Release Date: 19 April 2016

REXLot Holdings
Response to REXLots
18 April Clarification Announcement

Ticker:

555.HK

Market Cap:

HK$4.4 billion

Recent Price:

HK$0.44

Target Price:

HK$0.12

Expected Return:

-73%

Opinion:

Strong Sell

You should have expected us

anon.analytics@neomailbox.ch
Twitter: @anonanalytics
www.anonanalytics.com

Disclaimer
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Dont be stupid and invest in the public markets unless you are prepared to do your own homework and due diligence.

Executive Summary
Web Operations Okooo and Others: In our original report dated 24 June 2015, we provided
substantial and overwhelming evidence that REXLot is vastly inflating revenue from its key growth
business, Okooo.com.
In their response, REXLot has attempted to fill this missing revenue gap by claiming it operates a Referral
Business which generates substantial revenue, but has been hidden in the line item called Others. This
is despite the fact that much smaller business units were individually broken out. Purportedly, this
Referral Business entered in a sales cooperation agreement, for which REXLot admits there is no written
or formalized agreement, and admits that it does not have access to relevant and necessary financial
information, referral sales figures, purchase orders, and customer lists.
Furthermore, REXLots financial data is still inconsistent with its own previous disclosures, people.cns
accounts, and independently verifiable market share information as released by well-respected
EnfoDesk.com
Welfare CTG Sinodata: In our initial report, we presented substantial evidence that REXLot is wildly
inflating its lucrative Welfare CTG business, which is conducted through Sinodata (Shenzhen Sinodata
Technology Co. Ltd). We presented Sinodatas SAIC income statement which shows this sub generated
only half the revenue REXLot claims.
In its response, REXLot does not dispute the authenticity of the SAIC filings. Instead REXLot claims that it
has other subsidiaries through which it conducts the balance of its Welfare CTG business, and then goes
on to introduce previously undisclosed sub named SZ Sinocyber, which is purportedly responsible for
50% of the Welfare CTG business.
This is the first time this subsidiary has been introduced by REXLot, which is rather surprising considering
it has never before appeared on the Companys list of key operating subsidiaries in any of its 2011,
2012, 2013, and 2014 annual reports. This is despite apparently being the largest operating sub
responsible for the largest and most lucrative business of REXLot. In its previous annual reports, REXLot
has made it unambiguously clear that its Welfare CTG business is conducted through Sinodata
(Shenzhen Sinodata Technology Co. Ltd).
Furthermore, as per the numerous examples in our initial report, all the public tender offers are
awarded to Sinodata (Shenzhen Sinodata Technology Co. Ltd) specifically. We have found no tender
offers awarded to any entity called SZ Sinocyber.
And finally, REXLots lies are so terrible, that they forgot to change SZ Sinocybers website to make it
consistent with their absurd clarification announcement. A look at SZ Sinocybers website makes it clear
that the company is not involved in the Welfare CTG business.
It appears that REXLot only resurrected SZ Sinocyber to use it as a means of plugging its accounts. In our
opinion, REXLot got caught in its own lies, and half-concocted explanations were the best they could
hope for. While the clarification announcement makes for an entertaining read, it does little to clarify
anything.

Introduction
After a ten-month suspension, REXLot released a clarification announcement that reads more like a
poorly-conceived mystery novel where never-before-seen subsidiaries are created out of thin air with
purported business operations that clearly dont exist.
China seems to be the only place in the corporate world where trucks full of original documents can go
missing, and undocumented and wholly-illusory business units can be passed off as real.
Even more impressive is that REXLot hopes investors will take its rambling clarification announcement
seriously, when after nearly a year, it has been unable to tap its purported HK$1.1 billion1 in cash to pay
off the CBs it has long-since defaulted on.
Just the sheer ridiculousness of REXLots clarification announcement gives us serious doubts that the
Company will continue to trade for long. The Hong Kong Stock Exchanges history is one of suspect
companies being halted, issuing clarification announcements, resuming trading, only to be halted again
the second time indefinitely. Recent examples include Sound Global (0967.HK) and our friends at
Tianhe Chemicals (1619.HK).

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0331/LTN201603311657.pdf pg. 4

Web Operations Okooo and Others

In our original report dated 24 June 2015,2 we provided substantial and overwhelming evidence that
REXLot is vastly inflating revenue from its key growth business, Okooo.com.
Recall that Okooo.com is a JV owned by both REXLot and People.cn (an SOE) and in fact People.cn
consolidated the result of Okooo into its financial statements. However, as we explained thoroughly in
our report (page 9)3, the revenue generated by Okooo as reported by REXLot is 262% of that as reported
by People.cn.
REXLots disclosure of Okooos consolidated 2014 revenue:
HK$814 million (RMB652 million)
People.cns disclosure of Okooos consolidated 2014 revenue: HK$361 million (RMB286 million)
This suggests that REXLot is inflating its consolidated Okooo revenue by nearly 3x.

In order to fill this large gap, REXLots clarification announcement claims that its online business also has
a web referral business which generated online business of HK$382 million (RMB303 million):

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf
pg. 12

2
3

http://www.anonanalytics.com/2015/06/rexlot-holdings.html
http://www.anonanalytics.com/2015/06/rexlot-holdings.html

According to the clarification announcement:

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 30

REXLot claims that its Referral Business was tucked away as others on its investor presentation. Here
is the slide from the annual results presentation dated March 2015:

Source: March 2015 REXLot investor presentation, slide 11

Does any critical investor truly believe that such a large revenue component would simply be hidden
under an others line, while much smaller business units were broken out, such as Sports CTG and
physical shops and call centers?
It seems painfully obvious that REXLot is just shifting revenue from its Okooo business to its other
Referral Business to make its disclosures consistent with People.cn.
In any case, REXLots own disclosures easily refute this tortured explanation.
5

First, REXLot cant even provide evidence that its Referral Business as stated actually exists. According to
its clarification announcement, the Referral Business is a wholly owned-subsidiary of Beijing Okooo (the
Web Subsidiary) which operates as part of a network agreement with a web lottery sales platform
(WLSP):

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 31

If you are a REXLot investor and this is your first time hearing about a WLSP, you are probably not alone.
As far as we are aware, this is the first time REXLot has ever mentioned such an arrangement in any of
its filings.
But whats even more amazing about all of this is that REXLot appears to have lost access to the
necessary financial information, referral sales figures, purchase orders, and customer lists:

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 32

There also appears to have been no written agreements or formalized arrangements, something
particularly strange for a company operating in such a highly regulated industry:

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 31

Even in this fantasy world REXLot has created for itself, it cant keep its financial house in check.
Second, even if we give REXLot the benefit of the doubt that it really does have a lucrative Referral
Business of the size and scope claimed, it still would be contrary to its previous disclosures and
independent data.
According to the Summary Highlights slide of REXLots March 2015 investor presentation, all internet
related operations are done through www.okooo.com platform which held by the JV:

Source: March 2015 REXLot investor presentation, slide 3

What this means is that the Referral Revenue of HK$382 million (RMB306 million) claimed by REXLot in
its clarification announcement4 would STILL flow through the okooo.com first, and then redirected to
Web Subsidiary as referral fees. This means that the consolidated financial results of the JV between
Okooo Beijing and People.cn would include this flow-through. Obviously, People.cns financial
disclosures do not show this probably because it doesnt exist.
Furthermore, if we calculated Okooo.coms revenue as stipulated by REXLots clarification
announcement, revenue generated by Okooo.com would be at least HK$814 million (RMB652 million):
RMB Millions

2014

Revenue from JV

346

Revenue from Referral Business (internet platform)

306
652

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 30, 33

As we presented in our initial report, 500.com (WBAI.NYSE) is the largest stand-alone online lottery
operator in China. According to independent data from well-respected firm EnfoDesk, 500.com has
twice the market share of Okooo, yet only reported online revenue of RMB580 million in 2014.5
In an attempt to gloss past this glaring red flag, REXLots clarification announcement only states the
following:

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 35

The clarification announcement does not explain why our analysis is not accurate, or provide REXLots
own market share calculations, other than to state that Okooo should not be compared to 500.com
because it deals primarily with Sports Lottery, whereas Okooo also deals with Welfare Lottery.
This clarification is meaningless. Regardless of which lottery market 500.com and Okooo compete in,
the data from EnfoDesk compares total online ticket sales, which is a valid basis for our analysis and
independently undermines REXLots claims.

4
5

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 12
http://www.anonanalytics.com/2015/06/rexlot-holdings.html pg. 12

Welfare CTG Sinodata

REXLots creative storytelling prowess really shines through when it tries to defend its Welfare CTG
business. Recall that the vast majority of REXLots offline revenue and EBITDA is generated by its
Welfare CTG business:

Source: 2015 investor presentation

In our initial report, we presented substantial evidence that REXLot is wildly inflating its Welfare CTG
business (pg 17-24). According to REXLots previous disclosures, the Welfare CTG business is conducted
through Shenzhen Sinodata Technology Co. Ltd (Sinodata):

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0429/LTN20150429917.pdf pg. 8

REXLots 2014 annual report is unambiguous that the Welfare CTG business is conducted through
Sinodata. Accordingly, we pulled Sinodatas SAIC filings6 and presented Sinodatas income statement, as
per below:

Source: Sinodata SAIC filings, 2013

REXLot Management claimed in its 2015 investor presentation that REXLots Welfare CTG business
generated revenue of HK$814 million, or RMB614 million. This is more than double the RMB302 million
reported in Sinodatas SAIC filing.
REXLots clarification announcement does not dispute the authenticity of this filing. Instead, the
clarification announcement claims that REXLot has other subsidiaries through which it conducts the
balance of its Welfare CTG business, and then goes on to introduce previously undisclosed subs:

By way of background, Chinese companies are required to file annual financial and business information with the
State Administration for Industry and Commerce (SAIC). SAIC filings are public documents

10

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 38

Suddenly, as if by magic, REXLots Welfare CTG business is no longer conducted through Shenzhen
Sinodata Technology Co., Ltd.as previously stated in their 2011, 2012, 2013, and 2014 annual reports,
but rather through a freshly named The Sinodata group, which includes Sinodata (Shenzhen Sinodata
Technology Co. Ltd) and eight subsidiaries. Notably, other than Sinodata (which REXLot now claims only
accounts for 45% of its Welfare CTG business), the clarification announcement names Shenzhen
Sinocyber Tech Co., Ltd. (SZ Sinocyber) as a sub responsible for 50% of the Welfare CTG business.
This is the first time this subsidiary has been introduced by REXLot, which is rather surprising considering
it has never before appeared on the Companys list of key operating subsidiaries. This is despite
apparently being the largest operating sub responsible for the largest and most lucrative business of
REXLot.
Furthermore, as per the numerous links in our initial report (page 21), all the public tender offers are
awarded to Sinodata (Shenzhen Sinodata Technology Co. Ltd) specifically. We have found no tender
offers awarded to any entity called SZ Sinocyber.
And finally, REXLots lies are so terrible, that they forgot to change Sinocybers website to at the
minimum make it consistent with their absurd clarification announcement. A look at Sinocybers website
shows a thin webpage that explicitly states that the company is focused on paperless lottery platform,
or electronic lottery platform (ELP):

11

SZ Sinocyber is the leading paperless lottery solution,

operation and service provider in China.

Source: http://www.sinocyber.com.cn/about%20us.html

12

Going to the Product and Services section, SZ Sinocyber offers the following services:

Mobile instant games lottery sales management system ()

Telephone lottery sales agency management system ()
Telephone lottery sales operation management system ()
Internet lottery sales management system ()

Source: http://www.sinocyber.com.cn/product%20service.html

These services are Distribution and Marketing Business (DMB) services. As per REXLots own
clarification announcement, DMB is a downstream service. However the Welfare CTG business is part of
System and Games Development Business (SGDB), which is an upstream/midstream service:

13

Source: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 3

As evident by SZ Sinocybers own website, it does not even operate in the same category as the Welfare
CTG business. REXLot is simply trying to use an obscure, previously unmentioned subsidiary to plug a
gaping hole in its Welfare CTG business that it cannot account for in any other way.
With the online business effectively shut down, Welfare CTG is the only noteworthy business REXLot has
left, and REXLot is now in the process of selling it to a related party to pay off the CBs. REXLot claims that
a portion of the Welfare CTG business will be left after Sinodata is sold, but as the above analysis shows,
investors should be skeptical that this claim is true.

14

Conclusion
We stand by all of our original report, which is only bolstered by REXLots absurd rebuttal. Its surprising
that a company that had ten months to prepare would publish this type of garbage.
With the sale of Sinodata, we think REXLot will be nothing more than a company with no notable
business operations and no way to pay its dividends, languishing on the Hong Kong Stock Exchange on
its way to micro-cap status.
A characteristic of the Hong Kong market is that investors tend to walk away from suspect companies,
particularly those that have obscure auditors. The fact that REXLot boasts in its rebuttal that a no-name
auditor, which counts REXLot and REX Global as ~15% of its total fees, has signed off on its books7 is
probably no small comfort to potential investors.
All this said, we have serious doubts that REXLot will continue to trade for long. The Hong Kong Stock
Exchanges history is one of suspect companies being halted, issuing clarification announcements,
resuming trading, only to be halted again the second time indefinitely. Recent examples include Sound
Global (0967.HK) and our friends at Tianhe Chemicals (1619.HK).
And finally, it is worth reiterating that despite REXLots clarification begging investors to accept that the
Companys accounts as stated, REXLot has been unable to pay back its CBs with the purported cash it
has on hand. We doubted the cash was real in our initial report, and we doubt it today. REXLot can make
as many excuses as it wants, but in the end, REXLot has lost all legitimacy.

Opinion: Strong Sell

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0418/LTN20160418355.pdf pg. 51

15