SES imagotag ::UPDATE:: HOLD

SES is up more than 40% since our update to add to the position. We believed there were numerous fallacies in the first report, and it was corroborated by management and auditors. Their responses to the short reports are available on SES imagotag’s IR page. The response of the company was empirical and emphatic.

The short seller wrote a second report and we wrote a response to some of the points below. SES imagotag also responded yesterday to the short report in the same manner as the first and it can viewed here.

Board members and independence
The author paints a portrait of how the board is not independent given their share ownership of SES imagotag via SESIM. We find the opposite to be true. We firmly believe that a board with share ownership can be independent as they are owners of the company and are more likely to act in the best interest of shareholders. Truly “Independent” has the opposite of the intended effect, board members prioritize a paycheck and are more likely to be pressured by management.

Chongqing exclusivity contract
The author questions why SES had to pay BOE $14mm for exclusivity rights to the Chongqing manufacturing plant and believes it is likely due to some collusion between them. A mathematical exercise helps explain this. The nameplate capacity of the Chongqing factory is 150mm ESLs/year where demand for SES ESLs only amounted to about 40-90mm units per year from 2017 until 2022. The spare capacity is large enough that a competitor could then use the same factory and have access to lower cost ESLs.  SES prevented this from occurring and we believe this was the correct strategic decision.

BOE and SES imagotag
There is a circular logic to the relationship the author believes lies between BOE and SES. If these fictitious revenues are used to drive up revenues and profits so that BOE can sell the resulting inflated share prices, then why would SES management and board members be buying shares from BOE? We fail to see the logic behind this.

Wirecard and SES Imagotag
The guilt by association the author is trying to paint between SES and Wirecard is far-fetched. SES imagotag was building out a ‘pay at the shelf’ solution and Wirecard was a partner to help build this. This “partners to the end” lasted all about two years when Wirecard was found guilty of fraud.  Other partners SES has are Qualcomm, Microsoft, E Ink etc.

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