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In this rebuttal report, we present concrete evidence proving that most of the online SME clients

claimed by Cogobuy does not exist. Both website platform ( and and
mobile platform of Cogobuy has minimal amount of traffic. We also show that the clarification
report of Cogobuy to be self-contradictory. For example, the data source selected by Cogobuy in
its clarification report indicated that its website ranking is almost the lowest among its peers. For
SAIC filings, Cogobuy explained that the discrepancy is due the large portion of revenue
generated in Hong Kong. We continue the discussion on revenue mix in our first report and
conclude that it is impossible for an online platform focusing on SME clients to have majority of
revenue coming from Hong Kong. We found the behavior of online SME clients to be so
mysterious that we can only conclude Cogobuy has successfully developed a new unique business
model of “B2G”.

Part 1. A Paradox: The Largest E-Commerce IC Platform with the Smallest Traffic

In the first report, we present concrete evidences provided by leading online competitive
intelligence providers showing the minimal amount of traffic on Cogobuy’s website, followed by
our investigation on various malfunctions of both and The Company
has basically two major arguments in the various media interviews or conference calls, which are:
(a) most of the GMV is incurred through the mobile application 1 and (b) large parts of the
transaction are conducted offline2. In the clarification report, besides the substantial portion of
unrelated self-descriptions on its unique business models, it also tries to refute our traffic
estimation, claiming that we “maliciously described the lowest traffic per day as monthly traffic”.
We will answer these rebuttals one by one in the following.

(a) A Mobile Platform that has minimal amount of traffic and lacks maintenance

After our exposure on the website platform of, Chairman Mr. Jeffery Kang (“Mr.
Kang”) claimed that “actually most of our business demand order comes from mobile application
and we have already described it in IPO”3. This answer is well within our expectation, since the so-
called mobile application is just a WeChat official service account called “Cogobuy Cloud”, and
traffic seems to be hard to estimate for such an account.

Before showing you the reality of its mobile application, we would like to point out that it is hard
to comprehend how “an iconic ‘‘Internet Plus’’ concept company listed in Hong Kong” (taken from
clarification report) could have majority of its business coming from a WeChat account instead of
Internet. We also found it contradictory to common sense that a WeChat account can generate

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most of the RMB 21.65 billion of GMV in 2016. We therefore started our investigation on this
mysterious WeChat account of Cogobuy:

Exhibit 1: Screenshot of Cogobuy Cloud

To better enjoy Cogobuy’s service, please select the areas that
you are interested or concerned on

Source: Cogobuy Cloud WeChat Account as of 2017 May 24

We then tried to click in “the areas that you are interested or concerned on” with the following

Exhibit 2: Screenshot of Cogobuy Cloud’s “the areas that you are interested or concerned on”

Source: Cogobuy Cloud WeChat Account as of 2017 May 24

We hope that Cogobuy can fix these kinds of low-level errors before using the WeChat Account
as an excuse. We found that the styles of and Cogobuy Cloud are extremely similar:

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full of low-level errors and without any proper maintenance. For example, if you click the “Payable
Information” under “Order Query”, you will get:

Exhibit 3: Screenshot of Cogobuy Cloud “Payable Information” under “Order Query”

Source: Cogobuy Cloud WeChat Account as of 2017 May 24

According to our IT consultant, the reason for the above error is that the WeChat program hosted
by Cogobuy does not give any responds to the WeChat query. We do not want to reiterate other
bugs here, since this is a research report instead of a testing report. Such an elementary platform
can be easily developed by an IT graduate within a month, according to our IT consultant.

By the time you read this report, we believe that most of these bugs have already been fixed
(hopefully). But still, we encourage readers to go explore this Cogobuy Cloud and comprehend
Cogobuy’s source of imagination for its billions of GMV.

Management may argue that a poorly-designed platform may not necessarily lead to low traffic.
To estimate the real traffic or subscribers of Cogobuy Cloud, we can use the number of readers
for each posts of Cogobuy Cloud. WeChat Official Accounts allow companies to publish posts to
the subscribers. For example, one of the invited guest in Cogobuy’s conference call stated that he
would read posts offered by Cogobuy Cloud.4 The number of readers and comments are shown
on each of these posts, and we can therefore indirectly estimate the traffic or the number of
subscribers for Cogobuy Cloud through the number of readers.

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Exhibit 4: Screenshot of one of the posts offered by Cogobuy Cloud

Source: Cogobuy Cloud WeChat Account as of 2017 May 24

For example, we see that there are 83 readers for this post as of 2017 May 24. The historical posts
posted by Cogobuy Cloud can be found on the historical post page of its WeChat account. Below
are the posts posted by Cogobuy Cloud from the last three months since March:

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Exhibit 5: Cogobuy Cloud’s posts from 2017 March to 2017 May 24
Number Number
Post Date Headline
of Readers of Like
2017 May 19 硬蛋推进 AI 平民化 人人都 DIY 人工智能应用 215 2
聚投 100 每周项目推介|虚拟遥控器、智能配
2017 May 19 70 0
IN 头条一周要闻|勒索病毒获高额赎金 淘票票
2017 May 19 62 0
总监出任街电 CEO
2017 May 19 硬蛋主辨投资人分享会 5.25 于深圳亮相 65 0
2017 May 15 342 0
IN 头条一周要闻|易到获网约车牌照 刘强东晒
2017 May 12 313 2
机械人走路爱碰壁?5 家定位导航供货商让它
2017 May 12 63 0
Microsoft Azure: 低成本高效率 摩拜单车都在
2017 May 12 101 1
聚投 100 每周项目推介|孕诺助孕耳塞、智能
2017 May 12 73 0
全球人工智能技术大会 5 月 21 日与您相约北
2017 May 12 102 0

Average 140.6 0.5
Source: Cogobuy Cloud WeChat Account as of 2017 May 24

Since we expect Cogobuy would soon arrange people to “read” these WeChat posts to increase
traffic, we suggest you to check on these posts as soon as possible. The average number of readers
of Cogobuy Cloud is merely 140.6. Would it be possible for an application with billions of GMV to
only have around hundred readers for its posts? Most importantly, there has been absolutely no
posts between 2017 Jan 16 and 2017 May 12:

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Exhibit 6: Cogobuy Cloud’s historical post page

2017 May 12

2017 May 12

2017 May 12

2017 Jan 16

Source: Cogobuy Cloud WeChat Account as of 2017 May 24

Management may argue that since Cogobuy is a B2B platform, we cannot use common sense
such as reader amounts to evaluate a mobile platform. Therefore, to fully address Cogobuy’s
concerns, we also retrieved the reader figures of posts from its competitor ICKey, which is clearly
a B2B platform:

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Exhibit 7: ICKey’s posts from 2017 March to 2017 May 24
Number Number
Post Date Headline
of Readers of Like
云汉芯城是个好苗子: 真流量、真交易、真盈
2017 May 23 1,472 46
2017 Apr 27 FUTURE 货源低至 7 折,再送京东卡 523 8
2017 Apr 27 355 2
(富昌 Q2 市场行情解读)
2017 Apr 6 云汉芯城签约 Maxim 官户授权代理 1,705 22
云汉芯城领秀慕尼黑上海电子展 树立行业创
2017 Mar 21 616 15
型号搜索官方中文版首发: 参数、替代型号、
2017 Mar 21 172 2
2017 Mar 15 云汉芯城网红引爆慕尼黑上海电子展 1,293 15
2017 Mar 15 当 TA 收到这个通知时懵圈了… 1,065 1
2017 Mar 13 1,223 21
Average 936.0 14.7
Source: ICKey WeChat Account as of 2017 May 24

We observed that the average number of readers of ICKey is 6 times more than that of Cogobuy
Cloud. Since Cogobuy Cloud can generate billions of GMV with just hundreds of readers, we
expect ICKey WeChat Account to generate a huge GMV as well. However, according to an
employee of ICKey:

“Currently 100% of orders and traffics of ICKey comes from website platform and we do not have
orders from mobile platform. Our mobile WeChat account “ICKey” is mainly used for releasing
information on exhibition or sales discount only, and has no order function. Electronic components’
product number has numerous alphabetical characters, numbers and symbols that is not suitable to
be enquired through mobile platform”.

We hope the management to fully explain how Cogobuy Cloud can account for majority of
the revenue while its traffic is only one-sixth of ICKey’s mobile platform, which even does
not have order function. We also hope the management to fully explain the reason for the
lack of maintenance of Cogobuy Cloud for nearly four months.

(b) Large parts of the transaction are conducted offline

In a conference call hosted by Cogobuy, the management has invited some blue-chip suppliers
and customers to support Cogobuy. Most of them said that large part of the businesses is

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conducted offline, therefore cannot be verified by online traffic.5 For example, a management
from Broadcom stated:

“Our business with Cogobuy are all traditional distributor business which come from offline. We do
not know about the online portion. We do not have any online businesses with Cogobuy.”6

We would like to point out that we have never attacked Cogobuy on its offline blue-chip clients
but only the online SME clients in our first report. We believe Cogobuy is only a traditional
offline distributor for blue-chip clients, and it has clearly nothing to do with Internet. In
order to gain a high valuation, Mr. Kang first re-packaged these blue-chip clients with the online
concept, then creating the mysterious portion of SME which supposed to be the rapid driver of
Cogobuy’s recent growth. If Cogobuy is merely an offline distributor, how is it possible to
enjoy such a high growth rate and popularity among SME? Most importantly, why should
Cogobuy enjoy such a high premium compared to its peers which is trading at only around
10x P/E?

We here reiterate the reasons stated by Cogobuy on its high growth rate from our first report,
and let the readers to decide the genuineness of these high growth.

Exhibit 8: Reasons explained by management for high growth rate
Revenue Net Profit
The increase was primarily due to the
development of the growth of sales of
The increase of profit was primarily due
2016 IC and other electronic components
to increase of revenue.
driven by the one-step services from
the online platform.
The increase was primarily due to the The increase was primarily due to an
strong growth in product sales increase in direct sales revenue and an
especially in sales to new SME increase in sales through our
customers. marketplace platform.
The increase in our revenue was primarily
The increase was primarily due to an
due to organic growth in the sales
increase in direct sales revenue and an
2014 volume driven by our online platform
increase in sales through our
and the increase in number of
marketplace platform.
transactional customers.
Source: Cogobuy’s annual reports

(c) Self-contradictory Traffic Data from

In the clarification reports, Cogobuy used traffic data from instead of using
the two global leading traffic data provider Alexa (under Amazon) and SimilarWeb as we have
used in the first report. Here is the screen-shot of on

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Exhibit 9: ranking on

Improve World Ranking within three days [Improve Now]

Web Traffic Estimation: According to Alexa Ranking to estimate website IP & PV. The below statistics is only for reference,
and is adjusted based on website user type and portion. [If you would like to correct the figures, please contact us]

Source:, as of 2017 May 29

As shown in the image above, this website claims to use ranking from Alexa to estimate web traffic
data. Moreover, in its description page, it also claims itself rank within the top 500 websites in
Alexa ranking, showing its confidence and reliance on Alexa data. One may easily ask, why would
Cogobuy adopt this website as reference instead of Alexa ranking directly, which we have used in
our report? The answer may already be included in the image above. We suggest readers to visit, the official website of Alexa, to verify our claim that has
almost the lowest ranking among its competitors, as stated in our first report.

Still, since is recommended by Cogobuy, we also tried to use it to compare
Cogobuy with its peers. But first, let us restate the relevant part of Cogobuy’s clarification report
here, which is the most fabulous part of the whole report in our opinion:

“The Report maliciously described the lowest traffic per day as monthly traffic. The estimated
monthly traffic of 210,000 was around 39 times of the 5,400 stated in the Report and much higher
than that of other purported peer companies (such as and quoted in the

Firstly, it should be and instead of and Secondly,
we have never included in our report and we do not understand why it suddenly
becomes a “purported peer companies quoted in the Report”.

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Thirdly, let us see how’s traffic is “much higher than that of other purported peer
companies (such as and”:

Exhibit 10: Estimated Traffic per day from in 2017
21th 20th 19th 18th 17th
week week week week week 262,800 47,900 50,000 53,400 57,500 54,000 109,600 21,200 16,300 18,000 23,900 30,200 91,600 18,600 20,800 13,200 22,500 16,500 45,300 9,400 7,500 6,800 10,900 10,700 30,970 6,260 6,130 5,700 7,310 5,570 25,100 3,800 1,800 3,500 13,800 2,200 12,290 2,400 3,150 1,360 2,630 2,750 1,950 750 n.a. 750 450 n.a.
Source:, as of 2017 May 29

Readers are encouraged to verify the above traffic data on

Technically speaking, Cogobuy is correct in stating the above sentence, but you can understand
a lot about the integrity and skill in distortion of fact of Cogobuy’s management from just this
sentence and the above table.

Except, all the above are the peers that we have stated in Exhibit 2 of our first report.
Cogobuy has been stating frequently that we should not use B2C perspective to evaluate a B2B
company, but we would like to point out that we have never compared Cogobuy to any B2C
companies and all the companies listed above are B2B company selling electronic products.

Let take a closer look on the data. The target revenue of in 2016 is RMB 100 mn, and revenue is RMB 1 bn in 2016. It is nothing strange that Cogobuy, with a supposed revenue
of RMB 12.93 bn in 2016, to have a traffic higher than, but how can Cogobuy
explain its difference in traffic compared to, and other peers such as
According to Cogobuy’s prospectus, its market share in transaction-based market for IC and
electronic components is 55.1% in 2013, while that of is only 5.6%.

Even in the extreme case of only 10% of Cogobuy’s revenue coming from online, the online
revenue of Cogobuy is still larger than, and therefore Cogobuy should still have a higher
traffic compared to With a same B2B model, we are curious that how can Cogobuy attract
so many invisible business clients that leave no records on both the website or mobile platform.
We have to admit that this is indeed a very unique business model of Cogobuy by serving invisible
clients online.

To conclude with, by using Cogobuy’s own source of data, we also come to the conclusion
that’s traffic rank almost the lowest among its peer competitors. We found

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the clarification report completely self-contradictory, and can conclude that the online
business of Cogobuy is completely fabricated.

Moreover, we have never “maliciously described the lowest traffic per day as monthly traffic”. The
5,400 monthly visitors figures are taken directly from SimilarWeb, another leading international
traffic data provider, instead of the recommended by Cogobuy. We have
already stated the source of our reference clearly in our first report. Reader can try to verify the
5,400 monthly visitors figures in this link:

Although it is very clear to us that the data shown in the website is monthly figures, we nonetheless
contact the support of SimilarWeb for clarification, with the following response:

Exhibit 11: Response of SimilarWeb on definition of Total Traffic

We hope the management of Cogobuy to further clarify the meaning of “maliciously described the
lowest traffic per day as monthly traffic”. We used two globally leading online ranking and traffic
data providers, and has stated the source clearly in our Initial Coverage report. But Cogobuy just
randomly found a website to claim that we maliciously described the lowest traffic per day as
monthly traffic, and the data of that website is even contradictory with Cogobuy’s own clarification
announcement. We let readers to evaluate Cogobuy’s creditability here.

Update of Website and Operational Failures

In the clarification reports, Cogobuy stated:

“The Company therefore believes that updates to the appearance of the front page are neither
necessary nor desirable”

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Since all the websites are archived, Cogobuy can only admit that it has indeed not updated its
front page for years. The selected products recommended on front page are mostly outdated or
obsoleted, but the management find the updates “neither necessary nor desirable”. Well, we let
the reader to decide on this case.

For operational failure, there is another blatant lie:

“Although the upgrades and encryption did result in certain impairments of, the most
parts of the website remained in full operation for most geographic areas.”

As advised by our IT consultancy, it is extremely rare for a website that can be down for certain
geographical areas while operating for other geographical areas. We hope the management to
disclose how it comes to this conclusion, by explaining the location of these working
“geographical areas”. But we can assure you that most, if not all, of the geographical areas
cannot access for that whole week in April. Since we are located overseas, we
have asked some of our mainland friends to further verify that whether is instead
having operation failure at that time, and their answer is all the same.

Moreover, as we have shown in first report, the website administrator of even does
not know how to properly set up a basic website security. We found it amazing that there is a
coincidental upgrade on “uniform SSL encryption and an accelerated content distribution network
(CDN)” at that period.

Besides the above questions, we also hope the management of Cogobuy to fully respond to the
below unanswered questions as stated in our first report:

Why can’t we find the recent IC products such as iNAND Series on the website, while almost all
other platforms return with detailed results?

Why does Cogobuy have almost no response on our accusations on, especially the
part on IngDan Supply Chain, except repetition of IngDan’s description? How does the RMB 5,185
mn GMV of IngDan come from? How can there be such a large discrepancy between disclosed
projects number and the number of projects on the website?


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Part 2. Significant Discrepancy in SAIC filings

Although Mr. Kang repeatedly told media that our SAIC filing figures are inaccurate and source of
SAIC filing is unreliable, we noticed that Cogobuy’s clarification report does not have any rebuttal
on the accuracy of the SAIC figures we presented. Instead, Cogobuy chose to claim that the
discrepancies are due to revenue generated in Hong Kong, with PRC only accounting for 4% to
8% of revenue from 2014 to 2016. We have already prepared for this explanation and has
explained why such a ratio would be unreasonable for an online platform focusing on SME clients
in our initial coverage report, but Cogobuy did not have any response to our analysis. We
therefore would reiterate the summary of our analysis here:

In order to reduce administrative costs in import, a large portion of genuine SME clients would
prefer settling the transactions in PRC instead in Hong Kong. For blue-chip clients, as they have
the ability to establish offshore companies, they would prefer settling the transaction through
Hong Kong companies for tax saving purpose. To understand the revenue mixture, here we
reiterate the revenue mix of ICKey, a close comparable with Cogobuy that focus on online SME
clients. We found that ICKey has more than 60% of settlement in the PRC, instead of the single-
digit figure reported by Cogobuy.

Exhibit 12: IC Key’s proportion of revenue in China
2013 2014 2015
IC Key’s disclosed sales figures (RMB million) 57 173 500
IC Key’s SAIC reported sales figures (RMB million) 57 1447 3288
Proportion of Sales in PRC 100% 83% 66%
Source: IC Key’s website and relevant SAIC filings

Before issuing our initial coverage report on Cogobuy, we already expect that Cogobuy may use
significant amount of revenue generated in Hong Kong as explanation. In order to examine the
reasonableness of such revenue mix, we have also retrieved SAIC filings of the PRC incorporated
subsidiaries of S.A.S. Dragon (SEHK: 1184), an offline traditional IC distributor in China with no
online trading platform, beforehand. As expected, the majority of the revenue of S.A.S. Dragon is
from offshore since it focuses on blue-chip clients and offline business:

Exhibit 13: S.A.S. Dragon’s proportion of revenue in China
S.A.S. Dragon’s sales to PRC clients (RMB million) 7,143
S.A.S. Dragon’s SAIC reported sales figures (RMB million) 2839
Proportion of Sales in PRC 4%
Source: S.A.S. Dragon’s website and relevant SAIC filings

The above comparison clearly indicates the difference in revenue mix between an online IC
distributor focusing on SME clients (ICKey) and an offline IC distributor focusing on blue-chip
clients (S.A.S. Dragon). Undoubtedly, according to the disclosure by Cogobuy in their clarification
announcement, the business model of Cogobuy is extremely similar to S.A.S. Dragon and far away

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from that of IC Key, a real online distributors facing SMEs. We seriously question the portion of
genuine SME client in Cogobuy’s revenue mixture.

Cogobuy: The Largest B2G IC E-Commerce platform in China

However, according to Cogobuy’s annual reports, over 60% of Cogobuy’s revenue comes from
these online SME, and is the major driver of Cogobuy’s rapid growth. Combined with our previous
analysis, we found the behavior of these online SME to be highly suspicious. Here is the summary
of their characteristics:

- They prefer to settle in Hong Kong and imports the products back to PRC instead of
purchasing directly in PRC to save administrative cost
- They found that the “one-stop” platform provided by an outdated, unstable and poorly-
designed online platform,, to be very attractive and is the major reason for
choosing Cogobuy
- Even purchasing IC is usually in a bulk amount, they prefer to place orders through an
elementary WeChat account and type long product number on WeChat instead
- They are almost invisible and leave no traffic records in both online platform and mobile
- The number of them are increasing rapidly and contributed more and more of revenue to
Cogobuy every year, but contribute almost no cash flow to Cogobuy
- This phenomenon is unique to Cogobuy and cannot be observed in all other B2B platforms

To us, the strange behavior of these invisible SMEs are more like ghost instead of real customers.
Cogobuy has always accused other of not understanding its unique business model when being
questioned. We think that Cogobuy indeed has already exceeded the peer model of B2B and
developed a unique business model of B2G (“Business-to-Ghost”), which we have to admit that
we cannot understand. Maybe only Mr. Kang is able to understand and operate the largest B2G
IC platform in China.

A Conservative Valuation according to Cogobuy’s Disclosure

Given the concrete evidences we presented above and Cogobuy’s disclosure, we believe that it is
crystal clear that the online business of Cogobuy does not exist at all. A difference in business
model would inevitably lead to difference in valuation given by the market. While Cogobuy enjoys
a high valuation by claiming itself to be an “online distributor” for years, traditional offline IC
distributor doesn’t enjoy such a high valuation. S.A.S. Dragon is currently trading at a 2016
adjusted10 P/E multiple of only 7.9x. Even if you believe that Cogobuy’s revenue and net profit are
not fabricated (which we absolutely don’t), the fair value of Cogobuy’s share is just HK$2.90, still
implying a 63% downside from HK$7.8 (the share price before its trading being halted).

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Exhibit 14: Valuation of Cogobuy assuming no fabrication in revenue and net profit
Cogobuy’s profit attributable to equity shareholders in 2016 (RMB million) 479
P/E ratio 7.9x
Cogobuy’s market cap (RMB million) 3,784
Implied share price (RMB) 2.55
Implied share price (HKD) 2.90

However, we would like to reiterate that (i) the online SME portion of Cogobuy, which
accounts for over 60% of the revenue does not exist and (ii) as the high margin of Cogobuy
is due to its SME clients, a large portion of net profit is also fabricated. Therefore, we
maintain our target price of HKD 0.53 as stated in our initial coverage report.

Consist of RMB 129 million of sales from Shanghai Yunhan Electronics Company Limited (the major PRC
operating subsidiary of IC Key) and RMB 15 million of sales from Shanghai Shouxin Electronics
Technology Company Limited (subsidiary of Shanghai Yunhan Electronics Company Limited)
Consist of RMB 289 million of sales from Shanghai Yunhan Electronics Company Limited (the major PRC
operating subsidiary of IC Key), RMB 37 million of sales from Shanghai Shouxin Electronics Technology
Company Limited (subsidiary of Shanghai Yunhan Electronics Company Limited) and RMB 2 million of
sales from Shenzhen Hanyun Electronics Company Limited (subsidiary of Shanghai Yunhan Electronics
Company Limited)
Consist solely of sales from S.A.S. Electronic Technology (Shenzhen) Limited Company
Profit adjusted by excluding the effect of “Net increase in fair value of investment properties” and
“other gains and losses”

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Part 3. Unparalleled financial performance of Cogobuy

As discussed in our previous report, Cogobuy always attributes its significant growth in revenue
and net profit to the development of online platform and SME clients. After proving that both of
its online platform ( and and mobile platform are only fabricated
packaging to increase valuation, and Cogobuy’s customers and suppliers claiming most, if not all,
of the businesses are conducted offline as stated previously, all the reasons quoted in annual
reports does not stand anymore.

Without a powerful online platform attracting SME clients, there’s no way that Cogobuy’s revenue
and net profit could grow so fast in the past few years. A comparison between Cogobuy and S.A.S.
Dragon would be very indicative on the credibility of Cogobuy’s growth story.

Exhibit 15: Revenue Growth Rate of Cogobuy and S.A.S. Dragon




38% 37%

0.0% -2% 6%
2014 2015 2016

Cogobuy Group S.A.S. Dragon

Source: Respective Annual Reports

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Exhibit 16: Adjusted Net Income Growth Rate of Cogobuy and S.A.S. Dragon

160% 143%
100% 75%
60% 39%
0% 23%
-20% 2014 2015 2016
-40% -19% -19%

Cogobuy Group S.A.S. Dragon

Source: Respective Annual Reports
Note: S.A.S. Dragon’s net profit is adjusted by excluding the effect of “Net increase in fair value of investment
properties” and “other gains and losses”

In view of the above two charts, readers would easily realize that Cogobuy is reporting a much
higher growth rate in terms of both revenue and net profit than S.A.S. Dragon. Given that both
companies are offline IC distributors focusing on blue-chip clients (as proven by their similar
revenue mix), a steady growth rate like that of S.A.S. Dragon would be much more reasonable. It
is impossible for Cogobuy, an offline IC distributor focusing on blue-chip clients, to have such a
high growth rates. We believe most of the recent rapid growth of Cogobuy is fabricated.

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Part 4. RMB1.9 billion of Disappeared Cash

In our initial coverage report, we calculated that there has been a RMB 1.9 billion difference
between net income and adjusted cash flow. The Company responds by first stating in clarification

“There is a discrepancy between many figures cited in the Report and that disclosed by the Company“

without any further elaboration on the location of the discrepancy. Then the Company just stated
that the figure of “Non-GAAP operating cash flow” for 2016 is positive RMB285.4mn, a RMB
854.9mn difference with the reported cash flow from operating activities. Instead of using figures
from accountant reports, the Company just stated a “Non-GAAP” figures which is not an audited
figure. In contrast, all of our figures are from financial statements in annual reports of Cogobuy,
which is “in accordance with all applicable Hong Kong Financial Reporting Standards” as Cogobuy
points out. Then, the Company stated its cash flow statement in the clarification report again
which has completely no use since it can be found in its annual report, and is also the basis of our
calculation. Before we answering the Company’s response one by one, we would like to remind
Company and KPMG to draft a professional response instead of putting useless information
in a clarification report.

(a) There is a discrepancy between many figures cited in the Report and that disclosed by
the Company

Even though we have stated clearly the adjustment method in our Initial Coverage Report, the
Company seems unable to understand the simple calculation. Here we will explain our calculation
step-by-step to facilitate the understanding of Cogobuy on its own financial statement. All figures
stated here are extracted from audited reports disclosed by Cogobuy:

Exhibit 17: The calculation on the difference between adjusted net cash flow from operation and
net income (‘000 RMB)
Change in bank
in Change loans
amount in used for
due amount supply Change Adj. Net
Net Cash from a due to a chain in loans Cash Flow
Flow from related related financing to third from Net
Operations party party business parties Operations Income Difference
(A) (B) (C) (D) (E) (F) (G) (H)
2016 -569,525 0 0 421,413 -522,992 -467,946 509,607 977,553
2015 349,671 0 0 538,268 -68,125 -120,472 366,481 486,953
2014 231,868 101,553 0 260,405 -208,629 78,539 209,970 131,431
2013 -26,269 -96,682 54,665 0 0 15,748 86,565 70,817
2012 -406,369 -624 -333,303 0 0 -72,442 33,813 106,255
2011 -56,335 0 42,766 0 0 -99,101 26,824 125,925
Total -476,959 4,247 -235,872 1,220,086 -799,746 -665,674 1,233,260 1,898,934
Source: Cogobuy’s annual reports and prospectus

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We will explain each calculation and source of our adjustment step-by-step. If you have basic
accounting knowledge, we suggest you to skip this part since it is quite boring. We will use 2016
figure as an example since its cash flow statement is stated in the clarification report:

1) Net Cash Flow from Operations is -RMB569,525,000, which is taken directly from the cash flow
statement, and the exact name of item is “Net cash used in operating activities”, which can be
found on Pg.8 of the clarification report
2) Then we adjust the change in cash due from or to related party loan, since it does not relate
to real operation. For example, a company owner can borrow loan to the company to increase
its cash flow which does not reflect any real operations. There is no change in the amount on
these items for the year 2016 and therefore no adjustment needs to be made
3) We then subtract the change in cash due to supply chain financing business. There are two
adjustment items, which are change in bank loans used for supply chain financing business
and change in loans to third parties. Both figures can be found on Pg.8 of the clarification
report. In supply chain business, the company would first make loans to third parties, leading
to the increase in loans to third parties (cash outflow). Then, to finance the loans, the company
has to borrow bank loans, which leads to increase in bank loans used for supply chain financing
business (cash inflow). By removing the effects of these two items, we can eliminate the effect
of supply chain financing business on cash flow
4) The adjusted net cash flow from operation, is calculated by “net cash flow from operation” in
first column subtracting the second to fourth column, i.e. (F) = (A) – (B) – (C) – (D) – (E). The
Net Income of 2016 can be found Pg67 of the 2016 annual report from “Consolidated
Statement of Comprehensive Income”. The difference (H) is then (G) – (F)

We hope the above steps are clear enough to facilitate the understanding of Cogobuy’s
management on its own accountant report. We would like to emphasize again that all figures are
from Cogobuy’s disclosed accountant reports, and we hope the management to explain clearly
the location of “discrepancy between many figures cited in the Report and that disclosed by the
Company” before making such a groundless accusation.

(b) The Mysterious Non-GAAP net cash generated from operating activities

Cogobuy then stated a mysterious figure of “Non-GAAP net cash generated from operating
activities”, which is unaudited. In just one stroke, Cogobuy’s management increased its cash flow
by RMB854.9 mn:

“The difference of RMB854.9 million represents loans to third parties for our supply chain financing
business, which we now refer to as IngFin, which amount was financed by the Company’s own fund
during the year ended December 31, 2016.”

From the audited cash flow statement, we clearly observe that “Increase in loans to third parties”
is only RMB522,992,000 in 2016. We do not know the source of this RMB854.9 million figure, and
whether this figure is audited or not. We can only guess that the difference of RMB331,887,000 is
in part of the increase in trade and other receivables. Even if we believe there is such a large

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amount of “loans to third parties” (which we will later prove to be not very possible), we found
the management does not subtract back the “Increase in bank loans used for supply chain
financing business”, which is RMB421,413,000, in the calculation of the “Non-GAAP net cash
generated from operating activities”. Since the meaning of “Non-GAAP net cash generated
from operating activities is to portray the cash flow of the company excluding supply chain
financing business, why can the increase in “bank loans used for supply chain financing
business” not subtracted? This is clearly an accounting tricks used by Cogobuy’s
management to deceive investors. After deducting the increase in bank loan used for supply
chain financing business, we can again observe a negative cash used in operating activity.
We hope the management to use audited figures instead of making suspicious adjustment to
come up with a “Non-GAAP figure”. We would also like to point out that our adjusted net cash
flow from operations also eliminates the full effects of supply chain financing business, with all
figures coming from audited report of the Company.

(c) 0.14% Interest Rate in Supply Chain Financing

We do not think that the RMB854.9 million increase of loans to third parties for our supply chain
financing business to be reasonable. We believe the management just classify some of the account
receivable to “loans to third parties for supply chain financing business” in order to make the
“Non-GAAP” cash flow looks better. If you look at the supply chain financing interest income of
Cogobuy, it only increased by RMB1,206,000 in 2016 (from Pg. 3 of the clarification report). So
Cogobuy is saying that the increase of RMB854.9 million loan brought a RMB1.2 million
interest income increase, implying an interest rate of around 0.14%. We highly doubt the
authenticity of these so-called “loans to third parties for supply chain financing business”.

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Part 5. Mysterious Share Repurchase: Two-third of the largest share repurchased come
from two accounts

We reiterated that our findings and allegations are based on suspicious movements of shares in
CCASS, instead of being “unfounded and entirely without basis” as stated in Cogobuy’s
clarification announcement.

While we don’t have the authority to order brokers to disclose identity of investor X, we believe
that SFC is conducting investigation on this suspicious share repurchase scheme. We are confident
that SFC would be able to take legal action if there’s any insider dealing or market manipulation.

At last, we would like to remind the Company that shareholders approved the share repurchase
scheme for the Company to repurchase shares in the open market from public investors, instead
of buying back from friendly accounts of Mr. Kang. There is no investor voting to approve
repurchasing share back from investor X, who we believe is a friendly account of Mr. Kang.

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Part 6. The Infamous History of Cogo Group in U.S.

We included the notorious U.S. history of Cogo Group back in U.S. in our first report, and the
clarification report almost has no meaningful respond to our question except repeating the
disclosure on Cogobuy’s prospectus. However, when asked by media on Cogo Group, Mr. Kang
claimed that he has protected investors by buying the assets from Cogo Group at an attractive
price (but the consideration was never paid back to shareholder), and it is also the “decision of
market”11. We would not repeat our comments on Cogo Group’s history here, and readers are
suggested to review our first Initial Coverage report to understand how Mr. Kang “protected”
Cogo Group’s investors in the past. We believe he will “protect” today Cogobuy’s investor just as
he “protected” Cogo Group’s investors in the past.

Still, there is one suspicious transaction that we have not discussed in our initial coverage, which
is the last disposal of Cogo Group announced on 2015 May 12, the final disposal to deprive the
remaining assets of Cogo Group’s shareholders. The deal was completed in 2015 June 17, and Mr.
Kang then sold all his shareholding in Cogo Group on 2015 Jun 30.

On 2015 May 12, Cogo Group announced to disposal almost all of the remaining assets to
Blueberry Capital at USD 70 million (which was never paid back to shareholder). There is
completely no disclosure on the identity of Blueberry Capital, except its BVI registered address.
There is no disclosed connection between Cogo Group and Blueberry Capital. However, we found
that the correspondent address of Blueberry Capital was 10th floor, Cosco Tower, Grand
Millennium Plaza, 183 Queen’s Road Central, Hong Kong:

Exhibit 18: Blueberry Capital’s Correspondence Address

Source: Cogo Group Announcement on 2015 May 12

After some checking, we discovered that this is also the address of a Hong Kong accounting firm
called Venture Partners CPA Limited. Coincidentally, Venture Partners CPA Limited was also the
statutory auditors of Cogobuy’s Hong Kong incorporated subsidiaries.

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Exhibit 19: Address of Venture Partners CPA Limited

Source: website of Venture Partners CPA Limited

Exhibit 20: Statutory auditors of Cogobuy’s subsidiaries

Source: Cogobuy’s prospectus, page IA-78

Another connection of Blueberry Capital to Cogobuy is that, it is one of the three cornerstone
investors in its IPO. Companies would usually disclose the identity of these cornerstone investors,
giving confidence to the general public in subscribing. Similarly, Cogobuy disclosed that Hong
Kong Huicong International Group Limited is a wholly-owned subsidiary of HC International, Inc.
(SEHK: 2280) and Unique Golden Limited is a wholly-owned subsidiary of Digital China Holdings

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Limited (SEHK: 861), the other two cornerstone investors, but gave completely no details on the
shareholding structure or ultimate beneficial owner of Blueberry Capital.

Is it plausible that Blueberry Capital is an unrelated party? We highly doubt that. We think the last
disposal of Cogo Group is just another blatant related-party disposal to deprive the remaining
assets of Cogo Group. Shareholders of Cogo Group are left with almost nothing after this final
disposal. This is the unique style of Mr. Kang “protecting” investors.


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Part 7. A Share Placement with Guaranteed Return but still attract no Industry Investor

As stated in the Company’s clarification announcement, Cogobuy entered into a placing
agreement with the placing agent for the placing of up to a total of 270,466,900 new placing
shares ‘‘on a best effort basis’’ on 1 September 2016.

After Hong Kong International Securities Limited, CCB International Capital Limited and ABCI
Securities Company Limited all utilizing their “best effort” for 20 days, only 60% of the 270,466,900
new placing shares could be placed with compensation arrangement provided by Mr. Kang in
place, i.e. investors would not suffer any loss unless Mr. Kang goes bankrupt in the future. We do
not see such reaction from the market in any sense “positive” or “supportive” to Cogobuy’s future

We would also like to point out that the placing price is irrelevant in this case because Mr. Kang
has already personally provided compensation arrangement to investors. The placing price is only
indicative when investors are subject to downside risk in this share placement, which is clearly not
the case for Cogobuy’s share placement last year.

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