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[email protected] Zhou Hei Ya – the Dark Side of the Duck March 1, 2019 Zhou Hei Ya produces and retails braised duck and duck parts in Mainland China. In 1H18, its spectacular growth since 2013 came to an abrupt halt with a 1.3% year-on-year (YoY) revenue drop and a 17.3% net profit decline. On January 30, 2019, it warned the market that full year 2018 profit would drop by approximately 30% YoY. During 3Q18, we examined in detail Zhou Hei Ya's retail operations in Central China provinces, which contributed to about 54.2% of total revenue. Our investigation focused on the region's true business volume, and was done mainly by obtaining a sales slip within the last hour of operation from each point- of-sale (POS) machine at the 524 retail stores in the region. The following anomalies are uncovered: At Zhou Hei Ya's Hunan and Jiangxi stores, shopkeepers often create "purchases" when no customer is around. Our analysis of sales slips marked "Deal Canceled" suggests that shops there inflate their volume by 28.0%; The 174 average daily sales volume (ADSV) per store for Central China implied by Zhou Hei Ya's disclosures was 38.7% more than the true ADSV of 125 that we surveyed; and Our monitoring of average transaction value in Central China shows that it is about 6.8% below the Rmb65.8 national average that Zhou Hei Ya reported for 1H18. Zhou Hei Ya – the Dark Side of the Duck Juewei Food is a Chinese-listed company that produces and retails braised duck and duck parts much like Zhou Hei Ya, though the former tends to rely more on franchised stores.