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You should have expected us

anon.analytics@neomailbox.net

Twitter:@anonanalytics

www.anonanalytics.com

Release Date: 15 September 2014

Tianhe Chemicals

Response to Tianhes

10 September Clarification Announcement

Ticker: 1619.HK

Market Cap: HK$62 billion

Recent Price: HK$2.43

Target Price: HK$0.00

Expected Return: -100%

Conclusion: Strong Sell

http://twitter.com/#!/anonanalyticshttp://twitter.com/#!/anonanalyticshttp://twitter.com/#!/anonanalyticshttp://twitter.com/#!/anonanalytics

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Disclaimer

Neither Anonymous Analytics nor its principles is a registered investment advisor or otherwise licensed in any

jurisdiction, and the opinions expressed herein should not be construed as investment advice. This report

expresses our opinions, which we have based upon publicly available facts and evidence collected and analyzed

including our understanding of representations made by the managements of the companies we analyze, all ofwhich we set out in our research reports to support our opinions, all of which we set out herein. We conducted

basic research based on public information in a manner than any person could have done if they had been

interested in doing so. You can publicly access any piece of evidence cited in this report.

All facts, figures, and opinions are as at the last practicable date. This document has been prepared for

informational purposes only. This document is not an offer, or the solicitation of an offer, to buy or sell a security

or enter into any other agreement. We have made every effort to ensure that all information contained herein

that support our opinions is accurate and reliable, and has been obtained from public sources we believe to be

accurate and reliable, and who are not insiders or connected persons of the stock or company covered herein or

who may otherwise owe any fiduciary duty to the issuer. However, we do not represent that it is accurate or

complete and should not be relied on as such, in particular, Tianhe Chemicals (Tianhe or the Company) and

insiders, agents, and legal representatives of Tianhe and other entities mentioned herein may be in possession of

material non-public information that may be relevant to the matters discussed herein. Do not presume that anyperson or company mentioned herein has reviewed our report prior to its publication.

As evident by the contents of our research and analysis, we expend considerable time and effort to ensure that our

research analysis and written materials are complete and accurate, we strive for accuracy and completeness to

support our opinions, and we have a good-faith belief in everything we write - but such information is presented

as is, without warranty of any kind, whether express or implied. All expressions of opinion are subject to change

without notice, and we make no representation, express or implied, as to the accuracy, timeliness, or

completeness of any such opinions and information or with regard to the results to be obtained from its use, and

we makes no representation that we will update any information on this. You should assume that all statements

contained herein are our opinion and are not statements of fact even if certain statements can be perceived as

such. That way, we dont have to sacrifice our (hopefully) entertaining writing style by starting every sentence

with In our opinion as advised by our team of neurotic and overpriced lawyers.

We believe that the publication of our opinions and the underlying facts about the public companies we research is

in the public interest, and that publication is justified due to the fact that public investors and the market are

connected in a common interest in the true value and share price of the public companies we research. We are

exercising our right to express such opinions in a public forum. Any investment involves substantial risks, including

complete loss of capital. Any forecasts or estimates are for illustrative purpose only and should not be taken as

limitations of the maximum possible loss or gain. Any information contained in this report may include forward-

looking statements, expectations, and projections. You should assume that these types of statements,

expectations, and projections may turn out to be incorrect.

Anonymous Analytics itself holds no direct or indirect interest or position in any of the securities profiled in this

report. However, you should assume that certain of Anonymous Analytics research and due diligence contacts,

consultants, affiliates, and/or clients may have a short position in the stock or debt of Tianhe and/or options of the

stock, and therefore stand to gain substantially in the event that the price of the stock decreases. You should

further assume that following the distribution of this report, the aforementioned individuals and entities may

continue transacting in the securities covered therein, and may be long, short or neutral at any time hereafter

regardless of this reports initial opinions.

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

diligence.

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Executive Summary

Bogus Hacking Claims: Tianhes bogus claim of hacking made so that it could bypass HKex

review procedures and process.

There Are Still Two Sets of Books:By claiming forgery, Tianhe has put itself in a corner. The

original SAIC documents that we presented are authentic, have verifiable anti-counterfeit codesattached, and contain financial information corroborated by official government

announcements and public news articles. We submitted the original SAIC filings to the SFC to be

scrutinized and verified.

Tax Evidence Still Does Not Support Prospectus:Tianhe did not provide any proof they paid

taxes that would support the numbers claimed in the prospectus. Moreover, Tianhe did not

discredit any of the evidence we originally presented, including records from the Yi County

government and the Fuxin Haizhou District Tax Bureau.

Related-Party Customers Are Still... Related-Party Customers:Simply ignoring facts does not

make them go away. Management has blatantly lied in the face of overwhelming evidence that

its biggest customers are related parties and in no way can discredit the evidence we presented.

In this response we provide new and additional evidence that Tianhe and its customers arerelated to each other.

Export Data Shows CITIC International Cannot Do the Size of Business Claimed by Tianhe: CITIC

International is the only undisputed independent third party SFC customer of Tianhe, but in this

response, we present additional evidence that Tianhe has egregiously overstating its business

relationship with CITIC International.

Tianhe Marred by Evidence of True Size of Anti-Mar Market: Managements response neither

provided an estimate for the anti-mar market size that would make Tianhes claims plausible,

nor provided the names of any of its end-users of its anti-mar product.

Morgan Stanley Due Diligence Seal of Approval Worthless: Morgan Stanley due diligence is

suspect at best, particularly where they have a significant financial interest in the subject

company that they are seeking to further monetize. We point out an example of failed duediligence by the very same private equity fund that invested in Tianhe. Morgan Stanley is the

only IPO promoter still publically supporting Tianhe.

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Introduction

After taking more than a week, Tianhe released a half-baked response to our 67 page report dated 2

September 2014, questioning its accounts. The 10 September release of Tianhes clarification was

rather unceremonious, with Tianhe Management claiming its email system had been hacked intoand

was therefore compelled to release the clarification response immediately. This is despite the fact thatthe language of the clarification announcement makes clear that the HKex appears to have requested

information and explanations from Tianhe and had still not received satisfactory answers.

For the record, we have no knowledge of any attempted hack. We seriously doubt there was ever any

attempted hacking. Were not even sure we understand the rationale behind why the supposed

attempted hacking necessitated Managements release of a clarification announcement while there

were still outstanding queries from the HKex.

Shortly prior to these claims of being hacked, Reuters had published an article noting that the cost of

borrowing Tianhe shares was climbing and further suggested that our report was gaining traction with

investors. See the article here: http://www.reuters.com/article/2014/09/10/tianhe-chemicals-shorts-

idUSL3N0RA2J520140910

We believe this whole farce of hacking was concocted by Tianhe so Management would have an

excuse to release their response as soon as possible in order to stem the rising criticism in the media

and among investors without having to provide satisfactory answers to the HKex in the hopes of

temporarily propping up their sinking ship.

http://www.reuters.com/article/2014/09/10/tianhe-chemicals-shorts-idUSL3N0RA2J520140910http://www.reuters.com/article/2014/09/10/tianhe-chemicals-shorts-idUSL3N0RA2J520140910http://www.reuters.com/article/2014/09/10/tianhe-chemicals-shorts-idUSL3N0RA2J520140910http://www.reuters.com/article/2014/09/10/tianhe-chemicals-shorts-idUSL3N0RA2J520140910http://www.reuters.com/article/2014/09/10/tianhe-chemicals-shorts-idUSL3N0RA2J520140910

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Tianhes Clarification AnnouncementOur Views

After a thorough review of Tianhes 10 September clarification announcement, we declare it to be an

odd document that lacks any credibility and raises more questions than it answers. We can put

Managements explanations and defenses into two categories:

Category 1:Where the evidence presented against Tianhe was related to documentation, such

as SAIC filings, Management claimed the documents we presented and proved were original,

verified documents were either forged, fabricated, or both. This is quite amusing to us

Anonymous Analytics has written research reports since 2011, and this is the first time any

company has accused us of forging documents. This is certainly a new and desperate tactic, but

then again, the stakes are high for Tianhe and its promoters. Moreover, in some cases,

Management provides chopped documents that would appear to differ from the original

authentic documents that we obtained and presented. We are not surprised by this. In China,

they build entire fake Applestores,so it shouldnt be too hard to get fake documents.

Not that it warrants a response, but no, we did not fabricate or forge any documents we

presented the data from the original SAIC filings that we obtained, and had already provided

these documents to the Hong Kong SFC shortly after we published our report so that they could

be reviewed and scrutinized.

Category 2: Where the evidence that we presented against Tianhe was based on more easily

verifiable information such as websites, office location site visits, and photographs, or even

something tactile like a business card, Tianhe generally chose to gloss over the evidence or

ignore it all together.

In summary, for all the time it had, Tianhes rebuttal sounds more like paranoid ramblings of a

Management team that either claims everything is a forgery or refuses to acknowledge facts. Here, wewill address Managementslies and explain how to verify the truth.

http://www.bbc.com/news/technology-14503724http://www.bbc.com/news/technology-14503724http://www.bbc.com/news/technology-14503724http://www.bbc.com/news/technology-14503724

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1. Allegations Regarding the Groups Profitability and Two Sets of Books

1. Management claim: Tianhe has only one set of books, but engaged two different accounting firms to

audit its financial results in 2011 and 2012. There are no material differences between these sets of

books.

Our response:We note that this is the first time Tianhe has finally acknowledged using two different

auditors to audit its Jinzhou DPF-TH subsidiary. As we have shown in our report (page 8), the differences

between the original SAIC filings and the prospectus are significant, with revenue and net income for

2012 being 85% and 100% less, respectively.

1.1 Management claim:The financial statements exhibited on pages 9, 10, and 11 of the AA report are

not from the financial statements of Jinzhou DPF-TH and Fuxing Hengtong as audited by Liaoning

Zhongheng. The summary financial page on page 12 of the AA report is not the signature of the

Chairman, Mr. Wei Qi.

Our response:All the original SAIC income statements we presented in our original report have anti-

counterfeit stamps that can be verified online. We received the documents as is, from an SAIC request

handled by a professional market body. Shortly after publishing our report, we sent all the SAIC

documents we used in our analysis to the SFC to be scrutinized and verified.

Furthermore, our report did not simply present the SAIC filings in isolation. The figures contained in the

original SAIC filings are corroborated by industry data (page 13), the Liaoning Daily newspaper (page 14),

an official announcement by the Fuxin government (page 15), and Tianhes own public profile (page 16).

To imply that we forged the original SAIC filings would imply that we have a time machine, and were

able to travel back to 2011 and 2012 and meticulously place corroborating government and news media

information online.

For the record, we do not have a time machine.

Managements response never addressed the corroborating sources presented in our report or even

attempted to provide a credible explanation.

1.1 Management claim:The Jinzhou AIC office accepted the Deloitte filing despite the fact that it has no

authentication or anti-counterfeit code. Deloitte has confirmed that such report is the true copy of the

audit report it prepared and issued for Jinzhou DPF-TH.

Our response:We never questioned that Deloitte signed off on a copy of the SAIC filings. Rather, we

questioned the truth of the figures presented in the SAIC filings as signed by Deloitte.

Furthermore, we are at a loss as to why Tianhe would present SAIC filings without the necessary anti-

counterfeit codes that are required by the relevant government ordinance? There is no question that

the local ordinance requires the codes to be presentwhy does Tianhe think that a different set of rules

applies to it?

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1.2 Management claim: The financial statements were audited by different auditors based on only one

set of books to fulfill different requirements and obligations.

Our response:We note that the SAIC filings we presented with all the necessary counterfeit codes

clearly show major discrepancies between the Liaoning Zhongheng audit and the IPO prospectus. Again,

we did not present the SAIC filings in isolation we presented numerous government and third-party

sources that corroborated the SAIC filings in our report (pages 13-16). Tianhes response never

addressed these other sources or even attempted to provide a credible explanation.

Furthermore, we are confused as to why Tianhe would need two different auditors to audit its SAIC

filings in each of 2011 and 2012. We do not accept Managements vague excuse that they had different

requirements and obligations. Tianhes admitted use of two auditors for each year is a glaring red flag.

*****

Suggestion to the Authorities:An easy way to further verify the authenticity of the original SAIC filingswe presented in our report is to check the provincial or national SAIC computer database for 2011 and

2012 for the Jinzhou DPF-TH and Fuxin Hengtong subsidiaries (http://gsxt.lngs.gov.cn/saicpub/ )and not

simply rely on hardcopies presented by the Company. We doubt the figures Tianhe is presenting in its

rebuttal are in the computer database because we believe them to be fake and clearly contradictory to

numerous government reports and articles, including government tax reports.

http://gsxt.lngs.gov.cn/saicpub/http://gsxt.lngs.gov.cn/saicpub/http://gsxt.lngs.gov.cn/saicpub/http://gsxt.lngs.gov.cn/saicpub/

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2. Allegations Regarding Tax Discrepancies

2.1:Management claim: Tianhe paid all its taxes and has obtained tax confirmations from the relevant

authorities.

Our response:If Tianhe in fact paid all its taxes (income taxes + VAT) based on the information in theprospectus, this would be in direct contradiction to all the government reports and information on taxes

that we presented in our report, including the Jinzhou government, Yi County government, and the

Fuxin Haizhou District Tax Bureau (pages 17-22).

Therefore, we are left with the conclusion that either the purported tax confirmations obtained by

Management were faked and/or the result of bribes made by Tianhe, or that all the relevant and

competent government bodies we cited in our report published false and misleading tax collection

numbers that are understated by an order of magnitude.

Notably, Management does not actually present its purported confirmations in its response, nor does

Management provide any rationale or reason why the tax sources we cited are not accurate. Readers

are only left to take Management at their word.

*****

Suggestion to the Authorities: We would like to note that fraudulent companies often falsify tax

receipts to fool auditors, regulators, and investors. Chinese tax authorities normally do not entertain

request from auditors or unauthorized third parties for verification. However, given the Shanghai-HK

stock connect, HK regulators should demand that they get the authorization to check taxes directly from

provincial tax bureaus. That is the best way to protect investors, and a vital tool for the HKexs standing

as Asias financial center. If tax data can be obtained directly from provincial governments in China, itwould be easy for the regulators to pick off the rotten apples even before they IPO.

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2.1:Management claim: The tax calculations in the AA report are based on incorrect assumptions. For

example, the AA report states that equipment and machinery (which offer tax returns) was minimal and

was ignored for calculation purposes. This is incorrect because Tianhes businesses experienced

substantial expansion over 2011 to 2013, including material additions of plant and equipment during

those years.

Our response:We did not make any incorrect assumptions and we know tax accounting in China better

than Management thinks. Only machineries and equipment get VAT tax returns. As stated in our report,

property purchases and buildings (regardless of their use) and construction-in-progress do not get any

VAT tax returns (page 17). Management does not dispute this point.

What Management seems to argue is that they experienced material additions of plant and equipment

in the 2011-2013 period. Here is the relevant page from Tianhes prospectus:

Source: IPO prospectus, page I-33

We can see from the prospectus that Plant and Machinery added between 2011-2013 was only RMB480

million. At 17% VAT, this translates to VAT taxes of a mere RMB81 million over three years.

In those three years, Tianhe should have paid more than RMB1.3 billion in VAT and 2.3 billion in total

taxes (page 17). In that context, how is RMB81 million material?

Furthermore, the Plant portion of Plant and Machinery does not get VAT returns. Considering that

most of the additions to Plant and Machinery were transferred through construction-in-progress, the

implication is that most of these additions were Plant and not Machinery. Therefore, even our RMB81

million is too generous.

We are not sure what point Management is trying to make, or if they even understand simple tax

accounting. These are the ramblings of a desperate Management team looking to complain for the sake

of complaining.

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3. Allegations Regarding Purported Customers

3.1 Management claim: The AA report alleges that Tianhe failed to disclose the name of CITIC

International because its transactions with CITIC International are fictitious. This is simply not true.

Our response: This statement is patently false and Management should perhaps improve on theirreading comprehension. We discuss CITIC International not being disclosed as a customer on page 34 of

our report:

The one time that Tianhe disclosed in writing the name of an SFC customer was in its

draft prospectus, where it named CITIC International Co. Ltd. (CITIC International) as a

customer. For whatever reason, CITIC Internationals name was dropped from the final

prospectus.

Following these two sentences, we make no mention of CITIC International until page 54 of our report,

where we discuss CITIC International in detail. Management has merged two different discussions made

20 pages apart, and set up their response for an argument we never made. This willful ignorance is

telling.

The real reason we believe Tianhe is lying about the extent of its business relationship with CITIC

International is because of CITIC Internationals business size. As per our report, an announcement made

on the website of CITIC Bank notes that CITIC International only generated revenue of RMB1.31 billion

and net profit of RMB29 million in 2009 (page 54).

However, Tianhe claims to have sold to CITIC International RMB829 million in 2011, RMB953 million in

2012, and RMB1.5 billion in 2013.

Given CITIC Internationals 2009 revenue, it would take a feat of mental gymnastics to assume that while

CITIC International only generated revenue of RMB1.31 billion in 2009, it purchased RMB829 millionworth of chemicals from Tianhe in 2011, and even more in subsequent years. This assumption becomes

even more unrealistic when we consider that CITIC Internationals business consists of domestic trading,

exporting, and importing.

Management completes ignores this section of our report and instead responded to an argument we

never made.

Furthermore, in its response, Management provides a letter from CITIC Group in which CITIC Group

agrees that Tianhe can: disclose (i) the name and business of our group; and (ii) our genuine bus iness

transactions with your group in your listing documents.

However, this document never actually acknowledges how much business Tianhe conducts with CITIC

Internationalit just gives Tianhe permission to list genuine business transactions (which is something

we are confident Tianhe did not do anyway).

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On this topic, we would like to provide new and additional evidence that Tianhe is lying about its

relationship with CITIC International:

Tianhe claims that CITIC International purchased RMB1.5 billion from Tianhe in 2013. Of this amount,

RMB1.2 billion was SFC products.1 Tianhe also claims in its draft prospectus that CITIC International

further re-sells a large portion of our products to their clients overseas.2

However, we reviewed publically available PRC government export data which shows that this

statement cannot possibly be true. Export data can be accessed at the following website:

http://www.ciedata.com/Contact/lx.aspx

This official government data shows that CITIC Internationals total export figures in 2013 stood at

RMB230 million. Based on the export data, CITIC Internationals largest exports in terms of value were

magnesia (customs code 2519) valued at US$8 million and talc (customs code 2526) valued at US$4

million.

In the export data, the only products that could plausibly be SFC products were labeled as otherpolybasic alcohol (customs code 2905) and other aromatic oxide derivated chemicals (customs code

2909). The export value of these two products was only US$0.7 million.

Based on CITIC Internationals 2009 business size, as well as 2013 official government customs data, we

are absolutely confident that Tianhe is egregiously overstating its relationship with CITIC International.

*****

Suggestion to the Authorities:The easiest way to verify our arguments and confirm that Tianhe is lyingwould be to pull the SAIC filings of CITIC International Co., Ltd. for 2013 and see if it was possible for

Tianhe to sell RMB1.5 billion worth of goods to CITIC International.

1http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0609/LTN20140609007.pdfpg I-27

2Draft prospectus, pg 133

http://www.ciedata.com/Contact/lx.aspxhttp://www.ciedata.com/Contact/lx.aspxhttp://www.hkexnews.hk/listedco/listconews/SEHK/2014/0609/LTN20140609007.pdfhttp://www.hkexnews.hk/listedco/listconews/SEHK/2014/0609/LTN20140609007.pdfhttp://www.hkexnews.hk/listedco/listconews/SEHK/2014/0609/LTN20140609007.pdfhttp://www.hkexnews.hk/listedco/listconews/SEHK/2014/0609/LTN20140609007.pdfhttp://www.ciedata.com/Contact/lx.aspx

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3.2: Management claim: Shanghai Xidatong, Shanghai Top and Heilongjiang Taina are all bona fide

independent third parties.

Our response:The evidence clearly and overwhelmingly shows that Xidatong, Shanghai Top, and Taina

are all in fact related parties and should have been disclosed as such in the IPO prospectus. We provided

extensive evidence that these customers have overlapping management, ownership, and offices with

each other and with Tianhe (pages 36 to 53). We show substantial evidence that these customers are all

actually undisclosed related parties that do not have the resources to conduct business with Tianhe of

the size claimed. In fact, we believe the true value of these customers comes from acting as

counterparty and transacting with Tianhe on paper in order to satisfy Deloitte. Managements claim that

these three customers are independent third parties is a blatant lie in the face of overwhelming facts.

Management claim:No one is allowed to access financial statements of third party companies filed with

the local AIC without authorization.

Our response:This statement is patently false and brings into question Tianhes choice of legal counsel.

SAIC filings are public information. In some local AIC offices, in response to complaints by listed

companies who have been dogged by accusations of fraud, the local AIC office has restricted someaccess to AIC files, but this is not the case with any of the AIC offices where Tianhes PRC operating

subsidiaries and Tianhes purported customers file their AIC paperwork. Tianhes excuse is one generally

made by companies that are grasping at straws and arguing against the evidence. We obtained the SAIC

filings of Xidatong, Shanghai Top, and Taina through public channels and the filings all show that these

customers are either small or nearly non-existent in terms of revenue, profits, and assets.

At least this time, Tianhe didnt claim that the SAIC filings we presented were fake...

Management claim:It is a generally accepted practice in Hong Kong, the US and China for a company to

have a registered office address that is different from its principal business address.

Our response: IT IS NOT generally accepted business practice in ANY jurisdiction that a legitimate

company register its address at abandoned housing communities or offices were no one has heard of

the company, as is the case with Xidatong (page 38,39).

Management claim:Customers sharing office premises is not a relevant factor.

Our response: Is this Tianhes actual response!? This is ridiculous. Not only does Management see

nothing wrong with the fact that Xidatong and Shanghai Top shared an office together (page 47) nor

that Xidatong and Taifu currently share an office together (page 52), but it also seems that Management

is actively defending this as normal behavior. The evidence clearly shows that these customers are

related and acting in concert under the direction and influence of a single set of control persons.

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Shanghai Xidatong

Management claim: Tianhe has never entered into any employment relationship with Mr. Zhang Silang,

the CEO of Xidatong.

Our response:There is no basis for Tianhes denial. In our report, we presented evidence that Mr. Zhangattended a 2008 conference in Guangzhou as the VP of Fuxin Hengtong (Tianhe) (page 41). Management

provides no explanation for this.

We hereby present new and additional evidence that Mr. Zhang was a top-level executive at Tianhe. In

2007, Mr. Zhang went to a SOCMA conference as the VP of Fuxin Hengtong:

Source:http://www.socma.com/events/index.cfm?attendees=true&id=1001&articleID=1&start=41&sort=state

Greg Chang is the English name of Mr. Zhang Silang. How do we know this? Because that is the name

Mr. Zhang provides on his Shanghai Top business card:

http://www.socma.com/events/index.cfm?attendees=true&id=1001&articleID=1&start=41&sort=statehttp://www.socma.com/events/index.cfm?attendees=true&id=1001&articleID=1&start=41&sort=statehttp://www.socma.com/events/index.cfm?attendees=true&id=1001&articleID=1&start=41&sort=statehttp://www.socma.com/events/index.cfm?attendees=true&id=1001&articleID=1&start=41&sort=state

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Source: AA report, page 43

Additionally, here is the contact information of Mr. Zhang for Hope Land International (Hope LandInternational is Xidatong):

Source:http://www.techmonitor.net/tm/index.php?title=VATIS_Update_Ozone_Layer_Protection_._Jan-Feb_2007

It is overwhelmingly obvious that Mr. Zhang Silang (Greg Chang) is a connected executive at Tianhe and

Xidatong and Shanghai Top.

http://www.techmonitor.net/tm/index.php?title=VATIS_Update_Ozone_Layer_Protection_._Jan-Feb_2007http://www.techmonitor.net/tm/index.php?title=VATIS_Update_Ozone_Layer_Protection_._Jan-Feb_2007http://www.techmonitor.net/tm/index.php?title=VATIS_Update_Ozone_Layer_Protection_._Jan-Feb_2007http://www.techmonitor.net/tm/index.php?title=VATIS_Update_Ozone_Layer_Protection_._Jan-Feb_2007

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Shanghai Top

Management claim: Mr. Zhang Silang has neither been an employee nor the CEO of Shanghai Top.

Our response:We already presented a business card from Shanghai Top with Mr. Zhangs name on it,

but here is further proof: In 2009, Fuxin Hengtong attended the 4

th

China International Fluoro & SiliconMaterial Exhibition in Shanghai on 24-27 November. In attending the Exhibition, Fuxin Hengtong used

Shanghai Tops phone number, fax number, and email contact:

Source:http://www.china-expo.net.cn/swffile/A4E8652C.swf

The phone and fax numbers of Shanghai Top can be found on its website:

http://www.topfluoro.com/en/Contact%20us.html

What other proof does one need to show that Tianhe is lying?

It is time for Management to stop denying that its biggest customers are all related parties. It is time for

Management to admit that it lied to the regulators and investors. And it is time for Management to face

justice.

http://www.china-expo.net.cn/swffile/A4E8652C.swfhttp://www.china-expo.net.cn/swffile/A4E8652C.swfhttp://www.china-expo.net.cn/swffile/A4E8652C.swfhttp://www.topfluoro.com/en/Contact%20us.htmlhttp://www.topfluoro.com/en/Contact%20us.htmlhttp://www.topfluoro.com/en/Contact%20us.htmlhttp://www.china-expo.net.cn/swffile/A4E8652C.swf

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4. Allegations Regarding Anticipated Market Demand for SFC

4.1: Management claim:The AA report understates the size of the anti-mar market size by at least five

times.

Our response:Lets play along for a moment.Tianhe claims to have sold 8 tons of pure anti-mar in 2013,and our calculations show that global demand was only 4 tons of pure anti-mar (page 59). Lets assume

that the true figure is 5X, or 20 tons of pure anti-mar. Based on this new figure, Tianhe would still

represent 40% of the anti-mar market, which is a completely preposterous idea.

If we assume that we understated the anti-mar market by 10X, then Tianhes 8 tons of pure anti-

mar would represent 20% of the anti-mar market.

If we assume that we understated the anti-mar market by 20X, then Tianhes 8 tons of pure anti-

mar would represent 10% of the anti-mar market.

In any of the above scenarios, Tianhe would still be a very notable player in the anti-mar market.

However, as we mentioned in our report, Daikin is acknowledged as the clear leader in the anti-mar

market with ~60% market share, followed by Shinetsu, Dow Corning, and DuPont for a combined ~40%

(page 60). Throughout our research, Tianhe was never mentioned as a visible player in the anti-mar

market. In fact, the only time Tianhes name was mentioned by experts was to state that it is NOT a

supplier of anti-mar.

We note that we only engaged in the above-exercise to show how delusional Managements claim of

having sold 8 tons of pure anti-mar is. We stand by our analysis concerning global demand of 4 tons or

less of pure anti-mar and we suspect Managements claim of having sold 8 tons of pure anti-mar derives

from their lack of understanding of the market. This is to be expected, since we have been consistently

told by industry experts that Tianhe does not even sell anti-mar.

4.1 Management claim: The AA report misquoted Management, claiming that 1 gram of 20%concentrate anti-mar solution can coat approximately 200 smartphones. Management had stated that 1

gram of 100% concentrate anti-mar solution can coat approximately 200 smartphones.

Our response: Again, this is poor reading comprehension on the part of Management. We did not

specify the concentration when we quoted Management (page 57). We only specified the 20%

concentrate when we quoted experts, such as touch panel vendors to Fujitsu and Samsung (page 57).

We do not consider Tianhes Management experts as we do not believe Tianhe sells anti-mar.

Furthermore, Managements defense still doesnt make any sense mathematically. Management admits

that they claim to sell 8 tons of pure anti-mar and also claim that 1 gram of pure anti-mar can be used to

coat 200 smartphones. At 1 million grams per ton, this implies that Tianhe sells enough anti-mar to coat1.6 billion smartphones. According to IDC (page 58) the 2013 global shipment of all smartphones was

only 1 billion and the global shipment of tablets was only 217 million. This effectively means that Tianhe

supplies enough anti-mar to the market to coat of all the smartphones sold in 2013 and half of all tablets

sold in 2013. As agreed by all experts we interviewed, smartphones and tablets accounted for most of

global anti-mar consumption. Daikin and Shinetsu will be shocked to learn that such a massive

competitor has been operating unnoticed under their nose this entire time. It appears that Management

did not even engage in basic math when it decided to concoct claims of selling 8 tons of pure anti-mar.

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4.1 Management claim:A major flaw in the AA report is that it focuses mainly on smartphones, tablets,

and eyeglasses in its analysis of the end-markets for anti-mar products. However, there are many other

end-markets in which anti-mar products are utilized.

Our response:This is false. Our report clearly states that according to IHS, only 63.5% of the touch panel

market is used in smartphones and tablets (page 59.) We go on to note that the other 36.5% of the

touch panel market is used in other applications. We source all our information and we take into

consideration the entire universe of touch panel applications, as per IHS data. Either Management did

not bother to read our report in its entirety, or they are being willfully ignorant. From our report

(footnote 36):

Source:https://www.academia.edu/4410199/Touch_Panel_Market_Forecast_2013

Furthermore, Management claims that total solar panel area installed in 2013 could reach 4 billion

square feet and that the possibleapplication of anti-mar represent a much largerpotentialmarket for

the use of anti-mar products than the smartphones and tablets market combined. But this potential

market Management points to comes off more as grandstanding than as real analysis. Management

provides no facts or data to back up how many solar panels actually use anti-mar (if any), and no expert

we spoke with ever mentioned anti-mar use in solar panels.

Moreover, our sources talked to several analysts from the banks that worked on Tianhes IPO, and none

of them ever mentioned solar panels in their discussions of anti-mar.

We will not entertain this notion any further.

However, we will note this: for all of Managements excuses, they never once provide their own

estimates of the anti-mar market size. We suspect that any estimates Management does provide to

validate its 8 tons claim will look foolish and be easily refutable, so instead Management has decided to

avoid directly addressing this issue.

And finally, despite their rebuttal, Management never once mentioned a single-end user of its supposed

anti-mar product. This should be a glaring red flag for any investor.

https://www.academia.edu/4410199/Touch_Panel_Market_Forecast_2013https://www.academia.edu/4410199/Touch_Panel_Market_Forecast_2013https://www.academia.edu/4410199/Touch_Panel_Market_Forecast_2013https://www.academia.edu/4410199/Touch_Panel_Market_Forecast_2013

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4.1 Management claim:According to publicsources,Daikins 20% concentration OPTOOL product sells

for US$6,906 per kg, or RMB42 million per ton (instead of RMB100 million per ton as the AA report

claims).

Our response:This is incorrect. We have recorded conversations with two Daikin experts as well as an

IHS consultant, both of whom confirm 20% concentrate OPTOOL sells for at least RMB100 million per

ton.

The source Management references for pricing is a customs data website. This website only states the

customs value of OPTOOL. However, the customs value of OPTOOL is different than the final ASP that

Daikin charges its customers.

While we are on the subject of customs data, we pulled the customs data for Daikins OPTOOL China

import for 2013:

Exchange rate=6.2

39059000 Volume(kg) Value(USD) Value(RMB) ASP(RMB/k

420 4,376,766 27,135,949 64,6

145 1,213,093 7,521,177 51,8

565 5,589,859 34,657,126 61,3

Source: customs data

As we can see, in all of 2013 Daikin only imported 565kg of 20% concentrate anti-mar into China.

Considering that Daikin has the largest market share in the anti-mar industry, and also that China is the

largest consumer of anti-mar, the 565kg import volume even makes our 4 tons of pure anti-mar global

demand assumption look aggressive.

We simply cannot believe that in the face of all this evidence, Tianhe still wants the world to believe it

sold 8 tons of pure anti-mar.

https://www.zauba.com/importanalysis-daikin+optool/unit-KGS-report.htmlhttps://www.zauba.com/importanalysis-daikin+optool/unit-KGS-report.htmlhttps://www.zauba.com/importanalysis-daikin+optool/unit-KGS-report.htmlhttps://www.zauba.com/importanalysis-daikin+optool/unit-KGS-report.html

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Morgan Stanleys Support of Tianhe

Predictably, Morgan Stanley has come out to publically support Tianhe. According to a Reuters article:3

Morgan Stanley Private Equity Asia, one of its top investors, stands by the Chinese

firm's management after Anonymous Analytics published a report last week accusingTianhe of falsifying statements.

In a emailed statement, Tianhe quoted Homer Sun, Chief Investment Officer and Head of

China for Morgan Stanley Private Equity Asia, as saying the company resolutely behind

Tianhe's world class management team.

There is a sense of irony in this statement.

Back in 2008, the MSPEAIII fundthe very same fund that invested in Tianheinvested US$38.5 million

for a 30% stake in India-based Biotor Industries. Biotor manufactured caster oil which is used in a broad

range of industries, including lubricants and biofuels. In making its investment, MSPEA publically

announced that:

This investment in Biotor represents Morgan Stanley Private Equity Asia's strategy to

invest in companies with exceptional management teams and unique competitive

advantages.4

Within three years of MSPEA making this statement, Biotors management team was charged by Indias

Central Bureau of Investigation with orchestrating an elaborate fraud, and the company was dissolved

and Morgan Stanley lost its entire investment.56

This is just something investors and market commentators might want to consider when they point to

MSPEAs investment in Tianhe as gospel.

3http://www.reuters.com/article/2014/09/11/tianhe-chemicals-anonymousanalytics-morg-

idUSB9N0PP00W201409114https://www.linkedin.com/company/biotor-industries-ltd

5http://archive.indianexpress.com/news/biotor-industries-in-rs-1-500-cr-fraud/742090/

6http://www.dealcurry.com/20111117-Curtain-Falls-On-Morgan-Stanley-s-Biotor.htm

http://www.reuters.com/article/2014/09/11/tianhe-chemicals-anonymousanalytics-morg-idUSB9N0PP00W20140911http://www.reuters.com/article/2014/09/11/tianhe-chemicals-anonymousanalytics-morg-idUSB9N0PP00W20140911http://www.reuters.com/article/2014/09/11/tianhe-chemicals-anonymousanalytics-morg-idUSB9N0PP00W20140911http://www.reuters.com/article/2014/09/11/tianhe-chemicals-anonymousanalytics-morg-idUSB9N0PP00W20140911https://www.linkedin.com/company/biotor-industries-ltdhttps://www.linkedin.com/company/biotor-industries-ltdhttps://www.linkedin.com/company/biotor-industries-ltdhttp://archive.indianexpress.com/news/biotor-industries-in-rs-1-500-cr-fraud/742090/http://archive.indianexpress.com/news/biotor-industries-in-rs-1-500-cr-fraud/742090/http://archive.indianexpress.com/news/biotor-industries-in-rs-1-500-cr-fraud/742090/http://www.dealcurry.com/20111117-Curtain-Falls-On-Morgan-Stanley-s-Biotor.htmhttp://www.dealcurry.com/20111117-Curtain-Falls-On-Morgan-Stanley-s-Biotor.htmhttp://www.dealcurry.com/20111117-Curtain-Falls-On-Morgan-Stanley-s-Biotor.htmhttp://www.dealcurry.com/20111117-Curtain-Falls-On-Morgan-Stanley-s-Biotor.htmhttp://archive.indianexpress.com/news/biotor-industries-in-rs-1-500-cr-fraud/742090/https://www.linkedin.com/company/biotor-industries-ltdhttp://www.reuters.com/article/2014/09/11/tianhe-chemicals-anonymousanalytics-morg-idUSB9N0PP00W20140911http://www.reuters.com/article/2014/09/11/tianhe-chemicals-anonymousanalytics-morg-idUSB9N0PP00W20140911

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Last Words

We stand by all of our original report, which is only further bolstered by the additional related-party

evidence and customs data we presented herein. The totality of the evidence shows that Tianhe has

vastly misrepresented the size and scope of its business, and has produced false and misleading

statements to the market. Nothing that Tianhe has presented in its 10 September clarification crediblyresponds to any of the evidence we have presented. The explanations Tianhe gave in its rebuttal are

incoherent, contradict independently verifiable facts, and often make no logical sense. We also reject

Managements ramblings that the SAIC evidence we provided are fake.

Tianhe ends its clarification announcement by questioning why we would want to publish our report if

we are not financially motivated. This confusion speaks to Managements character. We published our

report because we have a right to express or opinions and concerns, and because the issues involved are

of utmost public interest.

However, we note that Tianhe and those associated with its IPO have a substantial financial interest in

avoiding scrutiny and hoping to silence dissent.

Tianhesweak and colorless rebuttal only invites additional regulatory scrutiny and we hope that the

authorities move quickly to protect investors from being further defrauded.