Full Truck Alliance, a Chinese digital freight platform, issued a statement on January 25 in response to a report by short seller firm J Capital Research, firmly denying allegations that it has overstated or falsified any operating or financial data.
The company maintained that the report contains numerous factual inaccuracies, false statements, unsupported speculations and flawed conclusions, demonstrating a cursory and incomplete understanding of the company’s industry and business operations. The company said it believed the report did not have any merit and that they are considering the appropriate course of action to protect the interests of all shareholders.
Full Truck Alliance is a digital freight platform connecting shippers with truckers to facilitate shipments across distance ranges and cargo weights. Its two platforms, “Yunmanman” and “Huochebang,” merged in 2017, and it was listed on the NYSE on June 22, 2021. The company has also experienced scrutiny from Chinese regulators. On July 5, 2021, its two apps stopped operation and did not resume new user registration until June 30, 2022.
J Capital Research was established in China in 2010. It has issued harsh reports on many firms before, such as automaker Faraday Future, coffee chain Luckin Coffee, biotechnology company BeiGene, e-commerce platform JD.com, and used cars trading platform Uxin.
This 54-page short report by J Capital Research focuses on five parts of Full Truck Alliance. The first part combines interviews alleging round-tripping, the second part shows that the firm’s transaction volume is too high, while the third part focuses on suspicious acquisitions, claiming that on the balance sheet, acquisitions have been made and written off shortly afterwards. The fourth part is regarding the deterioration of basic business, the end of VAT rebates, extensive insider trading and weakening cash flow. The fifth part is about other major risks, including insufficient capital of its loan business, regulatory problems and weak internal control.
According to J Capital Research, the trading volume of Full Truck Alliance may have been exaggerated by six to 10 times. The report pointed out that income and transaction figures disclosed by the firm were inconsistent with its tax payments, commission income and even basic logic.
According to the financial report issued by Full Truck Alliance, it achieved revenue of 1.81 billion yuan ($266 million) in the third quarter last year, up 45.7% year-on-year, while the net profit was 390 million yuan, compared with a loss of 180 million yuan in the same period 2021. The company expected the total revenue in the fourth quarter to be between 1.79 billion yuan and 1.88 billion yuan, with a year-on-year increase of about 25.2% to 31.5%. In terms of operation, the gross transaction volume (GTV) in the third quarter of 2022 reached 69.6 billion yuan, a year-on-year increase of 3.5%, while the number of orders completed reached 33.5 million, down 5.4% year-on-year.
The short selling report also quoted several former executives and salespeople as saying that the company set up shell companies to create transactions, and it seems that cash will eventually be returned, and there are not many real orders.
Full Truck Alliance invested about 1 billion yuan in Plus Corp, which develops autonomous driving technology, and Plus Corp claimed that its technology received more than 7,000 advance orders. An interview with J Capital found that most of the orders came from Full Truck Alliance’s subsidiaries.
According to J Capital Research, Full Truck Alliance does not have its own fleet, mainly charging independent shippers and truck drivers who join the platform to handle irregular goods. According to the agency’s interview, bulk cargo transportation accounts for a small proportion of truck transportation, no more than 10% of China’s truck transportation industry, and most shippers have their own trucks or sign contracts with large logistics companies.
The report noted that industry experts expect local tax breaks for trucking to be phased out beginning this year, which may reduce the profits of Full Truck Alliance by about 75%.