China Household Initial Coverage 20170622 EN

Summary
In this research report, we present concrete evidences China Household

showing that the majority of the revenue and net income Company Information
of China Household since its backdoor listing is fabricated. Industry Furniture
We found material discrepancy between the financial Stock Code 692
figures disclosed by China Household and SAIC & Tax Listing Place Hong Kong
filings. Our physical inspection shows that its major Auditor Elite Partners
business, sales of household furniture, has ceased
operation long ago. We conclude that the only possible Our Recommendation
fate of China Household is to be delisted from the market. Rating
STRONG
1. Acquisitions that can never meet profit guarantee SELL
China Household has been acquiring numerous Target Price DELISTED
companies with almost no tangible net asset at a high
premium. Although these acquisitions came with profit Trading Data (as of 16 Jun)
guarantees and China Household disclosed that these Current Price HK$ 0.51
profit guarantees are mostly met, all three separate Daily Volume 67 mn shares
sources, i.e. SAIC fillings, local tax filings and public (5-day average)
overdue tax records, show that the actual net income of Market Cap HK$ 4.27 bn
these acquired targets are all minimal. Nearly RMB 400
million of net income was fabricated from 2013 to 2016 IPO Data
from these acquired companies. Backdoor
Dec 2012
Listing Date
2. Material discrepancy with SAIC and tax filings Formerly Ching Hing,
We compared the revenue and total tax amount filed in known as Bao Yuan
SAIC and tax filings of all subsidiaries with the disclosed
revenue and PRC tax expense of China Household, and
found that at least nearly 60% of the reported revenue
was fabricated from 2013 to 2016. Actual tax paid is at
most 13% of the tax expense reported in annual report.
By downloading or viewing our
3. Physical inspection shows no point of sales report, you agree to our Term of
Our investigators visited China Households head office Service. For full details, please
and its retail shops in Zhongshan, and found that one of refer to our disclaimer at the last
the two retail shops it owns has already been closed, and page of this report.
Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

the another one does not sell any furniture anymore. Moreover, China Households employees
confirmed to us that China Household do not sell furniture anymore, and its head office has
already been occupied by another company. We further inspected other selling channels of China
Household, including its distributors and online stores, and found that China Household almost
has no sales in furniture.
4. Numerous red flags on fabricated cash

Although China Household reported it has around HK$ 400 million cash in 2015, its interest
income is as low as HK$ 0.2 million. The interest rate of China Household on its cash is as low as
0.06%. Moreover, it has been issuing numerous convertible bonds even with a large pile of cash.
It has not paid any dividend since its backdoor listing in 2013. We believe it is highly possible that
the cash balance is fabricated.
5. Stock price manipulation with over 90 brokerage accounts

We have obtained the internal documents of China Household and found that the controlling
shareholder has over 90 brokerage accounts to hold his shares and manipulate stock price. The
controlling shareholder actually holds more than 60% of the shareholding while disclosing only
13%, to prevent the trigger of mandatory general offer and reverse takeover. We found that
almost half of the turnover of China Households market comes from brokerage accounts
controlled by the controlling shareholder, and we observed the phenomenon of wash trade
between these accounts.
6. The aerospace project that can never materialize

China Household has been emphasizing on an aerospace project recently. We analyzed the
feasibility of such a project, and concluded that the project is highly infeasible. We found that the
lands purchased by China Household for the development of the project to have no commercial
value, and the project has already been abandoned for five years before the recent emphasize by
management.
7. Notorious auditor
The auditor of China Household, Elite Partners, is notorious in Hong Kong market. It has replaced
17 resigned auditors of Hong Kong listed companies since 2016, and more than half of these
companies have certain issues revealed by the former auditors.
In conclusion, given the extraordinary extent of fraud of China Household and the large
amount of evidences we collected, we believe that the only fate of China Household is to
be prosecuted by SFC and delisted from the market, just like China Metal Recycling. A
valuation is unnecessary, since its intrinsic value is zero in our opinion. We also recommend
all investors to avoid trading of China Household, since the active market is just a delusion.
Note: Conversions between HK$ and RMB in this report are based on exchange rate announced
by the Peoples Bank of China as of respective year end (2013: HK$ 1 = RMB 0.78623; 2014: HK$
1 = RMB 0.78887; 2015: HK$ 1 = RMB 0.83778; 2016: HK$ 1 = RMB 0.89451)

Introduction
China Household Holdings Limited (China Household) is a company that sells household
furniture in PRC. It was listed in Hong Kong Exchange with the stock code of 00692 through
backdoor listing in 2012 December.
China Households former name is Bao Yuan Holdings Limited (Bao Yuan), a very famous
company specialized in financial trick such as rights issue to deprive rights of shareholders. There
have been three share consolidations, with the ratio of 50-to-1, 20-to-1 and 20-to-1, two rights
issues with the ratio of 1:8 and 1:22, one open offer with the ratio of 2:7 and 5 share placements
from 2010 to 2012. Even if you held 50.0% of the shareholding at the start of 2010, your
shareholding will be reduced to 0.0% at the end of 2012 without selling one share. Fortunately, in
2013, Mr. Li Zhixiong (Mr. Li) took over the company and the company changed name to China
Household.
On 2012 Dec 14, Bao Yuan announced the very substantial acquisition of Chang Ye Holdings
Limited, which indirectly held Zhongshan City Prado Style Household Company Limited (Prado),
from Mr. Kuang Yuan Wei, a close friend of Mr. Li, at HK$ 60 million. The transaction was
completed on 2013 Jan 3. Bao Yuan than proposed to change name to China Household on 2013
Jan 8.
Since then, Prado constitutes most of the revenue of China Household. China Household main
business then became sales of household furniture in PRC, including home furnishing solution
and wooden product:
Exhibit 1: Financial Summary of China Household from 2013 to 2016

2013 2014 2015 2016
Total Revenue 943,457 1,662,093 1,152,101 872,351
Revenue from sales of
922,361 1,577,073 1,036,8911 785,1162
household furniture
% of revenue from sales of
97.8% 94.9% >90% >90%
household furniture
Net Income 154,161 -861,115 -1,087,952 -341,609

Net Income adjusted for impairment 187,417 26,389 236,060 -100,922
Adjusted Net Margin3 19.86% 1.59% 20.49% -11.57%
Source: China Households annual report
The main distribution channels of China Households furniture include the two retails stores in
Zhongshan, distributors in other regions called operating centers, and online stores. It has also
acquired several furniture-related companies after the injection of Prado.

Although the reported net income is negative since 2014, it is mainly due to impairment of assets
acquired before 2013. By adjusting the impairment cost, China Household has quite a profitable
business from 2013 to 2015.
On 2016 Oct 29, China Household announced the new development strategy of Shenzhou Space
Park Project in ZhongShan. It proposed to acquire certain lands in Zhongshan for the development
of Shenzhou Space Park Project at HK$ 13.5 billion. According to China Households disclosure,
the China Aerospace-Themed Tourism Township Project is the first interactive, intelligent and
aerospace-themed tourism town in China. It is located in Shenwan Town, Zhongshan City,
Guangdong province with a total site area of 750,000 square meters.
In this research report, we will investigate China Household from multiple perspectives to discover
the truth of its business, including the authenticity of its reported financial statements, commercial
existence of its furniture products, analysis on its numerous acquisitions, trading activities, etc. We
have used substantial amount of time to collect large amount of evidences, and came to
the conclusion that almost all of its furniture business does not exist, and the controlling
shareholder of China Household has been manipulating the stock price for years. We believe
the extent of fraud of China Household can be compared to China Metal Recycling, and our
evidences show that China Household has little chance of escaping the fate of being
prosecuted by SFC and delisted from market.
1
This is the minimum figure since China Household only disclosed that more than 90% of revenue comes
from sales of household furniture in 2015 and 2016
2
Same as 1
3
Equals to net income adjusted for impairment divided by revenue

Part 1. Numerous Acquisitions that never fulfilled Profit Guarantee
As discussed in introduction, China Household was formerly known as Bao Yuan (prior to being
known as Bao Yuan, the listed company was known as Ching Hing). Therefore, all current PRC-
incorporated subsidiaries of China Household were injected into the listed company through
acquisitions. Apart from Shannxi Tai Sheng Da Mining Company Limited which was injected back
when it was known as Ching Hing, all the other five acquisitions came with profit guarantee.
Exhibit 2: Details of acquisitions of the six PRC incorporated subsidiaries

Announcement Completion Profit
692 was 692 was Guarantee?
Date Date
known as known as (Y/N)
Shannxi Tai Sheng Da Mining 3 Nov 30 Mar
Ching Hing Ching Hing N
Company Limited 2009 2010
Shenzhen City Hong Xun
2 Nov 3 Sep
Electronic and Technology Bao Yuan Bao Yuan Y4
2011 2012
Company Limited
Zhongshan City Prado Style 18 Oct
Bao Yuan 3 Jan 2013 Bao Yuan Y
Household Company Limited 2012
Zhongshan City Wei Xin 7 Aug China 31 Dec China
Y
Household Company Limited 2013 Household 2013 Household
Zhongshan City Kassade 13 May China 11 Jul China
Y
Wood Production Limited 2013 Household 2014 Household
Zhongshan City Polar 26 Jul China 17 Jul China
Y
Sunshine Company Limited 2013 Household 2014 Household
Source: Company announcements
While the Company disclosed that most of the profit guarantees above have been fulfilled, we
discovered exactly the opposite from their respective SAIC filings and local tax filings, i.e. most of
the profit guarantees have never been fulfilled. We discovered that the disclosed financial
performance, including both revenue and net income, of all these companies after acquisition are
mostly fabricated. We will discuss each these acquisitions one-by-one in the following.
Zhongshan City Polar Sunshine Company Limited (Polar Sunshine)
On 26 Jul 2013, China Household announced to acquire 100% share capital of Polar Sunshine from
Mr. Lin Kai at the consideration of HK$ 380 million, to be settled by issuance of convertible bonds
(mature in 3 years with no interest). According to the announcement, Polar Sunshine will be
principally engaged in trading of heating wooden household products and other basic materials
for heating wooden household products. As of the date of announcement, Polar Sunshine was in
the process of establishment and has not yet commenced any business with no revenue and profit.
After rounds of announcements delaying the acquisition, China Household finally announced on
30 Apr 2014 that it has entered into a supplemental agreement with Mr. Lin Kai on acquisition of

Polar Sunshine. The consideration was lowered to HK$ 210 million, to be settled by issuance of
356 million shares of China Household.
Regarding the resume of Mr. Lin Kai, the announcement stated that:
Mr. Lin Kai has accumulated more than nine years working and management experience within
the wooden household related industry especially on the area of, supply chain management,
research and development management and production management.
Upon 2011, Mr. Lin has been denoting himself in the research and development of the far infrared
heating technology in how to apply such technology into traditional floor tile and household
products. He does not hold any patent.
In its 2014 annual report, fair value of consideration to acquire Polar Sunshine was estimated to
be HK$ 238.52 million, which consisted identifiable net assets of HK$ 100.47 million (with
intangible assets of HK$ 134.00 million, i.e. the net tangible asset is negative HK$ 33.53 million),
implying a goodwill of HK$ 138.05 million. Proportion of intangible assets and goodwill to fair
value of consideration for Polar Sunshine would be as high as 114%.

Exhibit 3: Disclosure regarding breakdown of Polar Sunshines acquisition consideration
Source: China Household 2014 Annual Report, Page 105
We do not understand the reason for China Household to acquire a company that has negative
net tangible asset and no operations with HK$ 210.04 million. Still, it may seem like a good deal
since it came with a profit guarantee:
In the acquisition, the vendor guaranteed its total net profit after tax of the years ended 31
December 2014, 2015 and 2016 shall not be less than HK$ 7,500,000 (~RMB 5,916,525), HK$
12,000,000 (~RMB 10,053,360) and HK$ 27,000,000 (~RMB 24,151,770) respectively.

Exhibit 4: Profit Guarantee of Polar Sunshine
Source: Company announcements as of 30 Apr 2014
In subsequent announcements, China Household disclosed that Polar Sunshine successfully

met all of the above profit guarantee. However, from the SAIC filings and tax fillings of
Polar Sunshine, we discovered that almost all the reported net income is fabricated:
China Household announced in its 2014 annual report that The after-tax net profit of Polar
Sunshine Group for the financial year ended 31 December 2014 amounted to approximately HK$
7,600,000 (~RMB 5,999,000). Accordingly, the profit guarantee for the financial year ended 31
December 2014 was satisfied.
However, Polar Sunshine actually reported a net loss of RMB 59,475.64 in its 2014 SAIC
filing:

Exhibit 5: Income Statement of Polar Sunshine in 2014
Zhongshan City Polar Sunshine Company Limited Cumulative amount
for the year
Revenue
Net Profit
Source: Polar Sunshines 2014 SAIC filings

Exhibit 6: Relevant disclosure about Polar Sunshines profit guarantee in 2014
In 2015, China Household stated in its annual report that The after-tax net profit of Polar Sunshine
Group for the financial year ended 31 December 2015 amounted to approximately HK$ 19,689,000
(2014: HK$ 7,600,000). Accordingly the profit guarantee for the financial year ended 31 December
2014 and 2015 was satisfied. However, according to 2015 SAIC filing, Polar Sunshines profit
before tax and net profit after tax are merely RMB 630,358.42 and RMB 478,846.05
respectively, far short of the HK$ 19,689,000 (~RMB 16,495,000) disclosed in annual report.

Cumulative amount
Zhongshan City Polar Sunshine Company Limited
for the year
Revenue
Net Profit

Going forward to 2016, which was the last year with a profit guarantee on Polar Sunshine, China
Household only disclosed in its annual report that The after-tax net profit of Polar Sunshine Group
for each of the financial years ended 31 December 2014, 2015 and 2016 were above the
abovementioned profit targets and hence there had been no shortfall, without disclosing the exact
amount of net profit after tax. To no surprise, Polar Sunshine only reported profit before tax
of RMB 535.55 and net profit after tax of RMB 401.66 in its 2016 SAIC filing, far short of
HK$ 27,000,000 (~RMB 24,152,000), the purported profit target in 2016.

Zhongshan City Polar Sunshine Company Limited Cumulative amount
for the year
Revenue
Net Profit

In conclusion, more than 99% of the disclosed net income of Polar Sunshine was fabricated
from 2014 to 2016, and more than RMB 46.22 million of China Households net income was
fabricated from Polar Sunshine during the period:
Exhibit 11: Difference between Polar Sunshines SAIC filings and reported net profit (RMB 000)
2014 2015 2016 Total
Net Profit after tax from SAIC filings -59.47564 478.84605 0.40166 419.77207
At least At least
Disclosed Net profit after tax 5,995 16,495
24,152 46,642
At least At least
Difference 6,054 16,016
24,152 46,222
Difference (%) 101% 97% At least 99% At least 99%
Source: SAIC filings and China Household annual reports
We have also collected the local tax filings of Polar Sunshine, and the total tax paid of Polar
Sunshine from 2014 to 2016 is merely RMB 0.4165 million, further collaborating our finding
in SAIC filing:
Exhibit 12: Difference between Polar Sunshines tax filings and estimated profit tax expense from
companys disclosure (RMB 000)
2014 2015 2016 Total
Total Tax Paid from tax filings 31.00886 372.7 12.74465 416.45351
Estimated Profit Tax Expense from
company's disclosure 1,998 5,498 At least 8,051 At least 15,547
(Reported Net Income / (1-25%) * 25%)
Difference 1,967 5,126 At least 8,038 At least 15,131
Difference (%) 98% 93% At least 99% At least 97%

Source: Tax filings and China Household annual reports
China Household also has the habit of not paying tax in time even though the tax payable is
minimal. Its subsidiaries names are frequently listed on local tax bureau website, which are
publicly available. Readers can visit http://www.etax-gd.gov.cn/xxmh/html/index.html to see that
the tax amount of Polar Sunshine is indeed minimal:
Exhibit 13: Overdue Tax Record of Polar Sunshine from Guangdong Electronic Taxation Bureau
Source: Guangdong Electronic Taxation Bureau, http://www.etax-gd.gov.cn/xxmh/html/index.html
We can observe the value-added tax (VAT) of Polar Sunshine is merely RMB 2,756.7 in 2017 May,
and all other amounts of tax payable are also minimal as observed from above. It seems to be
impossible for a company that earns more than RMB 24 million of net income to only pay
two thousand VAT in a month. We can confidently conclude that Polar Sunshines business
and net profit are completely fabricated.
Zhongshan City Kassade Wood Production Limited (Kassade)
On 13 May 2013, China Household announced to acquire Kassade from Ultra Hero Limited (a BVI
incorporated company but its ultimate beneficial owner was never disclosed in the relevant
announcements. We suspect China Household is trying to hide its connection with seller since the
identity of sellers in other acquisitions were all disclosed) at a consideration of HK$ 100 million,
to be settled by issuance of promissory note maturing in 5 years with no interest. Similar to Polar
Sunshine, Kassade was in the process of establishment and has not yet commenced any business
and has not generated any revenue and profit as of the date of announcement. The transaction
was completed in Jul 2014.
There are no descriptions about Kassades principal business in the announcements but according
to companys annual reports, Kassade is principally engaged in manufacturing of floor tiles,
various wood frames and other household wood products.

In its 2014 annual report, fair value of consideration to acquire Kassade was estimated to be HK$
59,065 thousand, implying goodwill of HK$ 59,869 thousand which was even larger than the fair
value of its consideration. The net asset value is also negative.
Exhibit 14: Disclosure regarding breakdown of Kassades acquisition consideration
Similarly, Kassades acquisition came with a profit guarantee. The seller of Kassade guaranteed
that (i) the aggregate audited net profit after tax of Kassade for the year ending 31 December
2013 and for the year ending 2014 shall be not less than HK$20,000,000; and (ii) the audited
consolidated net profit after tax of the Target Group for each year ending 31 December 2015,
2016, 2017 and 2018 shall be not less than HK$20,000,000.

Exhibit 15: Profit Guarantee of Kassade
Source: Company announcements as of 13 May 2013
Subsequent announcements of China Household disclosed that Kassade has met all the profit
guarantee from 2014 to 2016. We then compare the disclosed net profit of Kassade with its net
income on SAIC filings, and again found a material discrepancy (Please refer to Appendix A and
Appendix B for the relevant profit disclosure and full SAIC filings respectively):

Exhibit 16: Difference between Kassades SAIC filings and reported net profit (RMB 000)
2014 2015 2016 Total
Net Profit after tax from SAIC filings -186.5762 36.11387 -1,212.49229 -1362.95462
Disclosed Net profit after tax 16,633 30,118 14,443 61,194
Difference 16,820 30,082 15,645 62,557
Difference (%) 101% 100% 108% 102%
From SAIC filing, Kassade has a total net loss of RMB 13.63 million from 2014 to 2016, while
disclosing its total net income during the period is RMB 61.19 million on annual reports.
We believe Kassade has fabricated RMB 62.56 million of net income for China Household
from 2014 to 2016.
We have also collected the local tax filings of Kassade, and the total tax paid of Kassade from
2014 to 2016 is merely RMB 2.32 million, further collaborating our finding in SAIC filing:
Exhibit 17: Difference between Kassades tax filings and estimated profit tax expense from companys
disclosure (RMB 000)
2014 2015 2016 Total
Total Tax Paid from tax filings 1,743.1472 634.3967 -59.076 2,318.4679
company's disclosure 5,544 10,039 4,811 20,395
Difference 3,801 9,405 4,870 18,076
Difference (%) 69% 94% 101% 89%
Readers may ask that why a company having loss would have a positive total tax paid from tax
filing. This is because the total tax paid in tax filings include all kinds of tax, including Business Tax,
Value-Added Tax, Urban Maintenance Tax and Profit Tax, etc. We are conservative in comparing
the total tax paid directly with estimated profit tax expense, since the actual profit tax paid must
be lower than the total tax paid.
One interesting fact is that Kassade disclosed net profit after tax is HK$ 16.146 million in 2016, but
still claiming that it has satisfied the profit guarantee of HK$ 20 million. We do not know how this
is satisfied, and believe that the Company may have secretly changed the terms of Kassades profit
guarantee without notifying its shareholders, which may constitute a breach of listing rules in our
opinion.
Again, Kassade has also not paid its tax on time:

Exhibit 18: Overdue Tax Record of Kassade from Guangdong Electronic Taxation Bureau
We can again observe that Kassade payable taxes are minimal from the overdue tax record. For
example, the VAT for Kassade in 2017 May is only RMB 18,740. We can again conclude that
Kassades business and net income is also completely fabricated.
Zhongshan City Wei Xin Household Company Limited (Wei Xin)
On 7 Aug 2013, China Household announced to acquire Wei Xin (known as Red Hero Group in
the announcement) from Mr. Cai Zhisen at a consideration of HK$ 480 million, to be settled by
issuing convertible bonds (mature in 3 years with 2% interest rate per annum). Again, Wei Xin was
in the process of establishment and has not yet commenced any business and has not generated
any revenue and profit as of the date of announcement. The acquisition was then completed at
the end of 2013.
According to the announcement, Wei Xin will be principally engaged in providing virtual interior
design simulation and electronic household product trading platform for selling the Companys
household products. Mr. Choi, the seller, has over 10 years of experience in information
technology, retail software, internet sales and 3D interior design software and information
technology system operation and consultancy for large scale household product companies.
In China Households 2013 annual report, fair value of the acquisition was estimated to be HK$
294,816 thousand, implying goodwill of HK$ 294,826 thousand from this acquisition. China
Household was again acquiring a company with almost no assets. You may refer to appendix C
for the relevant disclosure.
Similar to Polar Sunshine and Kassade, seller of Wei Xin guaranteed that (i) the aggregate audited
consolidated net profit after tax of the Wei Xin for the year ending 31 December 2013 and for the

year ending 2014 shall be not less than HK$2,600,000; (ii) the audited consolidated net profit after
tax of Wei Xin for the year ending 31 December 2015 shall be not less than HK$76,000,000; and
(iii) the audited consolidated net profit after tax of Wei Xin for the year ending 31 December 2016
shall be not less than HK$162,000,000.
Exhibit 19: Profit Guarantee of Wei Xin
Source: Company announcement as of 7 August 2013
To no surprise, China Household reported net profit for Wei Xin in 2014 and 2015 but Wei Xins
SAIC filings showed net loss from 2014 to 2016. We compare the disclosed net profit of Weixin
with its net income on SAIC filings, and again found a material discrepancy (Please refer to
Appendix D and Appendix E for the relevant profit disclosure and full SAIC filings respectively):
Exhibit 20: Difference between Wei Xins SAIC filings and reported net profit (RMB 000)
Total for
2014 2015 2016
2014-2015
Net Profit after tax from SAIC filings -278.1078 -1,444.6033 -1,641.686 -1,722.7111
Disclosed Net profit after tax 13,550 5,035 Not Disclosed 18,585
Difference 13,828 6,480 Not Applicable 20,308
Difference (%) 102% 129% Not Applicable 109%
A savvy reader may notice that the profit guarantee in 2015 was not satisfied and you are correct.
China Household then entered into a supplemental agreement with the seller of Wei Xin to cancel

the profit guarantee requirement and reduce the principal amount of convertible bond on 30 Mar
2016 (thats why China Household doesnt have to disclose Wei Xins net profit/loss in 2016). Even
though the profit guarantee was not satisfied, there is still significant fabrication in its profit.
Again, tax filing of Wei Xin also indicates significant discrepancy with disclosed net income:
Exhibit 21: Difference between Wei Xins tax filings and estimated profit tax expense from companys
Total for
2014 2015 2016
2014-2015
Total Tax Paid from tax filings 340.2 504.7 662.2 1,507.1
company's disclosure 4,517 1,678 Not Applicable 6,195
Difference 4,176 1,174 Not Applicable 5,350
Difference (%) 92% 70% Not Applicable 86%
And its overdue tax record of Wei Xin from tax bureau also show its payable tax is minimal:
Exhibit 22: Overdue Tax Record of Wei Xin from Guangdong Electronic Taxation Bureau
The major business of Wei Xin is the development and operation of an online platform that sells
household furniture. However, we found out that the online business of China Household does
not exist completely. Please refer to part 3 for further details. We can conclude that most of Wei
Xins business and profit are fabricated.

Zhongshan City Prado Style Household Company Limited (Prado)
On 18 Oct 2012, China Household (known as Bao Yuan at that time) announced to acquire Prado
from Mr. Kuang Yuan Wei (one of the executive directors of China Household now) at a
consideration of HK$ 60 million, to be settled by issuance of promissory note (mature in 3 years
with 4% interest rate per annum). Prado was the only company already established as of the date
of announcement among the 4 acquisitions, however, it only began to operate the business in
early 2012. The transaction was then completed in Jan 2013.
According to the announcement, Prado is principally engaged in trading of wooden home

furnishing products in the PRC and provision of one-stop home furnishing solution. Prado
accounts for the majority of the revenue of China Household since acquisition. However, our due
diligence in Zhongshan and other cities show that it has almost no sales in furniture. Please
refer to Part 3 for details.
In its 2013 annual report, fair value of consideration to acquire Prado was estimated to be HK$
50,808 thousand, which consisted identifiable net assets of HK$ 14,877 thousand (with intangible
assets of HK$ 14,846 thousand, and therefore the net tangible asset is merely HK$ 31,000),
implying goodwill of HK$ 35,931 thousand. Proportion of intangible assets and goodwill to fair
value of consideration of acquiring Prado would be as high as 100%. You may find the detailed
breakdown of consideration in appendix C.
In the acquisition of Prado, the seller guaranteed that (i) the audited net profit after tax of Prado
for the period from 1 January 2012 to 31 December 2013 will not be less than HK$15,000,000; and
(ii) the audited net profit after tax of Prado for each year ending 31 December 2014 and 2015 will
not be less than HK$15,000,000.
Exhibit 23: Profit Guarantee of Prado
Source: Company announcement as of 18 October 2012

Although Prado is the only acquisition that can meet its profit guarantee according to SAIC filings,
China Household still fabricated 86% of Prados net profit from 2013 to 2015. This amounts
to a total of RMB 342.375 million fabricated net income from 2013 to 2015, which accounts
for 93.6% of the net profit adjusted for impairment of China Household during the same
period (Please refer to Appendix F and Appendix G for the relevant profit disclosure and full SAIC
filings respectively):
Exhibit 24: Difference between Prados SAIC filings and reported net profit (RMB 000)
2013 2014 2015 Total
Net Profit after tax from SAIC filings 18,421 33,507 1,845 53,773
Disclosed Net profit after tax 152,533 167,410 76,205 396,148
Difference 134,112 133,903 74,360 342,375
Difference (%) 88% 80% 98% 86%
The local tax filings of Prado also show that its total tax paid from 2013 to 2015 is merely
RMB 24.79 million, which is only 19% of the estimated profit tax expense according to China
Households disclosure:
Exhibit 25: Difference between Pardos tax filings and estimated profit tax expense from companys
2013 2014 2015 Total
Total Tax Paid from tax filings 5,476.1 17,449.5 1,866.1 24,791.7
company's disclosure 50,844 55,803 25,402 132,049
Difference 45,368 38,354 23,536 107,258
Difference (%) 89% 69% 93% 81%
As discussed above, since total tax paid include other kinds of tax, this 81% difference is the
minimum discrepancy between reported tax expense and actual tax expense. The tax figures can
be further corroborated by the public overdue tax record of Prado:

Exhibit 26: Overdue Tax Record of Prado from Guangdong Electronic Taxation Bureau
We can see that the actual profit tax of Prado in 2015 is merely RMB 870,226.91 from the
above overdue tax record, which is very close to the RMB 615,039.30 profit tax expense in
2015 SAIC filing (Please refer to Appendix G). (The difference is due to the fact the former one
is actual tax payable while the later one is tax expense from accounting) Both figures are
nowhere close to the implied tax of RMB 25,420,000 from the disclosed net income of
76,205,000 in 2015.
Further, we can observe that the actual profit tax of Prado from 2014 April to September (6 months)
is RMB 958,501.24+RMB 1,259,242.31=RMB 2,217,743.55. By annualizing the figure, the rough
actual profit tax of Prado in 2014 is RMB 2,217,743.55 x 2 = RMB 4,435,487.1, which is also far
lower than the implied tax of RMB 55,803,000 from the disclosed net income of RMB 167,410,000
in 2014.
All three sources (SAIC filing, local tax filling and public overdue tax record) show that most
of the net income of Prado is fabricated. We usually prepare for all possible responses of
management beforehand, but we are regret to say that we cannot think of any good excuse for
management and accountant to reconcile the difference. For the remaining net income of Prado,

we believe it mostly comes from New Oasis Wood Co. Limited (New Oasis), a disclosed
connected transaction, and other undisclosed related party transaction.
Shannxi Tai Sheng Da Mining Company Limited (Tai Sheng Da)
Apart from the 4 above mentioned acquisitions relating to household industry, China Household
also owned a titanium dioxide mine located in Ziyang County, Shaanxi Province, the PRC. The
mine was acquired by China Household (known as Ching Hing at that time) from Mr. Fung Man
Chun, Madam Li Ying, Madam Yang Xiaoli and Madam Qu Yinghong in early 2010 at a
consideration of HK$ 1,680 million, settled by issuance of convertible bonds.
However, the mine was never materialized since being acquired by China Household. China
Household recognized exploration assets (an intangible asset subject to annual assessment of
impairment) of HK$ 1,698,102 thousand after completion of the acquisition. Unluckily, over 97%
of the exploration asset has been impaired as of 31 Dec 2016, indicating acquisition and operation
of this titanium dioxide mine as a total failure.
Exhibit 27: Impairment of exploration asset (HK$ 000)

Total 2016 2015 2014 2011
Annual Impairment of
1,649,829 56,400 699,200 733,400 160,829
exploration asset
Exploration asset
1,698,102
initially recognized
% of exploration
97.2% 3.3% 41.2% 43.2% 9.5%
assets impaired
Source: China Household annual reports
In addition to the huge impairment of exploration assets, China Household also claimed to be
obtaining relevant mining permit in order to commence operation. However, the timing of
obtaining such permit was delayed year after year. At last, the claim of obtaining such permit was
never materialized and its mining business was abandoned. We strongly doubt if the management
of China Household has ever devoted any efforts in operating its mining business.
Exhibit 28: Disclosure about mining business

Year Disclosure
2010 To broaden our sources of earnings, the Group acquired an iron and titanium dioxide mining
company in China on 30 March 2010. The mining company holds a mining license with which
the company has the right to conduct mining and exploitation works in a mine located at Ziyang
County, Shaanxi Province, the PRC. Exploration on the mine was completed. Restructure of the
management committee was accomplished. During the year under review, the mining business
recorded a loss of HK$1.5 million which was mainly attributable to the administrative expenses.
2011 On 30 March 2010, the Group acquired a mining company in order to broaden the income base
of the Group and diversify its business into non-ferrous industry. The mining company held a
mining licence under which the company has the right to conduct mining and exploitation works
in a mine located at Ziyang County, Shaanxi Province, the PRC.

Year Disclosure
The application for the PRC approval of the Mine is still in progress and the Group did not have
any operation during the year ended 31 December 2011. The directors are of the opinion that
the mining plan will be delayed. The Group engaged an independent valuer, to assess the
recoverable amount of the exploration and evaluation asset, pursuant to their valuation report,
an impairment loss of approximately HK$160,829,000 on the exploration and evaluation assets
was made by the Group for the year ended 31 December 2011.
During the year under review, the Group has submitted the application for the licence to the
relevant authorities in order to commence the production in the upcoming future. The approval
procedures were still in progress as at 31 December 2011.
During the year under review, the mining business recorded a loss of HK$163 million, which was
mainly attributable to the impairment loss and administrative expenses.
2012 During the year under review, the application for the PRC approval of the Mine is still in progress
and the Group did not have any operation in the mining business. Meanwhile, the Group has
submitted the application for the license to the relevant authorities in order to commence the
production in the upcoming future. the directors decided to postpone the mining plan and the
Group expected all the required licences and approvals will be obtained by Year 2014.
During the year under review, the mining business recorded a loss of HK$3 million.
Group expected all the required licences and approvals will be obtained by Year 2015.
During the year under review, the mining business recorded a loss of approximately
HK$3,149,000.
Group expected all the required licences and approvals will be obtained by year 2017.
During the year, the mining business recorded an impairment loss of approximately
HK$733,400,000.
2015 Giving the slump in the international metal market, the management envisaged market players
were incurring enormous losses thus slowing down its pace in the capital investment in the
mining business. During the year, the mining business recorded a further impairment loss of
approximately HK$699,200,000.
2016 As a result of volatile metal commodity market, we recorded a significant impairment loss on
exploration and evaluation assets of HK$699,200,000 in previous year and narrowed to
HK$56,400,000 this year.
For the above mentioned four acquisitions about its household business (Polar Sunshine, Kassade,
Wei Xin and Prado), we can conclude the common characteristics of China Households acquisition:
Claimed to have met its profit guarantee, but SAIC filings showed that the net income is either
negative or immaterial, and the profit guarantee was never met
Local tax filings show only minimal amount of total tax paid

Public overdue tax records show that all kinds of payable of tax are minimal
The operating subsidiaries were not incorporated and no operations were commenced by the
time the acquisition was announced, meaning that China Household was always purchasing
merely a chain of shell companies that are just set up
The consideration consisted of a large amount of goodwill and intangible assets (combined
over 100% of the consideration), and a negative or minimal tangible net asset
The true identity of seller was not disclosed in some of the acquisitions
We here summarized the discrepancy between net income disclosed by China Household and
reported in SAIC filings for the four acquisitions below:
Exhibit 29: Comparison between net income disclosed in annual report and SAIC filings of the four
acquisitions (RMB 000)
Total
Disclosed Total Net
Net Income Income from Difference Difference (%)
from Annual SAIC filings
Report
Polar Sunshine (2014-2016)5 46,642 420 46,222 99.1%
Kassade (2014-2016) 61,194 -1,363 62,557 102.2%
Weixin (2014-2015) 18,585 -1,723 20,308 109.3%
Prado (2013-2015) 396,148 53,773 342,375 86.4%
Total 522,569 51,107 471,462 90.2%
We can see that nearly 90% of the net income from these acquisitions are fabricated, and
these acquisitions helped China Household to fabricate at least RMB 471.46 million of net
income.
Below is the summary of the intangible assets acquired through these acquisitions:
Exhibit 30: Composition of consideration of above mentioned acquisitions (HK$ 000)

Polar
Kassade Wei Xin Prado
Sunshine
Net tangible assets -33,529 -804 -10 31
Intangible assets 134,000 0 0 14,846
Goodwill 138,049 59,869 294,826 35,931
Fair Value of the consideration 238,520 59,065 294,816 50,808
Proportion of intangible assets and
114% 101% 100% 100%
goodwill to fair value of consideration
In view of the above, we do not believe there is any commercial substance in these acquisition.
Since these subsidiaries constitute almost all the revenue and net income of China Household, we

believe that the fraudulent extent of China Household can only be matched by China Metal
Recycling.
4
Since revenue contribution from information and technologies business was minimal, we would not go
into details to discuss profit guarantee of Shenzhen City Hong Xun Electronic and Technology Company
Limited
5
Minimal discrepancy is stated here since the exact net income of Kassades for 2016 is not disclosed

Part 2. SAIC filings indicate at least RMB 2.2 billion of revenue fabrication
Similar to many other fraudulent companies being revealed in the past, we noticed significant
discrepancy between its SAIC filings and its disclosed revenue. As discussed in Part 1, based on
information disclosed in its annual report, we retrieved SAIC filings of all China Households PRC
incorporated subsidiaries from 2013 to 2016 (please refer to Part I and appendix for the income
statements). You may find the list of China Households subsidiaries from 2013-2015 in appendix
H for your reference.
Exhibit 31: List of China Households subsidiaries in 2016

Source: China Household 2016 Annual Report, Page 81-82
A savvy reader may notice that all the PRC subsidiaries was a target of the acquisitions listed in
part 1, while Polar Sunshine, Kassade, Wei Xin and Prado together made up all of China
Households household business in the PRC. As mentioned in Part 1, almost all of the net income
of these subsidiaries are fabricated. As expected, we also observed a significant discrepancy in the
total revenue of all these PRC incorporated subsidiaries from SAIC filings and China Households
disclosed total revenue from annual reports:

Exhibit 32: Comparison of SAIC filings and total revenue from 2013 to 2016 (RMB 000)
Revenue from SAIC
2013 2014 2015 2016 Total
fillings:
Shannxi Tai Sheng Da
0.00 0.00 0.00 0.00 0.00
Mining Company Limited
Not
Electronic and Technology 604.70 0.00 0.00 604.70
Available6
Company Limited
Zhongshan City Prado Style
Household Company 271,592.57 496,952.81 270,826.71 126,904.30 1,166,276.39
Limited
Zhongshan City Wei Xin
Not
Household Company 15,370.57 87,503.21 58,894.95 161,768.72
Applicable
Limited
Zhongshan City Kassade Not
31,841.55 67,644.15 47,601.84 147,087.54
Wood Production Limited Applicable
Zhongshan City Polar Not
9,999.84 41,123.27 15,431.27 66,554.38
Sunshine Company Limited Applicable
Total Revenue from SAIC
271,593 554,769 467,097 248,832 1,542,292
filings
Disclosed Total Revenue 741,774 1,311,175 965,207 780,327 3,798,483
Difference 470,181 756,406 498,110 531,495 2,256,191
Difference (%) 63% 58% 52% 68% 59%
We can see that China Household has fabricated at least RMB 2,256 million of revenue, i.e.
nearly 60% of the revenue from 2013 to 2016 according to SAIC filings. Moreover, PRC local
tax filings also corroborates our finding:

Exhibit 33: Comparison of tax filings and total tax paid from 2013 to 2016 (RMB 000)
Total Tax Paid from local
2013 2014 2015 2016 Total
tax fillings:
Shannxi Tai Sheng Da Mining
0.20 3.43 65.63 25.18 94.44
Company Limited
Not
Electronic and Technology 0.00 0.00 0.00 0.00
Available7
Company Limited
Zhongshan City Prado Style
5,476.05 17,449.46 1,866.15 1,264.32 26,055.99
Household Company Limited
Zhongshan City Wei Xin Not
340.20 504.70 662.20 1,507.10
Household Company Limited Applicable
Zhongshan City Kassade Not
-59.08 634.40 1,743.15 2,318.47
Wood Production Limited Applicable
Zhongshan City Polar Not
31.01 372.70 12.74 416.45
Sunshine Company Limited Applicable
Total Tax Paid from local
5,476 17,765 3,444 3,708 30,392
tax filings
Disclosed PRC Profit Tax
54,801 90,763 76,116 21,150 242,830
Expense from annual report
Difference 49,325 72,998 72,672 17,442 212,437
Difference (%) 90% 80% 95% 82% 87%
Source: Local tax filings and China Household annual reports
China Household disclosed that it has RMB 242.83 million of PRC profit tax expense from
2013 to 2016, but local tax filings show that all its subsidiaries have only paid RMB 30.39
million of tax, which is 87% lower than the disclosed figure.
6
Shenzhen City Hong Xun Electronic and Technology Company Limited did not file its 2013 SAIC filing
7
Shenzhen City Hong Xun Electronic and Technology Company Limited did not file its 2013 SAIC filing

Part 3. A Furniture Company that does not sell Furniture
In this part, we inspected all purported distribution channels of China Household, including its
retail shops, operating centers, and online store. We have appointed third-party investigator to
visit the stores of China Household, interviewed China Households employees and contacted their
purported clients, and came to the conclusion that China Household only has minimal amount of
sales (if not none) in furniture.
China Household disclosed that over 90% of the revenue and operating income from 2013 to
2016 came from the sales of household furniture in PRC, therefore the revenue from household
furniture in PRC in 2015 and 2016 should be higher than HK$ 1,036.89 million and HK$ 785.11
million respectively.8 Its disclosed distribution channels include: (a) retail shops owned by China
Household, (b) operating centers which distribute China Households furniture, and (c) online store
operated by China Household. We will explore these distribution channels one-by-one in the
following.
(A) Retail Shops of China Household in Zhongshan
According to the circular of the acquisition of Chang Ye on 2012 Dec 14,
Prado will establish a network of one-stop home furnishing solutions retail shops at different tier of
cities and at different regions in the PRC for providing services and solutions directly to end users.
The retail shops, on one hand, serve as display rooms for the collections of the household wooden
products of Prado, on the other hand, serve as platforms for Prado to communicate with customers
to illustrate preliminary simulation of the interior design concept to customers upon understanding
their requirements.
Although with the aggressive plan of establishing a network of retail shops in different cities, China
Household disclosed that it only has two retail shops in all announcements, which are located in
Banfu and San Xiang of Zhongshan9. There has been media visiting these two stores in the past,
and found that no furniture can be bought in these stores. China Household responded that the
two stores are only the showroom of the Company to display its products, but not a retail
shop10,which is already different from its initial disclosure on acquisition circular. Nonetheless, we
have appointed third-party investigator to visit the showroom in 2017 April to understand more
about China Households business. Our investigator firstly went to the store in Agile Town, San
Xiang, Zhongshan:

Exhibit 34: Photo of Agile Towns Management Center, San Xiang
Source: Physical Inspection
However, our investigator cannot find any appearance of Prados stores in Agile Garden. Our
investigator then went to the customer service center and asked the employees there about
the location of Prados store, and all said that they did not know the existence of Prados
store in Agile Garden. We believe that Pardos store in San Xiang has already ceased
operation.
It is surprising that one of the two stores of China Household has ceased operation already, while
sales of furniture still contributed almost all of the revenue for China Household in 2016. Our
investigator then went to Banfus store, where the head office of China Household was located.
Luckily, the store there still existed:
Exhibit 35: Photo of Prado stores building in Banfu

Exhibit 36: Photo of Prado stores front door in Banfu
Our investigator then went inside, pretending as a customer of Prados furniture. The employees
there were surprised at people buying furniture with the following conversation:
Employee: How may I help you?

Our investigator: We would like to understand more about Prados furniture.
Employee: Oh, we do not do any furniture business anymore.
Our investigator: We would like to order furniture here. Isnt it Prados furniture store?
Employee: In the past only, not now. Now we only sell floor tiles, and do not sell furniture
anymore. Our boss Mr. Li wants to do furniture business but it failed.
Our investigator: Is there any furniture showrooms in the upper floor?
Employee: Now the upper floor is mostly New Oasiss office already, but part of the showroom
still remains.
Our investigator: Can we have a look?
Employee: Sure.
Then the employee brought our investigator to visit the showroom:

Exhibit 37: Photo of Prado showroom in Banfu
During the tour, our investigators conversation with the employee continued:
Our investigator: The logo of Prado is still here!

Employee: Yes, but now the office was occupied by New Oasis and another company already.
Our investigator: Where is Prados office then? Are there any other Prados stores?
Employee: All ceased operation when I came here already. There should be no other stores
selling Prados products anymore.
All of the above conversation were recorded and will be sent to SFC separately. We also observed
from ground floor that the flank of building is indeed New Oasiss store instead of Prado:

Exhibit 38: Photo of Prado stores flank in Banfu
It is crystal clear that China Household did not sell any furniture already. However, to prevent
China Household from using the excuse of ignorant employee and revenue coming from other
channels instead, we continued our due-diligence in other distribution channels of China
Household.
(B) Operating Center: The Presence in Thousand Cities
In 2015 annual report, China Household disclosed its new strategy of Presence in Thousand Cities
to increase its market share and awareness of the household business and built up strong clientele
and reputation. It aims to partner with companies in other cities to sell China Households
furniture under the brand of Prado Style. These companies are called operating centers, and is
responsible for market promotion, sales development, customer support and quality monitor in
the assigned region.11 From China Households official website, there are a total of 13 operating
centers:

Exhibit 39: Operating Centers of China Household in different cities
# Company Name Province District Address
105
1

14
2
602-605
863
3

4 4-5
/
5
67

6
B1 12 103
/
7
67
/
8
67
C 12
9

10 6 2001

11
A1

12 5

13

Source: www.chh360.com/shop/index.php?act=article&op=show&article_id=54
Since the contact information are also listed on the website, we contacted the above operating
centers one-by-one, asking if there are any China Household or Prado furniture that can be
purchased. However, the result is that either no one listened to the phone or the contact
person said that they do not operate any Prado furniture anymore.
To further confirm our finding, we used substantial amount of time to collect all the SAIC
filings of the above companies, with the below results:
Exhibit 40: Revenue reported by Operating Centers of China Household in SAIC filing (RMB)
# Company Name 2015 Revenue 2016 Revenue
1 0 n.a.
2 20,000 60,000

3 n.a. 410,000
4 n.a. 0
5 0 0
6 18,621 n.a.
7 0 0
8 0 0
9 127,406 238,600
10 1,050,000 58,886
11 1,370,800 5,210,984
12 0 0
13 800,000 n.a.
Source: SAIC filings
It is obvious that the revenue of these operating centers is minimal, and is far away from the
revenue disclosed by China Household. We can conclude that the strategy of Presence
in Thousand Cities has failed miserably.
(C) Online Store: the cryptic code of OAO2C
Similar to other companies that want to repackage itself into an online company so as to gain a
high valuation, China Household has been emphasizing its online business strongly. It has even
created a very creative term of OAO2C as its new business model, which actually stands for
Online And Offline To Customer, and is in the center of the first page of China Households
Annual Report from 2013 to 2016. Although the term sounds like a cryptic code, we believe this
is just another name for B2G (Business-to-ghost) model, just like Cogobuy.
Exhibit 41: First Page of China Households 2014 Annual Report
Source: China Households 2014 Annual Report

China Household has three websites, which are mall.chh692.com, www.chh692.com and
www.360chh.com. Firstly, let look at the traffic of these websites:
Exhibit 42: Web Traffics Estimation of China Households websites

Alexa Monthly Traffic
SimilarWeb
Webpage Use Rank in estimated by
Rank in China
China SimilarWeb
mall.chh692.com Unknown n.a. 1,336,079 < 5000
Official website showing
www.chh692.com n.a. 404,429 < 5000
companys information
www.360chh.com Online Store n.a. No data No data
Source: Web traffic data from Alexa and SimilarWeb, as of 2017 June 2
The traffic of all its websites are so minimal that Alexa does not even have enough data to estimate
its ranking. Data from SimilarWeb also shows the websites have minimal amount of traffic. Now,
let visit mall.chh692.com, where according to the Company, many customers have visited the
website and obtained information on the Companys products and services.12
Exhibit 43: Screenshot of mall.chh692.com
Source: mall.chh692.com as of 2017 June 1
Although we were accessing the webpage in desktop computer, it gave us the mobile version of
website instead. Anyway, we proceeded to register an account, hoping to purchase some furniture
online. After registration, we were redirected to the following page:

Exhibit 44: Webpage after registration of account on mall.chh692.com
Source: mall.chh692.com as of 2017 June 1
It stated taking order on the webpage, but we do not understand what orders we were taking.
We waited for several hours and the webpage stayed the same. We tried all buttons and links, but
could not find any information of the Companys products and services. We believe the website
has already been abandoned and has no use anymore.
We then tried www.chh692.com, which is the official website of China Household:

Exhibit 45: Screenshot of www.chh692.com
Source: www.chh692.com as of 2017 June 1
It seems a much proper webpage. However, this is only the official webpage of China Household
showing the information and news about the company, and we cannot find any product
information or purchase any products here. One interesting fact about this website is that it seems
to be hacked on 2017 June 10:
Exhibit 46: Googles description on www.chh692.com
Source: Google search on www.chh692.com as of 2017 June 10
We will not show the screenshot of the hacked webpage here, since it contained a lot of colorful
images that you can imagine. Luckily, the website has been fixed now. But the key question is,
how can a company with such an emphasize on OAO2C have its official website hacked? Now, let
move to the last website of China Household, www.360chh.com:

Exhibit 47: Screenshot of www.360chh.com Free Register
Source: www.360chh.com as of 2017 June 1
We then clicked the free register button to register an account. It then asked us to pay 100RMB
immediately:
Exhibit 48: Screenshot of registration process of www.360chh.com
We then proceeded with the payment, and were redirected to the Alipay with following result:

Exhibit 49: Screenshot of registration process of www.360chh.com
It seems that China Household has provided a wrong request to Alipay, leading to the error. It is
already rare for a user to be willing to pay RMB100 to just register an account, and even if you are
willing to pay, you cannot pay as well. The website is full of similar bugs such as invalid link and
images. For example, the top recommended product page is full of broken images:
Exhibit 50: Screenshot of the top recommended product of www.360chh.com
Source: http://www.360chh.com/shop/index.php?act=products&op=products_cont&goods_id=3, as of
2017 June 1
There are also no places to place any orders. It seems to be just an online catalog of its products.
We also tried to call its service hotline several times but no one listened. We believe this website

has been out of maintenance and was abandoned for a long time already, which collaborated with
the traffic data from Alexa and SimilarWeb.
Its Taobao website also shows only one product and zero sales. We cannot find any Tmall shops
for products related to Prado or China Household, therefore Taobao and Tmall stores cannot be
excuses either.
In conclusion, just like the strategy of Presence in Thousand Cities, the grand plan of
OAO2C failed miserably. We also reminded the readers that China Household used HK$ 480
million to purchase these websites (See acquisition of Zhongshan City Wei Xin Household
Company Limited in Part 1). When criticized by the high premium, China Household responded
that the acquisition target has profit guarantee to protect the interest of shareholders. But China
Household later just waived the profit guarantee for 2015 and 2016 when the profit of it did not
meet.
(At the time you read our report, China Household may already have fixed the above errors. But
we have already archived most of the webpages mentioned above, and you can visit
web.archive.org to visit the past versions of the companys website.)
If you would like to purchase Prados furniture, you will find yourself almost desperate in finding
its products, and there are completely no ways to purchase its products. From the above
investigation, we have confirmed that all distribution channels of China Households furniture
either do not exist or has no sales at all. This was also confirmed by the employee in China
Household. How can China Household have nearly one billion of sales in furniture when its
furniture cannot be bought anywhere? We believe China Household is another pioneer in B2G
model, instead of OAO2C.
8
China Household only disclosed that the sales of furniture accounts for more than 90% of revenue in
2015 and 2016, and does not disclosed the exact figures
9
Source: www.pradostyle.com/about-52.html, http://www.pradostyle.com/newsview-70-904.html
10
Source: China Households announcement on 2014 May 11
11
Source: www.pradostyle.com/about-34.html
12
Source: China Households announcement on 2014 May 11

Part 4. Serial capital raiser, mysterious cash balance and history of zero dividend
Given our view that most of China Households revenue and net profit were fabricated, we would
expect some red flags in its cash flow corroborating our findings. Unlike Cogobuy which recorded
huge increment in trade receivables and inventories, China Household seems to fabricate its cash
balance directly instead.
With the current interest rate in PRC, one would reasonably expect at least 1% interest income
annually from its cash and bank balance. However, we discovered that China Households average
interest rate is as low as 0.06% in 2015, which is far away from the reasonable interest rate level.
Such a low interest rate implies that China Households cash and bank balance is likely to be
fabricated. We suspect China Household to borrow some cash and inject it into its bank accounts
for just 1-2 days in every end of year to fool the auditors (China Households auditor is notorious
in Hong Kong stock market. Please refer to [Part 7. Notorious Auditor Elite Partners] for full
details).
Exhibit 51: Computation of average interest rate

2016 2015 2014 2013 2012
HK$000 HK$000 HK$000 HK$000 HK$000
Cash and cash equivalents 563,429 408,872 243,673 38,286 11,287
Bank interest income 358 200 615 174 n.a.
Average interest rate 0.07% 0.06% 0.44% 0.70% n.a.
Despite its ever increasing cash balance, we found China Household to be a serial capital raiser
since its backdoor listing in 2013. China Household has issued 6 batches of convertible bonds
since the start of 2016, raising a total of HK$ 813,145 thousand as general working capital, which
also exhausted the general mandate granted every year. This is another clear red flag showing
that most, if not all, of China Households cash balance is fabricated. Why would China Household
need to continuously raise funds with an ever increasing cash balance?
Exhibit 52: Details of issuance of convertible bonds since 2016

Amount Interest Conversion
Date Tenor Subscriber
(HK$ 000) rate price (HK$)
Mr. Zeng Wenbin
12 May 2017 100,000 2 years 2% (Chairman of China Fujian Gaoli 0.38
Property Co., Ltd.)
10 May 2017 365,145 2 years 2% Mr. Luo Jianhua 0.33
6 Mar 2017 93,000 2 years 2% (Chairman and Lanju Group) 0.20
24 Jan 2014 140,000 2 years 2% and others 0.20
5 Aug 2016 90,000 3 years 3% Not disclosed 0.10
Sun Guiqin, Peng Qihe and Li
4 Mar 2016 25,000 3 years 3% 0.10
Xianhua
Source: Company announcements

The convertible bonds issued by China Household are mostly converted, which severely dilutes
the shareholdings of shareholders. The total issued share increased from 2,186.65 million shares
in the start of 2013 to 6,994.09 million shares in 2017 May, representing a 220% increase.
With a fabricated cash and cash equivalents balance, one should not expect China Household be
able to declare dividends to its shareholders. Indeed, China Household has never declared any
dividend since its backdoor listing in 2013. (Actually, 692.HK has never declared any dividend since
its listing in early 2000, no matter what name (China Household, Bao Yuan or Ching Hing) it is
using.)

Part 5. Stock Price Manipulation with over 90 Brokerage Accounts
We have collected the internal documents of China Household through unconventional mean,
and have obtained huge amount of evidences related to the trading activities of China Household.
After weeks of investigation, we concluded that Mr. Li has been using over 90 brokerage accounts
in more than 40 brokerage firms to conduct trading of China Household, in order to (i) hide
controlling shareholder so as to prevent triggering of mandatory general offer and reverse
takeover, and (ii) create a false impression of active market.
Over 90 Brokerage Accounts of Mr. Li
It is by no means normal for a furniture companys shareholder to control over 90 brokerage

accounts. But from the internal documents of China Household, we found that Mr. Li has actually
controlled over 90 brokerage accounts. After weeks of analysis, we can generally classify these
brokerage account into three types:
Type A: Owned by Mr. Li or his related parties and controlled by Mr. Li for holding purpose
Type B: Owned by Mr. Lis related parties and controlled by Mr. Li for trading purpose
Type C: Owned by Mr. Lis friend
Below is the table of brokerage accounts from an internal document titled .xls (Mr. Lis
accounts.xls):

Exhibit 53: Type A Brokerage Accounts of Mr. Li
Source: .xls (Mr. Lis accounts.xls) found in China Households internal documents
We have masked the password here to prevent unauthorized access to the system. We can
observe that Mr. Li alone has 10 accounts (#1-#10 account) and his wife Wu Guanwen has 3
accounts (#11-#13). Most of the remaining people are closely related to Mr. Li. For example, Mr.
Xie Yusheng (#14-#16) is one of the subscribers for the convertible bond announced on 2015 Aug
6, and is also the shareholder and supervisor of Zhongshan New Oasis Wood Products Co. Ltd.
(), which is effectively controlled by Mr. Li and had connected
transaction with China Household before. Mr. Ruan Xinghan (#17) is the legal representative,
manager and executive director of Zhongshan City Kassade Wood Production Limited, the
subsidiary of China Household. Mr. Hong Yuan (#18-20) is the sole shareholder of Shenzhen

Dongli Supply Chain Management Limited(), a company that is
closed related to Zhongshan New Oasis Wood Products Co. Ltd, and Mr. Xie Yusheng mentioned
above is the supervisor of this company as well.
We do not observe much daily change in the position of these accounts, and we believe the main
purpose of these accounts is to hide actual holding of Mr. Li in China Household. We classify these
accounts as type A brokerage account. We will explore these accounts holding and trading
activities in later section.
We then noticed another file called .xls (Mr. Zhangs accounts.xls) with the following
accounts:
Exhibit 54: Type B Brokerage Accounts of Mr. Zhang
Name Broker Username Password
Source: .xls (Mr. Zhangs accounts.xls) found in China Households internal documents
Again, the password is masked here. We checked the trading activity of these accounts and found
that there have been extremely frequent trading activities for these accounts. We guess that these
accounts may be linked to , a company specialized in trading
security, since both and listed above has been legal representative of this company.
We believe that Mr. Li has hired this group of people to carry out wash trade so as to manipulate
stock price and create a false impression of active market in China Household. We classify these
accounts as type B brokerage accounts. The shares held by these type B brokerage accounts, alone
with the shares under type A brokerage accounts mentioned above, are described as
(Controlled Shares) in the internal document of China Household, hence we believe type A and

type B brokerage accounts are both owned by Mr. Li effectively, but only for different purposes.
We will cover this in details in later section.
We also observed some accounts marked as (Mr. Lis friend but cannot be
checked) in other files. We called these accounts as Type C brokerage account, which we believe
to be owned by friends of Mr. Li. From the huge amount of documents, we summarized the major
accounts found from the internal documents of China Household below:
Exhibit 55: Major Brokerage Accounts found in China Households documents

# Type Broker Name # Type Broker Name
1 A 47 A
2 A 48 A
3 A 49 A
4 A 50 A
5 A 51 A
6 A 52 A
7 A 53 A
8 A 54 A
9 A 55 A
10 A 56 A
11 A 57 B 88001152
12 A 58 B 88001154
13 A 59 B zh1
14 A 60 B zh2
15 A 61 B zh3
16 A 62 B zh4
17 A 63 B zhfwg
18 A 64 B zhqml
19 A 65 B zhqml
20 A 66 B zhzsj
21 A 67 B
22 A 68 B
23 A 69 B
24 A 70 B
25 A 71 B
26 A 72 B
27 A 73 B
28 A 74 B
29 A 75 B
30 A 76 B

# Type Broker Name # Type Broker Name
31 A 77 B
32 A 78 C Y
33 A 79 C
34 A 80 C
35 A 81 C
36 A 82 C
37 A 83 C
38 A 84 C
39 A 85 C
40 A 86 C
41 A 87 C
42 A 88 C
43 A 89 C
44 A 90 C
45 A 91 C
46 A 92 C
Source: Internal Documents of China Household
We observed that there are 92 major brokerage accounts (we ignore the accounts that has no
stock) in the internal documents of China Household. Almost all of the above accounts are not
disclosed to public. Why would a furniture company need 92 brokerage accounts to hold and
trade its own stock? The answer is to (i) hide controlling shareholder so as to prevent triggering
of general offer and reverse takeover, and (ii) create a false impression of active market.
Controlling over 60% of shares but disclosing only 13% of shares
There are a group of listed companies that focus on financial trick instead of real operation in
Hong Kong, and are generally called . This is a relatively unique phenomenon in Hong
Kongs market. One major characteristics of these companies are that they have no disclosed
substantial shareholder, by having friends of large shareholder to hold the shares on behalf of
him or her, with all holding below 5% and therefore no obligation need for disclosure arises.
The main benefit of having no disclosed substantial shareholder is that it can circumvent all
definitions of relevant rules in Listing Rule, Takeover Code and HKFRS, such as related-party
transaction, connected transaction, triggering of general offer, need of abstaining from voting,
etc. For example, before Mr. Li controlled China Household, China Household had no disclosed
substantial shareholder in 2012. In 2012 June, Hong Kong Exchange even required the Company
to investigate the identity of its shareholder and the Company replied that no substantial
shareholder can be identified. 13

After Mr. Li gaining control of China Household in 2013, Mr. Li has been the substantial
shareholder holding around 10-20% of China Households shares. But from the internal
documents of China Household and record of its brokerage accounts, we found out that Mr. Li
has indeed controlled over 50% of China Households share through the above accounts. For
example, on 2014 July 3, the shareholding of the above Type A brokerage accounts is as follow:
Exhibit 56: Total Number of China Households Shares held by Mr. Lis Type A Brokerage Account as
of 2014 July 31
Type Broker Name Shares
A 95,700,000
A 92,500,000
A 85,695,000
A 83,980,000
A 79,000,000
A 64,300,000
A 50,805,000
A 45,980,000
A 45,900,000
A 33,970,000
A 32,560,000
A 30,000,000
A 29,725,000
A 28,805,000
A 28,260,000
A 23,915,000
A 18,620,000
A 16,690,000
A 14,630,000
A 12,360,000
A 12,320,000
A 11,550,000
A 10,580,000
A 9,300,000
A 8,195,000
A 8,080,000
A 6,570,000
A 6,110,000
A 5,830,000

A 3,980,000
A 3,415,000
A 2,700,000
A 2,615,000
A 2,600,000
A 1,620,000
A 1,560,000
A 1,120,000
A 1,000,000
A 900,000
A 805,000
A 750,000
A 695,000
A 600,000
A 530,000
A 410,000
A 290,000
A 130,000
A 105,000
A 75,000
A 70,000
A 30,000
Total Shares held by Type A Brokerage Account 1,017,930,000
Total Issued Shares on 2014 July 31 3,122,314,964
% of Share held by Type A Brokerage Account 32.60%
Source: Internal Documents of China Household and record of brokerage accounts
We can observe that Type A brokerage account, i.e. those that are directly under the control of
Mr. Li, already accounted for 32.60% of the issued shares on 2014 July 31. However, from public
disclosure, Mr. Li only held 13.04% of share as of the same date. Using similar analysis, we also
calculated the shareholding held by Type B brokerage account and Type C brokerage account of
Mr. Li. The full details can be found in Appendix I, and here is the summary:

Exhibit 57: Total number of China Households shares controlled by Mr. Li as of 2014 July 31
Shareholding % of Issued Shares
Type A Broker Accounts' Shares 1,017,930,000 32.6%
Type B Broker Accounts' Shares 544,710,000 17.4%
Type C Broker Accounts' Shares 314,125,000 10.1%
Total Shares Controlled by Mr. Li 1,876,765,000 60.1%
Public Shares 1,245,549,964 39.9%
Total Issued Shares 3,122,314,964 100.0%
We can observe that Mr. Li has indeed controlled over 60% of China Households share as of 2014
July 31, while disclosing only holding 13.04% shares. This is a complete violation of Takeover Code
and Listing Rule by hiding the change of controlling shareholding. Since Type A brokerage
accounts are all owned by Mr. Li (the excel indicated those shares under these brokerage account
as , i.e. Shares controlled by Mr. Li ), at least all holders of Type A brokerage
account should be considered as persons acting in concert according to Takeover Code, and
therefore Mr. Li have already gained control (more than 30% of voting rights) of China Household
under the definition of Takeover Code. This would lead to the requirement of mandatory
general offer under Takeover Code. Most importantly, since the acquisition of Chang Ye
Holdings (i.e. Prado) announced on 2012 Oct 18 constituted Very Substantial Acquisition,
the change of controlling shareholder should also trigger the definition of Reverse Takeover
under Listing Rule 14.06(6). China Household should therefore be treated as new listing
applicant and go through the whole process of IPO.
Over 50% of Trading on Exchange from brokerage accounts controlled by Mr. Li
We then collected the trading record for the above brokerage accounts of Mr. Li. We noticed that
there has been numerous trading for the Type B brokerage accounts stated above. Below is the
screenshot of one of its brokerage accounts as an example:

Exhibit 58: Trading Record of one of the Type B Brokerage Accounts
Source: Trading Record of one of the Type B Brokerage Accounts
We then calculated the total trading volume and turnover from the trading activities of these
brokerage accounts, and found out that the trading volume from these accounts already account
for more than 50% of the market volume on average, and on some days almost all of the trading
can be from these accounts alone. For example, on the week of 2014 Nov 24 to 2014 Nov 28, the
summary of the trading activity of brokerage accounts controlled by Mr. Li is as follow:

Exhibit 59: Trading Activity of brokerage account controlled by Mr. Li for the week of 2014 Nov 24
Avg. Avg.
Closed Share Bought Shares Sold
Date Bought Sold
Price Bought Amount Sold Amount
Price Price
11/24/2014 0.88 8,495,000 7,380,850 0.87 7,540,000 6,528,700 0.87
11/25/2014 0.86 3,620,000 3,130,250 0.86 4,815,000 4,136,850 0.86
11/26/2014 0.86 6,995,000 5,984,950 0.86 6,040,000 5,152,000 0.85
11/27/2014 0.85 5,075,000 4,314,800 0.85 4,855,000 4,126,750 0.85
11/28/2014 0.85 4,880,000 4,136,300 0.85 6,385,000 5,396,050 0.85
Total 29,065,000 24,947,150 0.86 29,635,000 25,340,350 0.86
Source: Trading Record of Brokerage Accounts controlled by Mr. Li
The above turnover generated already constitute over 50% of the turnover during the same
period:
Exhibit 60: Volume and Turnover from Brokerage Accounts controlled by Mr. Li compared to total
Market Volume and Turnover for the week of 2014 Nov 24
Total Total
Volume Turnover
from from
Market Market % of % of
Date brokerage brokerage
Volume Turnover Volume Turnover
accounts accounts
controlled controlled
by Mr. Li by Mr. Li
11/24/2014 16,035,000 13,909,550 24,581,000 21,207,940 65.2% 65.6%
11/25/2014 8,435,000 7,267,100 32,380,250 27,629,955 26.0% 26.3%
11/26/2014 13,035,000 11,136,950 26,873,550 22,982,905 48.5% 48.5%
11/27/2014 9,930,000 8,441,550 17,832,567 15,135,079 55.7% 55.8%
11/28/2014 11,265,000 9,532,350 11,809,025 9,944,220 95.4% 95.9%
Total 58,700,000 50,287,500 113,476,392 96,900,099 51.7% 51.9%
Source: Trading Record of Brokerage Accounts controlled by Mr. Li
We can observe that on 2014 Nov 28, brokerage accounts controlled by Mr. Li already generated
over 95% of the market turnover. And on average, brokerage accounts controlled by Mr. Li
generated around 50% of the market turnover. We calculated these statistics directly from the
trading records of these brokerage accounts, which we will send to SFC separately.
Most importantly, we observed the phenomenon of wash trade between these accounts, i.e.
buying from one account and selling from another account. We believe this constitutes false
trade and price rigging under Securities and Futures Ordinance Part XIII. This can be a
criminal offense and the maximum penalty for the relevant crime is imprisonment for up
to 10 years and/or a fine of up to HK$10 million.
We will send all the above evidences, including trading records of each brokerage
accounts, to SFC. The above accusation can be easily verified by SFC such as IP address of
these brokerage accounts, and therefore it does not help much to delete these records

now. From our years of experience in security industry, we believe these evidences are
sufficient to bring proceeding to the relevant people responsible for these trading
activities. We also remind all the investors to avoid trading the shares of China Household
since the active turnover is just a delusion.
13
Source: Announcement of China Household on 2012 Jun 25

Part 6. The Aerospace Project that can Never Materialize
We have demonstrated that vast majority of China Households current business, including both
revenue and net profit, are fabricated in previous parts. Recently, China Household has been
emphasizing on a so-called aerospace-themed tourism township project (aerospace project) in
Zhongshan, and we will investigate the feasibility of this project in this part.
On 29 Oct 2016, China Household announced that it has entered into a memorandum with
Zhongheng Investment (China Shenzhou Aerospace Park), pursuant to which, the Company
indicated its intention to acquire a national 5A tourist spot under China Shenzhou Aerospace-
Themed Park Tourism Township Project, which encompasses tourism, culture and industry
element. The project was orchestrated by China Academy of Space Technology (Space Fifth
Institute) and parties to the project, with full support from Zhongshan City Government. China
Household also claimed in the announcement that the aerospace project is currently the first
aerospace-themed park and education base for science popularisation in China, which has been
included in the Thirteenth Five key construction projects in Guangdong province in 2016 and in
the major construction projects of Zhongshan City in 2016.
On 9 Dec 2016, China Household further announced acquisition of Guangdong Sunsea Yacht Club
Company Limited (Sunsea Yacht Club) from Mr. Wong Hung Chiu (Mr. Wong) at a
consideration of HK$ 1.35 billion, to be settled by issuance of convertible bonds or promissory
notes. Although China Household claimed to be acquiring aerospace-themed tourism township
project in the announcement, Sunsea Yacht Club has not conducted any businesses yet and have
not generated any revenue and profit since their incorporation. The only assets being acquired
in this transaction are four plots of land located in Shenxi Village of Shenwan Town (one of
the least developed towns in Zhongshan) that was still occupied by various villagers for
agricultural and residential uses, with no demolition and resettlement works performed and
zero commercial value as estimated by property valuer.

Exhibit 61: Description of the land in property valuation report
Source: Company circular as of 28 Apr 2017, page V-5
The management may argue that the aerospace project is still in its preliminary phase of
development. However, this aerospace project was actually initialized five years ago back in 2012,
with nothing materialized during these five years. We found numerous news articles on the
Internet about the aerospace project back in 2012 but then no progress has ever been reported
since 2013, until China Household made the voluntary announcement about this project in late
2016. We strongly doubt if a project abandoned for five years could ever be materialized under
the leadership and management of China Household, a company full of fabricated revenue and
net profit.
Another good reference on the feasibility of Zhongshans aerospace project is another similar
aerospace park project planned in Wenchang, Hainan province (Wenchang aerospace project).

Wenchang aerospace project is owned by China Aerospace Science and Technology Corporation
(CAST), parent of the China Academy of Space Technology who supports the aerospace project
in Zhongshan. Wenchang aerospace project was initiated back in 2007. After almost a decade of
efforts, CAST decided to pull out from Wenchang aerospace project in 2017 March.
If a city closely related to Chinas aerospace development like Wenchang (Wenchang has one
of the only four satellite launch centres in PRC, and the other three are located in Jiuquan of Gansu
province, Xichang of Sichuan province and Taiyuan of Shanxi province respectively) could not
complete its aerospace project after a decade, why should one expect the aerospace project
can be materialized in a town totally irrelevant to Chinas aerospace industry like Shenwan
Town in Zhongshan? Moreover, CAST directly owned Wenchang aerospace project but has
no stake in Zhongshan aerospace project. CAST will only provide support to Zhongshan
aerospace project. If the idea of aerospace project is indeed commercially feasible, CAST should
have completed the project in Wenchang, without need of pulling out of the project after a decade
of efforts. We therefore hardly see any commercial substance or feasibility in the aerospace project
proposed by China Household, and believe this is just another junk asset acquisition made by
China Household.
Reader may also question why the target company owning the lands is called Sunsea Yacht Club
as there seems to have no connection between an aerospace project and a yacht club. This is
actually another story of failed project initiated by Mr. Wong Hung Chiu, vendor in the transaction.
Back in 2012, Mr. Wong claimed that a yacht club with 650 yacht parking space, together with the
aerospace project, will be built in Modao island of Shenwan town, which would become a flagship
yacht club project in China. The yacht club project was jointly developed by Mr. Wong and a
Singaporean real estate company called Keppel Land. The project is now called Keppel Cove,
which consist of both yacht club and real estate project.
There are a total of 42 houses available for sales in phase I of Keppel Cove since 2015. But after
two years of time, only four of them were sold in 2016 with one being cancelled subsequently,
showing that the yacht club project has again turned out to be a complete failure after five years
of effort. We have retrieved SAIC filings of Sunsea Yacht Club (Zhongshan) Limited Company
(where Mr. Wong is one of the directors), the PRC company owing the yacht club and real estate
project. We found that it has only generated a revenue of RMB 50,000 in 2016, with zero revenue
from 2013 to 2015.

Exhibit 62: Sales information of Keppel Cova phase I
Source: Zhongshan Bureau of Land Resources, as of 1 Jun 2017

We have also appointed third-party investigator to visit Keppel Cove physically, and were
informed by the sales representative there that the 4 houses sold mentioned above were bought
by Mr. Wong himself and no one is currently living in Keppel Cove. After 2 years of effort, no single
third party has ever bought 1 house at Keppel Cove and you can imagine how successful Mr.
Wong is as a businessman.
China Household further disclosed in the announcement that The Board intends to invite Mr.
Wong to join the management of the Company to manage and be responsible for the
implementation and development of the China Aerospace-Themed Tourism Township Project upon
completion of the Acquisition. Given Mr. Wong disastrous track record in the past five years on
both aerospace project and yacht club, we do not think inviting Mr. Wong into companys
management is beneficial to China Household. We are not convinced that the aerospace park will
be able to be materialized after being abandoned for years.
In conclusion, the past and present of China Household is full of fabricated business, and the
future of China Household is full of unrealistic projects. We do not think China Household has any
value as a listed company, and should be suspended from trading and delisted as soon as possible
to prevent more investors being duped.

Part 7. Notorious Auditor Elite Partners
Auditors are usually the first line of defense in detecting fraudulent companies, since accountants
are able to review detailed accounting books of the company. Therefore, reputation of auditor is
a common criterion for investors to make investment decisions, and investors would generally
prefer big four as accounting firms. Although many of the fraudulent companies revealed before
were audited by big four, their reputations are still better than most other accounting firms in the
market.
We believe that the auditor of China Household, Elite Partners, was at best reckless in performing
their audit work such that they could not discover such an obvious fraud, or at worst colluding
with China Household in creating fabricated accounts. We hope SFC, or even ICAC, to conduct
investigations on the role of Elite Partners in the scam of China Household. Auditors should not
be exempted from legal liability of fabricating accounts.
Elite Partners is notorious in Hong Kong market as an auditor specializing in replacing resigned
auditors. When an auditor resigned, even with the reason of fee dispute, it generally indicates that
the listed company could not pass their internal review procedures. Elite Partners has replaced 17
Hong Kong listed companies auditors since 2016, in which more than half of them had certain
issues revealed by the former auditors explicitly:
Exhibit 63: List of listed companies with Elite Partners replacing resigned auditors since 2016
Stock Company Former
Date Reason quoted
Code name auditor
8 Jan 2016 8006 Sino Splendid BDO Fee dispute
Fee dispute (Qualified opinion given by
China Kingstone Zhonghui
11 Jan 2016 1380 Zhonghui Anda in 2013 and 2014 annual
Mining Anda
report)
Sinoref
29 Jan 2016 1020 Deloitte Fee dispute
Holdings
EY received an anonymous call alleging, and EY
found, that there were suspicious
5 Feb 2016 1190 Bolina EY
inconsistencies with respect to certain
financial information of the Company
The Company and Deloitte could not agree on
Real
22 Feb 2016 2010 Deloitte the scope of the Independent Review on the
Nutriceutical
allegations made against the Group
12 Apr 2016 8101 Jia Meng BDO Fee dispute
Code Fee dispute (Disclaimer of opinion given by
5 May 2016 8153 Baker Tilly
Agriculture Baker Tilly in 2014 and 2015 annual report)
Taking many factors into account including the
China Zenith professional risk associated with the audit,
27 Jun 2016 362 RSM
Chemical the estimated time costs that will be incurred
in the audit and the level of audit fee
Appointment not passed in AGM (HLB draw
21 Jul 2016 8202 Inno-Tech HLB
the Boards attention to the fact that the

Date Reason quoted
Code name auditor
auditors report dated 28 January 2016 issued
by HLB on the consolidated financial
statements of the Company for the year ended
30 June 2015 (the Auditors Report) was
disclaimed in respect of scope limitations in
(i) profit for the year from discontinued
operations and the disposal of subsidiaries;
(ii) impairment of goodwill and intangible
assets; (iii) transactions of the Group during
the year ended 30 June 2015; (iv)
promissory notes; (v) contingent liabilities
and commitments; (vi) events after
reporting period; (vii) related party
transactions; and (viii) opening balances
and corresponding figures. The Auditors
Report was also disclaimed for material
uncertainty relating to the going concern
basis)
11 Oct 2016 2399 China Fordoo KPMG Fee dispute
6 Dec 2016 8269 Wealth Glory Deloitte Appointment not passed in AGM
Have not received sufficient information
and explanations in relation to the
9 Dec 2016 189 Dongyue Deloitte
circumstances surrounding the suspected
misappropriation of funds
14 Dec 2016 630 United Holding BDO Fee dispute
18 Jan 2017 205 SEEC Media Deloitte Fee dispute
Fee dispute (HLB draw the Boards attention to
the fact that the auditors report dated 29
March 2016 issued by HLB on the consolidated
financial statements of the Group for the year
ended 31 December 2015 (the 2015 Auditors
Report) was disclaimed in respect of scope
limitations in (i) assets and liabilities of a
disposal group classified as held for sale; (ii)
amount due from / to holding companies of
Titan
20 Feb 2017 1192 HLB a deconsolidated jointly-controlled entity;
Petrochemicals
(iii) amount due from / to deconsolidated
subsidiaries; (iv) financial guarantee
contracts and commitments; (v) events after
the reporting period; (vi) related party
transactions; and (vii) opening balances and
corresponding figures. The 2015 Auditors
Report was also disclaimed for material
uncertainty relating to the going concern
basis)

Date Reason quoted
Code name auditor
Union Asia Fee dispute (Disclaimer of opinion given by
22 Mar 2017 8173 RSM
Enterprise RSM in 2016 annual report)
L&A
24 Apr 2017 8195 Deloitte Fee dispute
International
Source: Relevant announcements and annual reports
The above table speaks for itself about the professional standard of Elite Partners. We believe Elite
Partners were either reckless in preparing the audit reports for China Household or they were
colluding with the management in fabricating accounts. No matter which case it is, we believe
that the engagement director of Elite Partners of this audit job, Mr. Chan Wai Nam William with
Practising Certificate number P05957, should be held responsible.

Valuation and Conclusion
Given the extraordinary extent of fraud of China Household and the large amount of evidences
we collected, we believe that the only fate of China Household is to be prosecuted by SFC
and delisted from the market, just like China Metal Recycling. A valuation is unnecessary,
since its intrinsic value is zero in our opinion. We also recommend all investors to avoid
trading of China Household, since the active market is just a delusion.
We also believe the recent subscribers of China Households convertible bonds, including Mr. Luo
Jianhua, the chairman of Lanju Group, and Mr. Zeng Wenbin, the chairman of China Fujian Gaoli
Property, have the rights of reversing the subscription of the convertible bonds, if they did not
know about the truth of China Households fabricated business and stock price manipulation
before. With the only capital raising platform cut off, we also believe the grand plan of Shenzhou
Space Park Project will never come to materialize.
Moreover, with the recent regulators emphasize on the liabilities of listed companys directors, all
the directors of China Household, especially Mr. Li, Mr. Fu Zhenjun and Mr. Kuang Yuanwei should
be prosecuted (please refer to appendix J for information of fraudulent companies delisted or
suspended until now in Hong Kong market). We urge SFC to use SFO Section 390 to prosecute
the relevant officers with criminal liability (maximum penalty of 10 years of imprisonment
and a fine of HK$ 10 million) to China Households executive directors. We also urge SFC to
use SFO section 212 to wind up China Household to protect minority shareholders and
creditors, just like the case of China Meta Recycling.
Lastly we would like to restate SFCs recent reminder to all directors here14:
Heavy is the head that wears the crown
In preparing this report, we have engaged various third parties to assist us (including but not
limited to site visits). These parties worked independently of each other and were unaware of the
nature of the final report.

To us, it is of utmost importance to protect our sources and those who have assisted us. We are
in possession of certain information, which we have decided not to publish in this report given its
sensitive nature. The information has been encrypted and stored probably. If we feel the safety
and anonymity of any party has been jeopardized, we will release all sensitive information we
possess.
14
SFC Enforcement Reporter No.2, May 2017

Appendix A: Relevant disclosure about Kassades profit guarantee in 2014, 2015 and 2016


Appendix B: Income Statements of Kassade from 2014 to 2016 from SAIC filing
Cumulative amount
Zhongshan City Kassade Wood Production Limited
for the year
Revenue
Net Profit
Source: Kassades 2014 SAIC filings

Zhongshan City Kassade Wood Production Limited Cumulative amount
for the year
Revenue
Net Profit

Zhongshan City Kassade Wood Production Limited Cumulative amount
for the year
Revenue
Net Profit

Appendix C: Disclosure regarding breakdown of Wei Xin and Prados acquisition
consideration


Appendix D: Relevant disclosure about Wei Xins profit guarantee from 2014 to 2016


Appendix E: Income Statements of Wei Xin from 2014 to 2016 from SAIC filing
Zhongshan City Wei Xin Household Company Limited Cumulative amount
for the year
Revenue
Net Profit
Source: Wei Xins 2014 SAIC filing
Zhongshan City Wei Xin Household Company Limited Cumulative amount

for the year
Revenue
Net Profit

Cumulative amount
Zhongshan City Wei Xin Household Company Limited
for the year
Revenue
Net Profit

Appendix F: Relevant disclosure about Prados profit guarantee from 2013 to 2015


Appendix G: Income Statements of Prado from 2014 to 2016 from SAIC filings
Cumulative amount
Zhongshan City Prado Style Household Company Limited
for the year
Revenue
Net Profit
Source: Prados 2014 SAIC filing
Zhongshan City Prado Style Household Company Limited Cumulative amount

for the year
Revenue
Net Profit

Cumulative amount
Zhongshan City Prado Style Household Company Limited
for the year
Revenue
Net Profit

Appendix H: List of China Households subsidiaries from 2013 to 2015




Appendix I: Total Number of China Households Shares held by Type B and Type C
Brokerage Account as of 2014 July 31
Type B Brokerage Account:

B 104,760,000
B 93,985,000
B 51,765,000
B 51,550,000
B 44,930,000
B 41,015,000
B 36,935,000
B 36,390,000
B 28,080,000
B 23,780,000
B 88001154 15,860,000
B 33001152 15,660,000
Total Shares held by Type B Brokerage Account 544,710,000
% of Share held by Type B Brokerage Account 17.45%

Type C Brokerage Account:
C 66,000,000
C 40,000,000
C 33,710,000
C 33,185,000
C 25,000,000
C 22,500,000
C Y 20,000,000
C 18,500,000
C 15,000,000
C 12,000,000
C 10,200,000
C 8,200,000
C 5,000,000
C 4,830,000
Total Shares held by Type C Brokerage Account 314,125,000
% of Share held by Type C Brokerage Account 10.06%

Appendix J: Fraudulent companies delisted or suspended until now in Hong Kong market
Suspension
Stock Start Date of Delist Date
# Company Name Ordered by SFC
Code Suspension (if applicable)
(if applicable)
Tungda Innovative
1 8229 29 Jul 2004 17 Dec 2013
Lighting15
2 389 Moulin Global Eyecare16 18 Apr 2005 9 Jul 2007
3 502 Pan Sino International 30 Apr 2007 19 Sep 2011
4 304 Peace Mark 18 Aug 2008 29 Jul 2011
5 946 Hontex International 30 Mar 2010 30 Mar 2010 23 Sep 2013
6 462 Natural Dairy 17
7 Sep 2010
7 930 China Forestry 26 Jan 2011 24 Feb 2017
8 3868 Qunxing Paper 30 Mar 2011 20 Dec 2013
9 246 Real Gold Mining 27 May 2011 28 Jun 2016
10 761 Bel Global Resources 4 Jul 2011
11 909 Zhongda International 5 Sep 2011
12 1116 Mayer Holdings 9 Jan 2012
13 1698 Boshiwa 15 Mar 2012
14 1007 Daqing Dairy 22 Mar 2012
15 2468 Trony Solar 21 Jun 2012
16 773 China Metal Recycling 28 Jan 2013 4 Feb 2016
17 1863 Sijia Group 14 Feb 2013 4 Dec 2014
18 828 Dynasty Fine Wines 22 Mar 2013
19 3335 DBA Telecommunication 6 Jun 2013
20 155 China Solar Energy 16 Aug 2013
21 67 China Lumena 25 Mar 2014
22 1998 Flyke International 31 Mar 2014
23 2123 Golden Shield Holdings 1 Apr 2014
24 1187 Pearl River Tyre 1 Apr 2014
25 1163 Dejin Resources 16 May 2014
26 948 Z-Obee Holdings 27 Jun 2014
27 1353 Fujian Nuoqi 23 Jul 2014
28 1073 China Agrotech 18 Sep 2014
29 1228 Superb Summit 20 Nov 2014 15 Dec 2015
30 2078 PanAsialum Holdings 17 Dec 2014
31 873 China Taifeng Beddings 26 Feb 2015
32 967 Sound Global 13 Apr 2016 13 Apr 2016
33 1619 Tianhe Chemicals 26 Mar 2015 25 May 2017
34 1399 SCUD Group 26 Mar 2015
35 940 China Animal Healthcare 30 Mar 2015
36 1149 Anxin-China 1 Apr 2015

Suspension
Stock Start Date of Delist Date
# Company Name Ordered by SFC
Code Suspension (if applicable)
(if applicable)
37 2889 China Nickel Resources 1 Apr 2015
38 233 Mingyuan Medicare 1 Apr 2015
39 8306 China Nonferrous Metals 1 Apr 2015
40 566 Hanergy 20 May 2015 15 Jul 2015
41 1318 Greens Holdings 2 Jun 2015
42 1174 Pacific Andes 26 Nov 2015
43 2229 Changgang Dunxin 20 Jan 2016 18 May 2017
44 846 Mingfa Group 1 Apr 2016
45 307 Up Energy Development 30 Jun 2016
National United
46 254 1 Aug 2016 5 Aug 2016
Resources
47 2228 CECEP COSTIN 15 Aug 2016
48 1819 Fuguiniao 1 Sep 2016
49 587 Hua Han Health 27 Sep 2016
50 73 Asian Citrus 29 Sep 2016
51 3777 China Fiber Optic 13 Oct 2016 13 Oct 2016
52 1378 China Hongqiao 22 Mar 2017
53 2698 Weiqiao Textile 22 Mar 2017
54 6863 Huishan Dairy 24 Mar 2017 8 May 2017
Source: Company Announcements
15
Chairman of Tungda Innovative Lighting and his brother were found guilty for conspiracy to defraud
under trial in absentia (both of them had absconded), and were sentenced to 12 years and 10.5 years of
imprisonment respectively. His brother returned to Hong Kong afterwards due to financial difficulty
16
Chairman of Moulin Global Eyecare and his son were found guilty for conspiracy to defraud, and were
sentenced to 12 years and 10 years of imprisonment respectively
17
Joint chairman of Natural Dairy was found guilty for conspiracy to defraud and money laundering, and
was sentenced to seven years and nine months of imprisonment

Disclaimer
This document is for distribution only as may be permitted by law. It is not directed to, or intended for distribution to
or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction
where such distribution, publication, availability or use would be contrary to law or regulation or would subject Blazing
Research to any registration or licensing requirement within such jurisdiction. It is published solely for information
purposes; it is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to
participate in any particular trading strategy. No representation or warranty, either expressed or implied, is provided in
relation to the accuracy, completeness or reliability of the information contained in this document ("the Information").
The Information is not intended to be a complete statement or summary of the securities, markets or developments
referred to in the document. Blazing Research does not undertake to update or keep current the Information. Any
opinions expressed in this document may change without notice. Any statements contained in this report attributed to
a third party represent Blazing Research's interpretation of the data, and such use and interpretation have not been
reviewed by the third party.
Nothing in this document constitutes a representation that any investment strategy or recommendation is suitable or
appropriate to an investors individual circumstances or otherwise constitutes a personal recommendation. Investments
involve risks, and investors should exercise prudence and their own judgement in making their investment decisions.
The financial instruments described in the document may not be eligible for sale in all jurisdictions or to certain
categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these
instruments is considered risky.
The value of any investment or income may go down as well as up, and investors may not get back the full (or any)
amount invested. Past performance is not necessarily a guide to future performance. Neither Blazing Research nor any
of its employees or agents accepts any liability for any loss (including investment loss) or damage arising out of the use
of all or any of the Information.
Blazing Research currently does not, and will not, have any long or short positions on China Household, and therefore
Blazing Research is unable to realize any gain by changes in share price of China Household.
Any prices stated in this document are for information purposes only. There is no representation that any transaction
can or could have been effected at those prices.
This document and the Information are provided to you solely for general background information. Blazing Research
has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. In
no circumstances may this document or any of the Information be used for any of the following purposes:
(i) valuation or accounting purposes;

(ii) to determine the amounts due or payable, the price or the value of any financial instrument or financial contract; or
(iii) to measure the performance of any financial instrument.
By receiving this document and the Information you will be deemed to represent and warrant to Blazing Research that
you will not use this document or any of the Information for any of the above purposes or otherwise rely upon this
document or any of the Information.
Research will initiate, update and cease coverage solely at the discretion of Blazing Research, which will also have sole
discretion on the timing and frequency of any published research product. The analysis contained in this document is
based on numerous assumptions which may not be necessarily realistic.

China Household Initial Coverage 20170622 EN

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

China Household Initial Coverage 20170622 EN

Hochgeladen von

Copyright:

Verfügbare Formate

Summary

In this research report, we present concrete evidences China Household

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

4. Numerous red flags on fabricated cash

5. Stock price manipulation with over 90 brokerage accounts

6. The aerospace project that can never materialize

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 1: Financial Summary of China Household from 2013 to 2016

Net Income 154,161 -861,115 -1,087,952 -341,609

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 2: Details of acquisitions of the six PRC incorporated subsidiaries

Zhongshan City Polar Sunshine Company Limited (Polar Sunshine)

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: China Household 2014 Annual Report, Page 105

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: Company announcements as of 30 Apr 2014

In subsequent announcements, China Household disclosed that Polar Sunshine successfully

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: China Household 2014 Annual Report, Page 78

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: China Household 2015 Annual Report, Page 74

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: China Household 2016 Annual Report, Page 87

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: Guangdong Electronic Taxation Bureau, http://www.etax-gd.gov.cn/xxmh/html/index.html

Zhongshan City Kassade Wood Production Limited (Kassade)

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 14: Disclosure regarding breakdown of Kassades acquisition consideration

Source: China Household 2014 Annual Report, Page 103

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: Company announcements as of 13 May 2013

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Again, Kassade has also not paid its tax on time:

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: Guangdong Electronic Taxation Bureau, http://www.etax-gd.gov.cn/xxmh/html/index.html

Zhongshan City Wei Xin Household Company Limited (Wei Xin)

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 19: Profit Guarantee of Wei Xin

Source: Company announcement as of 7 August 2013

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: Guangdong Electronic Taxation Bureau, http://www.etax-gd.gov.cn/xxmh/html/index.html

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

According to the announcement, Prado is principally engaged in trading of wooden home

Exhibit 23: Profit Guarantee of Prado

Source: Company announcement as of 18 October 2012

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Source: Guangdong Electronic Taxation Bureau, http://www.etax-gd.gov.cn/xxmh/html/index.html

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Shannxi Tai Sheng Da Mining Company Limited (Tai Sheng Da)

Exhibit 27: Impairment of exploration asset (HK$ 000)

Exhibit 28: Disclosure about mining business

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 30: Composition of consideration of above mentioned acquisitions (HK$ 000)

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch

Exhibit 31: List of China Households subsidiaries in 2016

Website: www.blazing-research.com / Email: blazing.research.m@protonmail.ch