Sino-Forest gave investors a triple dose of bad news, warning that fraud claims would take a toll on business, and that shareholders faced a wait for a report into the allegations – even as it unveiled results below market forecasts.

Shares in the embattled Chinese timber group tumbled 12% to Can$4.38 in morning trade in Toronto.

Sino-Forest, which strongly contests the false accounting claims which have sent its shares plunging, said that "undoubtedly… business will be affected in the short term".

"The company will be devoting much of its resources to work with external professionals in Canada, Hong Kong and mainland China, including independent accounting firm PricewaterhouseCoopers, to examine the allegations," Allen Chan, the Sino-Forest chairman and chief executive, said.

"Given the negative impact, management expects the pace of tree acquisition to be adversely affected."

The Toronto-listed group, which is sitting on $1.1bn of cash, has flagged forestry purchases as a major plank of its growth strategy.

Report findings 

While Mr Chan renewed his attack on Muddy Waters, the short-selling research group which has made the fraud claims - saying he could "promise investors that the allegations… are inaccurate and unfounded" - proving the defence would take at least until late summer.

William Ardel, the independent director heading an investigation into the allegations, said that the probe would take "considerable time" to complete, given that it was dealing with a company based primarily in China.

The investigation would take two-to-three months, "at minimum" to finish,

Muddy Waters, which specialises in investigating Chinese companies which, like Sino-Forest have gained stock market listings through a reverse takeover rather than an IPO, accuses the timber company of fraudulent accounting such as exaggerating the value of forest assets.

Into the red 

Sino-Forest revealed the update as it unveiled an after-tax loss of $22.4m for the January-to-March quarter, compared with earnings of $16.5m a year before.

The loss, equivalent to $0.09 a share, compared with analysts' estimates of a $0.22-a-share profit, according to a Thomson Reuters survey.

However, the result was held back by one-off factors including a $53m hit from the revaluation of convertible bonds to account for the group's rise in share price, until Muddy Waters' claims set the stock tumbling by two-thirds in two sessions.

The group's operating profit rose by 24% to $93.3m, on revenues up 35% at $324.4m.

'Still on target' 

Mr Chan added that, despite the Muddy Waters setback, the group would "continue to focus on our business strategy of expanding operations", with its cash pile providing firepower for acquisitions without need to access capital markets.

Sino-Forest was "confident" it could still hit a target of wood fibre output of 30m cubic metres by 2013, equivalent to compound annual growth of 20% over three years.

"The outlook for China and its forestry sector remains positive for 2011 as the country continues to benefit from relatively strong economic growth, driven by broad-based industrialisation and massive urbanisation," Mr Chan added.