Short KuangChi Science (HK: 439) Most Ridiculous Sci-fi

Stock Promotion in the World

Target Price 2.2 billion HKD, 88% Downside

While the U.S. investors might have heard of Baidu, Alibaba,

and Tencent, a Shenzhen based Chinese company has been
sneaking under the radar. Hyped as the potential Next Elon
Musk of China, Liu Ruopeng, and KuangChi Science, rose to
stardom when President Xi Jinping visited the company back in
2012. KuangChi proclaims itself as to revolutionize the aviation
industry, to change the ways big data are gathered and
analyzed, to create the next metamaterial for invisible
cloaking, and to disrupt the way people interact with futuristic
technologies.

Recommendation:

But despite all the big talks, KuangChi Science has only one
major source of revenue - selling Wi-Fi and surveillance
airships to the Chinese local government. The company is run
by PhD graduates who have zero experience in the business
technology industry. During KuangChis presentation at the
Tencent 2015 WE Conference, KuangChi was called a scam
by someone from audience, three times. Despite the
unproven and highly highly speculative business model,
KuangChi currently trades at a valuation of 18.5 billion HKD
(2.4 billion USD), with a price/earnings ratio of 138x, a
price/sales ratio of 30x, and a price/book ratio of 8.4x. We
believe that KuangChi should instead be valued at net
asset value - HKD 0.37 per share - indicating an 88%
downside from the last traded price.

18.5 billion HKD

Strong Sell

Price:
3.04 HKD /share

Market Cap:

Price Target:
0.37 HKD /share

Date:
December 11, 2016

All content in this report represent the opinions of the Author. The Authors have obtained all information herein from
sources they believe to be accurate and reliable. This document does not in any way constitute an offer or solicitation
of an offer to buy or sell any investment, security, or commodity discussed herein or of any of the affiliates of the
Authors. As of the publication date of this report, the author has no financial position in the stock of KuangChi
Science. Please refer to the full disclaimer located on page 31 of this report.

Table of Contents
1. Introduction: All Aboard the Hype Train .............................................................................. 2
2. Reverse Merger and the 1.56 Billion HKD Fundraising .................................................... 6
3. Very Little Revenue, Very Little Profit ........................................................................... 7
4. Has KuangChi Collected Any of the Cash? ...................................................................... 9
5. Let's discuss Martin Jetpack - Where are the Sales? ..................................................... 11
6. Let's discuss the Traveller Light Years behind Google? ........................................... 14
7. Let's discuss Solar Ship - Business or Philanthropy in Africa? ........................................ 16
8. Let's discuss Super Wi-Fi - Who built the Wi-Fi? ........................................................... 18
9. Liu Ruopeng - More promotional than Elon Musk ....................................................... 19
10. No Experience, No Expertise ....................................................................................... 23
11. Gold Medal Award for the Most Frequent and Outrageous Press Releases .................. 25
12. Negative Reviews from Ex-KuangChi Employees, Interviewees, and Industry Insiders 28
13. Valuation ................................................................................................................... 30
14. Conclusion ................................................................................................................. 30
Full Legal Disclaimer ......................................................................................................... 31

1. Introduction: All Aboard the Hype Train

The envision for KuangChi Science started in 2009 by a Duke University PhD graduate, Liu
Ruopeng. Studying under David R. Smith, an acclaimed metamaterial professor, Liu Ruopeng
wrote a PhD dissertation on metamaterials capable of reflecting and curving waves at
microwave frequency. Having realized that the technology could potentially be applied for
military purposes, Liu Ruopeng came back to China and established the KuangChi Institute of
Advanced Technology. Even though very little information was disclosed about what happened
from 2010-2013, the metamaterial research was rumored to be a massive failure. While Liu
Ruopeng wrote his PhD dissertation on bending microwave frequencies, it was much harder to
achieve the same means of invisibility at the visible spectrum. Furthermore, it was very difficult
to commercialize economically a laboratory material for mass production.
Nevertheless, in December 2012, President Xi Jinping visited KuangChi Science during his
Shenzhen tour. While KuangChi Science rose to stardom post President Xis visit, the business
was not as spectacular. In 2014, KuangChi had largely abandoned the metamaterial research.
Instead, KuangChi reverse merged into a HK listed shell company, and embarked on several
new initiatives including commercializing a Wi-Fi airship, a jetpack, a helium balloon satellite,
and a solar-powered cargo airship. Below is a comprehensive list of KuangChis current product
lines as disclosed on its website.
Note that on the left is KuangChis description of its technologies, while on the right is our
transcribed version of the same technologies without the buzzwords, jargons and fluffs.

The Cloud: Tethered aerostat that is

able to provide integrated services
including communications, internet
access, surveillance, and big data
collection and analysis

Wi-Fi airship

The Traveller: All-weather multipurpose ultralow-orbit "satellite" built at

low costs

High altitude
helium balloon

The Martin Jetpack: Worlds first

practical jetpack with potential uses
from search and rescue and military to
recreational and commercial activities

A 150,000 USD
jetpack

Solar Ship: Powered by clean energy,

the solarship provides an
unprecedented transportation solution
to remote areas and hard-to-reach
places.

Solar-powered
cargo airship

U-1 Levitating Station: New style of

integrated aircraftThe Levitation
Station can levitate for 10 hours to
provide a full range of services
including surveillance, photography,
and video recording.

Airship that can

take pictures and
videos using
normal and
infrared cameras

iPhoton: World-leading original

Kuang-Chi technology that uses light as
a medium of transmission to identify,
authorize, and transmit information

Technology that
uses the flashlight
from cellphones to
transmit
information

Smart structure: With extraordinary

Metamaterial
electromagnetic properties and the
ability to adapt to the environment, the
smart metamaterial structure developed
by Kuang-Chi has been applied to the
fields of aerospace and other cuttingedge equipment manufacturing, and will
soon be applied to vehicles and
wearable devices

Powered Exoskeleton: The Powered

Exoskeleton is what Kuang-Chi calls
Wearable Spiritual Armor. The
Powered Exoskeleton has the ability to
increase human strength and stamina
and also to detect and analyze
surroundings.

Exoskeleton

Zwipe: Combines the security of

biometric authentication with the speed
and convenience of zero-contact
payments to create the worlds first
fingerprint-activated, zero-contact
payment card

A fingerprint
verification
technology on the
credit card

EyeSight: An expert in Machine Vision

and gesture recognition technology.
The company delivers simple and
natural user interactions with a
multitude of devices including
Smartphones, Tablets, PCs, TVs,
Wearables (Glasses) and other digital
devices, allowing touch-free device
control with the swipe of a hand or point
of a finger.

Technology that
controls TV and
smart homes
devices using
touch-free
gestures.

Super Wi-Fi : Wireless coverage

solution provides a high-speed internet
signal over an established area. By
customizing the range of the wireless
signal to each facilitys structure and
layout,

Wi-Fi for large

stadiums and
events

2. Reverse Merger and the 1.56 Billion HKD Fundraising

No great tales begin without a fundraise. Taking advantage of its stardom status, KuangChi
reverse merged into a HK listed shell company in May 2014. The shell company, Climax
International (HK 439), was previously in the business of producing paper. Liu Ruipeng, along
with several other investors, entered into a subscription agreement with Climax International
pursuant to which Climax International issued a total of 4,350,000,000 subscription shares,
comprising 1,666,666,668 new ordinary shares and 2,683,333,332 new preferred shares, at an
issue price of HK$0.08 per share. Total net proceeds were approximately 327 million HKD.
Reorient Financial and Kingston Financial served as the financial advisors on the deal.
The Subscription Price of 0.08 HKD was issued at net tangible book value, and was priced at a
discount of approximately 76.12% to the closing price of 0.335 HKD per share that day. There
were 590 million shares outstanding before the reverse merger. This valued the shell paper
business at approximately 47.2 million HKD based on the 0.08 HKD/share subscription price.
Liu Ruopeng, Chairman of KuangChi, had mostly financed the reverse merger deal through a
loan with Rosier International for 181.6 million HKD at a 6.5% annual rate. As part of the loan
term, 986 million shares, or 87% of his stake in KuangChi were held by Rosier International as
collateral.
Following the reverse merger announcement, the stock price of KuangChi surged from 0.33
HKD per share in May 2014 to over 6.00 HKD per share in Sept 2014 on retail speculations.
Taking advantage of the high stock price, on Sept 12, 2014, KuangChi entered into a deal
6

with 26 non-institutional subscribers where KuangChi offered 289,900,000 shares at a

price of 5.386 HKD per share. This amounted to approximately 4.76% of the outstanding
shares. Total proceeds were approximately 1.56 billion HKD. KuangChi investors managed
to reverse merge into a shell at 0.08 HKD per share, and issue some shares for 5.386
HKD only four month later at a 67.3x return!

3. Very Little Revenue, Very Little Profit

Despite the vast number of business initiatives, the majority of KuangChis revenue comes from
a single source: selling Wi-Fi airships (the Cloud) and camera airships (the U-1) to the
Chinese local governments. Revenues from such government sales are largely non-recurring,
and KuangChi is responsible for the post-sales services including product operations and
maintenances.
7

In 2015, KuangChi generated 354 million HKD in revenues and 10 million HKD in net income.
279 million came from sale of the Cloud to the local Chinese governments. HKD 75 million
was generated from the old paper business (shell) and the property rental business. In the first
half of 2016, KuangChi generated 311 million HKD in revenue and 65 million HKD in net
income. 286 million HKD came from sale of the U-1 to the local Chinese governments. Rest of
the revenue was generated from the old paper business (shell) and the property rental
business. KuangChi only invested 50 million HKD in R&D across all product lines in the first half
of 2016.
Assuming that KuangChi could even sell another 312 million worth of airships in the 2nd
half of 2016, KuangChi would still be valued at a ridiculous price/earnings ratio of 138x, a
price/sales ratio of 30x, and a price/book ratio of 8.4x.
Below are some comparable ratios of other technology companies and telecommunication
service providers in the U.S., Canada, and China.
Price/Earnings
29.9
42.2
17.2
13.1
20.7
30.2

Price/Sales
7.5
6.0
1.6
0.8
0.7
2.7

Price/Book
4.2
4.6
2.0
0.8
0.9
2.1

72.5

1.7

3.4

Average of comps

32.2

3.0

2.6

KuangChi Science

138

30

8.4

Alphabet
Baidu
AT&T
China Telecom
China Unicom
Shaw
Communication
Vonage

Source: Google Finance. Note: Some numbers are adjusted for one-time expenses or incomes

4. Has KuangChi Collected Any of the Cash?

If you think that trading at 138x non-recurring P/E is ridiculous enough, wait until you see
the cash flow. From 2015 - present, KuangChi sold 530.5 HKD million worth of airships to the
Chinese local governments. 508.8 million HKD of the 530.5 million HKD sold is currently
outstanding as trade receivable.
KuangChi breaks out the trade receivables based on the days delinquent:
Of the 0-30 day receivables:
Amount includes trade receivables from sales of the Cloud, a flying apparatus platform
amounting to approximately HK$333,136,000 (equivalent to RMB285,000,000) of which
HK$14,028,000 (RMB12,000,000) was past due and subsequently settled subsequently in
August 2016. The remaining HK$319,108,000 (equivalent to RMB273,000,000) was not yet
due
Of the 181-365 day receivables:
Amount includes trade receivables due from customers who are government related
bodies, amounting to approximately HK$189,712,000 (equivalent to RMB162,300,000) (2015:
Nil). There was a delay on settlement mainly due to the stringent governmental internal
procedure for funding application.
Basically, of the two big lumps of money in 2015 and 2016, the local government buyer in 2015
is having trouble paying the bills due to stringent governmental internal procedure for funding
application, and the local government buyer in 2016 did not pay for anything, and the
outstanding balance had to be subsequently settled. We speculate that the stringent
9

governmental internal procedure for funding application could have been based on premise
that the local government wasted 162 million RMB buying a flying airship that takes pictures and
videos.

Are these delinquency risks correctly assessed and written off by KuangChi? Most likely not, as
KuangChi discloses:
The Group did not hold any collateral over these balances
And
Despite the lack of repayment track record, management consider there are no
recoverability issue on these receivables as these customers are local government related
bodies and have a solid financial background
Despite some of the payments being 181-365 days due, KuangChi booked them straight
down to the profit line.

10

5. Let's discuss Martin Jetpack - Where are the Sales?

In KuangChis 2015 annual report, Martin Jetpack was described as:
KuangChi Martin Jetpack is the worlds first ever commercialised and industrialised
single-person stand-up flying apparatus, which uses a petrol engine with two ducted fans at
both sides to provide lift
Pitched as the next area of growth, this technology actually came from an Australian listed
company: Martin Aircraft Company (ASX: MJP). In December 19, 2014, KuangChi subscribed
for 52% of Martin Aircrafts enlarged outstanding share, and became the effective controlling
shareholder of the company. KuangChi paid in total 44 million AUD for its 52% stake. The stock
price reached as high as $1.25 in March 2015 before dropping to around 35 cents today.

Back in 2015, Martin Aircraft disclosed several promising contracts in its annual report:

An agreement with Beijing Voyage Investment Limited for the intended future delivery of
manned and unmanned Jetpacks, simulators, and static models.
An agreement with Beijing Flying Man Science & Technology Limited involves the
parties working towards the future delivery of a Martin Aircraft package with an initial
tranche of 100 manned Jetpacks, 50 unmanned Jetpacks, 25 static models and 25
simulators.
An alliance agreement with Czech Republic based Martin Aircraft Company to establish
a European sales centre for the Martin Jetpack.
An alliance agreement with New Delhi based M2K Group Limited to establish a regional
sales presence in the commercially important India market.
An agreement with US based AvWatch Inc for the intended future delivery of manned
and unmanned Jetpacks, simulators, and static models.

11

Guess how many jetpacks Martin Aircraft sold from 2015 - present?

During the first half of 2016, Martin Aircraft sold 50,000 $NZ worth of jetpacks. During
2015, Martin Aircraft sold 51,000 $NZ worth of jetpacks. Meanwhile, during first half of
2016, Martin Aircraft lost 14 million $NZ. During the 2015, Martin Aircraft lost 10.4 million
$NZ.

KuangChi rationalizes the investment decision as follows:

Through the investment in Martin Jetpack, the Group can share the advance
technologies of the Group including advanced materials technology and computational
simulation technology to support the development of the jetpacks. On the other hand, the Group
will benefit from the aviation and flying technology from Martin Jetpack for the development of
the civil near space flying apparatus, namely the Traveller, and the Wi-Fi broadcasting
technology, namely the Cloud.
However, Martin Aircraft invested only $NZ 1.8 million in R&D for the first half of 2016,
and only $NZ 1.9 million $NZ in R&D for the entire 2015.

12

After KuangChi acquired their stake in Martin Aircraft, only two new sales initiatives were added
as part of the KuangChi - Martin Synergy:

At the Dubai Air show held in November 2015, a memorandum of understanding was
signed with the fire department of Dubai in respect of the sale of 20 jetpacks and 2
training jetpacks
On 6 December 2015, KuangChi Ironman Club was established by the Group. On the
even date, the Group entered into a letter of intent regarding the sale of 100 jetpacks
and 20 training jetpacks

Yep you read that right, letter of intent for 100 jetpacks from the KuangChi Ironman Club

13

6. Let's discuss the Traveller Light Years behind Google?

While the idea of servicing Wi-Fi balloons to remote areas in China may sound fascinating,
KuangChi is currently years behind Google in the design of high-altitude balloons. The Google
Loon is capable of flying afloat in the stratosphere for more than 100 days. Using human coded
algorithms, Google can determine how high or low in the stratosphere the air balloons need to
be to catch a current that will take the balloons in the desired direction. For the Loon to achieve
a 98 days flight above Peru, 20,000 separate adjustments had to be made. The air balloon
Wi-Fi service was already tested in 2013 at a small town in New Zealand, providing internet
coverage to 50 locals.

Meanwhile, KuangChi is still struggling to fly the balloon into the stratosphere. At the most
recent test launch of the Traveller in Inner Mongolia, the KuangChi team lost
communication and remote control of the Traveller after it reached an altitude of 12,000
meters, and had to subsequently give up the test. The flight was originally planned to reach an
altitude of 20,000 meters.
Butflying the balloon to an altitude of 12,000 meters is an impressive achievement, right?
Absolutely not.
High-altitude balloons are often flown by students and by amateur groups to the stratosphere for
entertainment purposes. In 2007, a guy named Alexei Karpenko built a high altitude balloon,
sent it to an attitude of 30,000 meters, and retrieved it back afterwards. The current record in
amateur ballooning has reached an altitude of 44.4 km, carried a payload of 49 pounds, and
travelled a distance of 14125 km from Australia to Brazil. There is also nothing proprietary
about the technology. There are numerous websites on Google that teaches people how
to make high-altitude balloons.

14

A search on YouTube reveals the large number of hobbyists who play around with high altitude
balloons.

15

7. Let's discuss Solar Ship - Business or Philanthropy in Africa?

Headquartered in Toronto, Canada, Solar Ship develops hybrid airships for short distance cargo
transportation. Jay Godsall, CEO of Solar Ship, attributes the inspiration of his business to the
transportation problems in Africa.
Although the country has resources, getting them to market is extremely difficult
because the transportation system is so poor. Godsall thought then, and believes now,
the answer to that problem lies in airships.
This also isnt Jay Godsalls first attempt at commercializing the airship. According to the same
news article:
He (Jay Godsall) launched an effort to build airships to serve remote areas in
Africa and elsewhere but the initiative failed.
On 3 April 2015, KuangChi subscribed for 54.42% of the outstanding shares of Solar Ship for 25
million CAD. KuangChi rationalizes the investment decisions as follows:
Through the investment in Solar Ship, the Group can share the advance technologies of
the Group including advanced materials technology and computational simulation technology to
support the development of the new hybrid aircraft. On the other hand, the Group will benefit
from Solar Ships aviation and flying technology for the development of novel space services.
What KuangChi doesnt want the investors to know is that in 2014, the same aviation and flying
technology caused the solar ship to unexpectedly crash on its test drive, resulting in serious
injuries to the two pilots.

Picture of the Solar Ship crash in 2014

Besides the questionable synergy, guess how many airships were sold by Solar Ship?
16

Zero. From June 2015 to December 2015, Solar Ship generated a grand total of zero
revenue, and lost 18.3 million HKD from operations.

17

8. Let's discuss Super Wi-Fi - Who built the Wi-Fi?

On KuangChis website, it states:
The IAAF World Championships Beijing 2015 was held at the National Stadium (Birds
Nest), where a full Wi-Fi coverage was provided by Kuang-Chi. The technology enabled 80,000
people to easily, simultaneously surf the internet. Due to the success of the internet coverage,
Kuang-Chi received an outstanding contribution unit award....
It would appear as if KuangChi engineered and provided the Wi-Fi infrastructure at the National
Stadium. However, upon closer investigation, several sources reveal that Huawei engineered
and provided the Wi-Fi infrastructure. On Huaweis website, it discloses:
Huawei added to the host of astounding feats achieved at this years International
Association of Athletics Federations World Championships in Athletics, which was held at the
Beijing National Stadium (also known as The Birds Nest) from August 22 to 30, 2015. In just 90
days the company fitted the venue with a free-access Wi-Fi network comprised of 1,000 access
points (APs). The network provided seamless internet access to the events 680,000 spectators,
who were able to easily share their experience of the championships on social media.
Other Chinese news sources confirmed the Huawei statement, as pictures were taken of the
Huawei P8130DtN Access Points that covered the stadium. Very little is known as to what
KuangChi contributed besides the Wi-Fi - Login screen. Many speculate that KuangChi was
simply the contractor with the National Stadium, and outsourced the task to Huawei.

18

9. Liu Ruopeng - More promotional than Elon Musk

While many Chinese media compare the genius of Liu Ruopeng to the genius of Western
innovators such as Elon Musk, we believe that such comparison is largely inaccurate. We also
believe that while lacking the substance, Liu Ruopeng is much more promotional.
Compare the experiences of Elon Musk and Liu Ruopeng in the respective annual reports of
Tesla and KuangChi:

Elon Musk

Product Architect, Chief Executive

Officer, and Chairman of Tesla
Chief Executive Officer, Chief
Technology Officer and Chairman of
Space Exploration Corporation
Chairman of SolarCity
Co-founder of Zip2 Corporation
Co-founder of PayPal
B.A. in physics at the University of
Pennsylvania
B.S. in business from the Wharton
School of the University of
Pennsylvania

Liu Ruopeng

President of KuangChi Institute of Advanced

Technology
Director of the State Key Laboratory of
Metamaterial Electromagnetic Modulation
Technology
Vice chairman of the National Technical
Committee of Standardization for
Electromagnetic Metamaterial Technology
and Products
Executive vice chairman of the Youth
Committee of the All-China Federation of
Returned Overseas Chinese
Deputy to the Guangdong Provincial Peoples
Congress
Deputy to the Shenzhen Municipal Peoples
Congress
Vice chairman of Shenzhen Federation of
Industry and Commerce
A commissioner for recommending young
talents to Shenzhen
A member of the Standing Committee of
Shenzhen Youth Federation
A member of the Shenzhen Hong Kong Youth
Consulting Committee for Authority
Guangdong Youth May 4th Medal in 2011
China Youth May 4th Medal in 2014
Executive director of Martin Aircraft Company
Limited
Masters degree and a PhD from Duke
University
Bachelor degree from Zhejiang University

19

For a man who is only 32 years old, Liu Ruopeng is currently living with 10 different identities;
from being the Chairman of KuangChi Science to being the Deputy to the Guangdong Provincial
Peoples Congress. However, many of his experiences are far from relevant to the business of
KuangChi Science. For example:

Executive vice chairman of the Youth Committee of the All-China Federation of Returned
Overseas Chinese
A commissioner for recommending young talents to Shenzhen
A member of the Standing Committee of Shenzhen Youth Federation
A member of the Shenzhen Hong Kong Youth Consulting Committee for Authority
Guangdong Youth May 4th Medal in 2011
China Youth May 4th Medal in 2014

Liu Ruopeng should be awarded the par excellence throw everything against the wall
and see what sticks executive profile.
Aside from the outrageous profiles, Liu Ruopeng has been a sensational character on the
media. We can compare his media statements against a fact checker:
In this interview from 2013, Liu Ruopeng disclosed that:
KuangChis revenue will surpass 200 million RMB in 2013. Social communities,
wireless communications, and aerial products will constitute the majority of the revenue.
Fact check: In 2013, KuangChi generated zero revenue. In 2014, KuangChi generated 9.2
million HKD in revenue (except for the paper and rental business of the old shell
company).

20

In this interview from 2012 with the Shenzhen Commerce News, Liu Ruopeng hoped that by the
end of 2013, KuangChi will become the market leader in the trillion dollar market metamaterial
industry.
In this interview from 2013 with the China Youth Net, Liu Ruopeng disclosed that KuangChi is
investing 100 million RMB in a world class metamaterial factory. He forecasted that KuangChi
will reach 500 million RMB in sales from metamaterials, and companies in KuangChis upstream
and downstream will reach 5 billion RMB in sales.
Liu Ruopeng also told the China Youth Net:
KuangChi is the only manufacturer capable of making metamaterial satellite antennas.
The traditional manufacturers make nothing more than a metal bowl
In another interview in 2014, Liu Ruopeng added:
We reduced the cost (of metamaterial) to 1/100 of its original amount to achieve market
competitiveness, and we finally accomplished it!
Fact check: From January 2013 - December 2016, KuangChi did not make any revenue
from selling metamaterials. There is no public financial information on KuangChi before
2013.
In this interview from 2015 with the Southern Times, Liu Ruopeng told the reporter:
The Traveller is scheduled to be tested in New Zealand in the first half of this year. The
balloon will be around 40 meter in diameter, and weighs over 1 tonne. It will be purposed as a
low orbit satellite. Once released, it will be travelling in the near space for a set period of time,
and is capable of surveilling the land below. Notably, we are researching for a passenger
function for the Traveller. As early as end of this year, we are able to sell tickets for space travel.
The price will be a few hundred thousand RMB.

Fact check: As of December 2016, the only living thing that was ever loaded on the
Traveller was a turtle. The turtle died heroically when the Traveller malfunctioned at
an altitude of 12,000 meter, which was 8,000 meters short of what scientists would
consider to be the minimum near space altitude.

21

To make Liu Ruopengs cult of personality even more apparent, below is an excerpt of Liu
Ruopengs 2015 annual statement to shareholders:

Leveraging on our innovative technologies and strong capability in research and

development, we have launched a series of in-depth space products for different altitudes. They
include the Cloud, a high-altitude aerial platform for smart cities; the Traveller, the first civil
near space flying apparatus in the Peoples Republic of China (the PRC); the manned version
of the Traveller, a flying apparatus for space tourism; the KuangChi Martin Jetpack, the first
personal flying vehicle in the world; the Solar Ship, a solar-powered platform for low-altitude
transportation; and the U-1, a flying apparatus levitated in space. In-depth space means
levitating everything from the ground to reconstruct the world in a multi-dimensional space, in an
attempt to continually expand the living space for human beings. With the existing space, we
have intensified our efforts in in-depth developments and devised our plan to tap further
into and integrate with various industries and sectors, such as in-depth space + smart
city, in-depth space + surveillance, in-depth space + logistics, in-depth space +
certification, and in-depth space + transport and tourism. I deeply believe that our
disruptive innovative products will be widely used throughout the world along with their
accelerating commercialisation.

22

10. No Experience, No Expertise

For a public company, it is quite interesting to see that the average age of the Chairman, CEO,
CTO, and CFO is only 34 years old. Furthermore, Kuangchi Sciences senior management
and executives have zero experience running a technology business. Rather, the senior
management and the board are filled with researchers, academics, bankers and accountants.
Executives

Dr. Liu Ruopeng,

Chairman, age 32

Work Experiences

Dr. Zhang
Yangyang, CEO,
aged 36

Dr. Luan Lin,

CTO, aged 36

Mr. Law Wing

Hee, CFO, aged
33

Mr. Ko Chun
Shun, Johnson,
executive
director, age 64

Business
Technology
Experience

President of KuangChi Institute of Advanced Technology

Director of the State Key Laboratory of Metamaterial
Electromagnetic Modulation Technology
Vice chairman of the National Technical Committee of
Standardization for Electromagnetic Metamaterial
Technology and Products
Executive vice chairman of the Youth Committee of the
All-China Federation of Returned Overseas Chinese

Zero

Executive vice president of Kuang-Chi Institute of

Advanced Technology
Vice president of Shenzhen Young Science and
Technology Talents Association
Obtained a collective award of Guangdong Youth May
4th Medal in 2011

Zero

Vice president of Kuang-Chi Institute of Advanced

Technology
Vice president of Shenzhen Young Science and
Technology Talents Association

Zero

Member of the Hong Kong Institute of Certified Public

Accountants
Member of the Chinese Institute of Certified Public
Accountants

Zero

Experience in a variety of activities, including

manufacturing, securities trading, international trade,
electronics and the renewable energy industry
Extensive experience in corporate finance, corporate
restructuring and mergers and acquisitions.
Executive director of REORIENT Group Limited (stock
code: 376)

Zero

23

Dr. Liu Jun, nonexecutive

director, aged 51

Dr. Wong Kai Kit,

non-executive
director and
Chairman of the
nomination
committee, aged
42

Ms. Zong Nan,

non-executive
Director and
chairman of audit
committee,
aged 34

Chairman and executive director of Varitronix

International Limited (stock code: 710)
Deputy chairman and an executive director of Frontier
Services Group Limited (stock code: 500)
Professor of statistics at Harvard University in 2000 and
has written research papers and publications about
Markov chain Monte Carlo algorithms
Fellow of the Institute of Mathematical Statistics in 2004
and the American Statistical Association in 2005

Zero

Professor at the Department of Electronic and Electrical

Engineering, University College London, United Kingdom
Academician of The Institute of Electrical and Electronics
Engineers Inc. (IEEE) and The Institution of
Engineering and Technology Inc. (IET)
Senior editor for the IEEE Communications Letters

Zero

Worked for one of the big 4 international accounting

firms as its transaction services manager and was
responsible for financial and audit work for numbers of
mergers and acquisition projects
Worked in audit and assurance services of another big 4
accounting firm for a number of years and was mainly
responsible for the audit work for initial public offering
projects and other financial due diligence works

Zero

Despite the difference in graduation time Chairman Liu Ruopeng graduated in 2009, CTO
Luan Lin graduated in 2010, and the CEO Zhang Yangyang graduated in 2008 - the first job
they all took after graduation was joining the KuangChi Institute of Advanced Technology in
2010. There was very little disclosure regarding the CFOs background and experiences. The
profile states that Mr. Law has extensive experiences in the field of accounting, auditing and
financial management without specifying any of his work experiences. Mr. Ko Chun Shun, the
executive director for KuangChi, was likely hired due to his affiliation with Reorient Group, who
was the banker for KuangChi. Mr. Ko Chun Shun is also a well-known shell pumper in Hong
Kong.

Given the complexity and scope of KuangChis businesses, which includes airships,
jetpacks, and metamaterials, how can the shareholders rely on a team of young
executives who have absolutely zero experience in business technology to run an 18
billion HKD company?
24

11. Gold Medal Award for the Most Frequent and Outrageous Press
Releases
KuangChi has a systematic strategy for releasing press releases filled with buzzwords and
jargons which are designed to convolute and overwhelm the reader. For example, in September
2016, KuangChi released a press release regarding a Future Valley business initiative where
KuangChi managed to squeeze in 41 buzzwords in four paragraphs:
Note: buzzwords are bolded.

Recently, the Group is negotiating about the design and development of its Future
Valley project in several cities in China, including Hangzhou. The Future Valley project is
planned to be developed as a technology innovation centre with a theme of future
technology, which comprises a wide range of functions, such as interactive testing of future
technology, exhibitions and experience of innovative products, demonstrations of innovative
industry incubation, education and practicing of popularisation of science, training on
innovative products, communication among global community of innovation, as well as
modelling of industrial tourism
The Future Valley shall be comprised of R&D bases, command and control
centres, machine life interactive testing centres, space reconstruction technology
interactive testing centres, in-depth space experiencing and science popularisation
platforms, Iron Man club, technological culture platforms, industry exhibition halls,
technology education and service centres, global community of innovation
communication centres and innovative residential community. The Board believes that the
construction and development of the Future Valley project will be a remarkable breakthrough
of the Groups future technology business.
Furthermore, the Groups various projects of future technology business, including the
city-level Cloud project base and the Traveler, the project base of our near space
technology, have been implemented and are operating steadily in certain cities in China. Those
projects provide comprehensive services and solutions, aimed at constructing future smart
cities with the intention of solving all problems concerning city environment, convenience and
safety.

25

For the future design, the Group believes the three primary elements of the future
development trend are: in-depth space, spiritual machines and ultimate connection. The
Group has developed and constructed a global community of innovation, and established the
Kuang-Chi GCI Fund & Incubator. The Kuang-Chi GCI Fund & Incubator is the first
technology fund and incubator set up by a Chinese technology enterprise in Israel. The total
investment is US$300 million, with the initial contribution amounting US$50 million. The purpose
is to make investments in technological innovation projects in Israel and the world, and
currently the GCI Incubator is aimed at gathering innovators from all over the world and
bringing future to the present together.

Not convinced yet? Here is another press release issued by KuangChi in December 2015 right
after securing the $180 million HKD airship deal with the Chinese local government. This time,
KuangChi managed to squeeze in 51 buzzwords in four paragraphs.

The board of directors (the Board) of the Company is pleased to announce that, on 29
December 2015, the Company won the public purchase tender regarding a project on city-level
space information platform system, and signed a commercial contract with a total value of
HK$180,000,000. On the same day, the city-level Cloud space information platform was put
into its first commercial operation and completed its first global commercial flight. The video clip
of this first global commercial flight of the Cloud is available on the website of the Company.

26

The completion of this first commercial flight marked a major milestone in the
development of the Cloud following its test launch and commercial testing conducted at
KuangChi Apollo Base in Longgang District of Shenzhen in February 2015. As a main product
of KuangChi Sciences intelligent urban space business in the community of global
innovation, the Cloud is planned to set up a demonstration project on information platform,
with aims to implementing the strategy of innovation-driven development and initiative of
Internet + action plan. Thereupon, the Cloud under such project will have features in
optical remote sensing and wide-area internet-of-things networking. Optical remote
sensing provides high resolution visual images of visible lights and infra-red rays. It is
able to run 24/7 and can be applied to sectors such as urban road traffic monitoring,
inspection of unauthorised building works and wildfire detection. Wide area internet-ofthings networking covers areas with a diameter of 60 kilometres and can be applied to the
big-data collection and processing of urban intelligent information. The Cloud has
established an unprecedented platform for collection, distribution and processing of city-level
three dimensional in-depth information, which can be widely used in sectors such as urban
planning management, ecological environment monitoring, meteorological forecasts and
monitoring, disaster forecasts and assessment, marine life monitoring, wireless
emergency communication, regional security and surveillance, and refined resource
discovery.

The emergency version of the Cloud may also be equipped with aerospace
multifunctional high resolution ground monitoring facilities. It has been used for the rescue
on scene of a landslide incident occurred in Guangming New District of Shenzhen. The
aerospace multifunctional high resolution ground monitoring facilities for rescue can
transform visible lights and infra-red rays into high resolution visual images. It is capable of
guarding the entire disaster area for a long period of time without any limitation of lighting
condition. Further, its performance of heat detection facilities to find survivors in disaster
area in a timely manner.
The Board is of the view that this first global commercial flight and first commercial
contract of the Cloud will push forward the development of KuangChi Sciences in-depth space
business. Meanwhile, this will also propel the commercialisation and industrialisation of
KuangChi Sciences space projects, which will in turn, generate an advantage of continuous
resources convergence and boost the growth of emerging industries, namely civil space
flying apparatus, internet of things, big-data and innovative intelligent urban
infrastructure. KuangChi Science will continue to promote the Cloud in domestic and
international cities and build up a big-data network that is based on space information
platform.

Within a span of 2 years, from 11/09/2014 to 26/09/2016, KuangChi released 26 press

releases regarding some form of acquisition, partnership, new venture, or business
development (see Appendix 1). This averages to slightly more than one press release per
month. 19 of the 26 press releases are Voluntary Announcements.
27

12. Negative Reviews from Ex-KuangChi Employees, Interviewees,

and Industry Insiders
Ex-KuangChi employees, interviewees, and industry insiders have been commenting about
KuangChi on Zhihu.com, Chinas equivalent of Quora. Links to the comments can be found in
the links here and here. When the reviews of a company are consistently negative, it raises
a number of interesting insights into the company.
Below are excerpts of peoples reviews:
Q: What kind of company is KuangChi Science?

Responses:

One word, scam

KuangChi is a typical company that relies on research grants. They have no

product. Just look at their sales and everything will be revealed

My colleague went to check out KuangChi once. After returning, he told us that
it's a big promotional company. No real business or technology. Day and night they
promote how awesome jetpacks are, and boast who visited the company. The slightly
better technologies are all bought from foreign companies, nothing was accomplished
internally. Of course, this is what my colleague said, so it might not be 100% accurate

Everyone, be careful with what you write, they might sue you. Warning from an
ex-KuangChi exployee

Feels like a technology scam. Every year they take money from the government
and investors, but never had an operative technology. Companies who cant provide a
high-end technology and cant be self-reliant are basically all scams.

Promotional company, more promotional than Hanxin - Note: Hanxin refers to

the Hanxin fraud incident. In 2003, Professor Chen Jin of Jiaotong university raised
more than 100 million RMB in research grants for an advanced DSP chip discovery. The
entire project was later revealed to be a fraud in 2006.
28

Misleading people everywhere, but has no product

From a research perspective, it is a 2nd tier research lab that likes to boast
around. The things that we do are of much higher quality, but we don't boast like that.
Common view among my colleagues is that KuangChi employs dubious tactics to secure
projects. They are willing to do anything to go against their competitors. To this day, they
are still scared to test their products in front of their industry peers (in fear that people
will figure out the truth).

Built research centers everywhere, and raised research grants from the
government everywhere. But after this many years they still havent produced anything.
Everyone can weigh in the facts. Everyone in the industry knows its bottom line

Near space is a very worthless space, dont know why it has been hyped so
much. Google tried to do the Loon for so many years without success. Why can
KuangChi do anything different? The most disgusting thing is that people compare
KuangChi with SpaceX. They are not comparable at all. This time KuangChi loaded a
turtle on the Traveller 2 in Xinjiang, and it got lost in an hour. The highest achieved
height was not even higher than a civilian plane. The media doesnt understanding this,
and is just following the hype. Some even report that the Traveller will reach the moon
next year...The journalist who wrote that have zero basic knowledge of science. It's
laughable that people can step on the moon using a hot air balloon.

29

13. Valuation
We value KuangChi based on its net asset value of 2.2 billion HKD. The current 18.5
billion HKD valuation is grounded on hype, false promises, and unrealistic expectations.
None of KuangChis products will ever reach commercial feasibility or success. This valuation is
assigned under the optimal scenario where KuangChi can collect its 540 million HKD of trade
receivables from the Chinese local governments. This valuation indicates an 88% downside
from todays price.
However, based on historical observance of egoistic CEOs with big dreams, many of the CEOs
will continue to walk down the path of capital destruction despite the broken business models,
unrealistic assumptions and impractical technologies. Given that Liu Ruopeng owns more
than 50% of the outstanding shares of KuangChi, there is very little that outside
shareholders can do to salvage the value of the company. In this scenario, the share price
of KuangChi may eventually become worthless, with a 100% downside.

14. Conclusion
What seems to be a legitimate business on the surface is nothing but an empty shell. KuangChi
Science is a perfect example of a company who took advantage of technology hypes and duped
the retail investors. Like any business that grows too fast without a solid business model or a
market that is receptive to its products, the stock will eventually come crashing down to reality.

30

Legal Disclaimer:
As of the publication date of this report, the author has no financial position in the stock
of KuangChi Science. All content in this report represent the opinions of the Author. The
Authors have obtained all information herein from sources they believe to be accurate and
reliable. However, such information is presented as is, without warranty of any kind whether
express or implied. The Authors make no representation, express or implied, as to the accuracy,
timeliness, or completeness of any such information or with regard to the results obtained from
its use. All expressions of opinion are subject to change without notice, and the Authors do not
undertake to update or supplement this report or any information contained herein.
This document is for informational purposes only and it is not intended as an official
confirmation of any transaction. All market prices, data and other information are not warranted
as to completeness or accuracy and are subject to change without notice. The information
included in this document is based upon selected public market data and reflects prevailing
conditions and the Authors views as of this date, all of which are accordingly subject to change.
The Authors opinions and estimates constitute a best efforts judgment and should be regarded
as indicative, preliminary and for illustrative purposes only.
Any investment involves substantial risks, including, but not limited to, pricing volatility,
inadequate liquidity, and the potential complete loss of principal. This reports estimated
fundamental value only represents a best efforts estimate of the potential fundamental valuation
of a specific security, and is not expressed as, or implied as, assessments of the quality of a
security, a summary of past performance, or an actionable investment strategy for an investor.
This document does not in any way constitute an offer or solicitation of an offer to buy or sell
any investment, security, or commodity discussed herein or of any of the affiliates of the
Authors. Also, this document does not in any way constitute an offer or solicitation of an offer to
buy or sell any security in any jurisdiction in which such an offer would be unlawful under the
securities laws of such jurisdiction. To the best of the Authors abilities and beliefs, all
information contained herein is accurate and reliable. The Authors reserve the rights for their
affiliates, officers, and employees to hold cash or derivative positions in any company discussed
in this document at any time.
The information contained in this document may include, or incorporate by reference, forward
looking statements, which would include any statements that are not statements of historical
fact. Any or all of the Authors forward-looking assumptions, expectations, projections, intentions
or beliefs about future events may turn out to be wrong. These forward-looking statements can
be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other
factors, most of which are beyond the Authors control. Investors should conduct independent
due diligence, with assistance from professional financial, legal and tax experts, on all
securities, companies, and commodities discussed in this document and develop a stand-alone
judgment of the relevant markets prior to making any investment decision.

31

Appendix 1: KuangChis Hype Press Releases from 2014 to 2016

Date

Title

Link

26/09/2016

Voluntary Announcement - Business Update Incubator Of Global

Community Of Innovation

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0926/
LTN20160926274.pdf

15/09/2016

Voluntary Announcement Investment In An Israeli Hi-tech Video

Analytics Solution Provider Agent Video Intelligence

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0915/
LTN20160915013.pdf

8/9/2016

Voluntary Announcement Investment In An Israeli

Hi-tech Company Beyond Verbal

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0908/
LTN20160908936.pdf

8/9/2016

Voluntary Announcement - Business Update Design

And Development Of "future Valley" Project; Implementation Of
Certain Projects Of Future Technology Business; And Incubator Of
Global
Community Of Innovation Operates Steadily

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0908/
LTN20160908367.pdf

30/03/2016

Voluntary Announcement Business Update

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0330/
LTN201603301675.pdf

29/02/2016

Voluntary Announcement - Update On Investment In

Martin Jetpack

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0229/
LTN20160229791.pdf

29/12/2015

Voluntary Announcement Business Update KuangChi

Science's City-level Cloud Space Information Platform Put Into Its
First Commercial Operation And Completed Its First Global
Commercial Flight

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/1229/
LTN20151229005.pdf

7/12/2015

Voluntary Announcement Business Update The First

Public Flight Show Of The P12 Martin Jetpack In China And The
Framework Agreements For 100 Jetpacks China Sales Orders

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/1207/
LTN20151207201.pdf

1/12/2015

Voluntary Announcement Business Update Business

Integration, Sales Orders And Technology Breakthroughs Of Martin
Aircraft Company Limited

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/1201/
LTN201512012032.pdf

20/11/2015

Voluntary Announcement Business Update The

Manned Flight Testing Of The P12 Jetpack

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/1120/
LTN20151120655.pdf

17/06/2015

Voluntary Announcement Business Update Co-operation

Agreements Signed In The Paris International Air Show

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0617/
LTN20150617860.pdf

7/6/2015

Voluntary Announcement Business Update Test Flight Of The

Traveller Space Platform

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0607/
LTN20150607049.pdf

26/03/2015

Discloseable Transaction - Subscription Of Shares In Longsheng

And Connected Transaction - Appointment Of Financial Adviser

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0326/
LTN20150326003.pdf

18/03/2015

Voluntary Announcement Business Update Entering

Of Strategic Cooperative Framework Agreement With A
Telecommunication Operator

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0318/
LTN20150318988.pdf

10/2/2015

Voluntary Announcement Business Update Entering

Of Strategic Cooperative Agreement With Parakou Shipping
Limited

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0210/
LTN20150210661.pdf

6/2/2015

Voluntary Announcement Business Update Progress

Of Commercial Testing Of The Cloud Space Platform

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0206/
LTN20150206003.pdf

2/2/2015

Voluntary Announcement Business Update Entering

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0202/

32

Of Strategic Cooperative Agreement With China Citic Bank

Corporation Limited, Shenzhen Branch

LTN20150202634.pdf

15/01/2015

Voluntary Announcement - Business Update Entering Of Strategic Cooperative Agreement With The Exportimport Bank Of China, Shenzhen Branch

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0115/
LTN20150115192.pdf

22/12/2014

Voluntary Announcement Business Update Opening

Of The KuangChi Appollo Base

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1222/
LTN20141222794.pdf

22/12/2014

Inside Information Letters Of Intent Regarding

Proposed Investment In Solar Ship Inc. And Resumption Of
Trading

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1222/
LTN20141222782.pdf

19/12/2014

Inside Information - Investment In Martin

Jetpack

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1219/
LTN20141219007.pdf

21/11/2014

Inside Information Announcement The Memorandum

Of Understanding With Airways Corporation Of New Zealand
Limited And Shanghai Pengxin Group Company Limited And The
Space Services Technology Consultation Agreement With Pengxin
International Mining Company Limited

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1121/
LTN20141121039.pdf

4/11/2014

Inside Information Announcement The Strategic

Cooperation Agreement With The Government Of The Democratic
Republic Of The Congo And Pengxin And Resumption Of Trading

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1104/
LTN201411041354.pdf

22/10/2014

Voluntary Announcement Business Update Comprehensive

Strategic Cooperation With The Shanghai Institute Of Space
Systems Engineering Of China Aerospace Science And
Technology Corporation

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/1022/
LTN20141022105.pdf

11/9/2014

Inside Information Cooperation Agreements

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0911/
LTN20140911921.pdf

11/9/2014

Inside Information Strategic Cooperation Framework Agreement

For Meteorological Cloud Computing Projects

http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0911/
LTN20140911923.pdf

33