Professional Documents
Culture Documents
Triam Research
Overview
We have analyzed CAAs clarification announcement dated 18 December 2016 and believe that not
only does it fail to answer adequately the concerns and issues we identified in our original report, but in
fact CAAs response offers further proof that our analysis, opinions, and conclusions were correct.
In this first of several rebuttals, we pick apart CAAs announcement issue by issue and show below
why we believe we are right for criticizing CAA and believing that it is massively overvalued and in
violation of Hong Kong listing rules:
The operations:
Company
Continuing
39,934
48,713 (which together with its
But,
if
this
were
true,
then
why
is
ZTE
not
shown
as
a
top
customer
the 2015 annual
results
Impairment
of
operating subsidiaries were principally engaged in theinresearch
and development,
- property, plant and despite purportedly having RMB 2.9 billion revenue contribution in 2015, which would
announcement
manufacturing 11,379
and sales
phones and
power source products).
6,198of mobile
11,379 mobile
beequipment
well over the 10% of
revenues
threshold?
CAAsmanagement
is6,198
clearly lying. Refer to our
= intangible
assets
25,966
25,966
Following
completion
of suchactions.
disposal in January 2016, Shenzhen Xingfei and its
report
for a full the
list of
their fraudulent
subsidiaries had ceased to be subsidiaries of the Company and accordingly, the
Note: operations
Revenue from of
customers
(including
related parties)
amounting
to 10 percent
or treated as discontinued
Shenzhen
Xingfei
and its
subsidiaries
were
more of the Groups revenue is set out below:
operation in the financial statements of the Group for FY2015.
Where is ZTE with
Provision of
2.9 billion in 2015
The Allegation Report also questions thecommunication
reliability of the financial statements
and 2.7 billion in
application
solutions
audited by HLB because certain amounts
in the consolidated
statement2014?
of profit or
and services
loss of the Group and certain balances in 2015
the consolidated
statement of financial
2014
Total revenueaswas 7.5
position of the Group were different RMB000
between the
2015
Financial
Statements
RMB000
billionReport.
in 2015 and 7
disclosed in the 2015 Results Announcement and that in the 2015 Annual
billion in 2014.
Customer A
1,240,404
899,426
1
Customer B
785,130
The
Company wishes to state and clarify thatN/A
regarding
the consolidated statement of
ZTE was well above
profit and loss of the Group for FY2015 in the 2015 Annual Report, figures
for the
the required
threshold
1
The corresponding revenue did not contribute over 10 percent of the total
top line items such as revenue, cost of sales and gross profit were the same
of 10%asofthose
revenue
revenue of the Group.
contribution
in both
disclosed in the 2015 Results Announcement, and figures for the bottom
line items
years.
such
as customers
profit contributed
before taxation,
income
tax, profit
forboththe year from continuing
No other
10 percent or more
to the Groups
revenue for
years.
operations,
profit for the year from discontinued operations, profit for the year from
Source:
2015 annual results
page
15.
continuing
and announcement,
discontinued
operations,
the earnings per share from continuing and
discontinued operations and net assets were same as those disclosed in the 2015
Results Announcement.
The changes in consolidated statement of profit or loss of the Group in the 2015
Annual Report were mainly related to other revenue, other net loss, finance income,
15 and finance costs. The changes were due to the
administrative expenses
triamresearch.com
re-classification and/or set off in accordance with the applicable accounting standard, 2
i.e. (i) presenting a group of similar transactions on a net basis of gains and losses
and (ii) reclassification of certain finance costs to administrative expenses based on
Triam Research
The changes in relevant assets and liabilities in consolidated statement of financial
position of the Group set out in the 2015 Annual Report were mainly related to
reclassification of relevant assets and liabilities to/from (i) assets of disposal group
classified as held for sale and (ii) liabilities of disposal group classified as held for
sale.
Allegation 3: Triam alleged that Sky Communication Group Co., Ltd
(SkyComm, together with its subsidiaries, the SkyComm Group) is an
undisclosed related party instead of an independent third party of the Company
The Allegation Report alleges that SkyComm is a related party of the Company as
contrast to the treatment of the Company towards SkyComm after its listing because,
among
(i)for
Mr.
Chan Yuen Ming (Mr. Chan), an executive Director and
Refer
to others,
Exhibit A
details.
chairman of the Company, is the (vice-chairman*) of
(Guangdong Kaili SkyComm Limited*) (Guangdong SkyComm) as shown
#2
CAA
ADMITS
SKYCOMM
GROUP
IS ANofUNDISCLOSED
in the
SAIC
records; THAT
(ii) Mr. Chan
is the legal
representative
RELATED
PARTY:
A
CLEAR
AND
ONGOING
VIOLATIONLimited*)
OF HONG
(Shaanxi SkyComm Data Network Communications
KONG
LISTING
RULES
(Shaanxi
SkyComm)
as shown in the SAIC records; and (iii)
(Beijing All Access Noter Communication Technology Co., Ltd.*) (a
Not disclosing a related party is a violation of Hong Kong Listing rules because related parties can be
wholly owned subsidiary of the Company) (Beijing Noter) and
used
to defraud investors in listed companies and manipulate financial performance. Fraud and
(Beijing
SkyComm
Limited*)
same registered
financial
manipulation
are exactly
whatshare
we arethe
claiming
with CAA.address in Beijing and
contact phone numbers as shown on their respective website.
In their response, CAA admits to Skycomm being a related party and that it has violated HK
listing
rules the wishes
2009 IPO,
but inand
their
usualthat:
convoluted manner. We untangle their
The Company
to state
clarify
clarification, as follows:
Source: 2015 annual results announcement, page 171.
1. As disclosed in the section headed Our relation with SkyComm Group and our
CAAs Chairman, Chan Yuen Ming, has been and remains to be the Vice Chairman of Guangdong
controlling shareholders in the prospectus (the Prospectus) of the Company
Skycomm and Legal Representative of Shaanxi Skycomm. CAA has confirmed this in their
dated 4 September 2009, after Mr. Chans disposal of all his indirect equity
announcement.
interest in SkyComm in February 2008, Mr. Chan ceased to have any equity
interest in SkyComm Group. The Company understands that Mr. Chan had
tendered his resignation for all his positions in SkyComm Group, including that
in Guangdong SkyComm and Shaanxi SkyComm. Upon enquiry with SkyComm
made by the Company regarding the positions of Mr. Chan in Guangdong
SkyComm and Shaanxi SkyComm as shown in the SAIC records, the Company
was given to understand that Guangdong SkyComm and Shaanxi SkyComm
failed to obtain the approval of their minority shareholders and therefore pass the
requisite shareholders resolution to effect the resignation and/or file the change
to the relevant government authority of the PRC, and therefore Mr. Chans
resignations from his respective position in Guangdong SkyComm and Shaanxi
SkyComm have not been effected or reflected in the SAIC record.
Source: CAA announcement dated 18 December 2016, in response to Triams report.
6
I resigned, but didnt really resign is not a valid excuse. CAA went public in 2009 and we are
now in 2016. He had plenty of time to resign (he had to do it before the IPO) and he didnt do it.
CAA then tries to distort the situation by claiming that the related parties are dormant, and thus the
failure to disclose caused no harm to investors. Do they really think investors, the HKEX and the
SFC are this stupid?
triamresearch.com
Triam Research
2.
3.
The Group has not conducted any business transactions with Shaanxi SkyComm
and Guangdong SkyComm.
4. As disclosed
in argument
the sectionis headed
OurThese
relation
with demonstrate
SkyComm Group
oura
Needless
to say, that
ridiculous.
positions
beyondand
doubt
controlling
shareholders
in the years.
Prospectus,
the Groups
office inand
Shijiazhuang
position
of influence
going back several
Both Guangdong
Skycomm
Shaanxi Skycomm
Province ofand
sales office
operation
centre aof
ALLofACCESS
were of
andHebei
are subsidiaries
Skycomm
group. and
Hence
it demonstrates
position
longstanding
influence
with Skycomm
where CAA
plenty of
business.
influence
platform
in Beijinggroup,
are leased
from does
SkyComm
Group
and The
suchposition
leasesofremain
and business
relationship
the of
very
definition
of a related
Skycomm
group
has been an
effective
as at the is
date
this
announcement.
Asparty.
Beijing
Noter and
SkyComm
undisclosed
related
wethe
came
and CAA
forcedastoshown
admiton
that
related
Group share
theparty,
sameuntil
office,
contact
phonewas
number
thethe
websites
parties
were
previously
undisclosed.
of Beijing Noter and SkyComm Group is the phone number of the front desk and
the relevant phone call would be transferred from the front desk to Beijing Noter
Our field interviews with several former employees revealed that Chan is the ultimate boss of
and SkyComm
Skycomm
and that he Group
takes allrespectively.
key decisions at Skycomm. This too has not been disputed by
CAA in their response.
5. The Board would like to reiterate that after Mr. Chans disposal of all his indirect
equity
interest
SkyComm in
February
2008,
the business
Sharing
office
space,inreceptionist,
phone
number
(things
that can relationship
be seen and between
which we have
theand
Group
and operational
SkyComm Group
is governed
by a long
shown)
claiming
separation
from Skycomm
groupterm
sincecooperation
2008 is a clear lie.
agreement entered into in February 2008 (as supplemented by a supplemental
Sorryagreement
Mr. Chan,dated
youve
Forget
itsubsisting
is not an excuse.
CAA
14 been
Aprilcaught.
2009 and
whichabout
is still
as of the
datehas
of violated
this
HK listing
rules
in
its
entire
life
as
a
public
company.
CAA
should
answer
to
the
SFC.
announcement) pursuant to which members of the SkyComm Group will,
in
respect of any business opportunities relating to the provisions of all
Another topic of interest to the SFC would be the stock price action on 19 December 2016,
telecommunication-related application solutions and application services, refer
especially during the opening and closing auctions. We will elaborate further on this soon.
all these business opportunities to the Group by either procuring such end
customer
to appoint
contract
with2108,
the Group
directly
forthat
thefind
provisions
of to
thebe of
Dynasty
Securities
Limited,orbroker
number
we hope
that you
this report
services,
or
entering
into
contracts
for
provision
of
such
services
with
end
interest.
customers as agent on behalf of the Group for provision of the relevant services
by the Group. Despite the close business relationship between SkyComm Group
and the Group as a result of the long term co-operation agreement, SkyComm
Group is merely the Groups strategic business partner and such relationship
does not affect the independence of the Groups business operations and
development. The Group has been operating substantially independently from
7
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Triam Research
#3 MANAGEMENT CLARIFICATION STATEMENT INDIRECTLY
REVEALS THAT REVENUES WERE FABRICATED
MANAGEMENT TAKES INVESTORS FOR FOOLS. CAA claims that timing differences and
accounting standards differences (HKFRS in AR and PRC GAAP in SAIC) for RMB 1 billion or
36% of 2015 annual report revenues. Why were such gigantic differences not there in 2014, where
such a difference was only RMB 125 million or 5% of total AR revenues? Not the RMB 1
billion seen in 2015, or 36% of total AR revenues. The size of this discrepancy is 7x in 2015 over
the prior year.
RMB Thousands
2015 Annual Report Revenues (Filed in Hong Kong)
Satellite Services Revenues
Infocomm Services Revenues
Satellite & Infocomm Revenues (Booked in Noter Entities)
2014 R
2015
644,441
187,931
832,372
233,644
1,448,196
1,681,840
469,108
64,559
157,047
2,365
14,366
707,445
404,686
156,436
95,458
6,177
1,765
647
665,170
Missing Revenue
124,927
1,016,670
CAA REVEALS THAT REVENUE IS MISSING IN A BACKDOOR WAY. Note that SAIC
revenues for 2015 are RMB 665 million. There is no dispute on that from CAA. If CAAs Hong
Kong subsidiary comes up with an additional 20% (hello Skycomm: the mini Enron), then total
satellite and infocomm revenues would be 665 / (1-20%) = 831 million. CAA claimed RMB 1,682
million for 2015 satellite and infocomm revenues. Where is the other half?
We stand by our conclusion that CAA has falsely claimed RMB 1 billion in satellite and
infocomm revenues. See our full original report for the details of this fabrication.
triamresearch.com
Triam Research
#4 FINANCIAL STATEMENTS FOR 2015 ARE AND REMAIN
UNRELIABLE
CAA TRIES TO CLAIM THAT TOP/ BOTTOM-LINE FIGURES BETWEEN THE RESULTS
ANNOUNCEMENT AND THE ANNUAL REPORT FOR 2015 ARE THE SAME PROOF
THAT THEY ARE RELIABLE. Wrong! Intermediate figures changing by 20%-50% is
actually proof that the numbers are unreliable have been falsified.
Investors can make up their own mind if the discrepancies below indicate fraud or if they agree
with the management. The answer seems very clear to us:
RMB Thousands
Assets
Deferred tax assets
Trade and other receivables
Current prepayments
Assets for disposal
Liabilities
Trade and other payables
Current convertible bonds
Income tax payable
Liabilities for disposal
Interest bearing borrowings
Non-current convertible bonds
Deferred tax liabilities
Income
Other revenue
Other net loss
Finance income
Expenses
Administrative expenses
Finance costs
Profits
Profit from continuing operations
Difference
20,157
2,654,298
403,000
3,289,183
11,098
2,655,058
376,143
3,318,504
45%
0%
7%
1%
9,059
-760
26,857
-29,321
1,533,593
413,843
150,532
2,325,839
202,913
836,831
21,211
1,390,804
265,887
170,926
2,544,685
177,780
912,709
16,135
9%
36%
14%
9%
12%
9%
24%
142,789
147,956
-20,394
-218,846
25,133
-75,878
5,076
30,703
-25,681
202,224
12,547
-7,525
116,750
59%
71%
42%
18,156
-18,156
85,474
-138,191
-308,041
-204,207
-156,551
48%
49%
66,016
-151,490
430,012
363,996
15%
66,016
Source: CAA announcement1 dated 30 March 2015 and 2015 annual report.
Current convertible bonds are different by 36%. Somehow CAA miscalculated how
much debt it needs to pay off within a year by a third. CAA says it doesnt matter.
Finance income is different by 42%. How can you miscount how much money the bank
paid you by half? You get the number from the bank and your auditor double-checks the
amount. Is this telltale sign of financial manipulation or not?
Deferred tax liabilities are different by 24%. Investors know that accounting tricks
often get reflected in deferred tax items. Here deferred tax liabilities for the same year
change by a quarter. Material red flag or not?
Administration expenses are different by 48%. This is possibly the clearest evidence
of financial statement manipulation. Prior to disclosure, financial statements are prepared
by accounting personnel, checked by the CFO, edited by lawyers, reviewed by the board
and independently approved by an external audit firm. Given this, are we to believe that
CAA forgot to count salaries or rent by 1x?
1
Note these figures are based on continuing operations the balance sheet in the annual results statement has separate line items
for discontinued operations and the income statement is based on RMB 2.8 billion in revenue, the continuing operations revenue
(not RMB 7.5 billion, the total continuing plus discontinuing operations revenues).
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Triam Research
Given the circumstances, we request the auditor, HLB Hodgson Impey Cheng Limited, to
make an independent statement to make their stance clear on this matter in their capacity
as a member of HKICPA, a practicing audit firm and the companys official auditor.
Question to the auditors: Were you defrauded or were you complicit?
If these discrepancies do not point to unreliable financial statements, then HLB as a regulated
auditor, should have no problem whatsoever making an unequivocal public statement that the two
sets of figures are both correct.
It is in CAAs interest to ask HLB to issue such a statement it would support their position.
If HLB does not issue a statement given the circumstances, investors can make up their own
minds on that absence as well.
triamresearch.com
Provision of satellite
communication
data communication
application solutions
and other services
2014
Provision of wireless
2013
Research
and services
2014
Total
2013
2014
EXHIBIT A
RMB000
RMB000
RMB000
RMB000
RMB000
CAAS NEW OUTRIGHT LIE HAS BEEN CLEARLY CAUGHT
Revenue from customers (Note)
699,015
425,211
6,339,425
4,268,426
7,038,440
2013
RMB000
4,693,637
In 2014 there was no restructuring noise in the financial statements and it was approved by KPMG, the
previous
auditor.
Segment operating profit
244,833
175,815
184,920
185,352
429,753
361,167
and amortisation
InDepreciation
the annual results
announcement, we can see that Customer A had contributed RMB 2.7 billion
for the
356 section
1,042
97,745 we 91,429
revenue
foryear
2014. In the 2014 annual report
on related91,073
party transactions,
can identify98,787
Customer
A of
as ZTE. Finally, we can see that the customer contribution table in the 2014 annual report
Impairment
a) matched
the results announcement and b) Customer A can only be ZTE.
- property, plant and
equipment
6,198
6,198
If the 2015
annual results announcement
was based
on total
revenues (continuing
operations plus
- intangibleoperations),
assets
see ZTE
25,966 for 2014
(in the25,966
discontinued
then we should
in the column
2015 annual
results
announcement).
Reportable segment assets
478,895
473,274
7,717,952
5,945,596
8,196,847
6,418,870
Reportable segment liabilities
96,025
39,203
4,014,821
5,561,874
4,054,024
Note:
Provision of satellite
154
5,465,849
Provision of wireless
communication
data communication
application solutions
application solutions
and services
Total
2014
2013
2014
2013
2014
2013
RMB000
RMB000
RMB000
RMB000
RMB000
RMB000
2,722,885
3,066,980
2,722,885
3,066,980
899,426
16,317
899,426
16,317
785,130
241,593
785,130
241,593
NOTES
TO THE
Customer B
Customer C
FINANCIAL STATEMENTS
Customer A
AnnualRELATED
Report
35 2014
MATERIAL
PARTY TRANSACTIONS (Continued)
(a)
CONSOLIDATED
Sales of goods and rendering of services
STATEMENT
OF PROFIT OR LOSS
ZTE Group
For the year ended 31 December 2014
(Expressed in Renminbi)
Revenue
10
2,722,885
3,066,980
Note
68,592
16,976
2013
71,128
RMB000
7,038,440
125,917
4,693,637
156,696
ZTE Group
Gross profit
CTM
48,437
24,446
2014
53,034
RMB000
Cost of
sales
Source:
2014
annual
report, page 67.
Finance
cost
triamresearch.com
Other revenue
2014
2013
CHINA ALL ACCESS (HOLDINGS)
RMB000
RMB000LIMITED
6
6
(6,220,612)
(4,045,059)
26,950
817,828
23,482
26,926
648,578
12,483
9,199
(563)
(42,715)
(353,358)
50,432
14,523 8
1,402
(34,179)
(253,599)
39,409
67
Impairment of
property, plant and equipment
intangible assets
Reportable segment assets
Reportable segment liabilities
478,895
96,025
473,274
39,203
6,198
25,966
7,717,952
5,465,849
6,198
25,966
5,945,596
8,196,847
6,418,870
Triam
Research
4,014,821
5,561,874
4,054,024
Note: Revenue from customers (including related parties) amounting to 10 percent or more of the Groups
revenue is set out below. Further details of concentration of credit risk arising from these customers
are set out in note 36(a).
Provision of satellite
communication application
communication application
Total
2014
2013
2014
2013
2014
2013
RMB000
RMB000
RMB000
RMB000
RMB000
RMB000
Customer A
2,722,885
3,066,980
2,722,885
3,066,980
Customer B
899,426
16,317
899,426
16,317
Customer C
785,130
241,593
785,130
241,593
In 2015, the total revenue (continuing operations plus discontinued operations) was RMB 7.5 billion.
ZTE was the single largest customer with a revenue contribution of RMB 2.8 billion or 37% revenue
31 December 2015
contribution.
(Expressed in Renminbi unless otherwise indicated)
2015
RMB000
2014
RMB000
2,846,571
402
2,722,885
2,846,973
2,722,885
claims. We can identify this customer as ZTE because this customer would have RMB 2.7 billion
948,652
125,917
attributed to it in 2014.
Finance cost
ZTE Group
CTM
132
26,950
23,482
132
50,432
Professional expense
ZTE Group
851
2,267
Rental expenses
Mr. Chan Yuen Ming
ZTE Group
ZX Group
182
911
182
1,390
1,093
1,572
39,621
171
NOTES TO
THEfor FINANCIAL
STATEMENTS
amortisation
the
31 December 2015year
39,934
(Expressed in Renminbi
unless
Impairment
of otherwise indicated)
6.
48,713
(a)
= intangible assets
39,934
48,713
6,198
11,379
6,198
25,966
25,966
The measure used for reporting segment profit is segment operating profit. Segment operating
Note: includes
Revenue
(including
related
parties)
amounting
to 10 percent
or
profit
thefrom
grosscustomers
profit generated
by the
segment
and certain
distribution
costs and
more ofexpenses
the Groups
revenue
is set out
below:
administrative
directly
attributable
to the
segment. Items that are not specifically
attributable to individual segments, such as unallocated other revenue, other net income,
Provision
of other
depreciation of certain communication equipment, amortisation of certain intangible
assets,
corporate administrative expenses and share of profits less losses of associates,
are excluded from
communication
segment operating profit.
application solutions
and services
Customer A
Customer B
1
Provision of
communication application
solutions and services
2015
2014
RMB000
RMB000
1,240,404
N/A 1
Investment activities
2015
2014
RMB000
RMB000
899,426
785,130
Total
2015
RMB000
2014
RMB000
The corresponding revenue did not contribute over 10 percent of the total
revenue of the Group.
38,486
47,386
Impairment of trade receivables
13,996
88,415
13,996
88,415
Impairment of
Source:
2015
annual results announcement,
page
property, plant
and equipment
11,379
6,198 15.
11,379
6,198
Impairment of intangible assets
25,966
25,966
Triam Research
Note: Revenue from customers (including related parties) amounting to 10 percent or more of the Groups
revenue is set out below.
15
Customer A
Customer B
Customer C
Customer D
1
Provision of
communication application
solutions and services
2015
2014
RMB000
RMB000
608,532
565,304
396,205
297,421
480,204
N/A1
N/A1
785,130
The corresponding revenue contributed to less than 10 percent of the total revenue of
continuing operations.
CAAs outright lie in their response is clearly caught. This management has no credibility
whatsoever.
triamresearch.com
10