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Release Date: 21 December 2016

Credit China FinTech Holdings


Response to Credit Chinas
21 December Clarification Announcement

Ticker: 8207.HK
Market Cap: HK$15 billion
Recent Price: HK$0.71
Target Price: HK$0.17
Expected Return: -76%

Opinion: Strong Sell

You should have expected us

aainfo [@] neomailbox.ch


Twitter: @anonanalytics
www.anonanalytics.com
Disclaimer
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
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securities covered therein, and may be long, short or neutral at any time hereafter regardless of this reports initial
opinions.

Dont be stupid and invest in the public markets unless you are prepared to do your own homework and due diligence.

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Introduction
This morning, Credit China released a clarification announcement in response to our 13 December 2016
report question the Company.

The clarification announcement left us in awe as to how ridiculous some of the excuses were and how
much of the evidence in our report Credit China simply chose to ignore. This response focuses on our
two main points concerning Credit China, specifically the acquisition of Shanghai Jifu and the acquisition
of the property in Shanghai (Shanghai Property).

Shanghai Jifu
Shanghai Jifu is by far the largest acquisition in Credit Chinas history as a publicly-traded company.
Credit China acquired a 35% stake in Shanghai Jifu for consideration of RMB856 million in April 2016
from purportedly independent third-parties.

In our 13 December 2016 report, we provided clear evidence that Shanghai Jifu was actually owned by
UCF Group shortly before Credit China acquired its 35% stake (presumably through a VIE, means that it
the ownership would not show up on SAIC filings). UCF Group is a company controlled by Mr. Zhang
Zhenxin (a non-executive director and substantial shareholder of Credit China).

Our evidence was primarily in the form of online screenshots from Shanghai Jifus website as saved by
Web Archives prior to the acquisition. Here is the relevant part from our 13 December 2016 report:

*****

If we go to the About Us section of the *Shanghai Jifus+ 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/

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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!

*****

In a baffling response to this evidence, Credit China simply claims that Shanghai Jifu made a mistake by
claiming that UCF Group was its controlling shareholder on its website and WeChat account.

Source: http://www.hkexnews.hk/listedco/listconews/GEM/2016/1221/GLN20161221001.pdf pg. 4

We find hard to have a dispassionate response to this clarification because as we type this we are both
simultaneously laughing and bewildered at the absurdity that this is the actual response Credit China
chose to submit to the HKex and have scrutinized by the regulators.

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How can Credit China claim with a straight face that Shanghai Jifu put UCF Group as a shareholder by
mistake? Why UCF Group then? Why not PBOC or Baidu or CreditEase or any number of other
companies? This excuse is just so far-fetched.

In our 13 December 2016 report, we also noted that Web Archives shows that Shanghai Jifu was using
UCF Pays third-party payment license. Here is the relevant section from our report:

*****

But aside from broad-strokes corporate governance implications, there are more direct concerns that
arise from the question of Shanghai Jifus ownership history, particularly as it relates to Credit Chinas
reported profits. To explain, here is another Web Archives screen grab of Shanghai Jifus website, dated
14 August 2015:

Third-party payment license


UCF Pay business license.jpg
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 Pays 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 Peoples Bank of China (PBOC). The details of the ordinance can be
found here.

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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, its shocking that Shanghai Jifu was evidently using UCF Pays 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 Pays 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 Chinas profits. If so, this would mean that Credit Chinas reported profits were derived, in
part, from undisclosed related-party transactions.

*****

We believe that Shanghai Jifus use of UCF Pays third-party license is proof that Shanghai Jifu was an
undisclosed related-party. Yet, Credit China makes no attempt to even address this point, which is
particularly troubling given that it concerns the Companys reported profits possibly being derived from
undisclosed related-party transactions.

Let us guess Shanghai Jifu put up UCF Pays third-party payment license by mistake too.

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Shanghai Property
In December 2013, Credit China purchased a property in Shanghai (Shanghai Property) from a
purportedly independent borrower who had defaulted on a loan for consideration of RMB396 million.

In our 13 December 2016 report, we presented a previously undisclosed property valuation report from
Shanghai BDGH, a national class one property valuer based in Shanghai. This property valuation report
valued the Shanghai Property at only RMB244 million. Here is the relevant part taken from our 13
December 2016 report:

*****

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

Market price

Valuers

Valuation date

Validity of the valuation report

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

Source: SAIC filings

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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.

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.1 This was more than twice its independently appraised value.

*****

Credit China does not actually provide any sort of response to this Shanghai BDGH valuation report or
explain why it is invalid. The Company refers only to a valuation carried out by Roma, a HK-based
valuation firm. Furthermore, Credit China does not even produce the Roma valuation report in its
response, so we are only left to take the Company at its word. We on the other hand, provided the
relevant pages from Shanghai BDGHs valuation report.

1
http://www.hkexnews.hk/listedco/listconews/GEM/2014/0331/GLN20140331029.pdf pg. 132

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Conclusion
In our 13 December 2016 report, we noted that Credit China trades at a comparatively nose-bleed
multiple of 45x 2017 earnings, while Yirendai (the closest peer we could find) trades at less than 10x.
According to an analysis of the intraday trading patterns of Credit China shares for the past six months,
we came to the opinion that Credit China is just another company with a share price value dictated
more by end-of-day trading manipulation than business fundamentals.2

Given this, we stated our view that Credit China is vastly overvalued and should trade more in-line with
Yirendai, which was trading at 10x 2017 earnings at the time. Here is the relevant part:

*****

Based on fundamentals alone to make no mention to the issues weve 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.3

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.

*****

Since we carried out this valuation last week, Yirendai has actually fallen by 23%. Accordingly, we believe
shares of Credit China are even less attractive than before.

To reiterate, we value Credit China at HK$0.17 per share. With shares currently trading at HK$0.71,
this would suggest potential downside of 76%.

Opinion: Strong Sell

2
http://www.anonanalytics.com/2016/12/credit-china.html pg. 30 32
3
http://www.sfc.hk/web/EN/files/ER/PDF/Speeches/Atkinson_20161109.pdf

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