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Are You Ready For A 90% Decline In 109.HK?

9GOOD FELLOW RESOURCES HOLDING LIMITED (109.HK)

90% guaranteed downside Potential from Current Levels

NO REAL (meaningful) OPERATING BUSINESS WITHIN THE COMPANY, just the proceeds of the Private Placement. Trading at a >1000% Premium.

Hong Kong Market is valuing the Company at outrageous Levels.

Price per Share increased by 994.34% YTD, while Market Capitalization (at HKD 17.21b / USD 2.22b) is up 2131.74% YTD (Effect of Shares Private Placement).

If Convertible Bonds (NYSE:CB) were to be converted, the Current Market Price of HKD 5.80 per share implies a Market Capitalization of HKD 41.57b (USD 5.36b)

Capital Structure of the Company - 109.HK

Source: 2015-01-29 Company Announcement (page 16) - Link.

Other than the Cash raised in the Jan 2015 Private Placement, NO REAL SUBSTANCE/VALUE WITHIN THE COMPANY.

Core business of the Company (pre-Jan-2015-private-placement) has been generating yearly revenues in the magnitude of < HKD 50m < HKD 50m (< USD 8m) and the Company is now (pre-Jan-2015-private-placement) considering "…to leverage on its experience in investments and loan financing and diversify into related areas of investment and financial segment, which the Board believes would bring synergy values with the existing business of the Company…"

See ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 31st DECEMBER, 2014 (page 20)

The fact that the Company announced a few MOUs recently does not change how the company should currently be valued: Cash + Value of the current operating Business.

The Private Placement (Jan 2015) … valued shares at a

1,500,000,000 new shares + 4,200,000,000 Shares in the Convertible Bonds = 5.7b Shares to be issued at HKD 0.439 (a discount of approximately 31.41% to the closing price of HK$0.64)

Allot and issue a maximum of 1,500,000,000 new Shares at the subscription price of HK$0.439 per new Share; and (2) issue convertible bonds in the maximum principal amount of HK$1,843,800,000, which entitle the holder(s) thereof to subscribe for up to 4,200,000,000 Shares at the conversion price of HK$0.439 per conversion share

The Board is pleased to announce that the Placing Agent has successfully introduced the Investor, the only potential investor expressed interests in subscribing for the New Shares and the Convertible Bonds, to the Company under the Placing Agreement (as supplemented by a supplemental deed dated 29 January 2015).

The Investor: Tiancheng International Holdings Investment Limited, a company incorporated under the laws of the British Virgin Islands and an investment holding company + its ultimate beneficial owner, namely Mr. Cheng Kin Ming are independent of and not connected with the Company. Mr. Cheng Kin Ming is also one of the substantial shareholders of Shunfeng Clean Energy International Limited (Stock code 1165) and also one of the substantial shareholders of Ko Yo Chemcial (Group) Limited (Stock code 827). Cheng Kin Ming personal wealth is reported at USD1.9b http://www.forbes.com/profile/cheng-kin-ming/.

The Logic on the HK Market:

Value at HKD17.21b a Company …

  1. with HKD2.65b in cash and receivable + short term loans worth hkd300m (Total Book Value of HKD2.95b)
  2. with a meaningless business than last year generated only HKD48.9m in sales and (over-) valued at HKD500m prior the start of the Pumping / Private Placement (EV of HKD200m)
  3. employing 11 people
  4. which will presumably (See Recent MOUs) use the Cash to perform acquisition in a HK/CN inflated market environment (likely to end up overpaying)
  5. Where the Bondholders have the right to convert the Bonds at any time and get 4.2b shares at a price of HKD0.439 (representing a 92% discount to current Market Prices)

109 HK should be trading at a price not higher than Book Value (most likely a discount is warranted) + (if you want to be generous) the EV the business had prior the private placement (HKD 200m) = 3.15B HKD

… Implying a Price Target of …. ….

HKD 0.4399 per Share (-90% Downside Potential)

Be reassured … CB likely to be converted … to sell the shares in the Open Market at a 1000% premium over the Conversion Price!

If you assume … repayment of CB and no Conversion …. Given the current Business Operations … the Company would be valued at HKD1.30b (with 2.96b shares outstanding).

… Implying a Price Target of …. ….

HKD 0.4391 per Share (-90% Downside Potential)

Nothing Changes … … … 109 HK is set for a SPECTACULAR Decline!