Becoming the King of Bottom Fishing After Going All-In on A-Shares

CITIC Pacific Limited Profit Warning

Xia Yaozong leaned over to look, and Zhang Yixing also leaned over to look. The three of them stared at the screen, flipping through the pages one by one.

"As of October 17, 2008, the Group had recognized a loss of HK$8.07 million."

Valuing at fair value, the outstanding leveraged foreign exchange contracts still in effect have incurred losses of approximately HK$147 billion.

The total loss exceeded HK$155 billion.

Zhang Yixing gasped. "155 billion?"

Xia Yaozong didn't speak, but his expression changed.

Lu Chenzhou continued scrolling down.

"The Group's Finance Director Zhang Lixian and Chief Financial Officer Zhou Zhixian have resigned from their positions as directors."

"The parent company, CITIC Group, has agreed to coordinate a $15 billion standby credit facility."

He scrolled to the bottom of the page, read the last line, and then leaned back in his chair.

"155 billion." Xia Yaozong repeated, "Last year's total profit was only 152 billion. We worked for nothing all year and even lost money."

Zhang Yixing stared at the screen, silent for a few seconds. "How much will Huaxin Pacific's stock price drop when it resumes trading tomorrow?"

No one answered.

But everyone knows the answer.

30%? 50%? Maybe more.

Lu Chenzhou picked up the soy milk and took a sip; it was already cold.

The moment the announcement was released, the entire financial industry was in an uproar.

The first to react were the major financial media outlets.

Sina Finance, Sohu Finance, Hexun.com, Reuters, and Bloomberg all pushed out the news at almost the same time.

CITIC Pacific suffers massive losses of 155 billion yuan in foreign exchange speculation; two senior executives resign to take responsibility.

Blue-chip stocks hit by a "landmine," CITIC Pacific's market value is about to evaporate.

The depreciation of the Australian dollar has had bitter consequences, with CITIC Pacific suffering losses exceeding 150 billion yuan in foreign exchange contracts.

Analysts from various institutions released reports overnight.

Citigroup downgraded CITIC Pacific to "Sell" and cut its target price from HK$14 to HK$5.

Goldman Sachs maintains its "sell" rating with a target price of HK$6.

Morgan Stanley was the most ruthless, giving a target price of HK$4.5, a drop of nearly 70% from the share price before trading was suspended.

In an interview, Lin Changnian, general manager of Fuchang Securities, said: "CITIC Pacific is a large blue-chip company, and this incident reflects problems in its corporate governance."

Even Hong Kong blue-chip stocks are running into trouble, which not only makes the market lose confidence in their management, but also affects the Hong Kong stock market.

Trading resumes tomorrow, and there's a chance it could plummet by 30% to around HK$10.

Emperor Securities Research Department Head Shen Zhenying put it more directly: "The contract size of CITIC Pacific is conservatively estimated to be over 600 to 700 billion yuan, which is more than twice the company's market value."

Judging from the current trend of the Australian dollar, the total loss for the year will only be greater, not less; a sell-off is inevitable tomorrow.

China World Trade Center, CICC Research Department.

Lin Zhengmao sat at his desk, with Huaxin Taifu's announcement displayed on the computer screen in front of him.

He has already watched it three times.

155 million.

Last year's total profit was only 152 billion.

This isn't just a loss; it's bankrupting the company.

Li Mingyang stood at the door, holding a cup of coffee, but didn't dare to come in.

He had known Lin Zhengmao for five years and had never seen him look so pale.

"Come in," Lin Zhengmao said.

Li Mingyang walked in and placed the coffee on the table.

"Chief Executive Officer Lin, Huaxin Pacific's announcement..."

"I saw it."

"Our research report..."

"Remove them." Lin Zhengmao interrupted him. "Remove all research reports on CEFC China Energy. Ratings, target prices, analyses—suspend them all. We'll revisit them after trading resumes."

Li Mingyang was taken aback: "Remove them all?"

"Remove everything." Lin Zhengmao's voice was calm, but Li Mingyang could hear the tension in his voice.

"All our previous analyses of CEFC China Energy were based on the premise that they are a normal company."

That's no longer the case. With a loss of 155 billion, the company's fundamentals have completely changed.

We cannot issue any report until we have a clear understanding of their true financial situation.

Li Mingyang nodded and turned to leave.

"Wait a minute," Lin Zhengmao called out to him.

Li Mingyang turned around.

"How much profit will Lu Chenzhou make from his short positions when Huaxin Pacific resumes trading tomorrow?"

Li Mingyang calculated: "The cost is 17.15. If it drops to 7 tomorrow, each share will earn 10, and with more than 900 million shares, that's more than 9000 million. Adding the unrealized gains from China National Building Materials, the total unrealized gains could exceed 1.5 million."

Lin Zhengmao didn't speak. He stared at the ceiling, his fingers tapping lightly on the table.

"Will he close his position tomorrow?" Li Mingyang asked.

"No," Lin Zhengmao replied quickly.

Why?

"His trading style."

"How long will he wait?"

Lin Zhengmao was silent for a few seconds. "Wait until he feels the market has bottomed out. Wait until market sentiment stabilizes. Wait until the big short-selling institutions start closing their positions. He'll be a step ahead of them, but not by much."

He nodded: "Keep an eye on him. Whenever he closes his position, we immediately close ours as well."

Goldman Sachs Asia Headquarters, Central, Hong Kong.

Wei Zhexuan sat in his office, with Huaxin Taifu's announcements and rating reports from various institutions in front of him.

He has already read the reports from Citigroup, Goldman Sachs London, and Morgan Stanley, and has cut the target price for each one to HK$5-6.

Cheng Jiajun stood at the door, holding a newly printed transaction record in his hand.

"Boss, Lu Chenzhou didn't make any trades today. China National Building Materials rebounded by 11 points, and he didn't close any of his orders."

Wei Zhexuan took the transaction record, glanced at it, and placed it on the table.

"Of course he won't let it flatten; he knows today is a rebound, not a reversal. He's waiting for tomorrow."

Cheng Jiajun hesitated for a moment: "Boss, Huaxin Taifu will resume trading tomorrow, and the stock price may drop by more than 50%. His short position..."

"I know."

Cheng Jiajun fell silent.

Wei Zhexuan leaned back in his chair, looking at the ceiling.

"Boss, we'll be there tomorrow..."

"We won't follow suit. Huaxin Taifu has a large market capitalization, but its liquidity is too poor. When trading resumes tomorrow, sell orders will flood in like a tide. We won't be able to get in or out. This kind of money is not something we can earn."

"Tomorrow, keep an eye on his account. Let me know immediately when he closes his positions."

"clear."

As he turned to leave, a slight smile appeared on Cheng Jiajun's lips.

He followed Lu Chenzhou in shorting HK$500 million. Although China National Building Materials lost 11% today, he also shorted Huaxin Pacific, and it was half of his position.

The QQ investment groups are buzzing.

The messages are scrolling by so fast, I don't even have time to read them.

Someone sent in a screenshot of the announcement, someone forwarded reports from various media outlets, and someone posted analysts' target prices.

"155 billion, my God!"

"How much will Huaxin Pacific's stock price drop after it resumes trading tomorrow?"

"Citigroup's target price is $5, Goldman Sachs' is $6, and Morgan Stanley's is $4.5. Before trading was suspended, it was $14.52, so a drop of half would be considered minimal."

"How much profit can Brother Lu make from his short positions tomorrow?"

"The cost of the short position in Huaxin Taifu is 17.15. If it falls to 7 yuan, the profit per share will be 10 yuan. With more than 900 million shares, the profit will be more than 9000 million yuan. Adding the unrealized profit of China National Building Materials, the total unrealized profit may exceed 1.5 million yuan."

"1.5 million... My God."

The group chat was quiet for a moment, then it exploded again.

"The key question is, will Brother Lu liquidate his positions?"

"I don't know. But given his style, it's highly unlikely he'll be on the first day of the Libra festival."

Why?

"Because the first day is the most panicked time, and it's also the easiest time to sell at the lowest price, but he never buys at the lowest point or sells at the highest point."

"So he'll wait?"

"Yes, he will wait until the price drops to its lowest point and market sentiment stabilizes before considering closing his positions."

"What about China National Building Materials? It rose 11% today, but it didn't break even."

"He didn't close the position. He said that today's rebound is just giving short sellers a better position to hold their positions."