Auriga issued a research note this morning on Duoyuan Global Water (DGW) which was hammered recently after accounting irregularities were discovered at Duoyuan Printing (DYP).  What’s the connection?  The Chairmen of DYP happens to be the CEO of DGW, so the thought was that there are accounting concerns at DGW as well.  Auriga had a chance to visit with DGW management recently and tour the manufacturing facilities.  They walked away with several concerns unrelated to the accounting concerns..

– Why is the company undertaking a big big capital expenditure program when current facilities are only about 50% utilized?
– The capital expansion plans may drain the balance sheet
– Lack of modern equipment and Auriga could only verify 10 of the 109 products said to be manufactured at the facility. 

My question to Auriga is why management wasn’t asked about the number of products verified, the utilization rate and the modernization of the facility?  I’m sure these are answers investors would want to know and perhaps they will be answered on the next conference call. 

I think it goes without saying that there are a lot of questions and concerns.  With the technical melt down in the stock, it’s best to stay away until some of these questions are answered.  DGW is down about 5% today with significant volume and looks like it may want to retest the lows of the correction in the coming days.

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