Triam Research

18 January 2017

Third Rebuttal to China All Access (Holdings)

Limited (HK: 0633) Clarification Announcements.
We stand by our conclusion of fraud.
On 11 January 2017, CAA issued yet another flimsy announcement as it sought to refute our analysis
and findings. We hereby strip away the noise from CAAs confuse and distort approach and
highlight the critical concerns that remain, and we stand by our original analysis and conclusions.1
Despite having five weeks and making four paltry responses since our report dated 13 December
2016, the crucial issues that remain unaddressed or only weakly deflected by the Company are as
follows:
1.

RMB 1 billion of revenue in 2015 is most likely fake (36% of continuing operations revenue)
based on SAIC filings. CAA has responded that this is due to timing differences and revenue
generated in Hong Kong. Their response does not hold water because there were no such large
differences in 2014. They also suddenly now claim billions in revenues from previously unheard
of non-tender based corporate/utility customers in Hong Kong and PRC. See our rebuttal dated 20
December 2016 for details.

2.

SAIC filings and former employee interviews independently show that Skycomm is in fact an
undisclosed related party. CAAs response on this point is laughable see below for additional
evidence that again proves the related party connection.

3.

Highly suspect and possibly fake prepayments and receivables total RMB 4.5 billion or
141% of 1H2016 equity. In its responses, CAA has claimed that much of this was for their new
(and currently non-existent) solar business. However, the solar patent was only acquired about a
year after these prepayments were made! See details below.

4.

New admissions by CAA on 11 January 2017 again show that its accounts are wrong and its
results announcements are littered with mistakes and inadvertent errors. CAA indirectly
admits that investors cannot rely on their financial statements.

5.

Crippling operating cash burn in excess of RMB 1.7 billion in the last 3.5 years2 via
nonsensical prepayments and receivables a case of paying out hard cash for dubious paper
assets.

6.

A critically flawed solar business plan centered on a tiny, bankruptcy-laden and unviable
segment of the solar market with CAAs concentrated photovoltaics (CPV) technology. That
too by appointing a CTO whos prior experience has mainly been in designing toy planes!

The desperate-looking, small HK$ 160 million 6-month borrowing under personal guarantees
announced on 30 December 2016, for a company that claims to have itself lent out RMB 1.3 billion
(including uncollateralized lending) only strengthens our belief that shareholder capital has long been
squandered and CAA is now scraping around for cash to survive.
Note that the lender knows CAA intimately since 2012 (co-shareholder of Changfei, subscriber to
CAAs convertible securities), and yet these are the terms that the company had to accept for such a
small loan. It looks like CAA is desperate for cash!
CAA has used the term inadvertently (inadvertent error) repeatedly to explain the 17 large
discrepancies between the 2015 annual results and annual report, for the first time in its 11 January
1
This report covers the CAA announcements dated 18 December 2016, 20 December 2016, 21 December 2016 and 11 January
2017. It also covers our report dated 13 December 2016, our rebuttals dated 20 December 2016 and 28 December 2016 and our
letter to the auditor dated 29 December 2016.
2
Operating cash outflow after taxes from FY2013 to 1H2016. Free cash outflow is a lot worse and in excess of RMB 2 billion
for the same period.

(iii) considering whether the information (including the management

commentary) was consistent with other expected contents of the annual
report.
5.

Triam Research

Reference is made to pages 6 to 8 of the announcement of the Company dated

18 December 2016 in relation to the SkyComm Group. The Company wishes to
state2017
that:announcement. These inadvertent errors impact hundreds of millions across various accounting

line items. In any other company, the CFO and Auditor would be fired for incompetence and the

(i) Audit
to the best
of the Directors
knowledge,
information
Committee
Chairman
would be
replaced.and belief having made
all reasonable enquiry, each of SkyComm and its subsidiaries as shown in
the corporate chart (the SkyComm Group Chart) set out in the website
of SkyComm (http://skycomm.cn/goujia.html) is not a connected person (as
REBUTTAL
TO THE COMPANYS 11 JANUARY 2017 ANNOUNCEMENT
defined in the Listing Rules) of the Company and the Directors are not
aware of any other subsidiaries of SkyComm which are not included in the
In
this rebuttal, we dissect the issues covered in the 11 January 2017 company announcement:
SkyComm Group Chart. Accordingly, any transactions between the
Company and each of SkyComm and its subsidiaries as shown in the
SkyComm
DespiteGroup
multiple
attempts
the Company
to distort
the truth,forwethe
show below that Skycomm
Chart
did notbyconstitute
connected
transactions
group
and remains
related
party.
purpose
of isChapter
14A of athe
Listing
Rules;

distorts
the customer
issue twice
and finally
gives up after getting called out on
(ii) the CAA
relevant
accounting
standarddisclosure
which defines
the meaning
of related
theirislies.
parties
Hong Kong Accounting Standard 24 Related Party Disclosures
issued by the HKICPA, the scope which is summarised on page 106 of the
Annualexplanation
Report. An entity
related toadditional
an issuer if,confirmation
among others,that
suchthe 2015 financial statements
2015CAAs
in factisprovides
entity
controlled or jointly controlled by a person who has control or joint
areisunreliable.
control of such issuer;
Presumably, the 11 January 2017 announcement was in response to our letter to the auditor (see the

(iii)part
so far
as thethey
Company
is awarelay
andout
as the
confirmed
by engagement
Mr. Chan, considering
where
painstakingly
terms of
for HLBs work on the results
that:
announcement). Yet, we find the topics on which CAA has chosen to remain silent are damning,

given that the management, its auditors and lawyers took 13 days to come up with a response to our
(a) after Mr. Chans disposal of all of his indirect equity interest in
letter.
SkyComm in February 2008 (details of which were disclosed in the
section headed Our relation with SkyComm Group and our controlling
shareholders in the Prospectus), Mr. Chan ceased to have any equity
THE
TWISTED DISTORTIONS TO HIDE SKYCOMM
interest in SkyComm Group;

#1
UNDISCLOSED RELATED PARTY

GROUP AS AN

(b) Mr. Chan had tendered his resignation for all of his positions in

CAASkyComm
has admitted
thatincluding
CAAs Chairman,
Mr. Chan
Yuen Ming
remains as the Legal Representative of
Group,
that in Guangdong
SkyComm
and Shaanxi
Shanxi
Skycomm
SkyComm;
andand Vice Chairman of Guangdong Skycomm.
(c) even though Mr. Chans resignations from his respective position in
Guangdong SkyComm and Shaanxi SkyComm have not been effected or
reflected in the SAIC record, Shaanxi SkyComm is a dormant company
with no operation as demonstrated by its SAIC record and Guangdong
SkyComm has ceased to have
a7 board
of directors as its governing body
since 2014 by way of amending its articles of association, and therefore
has ceased to have the role of vice-chairman since then,
Source:
dated 11 January
pagenor
7. have significant influence
Mr. Chan
is Announcement
not able to control,
jointly 2017,
control
over, or act as a key management personnel of SkyComm or any member of
WhatGroup
does resignations
have
not beenGroup
effected
or reflected
in the
SkyComm
as shown in the
SkyComm
Chart.
Accordingly,
theSAIC record mean? Is anyone
to
believe
that
for
the
purpose
of
SAIC
(the
govt.
authority
in
PRC)
that Chan is holding these
Company is of the view that each of SkyComm and its subsidiaries in the
positions,
but
for
the
purposes
of
SFC
(the
regulator
in
Hong
Kong),
Chan is not holding these
SkyComm Group Chart is not a related party of the Company and therefore the
positions
because
it
suits
CAA
to
say
so?
We
have
never
heard
anything
Companys transactions with SkyComm and its subsidiaries are not subject to the so ridiculous.
disclosure and reporting requirements of any applicable accounting standards.

Shanxi
Skycomm
is Not
per its Latest
SAIC Filing
Shareholders
of the
Company
andDormant
potentialAsinvestors
are advised
to exercise
caution when dealing in the Shares of the Company.

This is the entity that CAAs Chairman, Mr. Chan Yuen Ming, admits to being the current Legal
Representative, but claims that it doesnt count as that as the entity is dormant. See below for Shanxi
By order of the Board
Skycomms 2015 SAIC filing.

China All Access (Holdings) Limited

Kwok
Shanxi Skycomms 2015 SAIC annualShao
report
was Keung
filed on 21 June 2016.
Chief Executive Officer

The state of the entity is clearly filed as operational.

The filing says that the enterprise is responsible for the authenticity of the annual report.

Hong Kong, 11 January 2017

As at the date of this announcement, the executive directors of the Company are Mr. Chan Yuen Ming,
Mr. Shao Kwok Keung, Mr. Xiu Zhi Bao, Mr. Yan Wei and Mr. Tian Zheng; and the independent
non-executive directors of the Company are Mr. Wong Che Man Eddy, Mr. Lam Kin Hung Patrick and
Mr. Fung Ka Kin.

triamresearch.com

Triam Research
Are investors and regulators to believe that for the purpose of SAIC, Shanxi Skycomm is operational
with Chan as Legal Representative on record, and at the same time, for the purpose of the Hong Kong
listing rules, Shanxi Skycomm is dormant (because CAA happens to say so)?
Recall that CAA went public in 2009 claiming Skycomm was not a related party and we are showing
a document that proves a related party connection dated 2016!
Shanxi Skycomms SAIC filing is below:


2015 Annual Report

2015

Translation: We hereby confirm that: the

enterprise is responsible for the authenticity of
the annual report.

Shanxi Skycomm
/
140000100082582 Registration Number

2016621

Shanxi Bureau, SAIC

Date of Completion: 21 June 2016

Shanxi Skycomm

/
140000100082582 Registration Number

13935170198

HTTP://WWW.SAIC.GOV.CN
130

66833900@qq.com

030001

Business Status: Operational
2015

20001
20001
1,020

1,020

27
27

20006
20006

980

980

27
27

triamresearch.com

Triam Research

Shanxi Skycomm
Legal Rep

Chan Yuen Ming

30 Sep 2015

Shareholder: Skycomm Group

Source: SAIC.

CAA Reveals HK Listing Violation with Clarification on Guangdong Skycomm

Guangdong Skycomm is the Skycomm group entity where CAA admits that Chan is the Vice
Chairman as per the SAIC record. CAA claims that this position does not count, as the entity has not
had a board of directors since 2014 (but this is not reflected in the SAIC filing).
2.

Based on information provided by SkyComm, despite that Mr. Chan remains as

Even going by their own argument, what about 2009-2014, when Guangdong Skycomm admittedly did
the legal representative of Shaanxi SkyComm, Shaanxi SkyComm is a dormant
have a board of directors and Chan was the Vice Chairman? In its roundabout way, CAA has
companytowith
no operation
as demonstrated
its SAIC
record that Shaanxi
admitted
violating
Hong Kong
listing rules forbyseveral
years!
SkyComm had no revenue for each of the three years ended 31 December 2015.
Despite that Mr. Chan is shown as the vice-chairman of Guangdong SkyComm
in SAIC record, upon enquiry with SkyComm made by the Company, Guangdong
SkyComm has ceased to have a board of directors as its governing body since
2014 by way of amending its articles of association, and therefore has ceased to
have the role of vice-chairman since then. As Guangdong SkyComm failed to file
the change to the SAIC, Mr. Chan is still shown as the vice-chairman of
Guangdong SkyComm in SAIC record.

Announcement
dated
18 December
2016,
page 7. transactions with Shaanxi SkyComm
3. Source:
The Group
has not
conducted
any
business
and Guangdong SkyComm.

confirm
CAAsheaded
Chairman,
Chanwith
YuenSkyComm
Ming controls
both
CAA
4. Interviews
As disclosed
in thethat
section
OurMr.
relation
Group
and
ourand Skycomm
controlling shareholders in the Prospectus, the Groups office in Shijiazhuang
Former employees have said that CAAs Chairman, Mr. Chan Yuen Ming takes all key decisions at
of Hebei Province and sales office and operation centre of ALL ACCESS
Skycomm, and Mr. Ren Renqui (Skycomm shareholder) approves CAA files. Skycomm employees
platformChan
in Beijing
are leased
from
Group
and
such
leases remain
consider
as the ultimate
boss.
See SkyComm
excerpts3 below
from
these
interviews
and our report for
effective
as
at
the
date
of
this
announcement.
As
Beijing
Noter
and
SkyComm
additional details.
Group share the same office, the contact phone number as shown on the websites
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
and SkyComm Group respectively.
5.

The Board would like to reiterate that after Mr. Chans disposal of all his indirect
Interview excerpts here are translations of Chinese language conversations and not direct quotes.
equity interest in SkyComm in February 2008, the business relationship between
the Group and SkyComm Group is governed by a long term cooperation
agreement entered into in February 2008 (as supplemented by a supplemental
triamresearch.com
agreement dated 14 April 2009 and which is still subsisting as of the date of this
announcement) pursuant to which members of the SkyComm Group will, in
respect of any business opportunities relating to the provisions of all
3

Triam Research
OUREven
RELATIONSHIP
WITH SKYCOMM
GROUP AND
CONTROLLING
after multiple clarification
announcements,
CAA OUR
has been
silent on these SHAREHOLDERS
interview
testimonials.

system installation and configuration, and quality control and testing) separately. For each
Former
Skycomm
Fujian:
of the employee,
three years
ended 31
December 2008 and the five months ended 31 May 2009, our
turnover attributable to provision of call centre application solutions and services (all of
Our boss is Mr. Chan Yuen Ming. When I joined Skycomm Fujian in 2013, all my
which uses SkyComm Groups communication network) amounted to approximately
colleagues in Fujian Skycomm told me that Mr. Chan is our biggest boss, rather than
RMB2.98 million, RMB2.92 million, RMB4.28 million and RMB1.78 million respectively,
Mr. Ren Runqi and Mr. Yang Zhuping.
representing approximately 6%, 2%, 2% and 4% of our total turnover. Our customers are
still the ultimate users of our call centre application services whilst SkyComm Group is our
Note: Mr. Ren Runqi and Mr. Yang Zhuping are shareholders of Skycomm, as per the 2009
business partner in relation to the provision of call centre application services;
prospectus.

(iii) our office in Shijiazhuang of Hebei Province and our sales office and the operation centre
Mr. Chan signs his name as the final approval for files from Skycomms sales department.
of our ALL ACCESS platform in Beijing are leased from SkyComm Group. In respect of
the lease of our office in Shijiazhuang, the lease is for a period of three years commencing
Former
Beijing:
from 1employee,
July 2008CAA
without
any option to renew the lease. In respect of the lease of our sales
office and operation centre of our ALL ACCESS platform in Beijing, we have an option by
Even though Mr. Ren Runqi is set to be one of the bosses of Skycomm, not CAAs
us to renew the lease on the same term (other than the option to renew and at the then
management, Mr. Chan will also pass some CAA files to Mr. Ren and authorizes him to
market
rent
subject
to asome
cap of
120%
ofall
theimportant
existing rent)
forSkycomm
another 10
years
decide
and
approve
cases.
But
files of
must
becommencing
delivered to
from
the
expiry
of
the
initial
term,
unless
terminated
by
us
by
giving
a
written
notice of at
Mr. Chan and he is actually the ultimate decision maker.
least three months. In respect of the lease of our operation centre and sales office in Beijing,
we have
also been
grantedAll
a purchase
Former
employee,
Shanghai
Access: option pursuant to which we may, during the term of
the lease, request SkyComm to sell the office premises to us at its then fair market value.
So The
far as
the Directors
awareand
of Skycomm
after making
all reasonable
enquiry,
are suitable
Shanghai
officesare
of CAA
are close
to each other.
Most there
of employees
are
premises
alternative
these
available
forthe
lease
from title
Independent
ThirdCAA
Parties.
under CAA,
while to
they
alsopremises
attend projects
with
bidding
of Skycomm.
and
companies,
whoAppraisals
belongs theLimited,
same boss.
thinkpayable
40% of the
total
As Skycomm
advised byare
ourbrother
property
valuer, BMI
the Irents
by us
under
(RMB 22agreements
million) wasrepresent
contributed
projectsrents.
obtained in the name of CAA, and the
therevenue
above tenancy
fairbymarket
rest was contributed by projects won by Skycomm.
(iv) we have granted a non-exclusive licence over the use of certain functions of our ALL
ACCESS platform to SkyComm Group whereby SkyComm Group can have access to
CAA and Skycomm Currently Share Operational Resources Despite Claiming Separation since 2008
certain functions of our ALL ACCESS platform to provide satellite/wireless data
telecommunication
services
for Skycomm
a term ofshare
10 years
commencing
from 1 January
2009,
We have
shown that currently
CAA and
office space,
human resources,
receptionist
subject
to
early
termination
in
the
manner
specified
in
the
licence
agreement;
and
and even a phone number despite claiming operational separation from Skycomm since 2008.
(v)

we used to share with SkyComm Group on general and administration resources and
facilities. Since 2008, all the general and administration resources have been segregated
from SkyComm Group and we no longer share any general and administration resources and
facilities with SkyComm.

LongSource:
Term2009
Co-operation
prospectus, pageAgreement
145.
As the SkyComm Group is one of the wireless and satellite telecommunication and call centre
The SAIC records, CAAs admission that Chans resignations were not effected and testimonies from
operators and licence holders for the provision of telecommunication, the related value-added and call
former employees together demonstrate that Skycomm is a related party, despite CAAs denials.
centre services in the PRC, which are required for use of the wireless data communication, satellite
Skycomm is and remains an undisclosed related party and CAA has been violating listing rules
communication
centre
application solutions provided by us, we have maintained close
its entire lifeand
as acall
public
company.
working relationships with the SkyComm Group and another wireless and satellite telecommunication
Further,
CAA has admitted
that the
RMB 180 million
prepayment
to buy aour
building
Skycomm
operator.
To reinforce
our business
collaboration
with the
SkyCommisGroup,
Groupfrom
and SkyComm
(yes,into
the the
related
party)
a Co-operation
transaction thatAgreement
we have already
to be 2008
highly(as
irregular,
completeby
with
entered
Long
Term
on 28shown
February
supplemented
a
a
nonsensical
justification
for
the
prepayment
done
several
months
ago.
See
our
report
and
rebuttals
for
supplemental agreement dated 14 April 2009) pursuant to which for a period of five years until
details.

CAA has not provided related party disclosure whatsoever, and has not claimed back the cash or even
145
put the transaction on hold, even after these issues have surfaced. We think that their actions
highlight their total disregard for Hong Kong listing regulations.

triamresearch.com

Triam Research

#2 OUTRIGHT LIE IN CUSTOMER DISCLOSURE IS DISTORTED TWICE

AND NOW SWEPT UNDER THE CARPET
We pointed out large and shocking discrepancies in the customer disclosure in our report. New
customers appear with RMB 962 million attributed to them in the annual report, but were not seen in
the same disclosure in the annual results announcement. One customers amount is cut in half in he
annual report when compared to the results announcement. Another customer is credited with RMB
297 million in the annual report but shown as zero in the results announcement. See our report dated 13
December 2016, pages 15-16.
We then demonstrated that CAAs response on 18 December 2016 was another outright lie. CAA
claimed that the results announcement table was based on total revenues (continuing and discontinued
operations) and the annual report table was based only on continuing operations. We pointed out that if
the results announcement was indeed based on total revenues, then ZTE (related party and largest
customer) who contributed RMB 2.9 billion in sales was glaringly missing from the results
announcement table. See our rebuttal dated 20 December 2016, page 2.
CAA distorted the situation a second time on 21 December 2016 by coming up with a hilarious typo
defense. They said that table should be read as excluding related parties when since 2013 that same
table has been read as including related parties. Why the change? They dont say.
When pressed again in our letter to the auditors dated 29 December 2016, CAA has said in in its 11
January 2017 announcement that there is no specific accounting standard guiding the disclosure of
revenue from major customers preparing in annual results announcement.
In other words, CAA just told shareholders and regulators that it doesnt want to be accountable
for its own disclosures! What a damning confession of guilt!
Note that the issues still remain outstanding:

Two new customers (labeled B and C) suddenly appear in the annual report but were not shown in
the results announcements. They purportedly contributed RMB 961 million in sales. We dont
think it is a coincidence that there is nearly the same amount, RMB 1 billion, in revenue shortfall
in the 2015 SAIC filings when compared to the 2015 annual report.

Customer D in the annual report (labeled as Customer B in the results announcement) is shown
with RMB 297 million contribution in the annual report but zero in the results announcement.

Customer As figures are lower by RMB 632 million in the annual report when compared to the
results announcement.

All that CAA has to do to restore its credibility is to reveal the identities of customers A, B, C and
D. Investors can then independently verify these figures for themselves. We dont think that they
will ever do so as we believe that revenues have been fabricated. See our report and first rebuttal
for details on this revenue fabrication.

#3 LATEST COMPANY CLARIFICATIONS PROVIDE NEW EVIDENCE

THAT 2015 FINANCIAL STATEMENTS ARE SERIOUSLY UNRELIABLE
After skirting the issue in three prior clarification statements, CAA finally provided figures on 11
January 2017 for the large discrepancies between the 2015 results announcement and the 2015 annual
report.
CAAs latest clarifications are completely shocking!

triamresearch.com

Triam Research
These discrepancies below are material the gross total of changes to accounting line items add up to
over a billion RMB, for a company that showed equity of RMB 3.5 billion at the time!
To us, they reveal how poorly managed the company really is. Recall that the group had 37 entities4 in
PRC, Hong Kong, Cayman Islands, BVI and a few non-controlling interests. Do they even know what
is going on in the business?
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

2015 Results 2015 Annual Discrepency

Annoucement Report

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: Triam Research First Rebuttal dated 20 December 2016.

CAA has used the term inadvertently (inadvertent error) repeatedly to explain the 17
discrepancies between the 2015 annual results and annual report, for the first time in its 11 January
2017 announcement. These inadvertent errors impact several hundred millions in various
accounting line items. In any other company, the CFO and Auditor would be fired for
incompetence and the Audit Committee Chairman would be replaced.
Hilariously, after revealing these examples of utter incompetence, and in the same announcement,
CAA asks investors to put their confidence in the very same people.

2.

Each of the Companys independent non-executive Directors and the audit

committee had reviewed the Allegation Reports. Their position towards the
Allegation Reports is the same as that of the Company as disclosed in the
Previous Announcements.

3. Source:
Regarding
the disclosure
relating
topage
the2.revenue from customers amounting to 10
Announcement
dated 11 January
2017,
percent or more of the Groups revenue in the 2015 Results Announcement, there
is no specific accounting standard guiding the disclosure of revenue from major
customers
preparing
in annual ifresults
announcement.
Investors
can decide
for themselves
these clarifications
give them confidence that the 2015
financial statements can be used as a reliable measure of CAAs performance.
4. As set out in the Previous Announcements, some adjustments for line items in the
consolidated
statement of profit
lossline
of the
Group
and noticeably.
consolidated
Below
is part clarification
on whyorthree
items
changed
Canstatement
anyone recreate
of
financial
position
of
the
Group
disclosed
in
the
2015
Results
Announcement
CAAs results based on the explanation below?
were made in the 2015 Annual Report. The Company wishes to state that the
Directors and HLB were aware of such adjustments at the time of finalisation of
the 2015 Annual Report after the publication of the 2015 Results Announcement.
As set out on page 5 of the announcement of the Company dated 18 December
2016, figures for the top line items such as revenue, cost of sales and gross profit
inthe
the
2015
Annual
4
As per
2015
annual
report. Report were the same as those disclosed in the 2015 Results
Announcement, and figures for the bottom line items such as profit before
taxation, income tax, profit for the year from continuing operations, profit for
the year from discontinued operations, profit for the year from continuing and
triamresearch.com
discontinued operations, the earnings per share from continuing and
discontinued operations and net assets in the 2015 Annual Report were same as
those disclosed in the 2015 Results Announcement.

(b) An amount of approximately RMB71,373,000 of finance costs in the

consolidated statement of profit or loss in the 2015 Results Announcement
was reclassified as administrative expenses in the 2015 Annual Report as
Triam
such amount represents the administrative expense of certain entities in the
Group.

Research

(c) An amount of approximately RMB5,357,000 of finance income and

administrative expenses in the consolidated statement of profit or loss in
Notes:
the 2015 Results Announcement was set off on the net basis in the 2015
Annual Report as such amount of financial income represents the
Consolidated
of income
profit or
loss on the premium interest rate as per
recognitionstatement
of interest
based
agreement of the structured deposits and such amount of administrative
The changes of the line items in the consolidated statement of profit or loss of
expenses represents the recognition of written back of the interest income
the Group in the 2015 Annual Report were due to reclassification and/or set off
with reference to the minimum interest rate as per agreement of the
in accordance with the applicable accounting standard, i.e. (i) presenting a group
structured deposit for the purpose of recognising the return having
of similar transactions on a net basis of gains and loss, and (ii) reclassification
considered the book closing at 31 December 2015.
of certain expenses within the consolidated statement of profit or loss based on
the nature of transactions.
details
are4. set out below:
Source:
dated 11Further
JanuaryRMB80,117,000
2017,
page
(d) AnAnnouncement
amount of approximately
represents the fair value gain
and fair value loss on derivative component of convertible bonds which was
(a) An amount of approximately RMB18,156,000 represents the recognition of
CAAsetsays
tell theReport
difference
between
interest
paid to lenders
offthat
in it
thecould
2015not
Annual
as such
amount
of finance
cost and salaries and rent
income and cost on disposal of the Groups assets on the net basis which was
paidrepresents
for operations.
Do we need
to say anything
the recognition
reflecting
the fair more?
value change based on the
set off in 2015 Annual Report.
nature of the transactions.
(b) An amount of approximately RMB71,373,000 of finance costs in the
An amount of approximately RMB9,178,000 of finance costs in the
consolidated statement of profit or loss in the 2015 Results Announcement
consolidated statement of profit or loss in the 2015 Results Announcement
was reclassified as administrative expenses in the 2015 Annual Report as
(representing interest expenses on convertible bonds as set out in note
such amount represents the administrative expense of certain entities in the
6(b) to the consolidated statement of profit or loss in the 2015 Results
Group.
Announcement) was reclassified as change in fair value of derivative
(c) AnAnnouncement
amount of dated
approximately
RMB5,357,000
of finance income and
Source:
11 January 2017,
page 4.
administrative expenses in
the 4consolidated
statement of profit or loss in

thethe
2015
Results Announcement
was set offand
on incomprehensible.
the net basis in theAfter
2015going through these
The rest of
clarifications
are equally shocking,
Annual
Report
aswe
such
of with
financial
income represents
the
adjustments
several
times,
haveamount
ended up
more questions
than answers.
recognition of interest income based on the premium interest rate as per
of the structured
deposits and
such that
amount
of administrative
With thisagreement
announcement,
CAA is effectively
saying
accounting
errors in the hundreds of
the recognition
of written
of is
thenot
interest
income
millions expenses
were onlyrepresents
in the results
announcement
andback
there
a single
such error that exists in
withreport,
reference
to the within
minimum
interest
ratethe
as results
per agreement
of the and by the very
the annual
published
a month
after
announcement
structured deposit for the purpose of recognising the return having
same people!
considered the book closing at 31 December 2015.

Moreover, they make this claim without a forensic review of the 2015 financial statements. Does
(d) An amount of approximately RMB80,117,000 represents the fair value gain
this not show the obvious? The 2015 financial statements are unreliable!
and fair value loss on derivative component of convertible bonds which was
set off in the 2015 Annual Report as such amount of finance cost
represents the recognition reflecting the fair value change based on the
SILENCE
THE LARGE RMB 721 MILLION POTENTIAL
nature of ON
the transactions.

#4
INVESTMENT (23% OF 1H2016 EQUITY)

EQUITY

An amount of approximately RMB9,178,000 of finance costs in the

consolidated
of profit
or loss
in thefor
2015
Results equity
Announcement
We pointed
out that astatement
large RMB
721 cash
outflow
potential
investment in the 2015
(representing
interest
expenses
on
convertible
bonds
as
set
out and
in note
annual report did not have a corresponding balance sheet asset, a glaring
large discrepancy. See our
6(b)
to
the
consolidated
statement
of
profit
or
loss
in
the
2015
Results
report for other details.
Announcement) was reclassified as change in fair value of derivative

CAA had tried to deflect the issue by clarifying that these payments were stake increases in several
subsidiaries. In our auditor letter, wehad4 pointed
out that there was nothing potential about these

stake increases, these were not non-controlling interests as CAA was already the controlling
shareholder at the time, and this was not investment in the singular as they have said the money was
for Changfei and Lead Communications. Additionally, we were not able to account for the RMB 721
million amount even when considering all the non-controlling interests they claim to have purchased.
See our report for details.
CAAs response on 11 January 2017? Damning silence!
We believe that the serious inconsistencies with this transaction and subsequent management
opacity show that the 2015 financial statements are unreliable. CAA has had plenty of time to
clarify this in detail.

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Triam Research
#5 SILENCE ON RMB 4.5 BILLION IN HIGHLY SUSPICIOUS ASSETS
(141% OF 1H2016 EQUITY)
We have highlighted major concerns around CAAs prepayments and receivables. The suspicious
amounts add up to over 141% of equity and most of its assets an extremely high level for any
company. See our report for an item-by-item review of these outrageous prepayments and receivables.
Suspicious Assets

RMB
% of 1H
% of 1H
Thousands 2016 Equity 2016 Assets
1 Suspect Trade Receivables
998,769
31%
16%
2 Property Deposit
180,000
6%
3%
3 Equipment and Raw Materials Prepayment
124,400
4%
2%
4 Non-current Machinery Prepayment
221,013
7%
4%
5 Undisclosed Prepayment
452,934
14%
7%
6 "Potential Equity Investment"
720,628
23%
12%
7 Loans Receivable
1,083,472
34%
18%
8 Structured Deposits
500,000
16%
8%
9 Entrusted Loans
210,000
7%
3%
4,491,216
141%
73%
Source: Triam Research report dated 13 December 2016.

Outright Lie on Property Deposit (6% of 1H2016 Equity)

CAA has only responded on some of these items. First they passingly said that the large RMB 180
million building prepayment was 1) made to Skycomm (who we show again is a related party), 2)
provided a payment terms justification that makes no sense whatsoever, 3) said that the building (large
enough to house CAAs entire workforce by our estimates) is for a solar R&D facility. See our second
rebuttal dated 18 December 2016 for details.
We would also like to know where else is a large solar R&D facility located in an urban office
building? Solar R&D facilities require open space, plenty of sunlight and desert-like conditions.
This prepayment was done on 10 August 2015. The solar patent agreement was only announced on 12
May 2016 (with the initial non-binding MoU announced on 29 January 2016). When we pointed out
that that this building prepayment occurred 9 months before the solar patent agreement was even
signed, management has responded with silence. See our rebuttal dated 28 December 2016.
This date mismatch clearly shows that this is a lie. Need we say more?
Outright Lie on Machinery Prepayment (7% of 1H2016 Equity)
We have demonstrated that CAAs justification for RMB 221 million machinery prepayment as solar
related is another outright lie dates dont even match to begin with. This prepayment was made
during 2H2015 and the solar patent agreement was only signed on 12 May 2016, between 5-11
months later. We have laid out this lie in full detail in our second rebuttal dated 28 December 2016,
page 11.
We challenged management to provide proof on the questions below. The management has
responded with you guessed it, silence!
1.

Why were prepayments made a year before even signing the patent agreement?

2.

What solar module materials have you ordered that takes more than 12 months lead time for
delivery? The majority cost input of solar module materials are silicon wafer, glass and junctions
all of which are available with a few weeks lead-time, not anywhere close to a year. Who is the
counterparty?

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Triam Research
3.

If these are indeed machinery payments that require such long lead times (and amount in the
order of 4-5 newbuild capesize ships), then please reveal which capital equipment you have
ordered and from whom?

4.

Please justify with proof why is this equipment required when the company has stated that its
plans are based on 100% outsourced manufacturing and that currently it is in process of lining up
third party production partners.

Flip-flop Response on Suspect Trade Receivables (31% of 1H2016 Equity)

We have pointed out that the level of trade receivables and change in trade receivables compared to
change revenues gives rise to serious concerns whether these receivables are even real. This issue is
alarmingly showcased in high DSO metrics (Days Sales Outstanding), which had jumped to 537 days
in 1H2016 (meaning a sales to cash cycle of nearly 18 months!). Comparable companies have DSOs of
18-62 days. See our report and rebuttals for details.
The company initially responded with a factually wrong response about DSOs not capturing credit
periods, followed by complete silence on a highly suspicious amount that we estimate at nearly RMB
1 billion!
Does such a dishonest and incompetent management deserve to run a listed company?
Loans Receivable and Entrusted Loans (41% of 1H2016 Equity)
For a self-proclaimed telecommunication and technology enterprise, CAA claims to have lent out
nearly half of shareholders equity in loans to other people (some uncollateralized). We had flagged this
as highly suspicious as CAA itself was repeatedly raising capital in the last three years, while burning
through cash in its operations in that period.
In its 18 December 2016 response, CAA claimed the following:

On why some loans have no collateral: The quality and risk profile of the entrusted loans
granted by the Group cannot be judged solely by the collaterals involved. Consideration should
also be made to the quality of the borrowers and the strategic value of such borrower.
After spewing such jargon, on 30 December 2016, CAA announced it had itself borrowed HK$
160 million (a little more than a tenth of the above loaned out amount), for 6-months, by providing
personal guarantees. The lender knows CAA intimately since 2012 and yet, these are the
conditions CAA had to accept for such a small loan.
To us, the contrast in the two situations only strengthens our belief that the above loans receivable
are highly suspect either heavily impaired or possibly fake. If these loans were indeed real and of
good quality, then CAA would have had plenty of options to raise cash (sell down some of its loan
book in the secondary market, call back some outstanding loans (they say that many loans are for
less than a year), etc.) instead of taking on this desperate-looking borrowing for such a small
amount.

On the appropriateness of making these loans as a tech company: these activities have
been carried out under very stringent risk management procedures and the loans would only be
made to business partners which are reliable and trustworthy, the Group can generate revenue from
interest earned with an acceptable risk profile which can enable the Group to better utilise its cash
flow to maximise its return to the Company and its shareholders as a whole.
Recall that this is the same company that just admitted to hundreds of millions of errors in basic
bookkeeping. Should investors expect it to be able to enforce stringent risk management

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10

Triam Research
procedures? Needless to say, CAA has never disclosed a single risk report5 to its shareholders
while putting nearly half of their equity capital at risk via such lending.
Even more tellingly, despite four clarification announcements, CAA has provided no evidence
whatsoever that these receivables are real and that the money is safe. We think that this lack of
evidence speaks for itself.
Highly Irregular Prepayments (18% of 1H2016 Equity): RMB 124 million Equipment and Raw
Materials Prepayment, RMB 453 million Undisclosed Prepayment
If these two items are taken together with the RMB 221 million machinery prepayment discussed
separately above, then procurement prepayment exposure increases to 25% of 1H2016 equity. We
have already discussed this machinery prepayment and the CAAs loud silence on the matter.
These high levels of procurement prepayments at CAA is at a jarring contrast to normal industry
practice, where procurement agents are paid a commission upon invoicing or delivery and do not
handle money (an example of good governance practice).
At CAA, hundreds of millions in cash have been repeatedly handed over to third parties, without
any collateral, in the name of procurement. The large amounts involved and their loose and
questionable connection to underlying business requirements have strengthened our belief that this is
yet another guise for insiders to misappropriate cash from the company. So far, CAA has not provided
a single shred of evidence that there has been no misappropriation despite four clarification
announcements.
In its 18 December 2016 clarification, CAA has disclosed the following:

RMB 124 million Equipment and Raw Materials Prepayment: CAA claims that RMB 377
million prepayment was made to procure communications products. After the money was paid
out, the supplier couldnt perform his end of the contract. CAA subsequently agreed a partial
refund and RMB 124 million was still outstanding at 30 June 2016.
Why only a partial refund? They dont say. How and why did they select an agent who obviously
did not have the ability to perform? They also dont say. To us, this is another sign of
incompetent management at the company.

RMB 453 million Undisclosed Prepayment: CAA claims that part of this amount has been
converted into inventory (see announcement dated 18 December 2016 at page 11). Recall that the
only inventory-heavy business at CAA is its OEM manufacturing segment, dominated by Lead
Communications in 2016. OEM has struggled to post gross margins of 10%-15% historically.
Even at 15% gross margins and flat inventories, this prepayment amount implies 2H2016 revenues
of RMB 533 million.
Half a billion in 6-month OEM revenues suggests flat or even single digit year-on-year revenue
growth, which appears heavily far-fetched as CAA posted a 62.4% revenue decline in 1H2015 and
our field research has revealed that Lead Communications was struggling with falling sales.
If we assume that this procurement amount is for its communications business, unlikely, as this is
an inventory light service business, with more than double the gross margins, the implied revenue
becomes even more far-fetched when compared to CAAs recent revenue run-rate in that segment.
The above shows that this prepayment for materials is too large given the size of the underlying
business. Moreover, this is just one of several such procurement prepayments that we have
highlighted.

5
Such asset quality and risk reports are routinely found in disclosures of listed financial institutions (loan-to-value metrics,
collateral analysis, NIM spreads, ALM summary, NPL levels and so on).

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11

deferred income and liabilities of disposal group classified as held for

sale was caused by rounding difference.
The Companys engagement with HLB in respect of the review of the 2015
Results Announcement was conducted in accordance with Hong Kong Standard Triam Research
on Related Services 4400 Engagements to Perform Agreed-upon Procedures
Regarding Financial Information and with reference to Practice Note 730
Hong KongWhy
Exchangessuch
and Clearing
Limited and The Stock
of Hong Kongthe
Limited
take no is cash strapped? We
large
exist,Exchange
especially
company
(Revised) do
Guidance
for prepayments
Auditors Regarding
Preliminarysince
Announcements
of
responsibility for the contents of this announcement, make no representation as to its accuracy or
believe
that these
prepayments
are likely
cover to drain
cash from
the company and/or a made-up
Annual
Results
issued
by the Hong
Kong a Institute
of Certified
Public
completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or
balance sheet
plug for non-existent earnings.
Accountants
in reliance
upon the (the
wholeHKICPA).
or any part of the contents of this announcement.
The procedures that HLB has performed did not constitute an assurance

engagement in accordance with Hong Kong Standards on Auditing, Hong Kong

CONCLUSION
Standards on Review Engagements or Hong Kong Standards on Assurance
Engagements
the HKICPA
and consequently,
no assurance
wasto the auditors, at their
In
our opinion,issued
this 11byJanuary
2017 announcement
was meant
as a fig leaf
expressed byCAA
HLBgoes
on the
Result Announcement.
insistence.
on 2015
to reproduce
the terms of reference as below.

()
CHINA
ALL
ACCESS
(HOLDINGS)
The following key works
were performed
by HLB beforeLIMITED
agreeing to the

2015
(Incorporated
with limited
liability)
Financial
Information in
as the
set Cayman
out in theIslands
2015 Results
Announcement:
(Stock Code: 633)
(i) checking figures in the 2015 Results Announcement as extracted from the
draft financialVOLUNTARY
statement;
ANNOUNCEMENT

IN RELATION TO
(ii) re-computation for
2015 Results Announcement;
(1) the
ALLEGATION
REPORTS and

AND
information
6 ANNOUNCEMENT
(iii) considering
(including the management
(2) 2015 whether
ANNUALthe
RESULTS
commentary) was consistent AND
with other expected contents of the annual
report.
ANNUAL REPORT

5. Source:
Reference
is made
tomade
pages
6 toChina
82017.
of the
of the Company
This
announcement
is dated
by
Allannouncement
Access (Holdings)
Limited dated
(the
Announcement
11 January
18 December
2016with
in relation
to the SkyComm
Group.onThe
Companybasis.
wishes to
Company,
together
its subsidiaries,
the Group)
a voluntary
that:
stateTherefore,
after independently computing the figures from draft financial statements, HLB
Reference
is made
to the
announcements
(the
Previous
of theDid they even do their job?
agreed
to the
error-ridden
figures
in the
annualAnnouncements)
results announcement.
(i) We
toissued
the
best
of
the
Directors
knowledge,
information
andDecember
belief having
Company
onthe
13 answer
December
2016,
18 December
2016, 20
2016made
and
think
is evident.
all reasonable
its subsidiaries
in
21 December
2016 in enquiry,
relationeach
to of
theSkyComm
allegationand
reports
publishedasbyshown
Triam
the
corporate
chart
(the
SkyComm
Group
Chart)
set
out
in
the
website
(collectively,
Allegationif Reports),
2015 Results
Announcementcommentary
and the
HLBthe
considered
the contentstheincluding
the management
was appropriate for an
of SkyComm (http://skycomm.cn/goujia.html) is not a connected person (as
annual
report,
but yet,
the discrepancy
regarding
customer
2015 Annual
Report.
Unless
otherwise
defined herein,
capitalised
termsinformation
used herein(that CAA now refuses to
defined in the Listing Rules) of the Company and the Directors are not
clarify)
under
their watch,
is not
theirinproblem!
shall have
the same
meanings
as those
defined
the Previous Announcements.
aware of any other subsidiaries of SkyComm which are not included in the
SkyComm Group Chart. Accordingly, any transactions between the
The What
Board does
hereby
announces
information
the information
contained
in the who continue to stand by
this
say aboutfurther
the auditors,
HLBforHodgson
Impey Cheng
Limited,
Company and each of SkyComm and its subsidiaries as shown in the
their earlier
audit opinion?
Moreover,
appear to have
also2015
refused
to conduct a forensic
Previous
Announcements,
the 2015
Results they
Announcement
and the
Annual
SkyComm Group Chart did not constitute connected transactions for the
review
of the financial statements, despite the plethora of red flags.
Report
as follows:
purpose of Chapter 14A of the Listing Rules;
1.

The auditors of the Company, HLB Hodgson Impey Cheng Limited (HLB), are
(ii) the relevant accounting standard which defines the meaning of related
awareparties
of the isAllegation
Reports
and they
have 24
confirmed
have no
Hong Kong
Accounting
Standard
Related that
Partythey
Disclosures
intention
to
withdraw
or
amend
their
audit
opinion
on
the
2015
Financial
issued by the HKICPA, the scope which is summarised on page 106 of the
Statements
despiteReport.
the Allegation
2015 Annual
An entityReports.
is related to an issuer if, among others, such

is controlled
by a person who has control or joint
Source:entity
Announcement
datedor
11jointly
Januarycontrolled
2017.
control of such issuer;

(iii)challenge
so far as the
Company
is aware
andevidence
as confirmed
by Mr.
Chan,
considering
We
CAA
to respond
with
based;
factual
answers
to the questions that we have
that:
posed in our report and rebuttals, instead of blanket "trust me" responses.
(a)notafter
Mr.that
Chans
disposal situation
of all ofwill
his continue
indirect much
equity longer.
interestCAA
in is experiencing
We do
expect
this perverse
February
2008 and
(details
of which were
cripplingSkyComm
cash burn infrom
operations
the struggling
underdisclosed
weight ofinitstheoutstanding liabilities. No
headed Our
relation
SkyComm
Group fundamentals
and our controlling
amount ofsection
management
spin can
hidewith
collapsing
business
the 62.4% core revenues
shareholders
in
the
Prospectus),
Mr.
Chan
ceased
to have
anytoequity
implosion in 1H2015 is a case in point. To us, the runway for
things
continue this way appears to be
interest in SkyComm Group;
short.
(b) Mr. Chan had tendered his resignation for all of his positions in

Instead of stemming the cash burn and addressing the collapsing fundamentals, management is
SkyComm Group, including that in Guangdong SkyComm and Shaanxi
engaging in ridiculous prepayments (building purchase, lending, etc.) further draining precious cash
SkyComm; and
from this struggling company and putting out dishonest announcements to the stock market instead of
engaging with shareholders with transparency and credibility.
(c) even though Mr. Chans resignations from his respective position in
Guangdong SkyComm and Shaanxi SkyComm have not been effected or
Given thereflected
critical flaws
in its solar business plan, evidenced by a lack of a working prototype
in the SAIC record, Shaanxi SkyComm is a dormant company

(prototype verification by a third party engineering firm and patent consideration payment due upon
7

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12

Triam Research
this milestone are still pending), despite boasting of plans to commence production of the second half
of the year in the 2016 interim report, the companys prospects of raising fresh equity in the stock
market appears to difficult, to say the least.
We call upon the regulators SFC, HKEX and HKICPA to take action in light of these blatant
violations of listing rules and accounting fraud. Prompt regulator action will likely offer investors
the hope of some recovery of their hard earned money, which doesnt appear likely in other
scenarios.

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13

Triam Research
Disclaimer
PLEASE READ SO THAT YOU CAN PUT THIS REPORT IN PROPER CONTEXT AND
EVALUATE ALL OF THE FACTS AND EVIDENCE FOR YOURSELF.
By reading this report, you agree that the use of research produced by Triam Research is at your own
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This report sets out our good faith opinions. This report is not investment advice or recommendation or
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You should assume that as of the publication date of this report, Triam Research, along with or through
our partners, affiliates, consultants, principals, employees, clients and/or investors has a direct or
indirect short position in stocks, bonds or other securities issued by China All Access (Holdings) Ltd.
(CAA or company) and/or their derivatives. Following the publication of this report, the
aforementioned individuals and entities may continue transacting in the securities covered therein, and
may be short, long or neutral at any time regardless of this reports initial opinions.
Our report expresses our opinions, which we have based upon generally available information, field
research, inferences and deductions through our due diligence and analytical process. To the best of our
ability and belief, all information contained herein 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 covered herein or who may otherwise owe any fiduciary duty to the issuer. However, such
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supplement any reports or any of the information, analysis and opinion contained in them.
Our research and report includes forward-looking statements, estimates, projections, and opinions
prepared with respect to, among other things, certain accounting, legal, and regulatory issues the issuer
faces and the potential impact of those issues on its future business, financial condition and results of
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markets, market conditions, assets and liabilities. Such statements, estimates, projections and opinions
may prove to be substantially inaccurate and are inherently subject to significant risks and uncertainties
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You should assume that this report, as well as additional material not included in this report, has and/or
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14