Chong Sing (HKEX: 8207)

We are short Chong Sing shares and think its equity will ultimately be worth zero.

Chong Sing Holdings Fintech Group Limited (HKEX: 8207) (“Chong Sing” or the “Company”), formerly known as Credit China, went public in November 2010 as a short-term secured finance provider. Since being public, Chong Sing has made multiple acquisitions and introduced various new business segments, namely: payments, technology-enabled lending, cryptocurrency mining, blockchain, traditional loans and financing services.

We believe that Chong Sing has nefariously been used by its director and largest shareholder, Mr. Zhang Zhenxin (“Mr. Zhang”), to conduct sham transactions and artificially inflate Chong Sing’s reported financial performance to attract investments from unsuspecting creditors and minority shareholders. In this report we provide evidence which suggests to us that Chong Sing insiders are consistently spinning assets between Mr. Zhang’s cohorts to artificially inflate reported asset valuations and fabricate reported gains from illusory transactions. Specifically, we present evidence that Chong Sing lied about its RMB 408 million gain on disposal in 2017 of Beijing Phoenix, having never been paid the cash consideration from the supposed purchaser!

Additionally, we suspect that Chong Sing management has inappropriately managed its Leyu profitability to maximize its Leyu Put Option liability, contrary to interests of Chong Sing minority shareholders. We calculate that Chong Sing shareholders face imminent dilution of 20% as a result of its Leyu Put Option liability.

Fabricated profits of RMB 408 million in 2017 and imminent 20% dilution are just the tip of the iceberg for Chong Sing. We cannot find a trace of evidence that Glory Metro exists, a supposed RMB 350 million exhibition services business that Chong Sing invested RMB 179 million in 1H’18. We are mystified by the RMB 10 billion valuation given to Chong Sing’s Bitfily, a newly launched blockchain hardware business within 6 months of it being established. We have uncovered numerous undisclosed related party transactions centered around Chong Sing’s director and largest shareholder Mr. Zhang, and Bloomberg intraday trading data suggests Chong Sing is one of the most manipulated stocks on the HKEx.

As of June 30, 2018, Chong Sing only had RMB 1 billion in tangible current liquid assets (primarily cash) to satisfy RMB 3.7 billion of current borrowings and payables due. Put simply, Chong Sing does not have enough cash to satisfy its short-term liabilities. Considering its inability to generate cash from operations and its existing indebtedness, we are highly skeptical that creditors will collect monies owed in full, leaving little, if any, value for minority Chong Sing shareholders.

In our experience, this story does not end well. We are short Chong Sing shares and think its equity will ultimately be worth zero.

For convenience purposes only, we have provided a Chinese translation of the first three pages of this report on our website.