Release Date: 13 December 2016

Credit China FinTech Holdings

The 30-Minute Trade

Ticker: 8207.HK

Market Cap: HK$16 billion

Recent Price: HK$0.75

Target Price: HK$0.17

Expected Return: -77%

Opinion: Strong Sell

You should have expected us

aainfo [@] neomailbox.ch Twitter: @anonanalytics www.anonanalytics.com

Credit China trades at 45x 2017 earnings, which we believe may be due to end-of-day trading manipulation, based on our analysis of intraday trading activity.

Additionally, we believe Credit China has misled investors by engaging in a number of questionable transactions.

In one example, online evidence suggests that the largest acquisition in Credit China’s public history was from an undisclosed related-party. In another example, we believe a major property purchase was carried out to funnel money out of the Company and inflate earnings.

1

Neither Anonymous Analytics nor its principles is a registered investment advisor or otherwise licensed in any jurisdiction, and the opinions expressed herein should not be construed as investment advice. This report expresses our opinions, which we have based upon publicly available facts and evidence collected and analyzed including our understanding of representations made by the managements of the companies we analyze, all of which we set out in our research reports to support our opinions, all of which we set out herein. We conducted basic research based on public information in a manner than any person could have done if they had been interested in doing so. You can publicly access any piece of evidence cited in this report. All facts, figures, and opinions are as at the last practicable date. This document has been prepared for informational purposes only. This document is not an offer, or the solicitation of an offer, to buy or sell a security or enter into any other agreement. We have made every effort to ensure that all information contained herein that support our opinions is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock or company covered herein or who may otherwise owe any fiduciary duty to the issuer. However, we do not represent that it is accurate or complete and should not be relied on as such, in particular, Credit China FinTech Holdings Ltd. (“Credit China” or “the Company”) and insiders, agents, and legal representatives of Credit China and other entities mentioned herein may be in possession of material non-public information that may be relevant to the matters discussed herein. Do not presume that any person or company mentioned herein has reviewed our report prior to its publication. As evident by the contents of our research and analysis, we expend considerable time and effort to ensure that our research analysis and written materials are complete and accurate, we strive for accuracy and completeness to support our opinions, and we have a good-faith belief in everything we write - but such information is presented “as is,” without warranty of any kind, whether express or implied. All expressions of opinion are subject to change without notice, and we make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such opinions and information or with regard to the results to be obtained from its use, and we makes no representation that we will update any information on this. You should assume that all statements contained herein are our opinion and are not statements of fact – even if certain statements can be perceived as such. That way, we don’t have to sacrifice our (hopefully) entertaining writing style by starting every sentence with “In our opinion” as advised by our team of neurotic and overpriced lawyers. We believe that the publication of our opinions and the underlying facts about the public companies we research is in the public interest, and that publication is justified due to the fact that public investors and the market are connected in a common interest in the true value and share price of the public companies we research. We are exercising our right to express such opinions in a public forum. Any investment involves substantial risks, including complete loss of capital. Any forecasts or estimates are for illustrative purpose only and should not be taken as limitations of the maximum possible loss or gain. Any information contained in this report may include forward-looking statements, expectations, and projections. You should assume that these types of statements, expectations, and projections may turn out to be incorrect. Anonymous Analytics itself holds no direct or indirect interest or position in any of the securities profiled in this report. However, you should assume that certain of Anonymous Analytics’ research and due diligence contacts, consultants, affiliates, and/or clients may have a short position in the stock or debt of Credit China and/or options of the stock, and therefore stand to gain substantially in the event that the price of the stock decreases. You should further assume that following the distribution of this report, the aforementioned individuals and entities may continue transacting in the securities covered therein, and may be long, short or neutral at any time hereafter regardless of this report’s initial opinions. Don’t be stupid and invest in the public markets unless you are prepared to do your own homework and due diligence.

Disclaimer

2

Credit China is a US$2 billion company engaged in the provision of traditional short-term loans and internet-based financial transactions. Credit China is currently listed on the alternative board of the Hong Kong Stock Exchange, but is looking to be promoted to the Main Board, which the Company claims can happen as early as this month. Based on our research, we believe that Credit China has misled investors by engaging in a number of questionable or otherwise undisclosed related-party transactions designed to funnel money out of the Company and/or inflate earnings. Among them: The Acquisition of Shanghai Jifu: The largest acquisitions in Credit China’s history as a publicly-traded company occurred in April 2016 when it acquired a 35% stake in a company called Shanghai Jifu for cash and stock consideration of RMB856 million. The Company claims Shanghai Jifu was an acquisition from independent third-parties. However, our research suggests that it was an undisclosed related-party transaction involving a key individual of Credit China. The Shanghai Property Purchase: In December 2013 Credit China purchased a property in Shanghai for RMB396 million from a purportedly independent borrower who had defaulted on a loan. In the three weeks following the foreclosure but prior to year-end 2013, Credit China recorded a revaluation gain of approximately RMB76 million. This gain represented 37% of Credit China’s 2013 reported pre-tax profit of RMB207 million. Credit China claims that it arrived at the RMB396 million valuation through an internal credit assessment. However, SAIC filings show that the property had been valued at RMB244 million only six months prior by an accredited national class one property valuer. Based on the fact pattern, we believe the property was purchased at an inflated price as a means of funneling money out of the Company, while the revaluation gain was recognized to inflate earnings. The 30-Minute Trade: Credit China trades at a comparatively nose-bleed multiple of 45x 2017 earnings, while its closest competitor trades at less than 10x. Inspired by the Financial Time’s analysis of Hanergy’s unusual trading patterns, we have conducted an analysis of the intraday trading patterns of Credit China shares for the past six months. According to our analysis, a strategy of buying Credit China shares at 3:30pm and selling at 4:00pm would have seen HK$100 grow to HK$219.31 versus a buy-and-hold strategy over the same period of HK$128.62. There were only two other stocks in our review of Hong Kong-listed companies that performed better in the last 30 minutes of trading. Accordingly, we think Credit China is just another company with a share price value dictated more by end-of-day trading manipulation than business fundamentals. Conclusion: Given the evidence in this report, we believe Credit China has a better chance of attracting the attention of the SFC’s newly established GEM team than it does being promoted to the Main Board. Based on fundamentals alone – to make no mention to the issues we’ve raised – we believe Credit China should trade more in-line with its peer at 10x 2017 earnings, or HK$0.17 per share. With shares of Credit China currently trading at HK$0.75, this would suggest potential downside of 77%.

Executive Summary

3

Historically, Credit China operated as a predatory shadow banking company that provided traditional short-term loans, including collateral-backed loans and pawn loans.1 In 2013, the Company shifted strategies and moved into the internet-based financial technology (“FinTech”) space with its acquisition of UCF Pay, an online 3rd party payment business.2 Since then, Credit China has made a number of other substantial internet-themed acquisitions aided by massive capital raises, while shedding some of its more traditional loan business. In September 2016, the Company went one step further and changed its name from “Credit China Holdings Ltd.” to “Credit China FinTech Holdings Ltd.”3 Credit China’s IPO debut was in 2010, when it listed on Hong Kong’s alternative Growth Enterprise Market (“GEM”) as an obscure small-cap. Today, Credit China has managed to become one of the largest GEM-listed companies with a US$2 billion valuation. Stock Performance Since IPO

Given its market value, Credit China is looking to be promoted to the Main Board of the Hong Kong Stock Exchange, which the Company claims can happen as early as this month.4 We wouldn’t be so sure about that. Based on our research, we believe that Credit China has misled investors by engaging in a number of questionable or otherwise undisclosed related-party transactions. We believe these transactions were designed to funnel money out of the Company and/or inflate earnings. The last thing a company like that needs is access to more capital.

1 http://www.hkexnews.hk/listedco/listconews/GEM/2010/1119/GLN20101119035.PDF pg. 1

2 http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 4

3 http://www.hkexnews.hk/listedco/listconews/GEM/2016/1003/GLN20161003277.pdf

4http://etf.etnet.com.cn/www/sc/stocks/realtime/quote_news_detail.php?newsid=ETN260322226&page=1&secti

on=related&code=8207

Introduction

4

The largest acquisitions in Credit China’s history as a publicly-traded company occurred in April 2016 when it acquired a 35% stake in a company called Shanghai Jifu for consideration of RMB856 million.5 Shanghai Jifu is a company that was established in 2012 and is described as providing mobile Point-of-Sale (“mPOS”) solutions for small and micro-sized merchants.6 The RMB856 million consideration represented 18% of Credit China’s total assets and 33% of its net assets at year-end 2015.7 Although substantial in size, the initial acquisition announcement and the subsequent circular provide limited operating metrics and financial data on Shanghai Jifu to justify the implied RMB2.4 billion8 valuation of a seemingly typical mPOS company with only a four-year operating history. The circular does not even contain a customary independent valuation report. Even HSBC, a Credit China bull and one of two analysts covering the stock notes the lack of data:

Source: HSBC research report dated 9 August 2016

It’s somewhat exceptional that an analyst admits they don’t have enough data to model the largest acquisition of a company they cover. Despite the lack of data or independent valuation, investors are left to take comfort in the fact that Credit China would not overpay for Shanghai Jifu because it was acquired as a typical arm’s length transaction from independent third-parties, according to the relevant HKex filing:

5 http://www.hkexnews.hk/listedco/listconews/GEM/2016/0811/GLN20160811165.pdf pg. 28 (Total consideration

was initially for RMB560 million in cash and shares. However, between the time of the announcement and the time the deal closed, shares of Credit China had increased substantially, valuing the deal at RMB856 million. 6 http://www.hkexnews.hk/listedco/listconews/GEM/2016/0811/GLN20160811165.pdf pg. 36

7 http://www.hkexnews.hk/listedco/listconews/GEM/2016/0330/GLN20160330123.pdf pg. 115, 116

8 RMB856 ÷ 0.35 = RMB2,446 million

The Acquisition of Shanghai Jifu

5

Shanghai Jifu Acquisition Announcement

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2015/1127/GLN20151127001.pdf pg. 3

Unfortunately – and despite the claims in this filing – we have found clear evidence that the acquisition of Shanghai Jifu was in fact an undisclosed related-party transaction involving Credit China’s non-executive director, substantial shareholder, and key individual, Mr. Zhang Zhenxin. Here is the biographical information of Mr. Zhang as per Credit China’s 2015 annual report:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2016/0330/GLN20160330123.pdf pg. 34

In addition to being a non-executive director and substantial shareholder of Credit China, Mr. Zhang is also the Chairman of UCF Group. If “UCF” sounds familiar, recall from our introduction (page 3) that in 2013 when Credit China decided to expand into the FinTech space, its first acquisition was of UCF Pay. Mr. Zhang was one of the vendors of UCF Pay, and on acquisition he became a substantial shareholder of Credit China.9

9 http://www.hkexnews.hk/listedco/listconews/GEM/2013/1010/GLN20131010005.pdf pg. 8

6

Now, here is where it gets interesting – according to official SAIC records,10 the website of Shanghai Jifu is www.jfpal.com/index.html:

Source: SAIC filings

If we go to the ‘About Us’ section of the website today, we see that Credit China is listed as a shareholder of Shanghai Jifu, as would be expected:

Source: https://www.jfpal.com/guanyujifu/touzirenguanxi/

10

By way of background, Chinese companies are required to file annual financial and business information with the State Administration for Industry and Commerce (SAIC). SAIC filings are public documents.

7

However, if we go back in time using Web Archives, we can see that Shanghai Jifu used to actually be controlled by UCF Group:

Source: https://web.archive.org/web/20151114035749/http://www.jfpal.com/guanyujifu/touzirenguanxi/

Web Archives shows that as late as 14 November 2015, UCF Group was listed as a controlling shareholder of Shanghai Jifu (presumably through a VIE structure). This screen grab was taken only a few days before Credit China announced its plan to acquire a stake in Shanghai Jifu from purportedly independent parties!

8

Further evidence that UCF Group was a shareholder of Shanghai Jifu can be found on the profile page of Jifu North China’s official WeChat account:

Source: http://www.weixinnu.com/tag_article/1855603197

This profile, dated 31 October 2015, confirms UCF Group as a shareholder of the company. Based on this evidence, we think it’s pretty obvious that Credit China misled investors about who it was acquiring Shanghai Jifu from.

Jifu Group and Investors

Source: Jifubao North China Operation Center, Public WeChat ID Date: 31 Oct 2015

9

The Hong Kong Stock Exchange has strict disclosure requirements when it comes to related-party transactions – and it’s easy to see why. For example, in this scenario Mr. Zhang could have acquired a controlling stake in Shanghai Jifu through his UCF Group, and then turned around and flipped his stake at a considerable premium to Credit China. Given his substantial shareholding in Credit China and his position as a director, it’s easy to imagine his influence ensuring the deal goes through. Recall that there was very little financial information provided to properly value the acquisition in the first place. Disclosure requirements are designed to make all parties and shareholders aware of these types of conflict-of-interests and potential abuses. But aside from broad-strokes corporate governance implications, there are more direct concerns that arise from the question of Shanghai Jifu’s ownership history, particularly as it relates to Credit China’s reported profits. To explain, here is another Web Archives screen grab of Shanghai Jifu’s website, dated 14 August 2015:

Source: https://web.archive.org/web/20150814212400/http://jfpal.com/about

This page has a heading titled “Third-party payment license”, under which is a picture file called “UCF Pay business license.jpg”. Although Web Archives did not save this .jpg, the file name and context clearly suggest that there was a picture of UCF Pay’s third-party payment license. This type of license is required for non-financial institutions such as Shanghai Jifu to manage client money flows, and is issued by the People’s Bank of China (“PBOC”). The details of the ordinance can be found here.

Third-party payment license

UCF Pay business license.jpg

10

Given the sensitive nature of handling third-party money and the systematic risks involved, the order explicitly forbids a license holder from lending, renting, or transferring the license:

Source: http://baike.baidu.com/view/3799706.htm

With this background, it’s shocking that Shanghai Jifu was evidently using UCF Pay’s third-party payment license as recently as August 2015. Remember – UCF Pay has been a subsidiary of Credit China since 2013 when it was acquired from Mr. Zhang. By contrast, Shanghai Jifu was acquired by Credit China in mid-2016 from supposedly “independent third parties” (although we believe the evidence clearly suggests it was also acquired from Mr. Zhang). This is significant because if Shanghai Jifu was using UCF Pay’s third-party payment license, it is possible that the income generated by Shanghai Jifu flowed through UCF Pay and was subsequently reported as part of Credit China’s profits. If so, this would mean that Credit China’s reported profits were derived, in part, from undisclosed related-party transactions.

11

One of Credit China’s principal activities is the provision of real estate-backed loans. On 8 July 2013, Credit China announced that it had provided a loan of RMB150 million to an unnamed borrower. The loan was collateralized by a commercial property in Shanghai (“Shanghai Property”). This loan was so large that it triggered Hong Kong listing rules requiring detailed disclosures. Although the announcement does not disclose the identity of the borrower, it provides assurance that they are independent third-parties:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2013/0708/GLN20130708041.pdf pg. 4

Five months later, on 10 December 2013, Credit China announced that the borrower had defaulted on the loan, and would therefore exercise a foreclosure option by forcing the borrower to sell the Shanghai Property for RMB396 million – to Credit China. In the three weeks following the foreclosure but prior to year-end 2013, Credit China recorded a fair value gain of approximately RMB76 million resulting from the appreciation of the Shanghai Property.11 This gain represented 37% of Credit China’s 2013 reported pre-tax profit of RMB207 million.12 Even before we begin a deep dive, this whole transaction comes off as sketchy. To recap: first, Credit China made a substantial loan to a borrower who defaults within five months. Then, instead of auctioning off the collateralized property as is customary in such foreclosures,13 Credit China chose to purchase the property itself even though it is not in the property investment business. And finally, Credit China recognized a massive revaluation gain on the property right before year-end. According to the foreclosure announcement dated 10 December 2013, the RMB396 million consideration was arrived at “after having taken into account the market prices of comparable properties of similar size, character and location. The Directors consider that the consideration for the Acquisition arrived at after arm’s length negotiations is fair and reasonable.”14 Given these negotiations, are we expected to believe the property suddenly appreciated RMB76 million in the three weeks between the foreclosure announcement and year-end? Whatever.

11

http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 8 12

http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 56 13

http://www.hkexnews.hk/listedco/listconews/GEM/2010/1115/GLN20101115019.pdf pg. 125 14

http://www.hkexnews.hk/listedco/listconews/GEM/2013/1210/GLN20131210047.pdf pg. 3

The Shanghai Property Purchase

12

Based on our research, we believe that the Shanghai Property was acquired by Credit China under dubious circumstances and for substantially more than its fair market value. Here are the details of the Shanghai Property, as per Credit China’s 2013 annual report:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 197

And here is what the Property looks like:

Source: Baidu Maps

13

According to the Shanghai Property’s Baidu Baike page (China’s Wikipedia), the previous owner of the

Shanghai Property was an entity named 上海华集投资（集团）有限公司 – English translation:

Shanghai Huaji Investment (Group) Co., Ltd. (“Shanghai Huaji”):

This ownership entry goes back to at least November 2011, when the Baidu Baike page was first created:

Developers: Shanghai Huaji Investment (Group) Co., Ltd

Developers: Shanghai Huaji Investment (Group) Co., Ltd

14

From these entries, we can safely assume that Shanghai Huaji was the unnamed borrower in Credit China’s foreclosure announcement. When Credit China initially made the loan, it curiously asked the borrower to transfer ownership of the Shanghai Property to a subsidiary of the Company as security according to the loan agreement. This is a rather unusual move that leads us to suspect Credit China was already preparing for a default because according to its IPO prospectus, collateral on entrusted loans (which this was) are pledge to the bank which acts as an intermediary between the borrower and Credit China:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2010/1119/GLN20101119035.PDF pg. 36

Anyway, the foreclosure announcement specifies that Credit China acquired the foreclosed Property for RMB396 million through an indirect, wholly-owned subsidiary called Shanghai Shenlong. According to Credit China’s 2013 annual report, Shanghai Shenlong is a subsidiary established on 15 November 2012:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 177

15

To get a better understanding of the circumstances surrounding this acquisition, we pulled the SAIC filings of Shanghai Shenlong. Unfortunately, the SAIC filings tell a very different story of the Shanghai Property acquisition than the one Credit China has told investors. According to the SAIC filings, Shanghai Shenlong was incorporated on 15 November 2012, by Chongqing Shenyan Investment Consultancy Co. Ltd, which is a wholly-owned subsidiary of Credit China:

Shanghai Shenlong Ownership

Source: SAIC filings

We believe Shanghai Shenlong’s incorporation date is the only detail that matches Credit China’s story regarding the acquisition of the Shanghai Property. From here, Credit China’s narrative quickly starts to fall apart. As the SAIC filings show, Shanghai Huaji did not simply transfer the Property to a subsidiary of Credit China. Rather, Shanghai Huaji became a 70% shareholder of Shanghai Shenlong as of 11 July 2013 through an asset injection valued at RMB210 million.

Cash

4. Add shareholder and the shareholding after capital injection

Name of the shareholder

Chongqing Shenyan

Shanghai Huaji

Capital (in 10,000 RMB)

Tangible Asset

Form of Capital

Date: 10 July 2013

Stamps

Capital Inj. Time

16

An auditor’s report contained in the SAIC filings and dated 12 July 2013 confirms the RMB210 million asset injection by Shanghai Huaji into Shanghai Shenlong, and further notes that this asset was a property with floor space of 10,182.49m2:

Shanghai Shenlong Auditor’s Report

Source: SAIC filings

Translation:

“Shanghai Huaji injected a property of 10,182.49m2 that was valued at RMB244 million, of which RMB210 million served as registered capital and RMB34 million as capital reserve.”

17

As it happens, the property referred to in this auditor report is the Shanghai Property which Credit China claims to have purchased for RMB396 million from an independent borrower through foreclosure. We know this because the SAIC filings also contain a property valuation report prepared by Shanghai BDGH, a national class one property valuer. The report was dated June 2013 and valued the Shanghai Property at RMB244 million. Here is the page of the property valuation report with the identifying details:

Source: SAIC filings

Property valuation report

Name of the property: No. 518-686 Sichuan North Road, Hongkou district, Shanghai

Assignee: Shanghai Huaji

Valuer: Shanghai BDGH

Valuation Date: 03 June 2013 – 07 June 2013

Valuation report Serial No.

18

And here is the page valuing the Shanghai Property at RMB244 million:

Source: SAIC filings

The report states that the appraised market value is valid for one year under stable market conditions, and even has concluding remarks describing its valuation methodology:

“The appraisers, using scientific, fair, objective and reasonable valuation principles, according to national standards and procedures, after on-site visits and thorough understanding of the district property market situation, and carefully based analysis on the available data, and meticulous calculation that combines appraisals experiences, arrived at the market price of the said property at the time of valuation to be RMB244.1 million.”

Valuation date

Validity of the valuation report

This report in principle is valid for one year under stable market conditions

Valuers

Market price

19

To reiterate, Credit China paid consideration of RMB396 million in December 2013 for a property that was valued at RMB244 million in June 2013 by an independent, national class one property valuer – to make no mention of the immediate RMB76 million revaluation gain. At year-end 2013, Credit China carried the Shanghai Property on its book at RMB513 million, consisting of the initial RMB396 million consideration, plus RMB76 million in valuation gains, plus agency fee and other related taxes of RMB41 million.15 This was more than twice its independently appraised value. By contrast, Credit China simply claims it arrived at the RMB396 million valuation through an internal credit assessment, which is bullshit seems to downplay the presumed need for an independent and professional valuation given the sheer size of the loan and the credit risk involved:

http://www.hkexnews.hk/listedco/listconews/GEM/2013/0708/GLN20130708041.pdf pg. 8

Oddly, while it seems that Credit China did not use the services of an independent appraiser when it originally valued the Property, it brought in Roma Appraisals afterwards to justify the RMB76 million valuation gain. From the 2013 annual report:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 132

Obviously, Credit China is going to respond to this report by pointing to Roma’s 11th hour blessing as confirmation of the Shanghai Property’s true value. So, why trust Shanghai BDGH over Roma? First, Roma is a Hong Kong-based and accredited appraisal company. By contrast, Shanghai BDGH is a national class one property valuer and a member of the globally recognized, London-based Royal Institute of Chartered Surveyors (RICS). There are only ten RICS accredited firms headquartered in Shanghai. It makes little sense to us to bring in a HK-based firm to sign off on a property valuation over a local firm who has already valued the property and is almost certainly more experienced with the local market.

15

http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 132

20

Second, the RMB76 million revaluation represents a 19% immediate gain on the RMB396 million purchase price. What kind of independent borrower would be willing to sell their property for nearly a 20% discount unless they are Michael Scott of Dunder Mifflin?

Michael Scott: I basically have the job already. I already sold my condo. Angela Martin: Wha? Who gave you that advice? Michael Scott: I sold it on eBay. The buyer was very motivated as was I. It went for eighty percent of what I paid. Sold in record time. -The Office

And finally, there are telltale signs in Credit China’s own annual report that the property is not worth what the Company claims. At the end of 2015, Credit China reported that secured bank loans of RMB140M were secured by the Shanghai Property:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2016/0330/GLN20160330123.pdf pg. 258

Furthermore, in its IPO prospectus, Credit China boasts that it provides real estate loans based on low loan-to-value ratios of 40-60%, whereas bank loans can be as high as 70%:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2010/1119/GLN20101119035.PDF pg. 102

21

If we take Credit China at its own statement, this means that the RMB140 million bank loan secured by the Shanghai Property at year-end 2015 would implicitly value the Property at RMB200 million based on a loan-to-value of 70%. If we assume a more conservative loan-to-value ratio of 60% in line with Credit China’s own policy, it would value the Shanghai Property at RMB233 million. This implied valuations is consistent with the RMB244 million market value of the Shanghai Property as appraised by Shanghai BDGH. Credit China may respond to this by claiming they did not take the maximum bank loan they were qualified for given the value of the Property. However, this makes little sense in the context of the number of substantial financing rounds the Company undertook in 2015,16 particularly since the interest rate on collateralized bank borrowing is relatively cheap. It should also be noted that the loan-to-value range Credit China is quoting likely refer to small and medium-sized borrowers. A listed company like Credit China would almost certainly get more favorable loan-to-value rates from banks, which means a larger loan for the same property, which only further supports our thesis. For all of these reasons, we believe Shanghai BDGH’s RMB244 million appraisal more accurately reflects the fair market value of the Shanghai Property. Given all of this, and based on the fact pattern, we believe the Shanghai Property may have been beneficially owned by individuals connected to insiders of Credit China, and the property was purchased as a means of funneling money out of the Company. The RMB396 million purchase price represented 28% of Credit China’s total assets, and 39% of net assets as at interim 2013.17 It makes no economic sense for a loan company to tie up that much capital in a property acquisition when it could be lending that money to borrowers for as much as 30%+ interest rates.18 The property has still not been sold, and we don’t think it will be. Given what we see as clear evidence of an inflated purchase, we believe Credit China will likely have to recognize a substantial loss if it sells the property to truly independent parties at market value. Of course, this acquisition has a second element to it as well: having bought the property with shareholder money, Credit China then had an illiquid asset on which it could recognize a RMB76 million gain – because hey, why not? This gain represented 37% of the Company’s 2013 reported pre-tax profit of RMB207 million.19 Win-win.

16

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2016/0330/GLN20160330123.pdf pg. 19-22 17

http://www.hkexnews.hk/listedco/listconews/GEM/2013/0814/GLN20130814035.pdf pg. 5 18

http://www.hkexnews.hk/listedco/listconews/GEM/2013/0814/GLN20130814035.pdf pg. 109 19

http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 56

22

As mentioned in our introduction, 2013 was a transformative year in which Credit China shifted strategies and expanded from its traditional short-term loan legacy business into the FinTech space with its acquisition of UCF Pay. Given that 2013 was the nexus of Credit China’s strategic shift, we thought it may be worthwhile to dive deeper into some of the transactions the Company completed that year. Specifically, aside from the UCF Pay (UCF Huisheng) acquisition, Credit China engaged in two other notable transactions, as per its 2013 annual report:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 9

Unfortunately, our analysis of these two other transactions suggests a familiar pattern of questionable dealings and wildly aggressive cash outflows for dubious assets that are consistent with the rest of this report.

The 2013 Transformation

23

Worthy Trade Acquisition

In a rather non-descript disclosure, Credit China announced in its 2013 annual report that it had acquired the remaining equity interest of 20% in a subsidiary ironically named Worthy Trade:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 9 (We note from this page of the 2013 Annual Report that the disclosure of Worthy Trade does not even provide an exact date of acquisition unlike the other two disclosed acquisitions as highlighted in red.) This is a rather bizarre disclosure because until the moment we read it, we had no idea there ever was an entity called “Worthy Trade”, or even that Credit China already had an 80% interest in it. There is no mention of this entity in the IPO prospectus, or any of the preceding annual reports. This sudden appearance of Worthy Trade is made all the more unusual by the fact that the announced 20% acquisition was for consideration of RMB81 million, which would wholly value Worthy Trade at RMB405 million. That is not a small subsidiary to just go unnoticed. However, a look through Credit China’s list of disclosed subsidiaries does not show any otherwise unaccounted-for entities that we believe could reasonably belong to Worthy Trade (as defined by a commensurate increase in percentage ownership from 80% in 2012 to 100% in 2013).20 The one exception is this note from the 2013 annual report:

20

http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 176 to 178

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Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 180

This disclosed entity named 上海華勵 (“Shanghai Huali”) was apparently 80%-owned by Credit China, and then became 100%-owned after the remaining 20% of Worthy Trade was acquired. Shanghai Huali is the only link we can find between Credit China and Worthy Trade. However, even this link seems spurious. Here is another disclosure from the 2013 annual report:

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Shanghai Huali Disclosure Notes

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 191

According to this disclosure, Shanghai Huali was a small subsidiary with only RMB16 million in assets, which hardly accounts for Worthy Trade’s RMB405 million valuation as implied by the 20% acquisition. Furthermore, this disclosure vaguely claims that Shanghai Huali was newly incorporated in 2013. However, when we checked Shanghai Huali’s SAIC records, we found that it was actually established on 28 November 2012 with registered capital of RMB100,000:

Source: SAIC filings

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Since Shanghai Huali only has RMB16 million in assets and is the only evidence we can find that Worthy Trade even exists, we are at a loss to explain where the rest of the RMB81 million went. Given the contradicting SAIC evidence, we believe the acquisition of Worthy Trade may have just been a ploy to funnel RMB81 million out of the Company. This theory also helps explains why Credit China seemingly lied about when Shanghai Huali was incorporated. If Credit China admitted that Shanghai Huali was incorporated in 2012, it would have to explain to its auditor why its 80% ownership was not disclosed in the subsidiary list of its 2012 annual report given that the Company claims to have already owned 80% of Worthy Trade. However, by claiming that Shanghai Huali was incorporated in 2013, it could forego such an uncomfortable line of questioning.

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Hefei Jianxin Acquisition

Credit China announced in its 2013 annual report that on 13 November 2013, it acquired 100% of the

paid up capital of 合肥建信 (Hefei Jianxin) for consideration of RMB48 million:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 9

While the above disclosure of the Hefei Jianxin acquisition seems rather simple and straightforward, SAIC records show that Heifei Jianxin was 100%-owned by an entity named China Runking as of 10 June 2013:

Source: SAIC filings

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SAIC records also show that China Runking maintained 100% ownership of Hefei Jianxin until at least 7 May 2015:

Source: SAIC filings

The problem with all this is that China Runking was actually a 60.3%-owned investment holding subsidiary of Credit China from 2012, until it was disposed of in December 2014. Here is the subsidiary list from Credit China’s 2013 annual report showing its 60% ownership of China Runking in 2012 and 2013:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 176

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And here is a note from the 2014 annual report regarding the disposal of China Runking:

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2015/0330/GLN20150330079.pdf pg. 14

The circular logic here may be confusing, so let’s recap: Credit China announced that on November 2013 it had acquired 100% paid up capital of Hefei Jianxin for consideration of RMB48 million. However, SAIC records show that from June 2013 to May 2015, Hefei Jianxin was 100%-owned by China Runking. Furthermore, China Runking was 60.3% owned by Credit China from 2012 until its disposal in December 2014. This means that Credit China already indirectly owned 60.3% of Hefei Jianxin through its 100% ownership of China Runking from June 2013 through December 2014. Therefore, Credit China’s claims that it purchased 100% of the paid up capital of Hefei Jianxin in November 2013 makes no sense given that it already indirectly owned 60.3% of it at the time. Having RMB48 million of shareholder money exit the Company to purchase a subsidiary you evidently already own is certainly a unique business strategy.

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A review of sell-side research reports makes it obvious that Credit China is not an easy company to value. Moreover, we think analysts are reactively chasing the Company’s share price and working backwards with their valuation models rather than proactively forecasting a target price based on fundamentals. To be fair, Credit China’s earnings are difficult to forecast given the Company’s acquisition spree and high volatility. Further compounding the difficulty is the fact that there are almost no publicly-traded Chinese FinTech companies to use as peer comparables. Fortunately, late last year Yirendai had its IPO debut on the NYSE. Yirendai describes itself as a leading online consumer finance marketplace in China connecting investors and individual borrowers.21 Yirendai is the closest peer comparable we can find to Credit China (and the main comp used by Macquarie Research).22 However, the valuation between the two companies is completely unhinged: Peer Analysis

Ticker

Market Cap (US$ millions)

Share Price (LC)

P/E estimates

2016 2017 2018

Yirendai YRD.NYSE 1,680 US$28.14 14.1 9.7 6.2

Credit China 8207.HK 2,066 HK$0.75 57.1 45.4 36.1

Source: Yahoo Finance, Bloomberg estimates

Credit China trades at a comparatively nose-bleed multiple of 45x 2017 earnings, while Yirendai trades at less than 10x. We have not been able to find a coherent and reasonable explanation (based on fundamentals) as to why Credit China is trading at such an extreme valuation. However, it may have something to do with the stock’s last 30 minutes of trading. Inspired by the Financial Time’s analysis of Hanergy Thin Film’s (566.HK) unusual trading patterns, we have conducted an analysis of the intraday trading patterns of Credit China shares for the past six months (127 days of trading) from 6 June 2016 to 7 December 2016.23

21

http://yirendai.investorroom.com/ 22

Macquarie Research dated 27 June 2016 – Credit China, not rated. 23

Based on Bloomberg data, which provides up to six months of data for free.

The 30-Minute Trade

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According to our analysis, intraday trading over the past six months in Credit China shares has abided by some relatively consistent patterns in the last 30 minutes of trading. Even as the stock has fallen over the recent months, the last half hour of trading has provided consistently positives returns:

Source: Bloomberg data, our analysis

Based on our analysis of the track period, the last 30 minutes and the last 10 minutes of trading has provided a significant return versus the buy-and-hold return over the same period:

Source: Bloomberg data, our analysis

In fact, a strategy of buying Credit China shares at 3:50pm and selling at 4:00pm would have seen HK$100 grow to HK$204.24 versus a buy-and-hold strategy over the same period of HK$128.62. The effect is even more pronounced if one was to buy at 3:30pm and sell at 4:00pm, whereby HK$100 would have grown to HK$219.31. And sure, all of this could be a coincidence. But, we performed a similar analysis on the returns of the last 30 minutes of trading for all Hong Kong-listed stocks with a market capitalization above US$1 billion with available trade data and found that the cumulative returns of Credit China over the period are highly abnormal. As compared to the

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aforementioned set of stocks, Credit China ranks in the top three largest returns for the track period, behind Luen Wong Group (8217.HK) and China Jicheng Holdings (1027.HK):

Source: Bloomberg data, our analysis

Both Luen Wong Group and China Jicheng Holdings are noted bubble stocks of comical proportion.24 Sadly, the Hong Kong market is no stranger to this type of manipulation, with unusual trading activity a hot topic covered extensively by journalists and market commentators alike. Based on our analysis, we think Credit China is just another company with a share price value dictated more by end-of-day trading manipulation than business fundamentals. And given what we’ve seen in the market recently, manipulated stocks have a tendency to end in spectacular collapse.25,26,27

***** Notes:

The return calculations do not consider execution costs or bid-ask spreads.

Analysis assumes one is able to buy at the first trade after 3:30pm or 3:50pm and sell at the last trade at 4:00pm.

The above patterns may occur in stocks without supposed intervention.

24

http://www.thestandard.com.hk/section-news.php?id=168292 25

http://www.wsj.com/articles/hanergy-bulk-of-stock-collapse-occurred-in-less-than-a-second-1432316315 26

https://www.bloomberg.com/news/articles/2016-07-28/tech-pro-tumbles-91-after-glaucus-says-shares-are-worthless 27

http://fortune.com/2015/05/21/another-hong-kong-stock-disaster-as-goldin-loses-25-billion/

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Based on fundamentals alone – to make no mention to the issues we’ve raised – we believe Credit China should trade more in-line with Yirendai. If we simply assume that Credit China trades at 10x 2017 earnings, it would value the Company at HK$3.5 billion, or HK$0.17 per share. With shares of Credit China currently trading at HK$0.75, this would suggest potential downside of 77%. Some traders may also be holding shares of Credit China under the assumption that the Company will be promoted to the Main Board of the HKex and enjoy all the benefits that come with such a prestigious listing, including access to more capital, broader market coverage, and index inclusion. However, we believe Credit China has a better chance of attracting the attention of the SFC than it does being promoted. In a recent speech, incoming SFC enforcement chief Mr. Thomas Atkinson announced that the top priority of his staff will include corporate fraud and misfeasance, with a focus on quality and high-impact cases. Mr. Atkinson also announced that a temporary GEM team had been set up to investigate irregularities in the Growth Enterprise Market.28 Given the evidence presented in this report, we believe Credit China is a winning candidate for review by the GEM team. But a candidate for Main Board promotion? Nah. To reiterate, we value Credit China at HK$0.17 per share. With shares currently trading at HK$0.75, this would suggest potential downside of 77%.

Opinion: Strong Sell

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http://www.sfc.hk/web/EN/files/ER/PDF/Speeches/Atkinson_20161109.pdf

Conclusion

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