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

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 Chinas
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.

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

Executive Summary
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 Chinas 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 Chinas 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 Times analysis of Hanergys
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 SFCs newly established GEM team than it does being promoted to the Main Board.
Based on fundamentals alone to make no mention to the issues weve 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%.
2

Introduction
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 Chinas IPO debut was in 2010, when it listed on Hong Kongs 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 wouldnt 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
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
4
http://etf.etnet.com.cn/www/sc/stocks/realtime/quote_news_detail.php?newsid=ETN260322226&page=1&secti
on=related&code=8207
2

The Acquisition of Shanghai Jifu

The largest acquisitions in Credit Chinas 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-ofSale (mPOS) solutions for small and micro-sized merchants.6
The RMB856 million consideration represented 18% of Credit Chinas 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

Its somewhat exceptional that an analyst admits they dont 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 arms length
transaction from independent third-parties, according to the relevant HKex filing:

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

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 Chinas nonexecutive director, substantial shareholder, and key individual, Mr. Zhang Zhenxin.
Here is the biographical information of Mr. Zhang as per Credit Chinas 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

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.

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!

Further evidence that UCF Group was a shareholder of Shanghai Jifu can be found on the profile page of
Jifu North Chinas official WeChat account:
Jifu Group and Investors
Source: Jifubao North China Operation Center, Public WeChat ID
Date: 31 Oct 2015

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 its pretty obvious that Credit China misled investors about who it was
acquiring Shanghai Jifu from.
8

The Hong Kong Stock Exchange has strict disclosure requirements when it comes to related-party
transactions and its 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, its 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 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.
9

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.

10

The Shanghai Property Purchase

One of Credit Chinas 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 Chinas 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 arms 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
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
12

11

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 Chinas 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

12

According to the Shanghai Propertys Baidu Baike page (Chinas Wikipedia), the previous owner of the
Shanghai Property was an entity named English translation:
Shanghai Huaji Investment (Group) Co., Ltd. (Shanghai Huaji):

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

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

13

From these entries, we can safely assume that Shanghai Huaji was the unnamed borrower in Credit
Chinas 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 Chinas 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

14

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
4. Add shareholder and the shareholding after capital injection
Name of the shareholder

Form of Capital
Capital Inj. Time

Capital
(in 10,000 RMB)
Cash

Chongqing Shenyan

Tangible Asset

Shanghai Huaji

Stamps

Date: 10 July 2013

Source: SAIC filings

We believe Shanghai Shenlongs incorporation date is the only detail that matches Credit Chinas story
regarding the acquisition of the Shanghai Property. From here, Credit Chinas 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.
15

An auditors 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 Auditors 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.

16

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:

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.

Source: SAIC filings

17

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

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.

18

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 Romas 11th hour blessing as
confirmation of the Shanghai Propertys 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

19

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 Chinas 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

20

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
Chinas 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 BDGHs 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 Chinas 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 dont 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 Companys 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

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
17

21

The 2013 Transformation

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 Chinas 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.

22

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 Chinas 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

23

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

This disclosed entity named (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:

24

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 Trades 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 Hualis SAIC records, we found that it was actually established on
28 November 2012 with registered capital of RMB100,000:

Source: SAIC filings

25

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.

26

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 (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

27

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 Chinas 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

28

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 lets 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 Chinas 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.

29

The 30-Minute Trade

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 Companys share price and working
backwards with their valuation models rather than proactively forecasting a target price based on
fundamentals.
To be fair, Credit Chinas earnings are difficult to forecast given the Companys 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
P/E estimates

Ticker

Market Cap
(US$ millions)

Share Price
(LC)

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 stocks last 30 minutes of trading.
Inspired by the Financial Times analysis of Hanergy Thin Films (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/
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.
22

30

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 Konglisted 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

31

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 weve 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
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-areworthless
27
http://fortune.com/2015/05/21/another-hong-kong-stock-disaster-as-goldin-loses-25-billion/
25

32

Conclusion
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.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

28

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

33

34