oversee them, …. what does a small audit shop in Encino, California know about auditing a kitchen appliance manufacturer in China?

In a world where legitimate Chinese RTO’s are the outliers, what is to make us think that DEER will not face the same destiny as Bosiden and Cleantech:  DELISTED.

Flashbacks of CCME?

One of the telltale signs of China Media Express doing something “funky” is when the CFO bought $1 million worth of stock, the same day it was “sold” by an insider.  We still do not know whether this transaction took place or was it something that just looked good on paper.  Similarly, it was always odd that management was selling their stock at a significant discount to market, when their business seemingly looked strong.  Citron labels these as “questionable transactions.”  Just like CCME, here is a list of questionable transactions in DEER stock that we believe will eventually be a trail of bread crumbs for regulators.   The following is a list of transactions that do not pass the smell test:

1.       We are supposed to believe the Ben Wey’s sister, Tianyi Wei bought 2.2 million shares (over 6% of the company) in the open market and this transaction has nothing to do with Ben Wey.  It is the belief of Citron that this transaction was not as it appeared to be and the truth will come out eventually (maybe in a CNBC episode of American Greed?)

2.      The transactions of Chairman He Ying are troublesome and just not believable.  We are supposed to believe that even though he owns 8 million shares of DEER, he actually purchased  250,000 shares in the open market, right after Little’s article was published?  That transaction is as nonsensical as the 2010 transaction, when he bought over $10 million of stock on the same day that another officer sold $10 million worth of stock.

Citron believes that there are shady dealings in the stock of DEER which has been evidenced by the trading activity of the stock as well as the insider transactions.  Citron’s opinion is that each of these transactions has an untold story, one which involves papered transactions, and “support” of the open-market stock price of DEER – which amounts to market manipulation.

Threats to Sue Shortsellers

Just a month before its stock was halted, China MediaExpress stated its board has authorized engagement of “outside counsel and other consultants” for advise on countermeasures against the two reports.  (Citron and Muddy Waters)   http://news.ichinastock.com/a/1297091345896.html.

Similarly, DEER seems to be preoccupied with its threat to “shoot the messenger” – without even a detailed response to the numerous highly detailed concerns raised by published research, as they have already filed suit against Al Little.  Well, DEER, I am a citizen of the United States, and if you choose to sue me, I welcome the opportunity to see you in court and defend my position.



Cautious Investing To All