Our extensive investigation indicates, in our opinion, that the Company inflates revenues, hides costs, misleads Chinese consumers and secretly enriches executives through undisclosed related party transactions. Accordingly, we apply a 25% governance discount to its P/E multiple, which we think is conservative considering that, in our opinion, Ausnutria is a governance nightmare whose financials should not be relied upon. After adjusting its revenue to reflect the independent evidence, we value Ausnutria at HKD 5.78 per share, a 53% downside from its last traded price. Ultimately, we view Ausnutria as simply uninvestable.

On August 15, 2019, we published our investment opinion (the “Report”) on Ausnutria Dairy Corp Ltd (HK: 1717) (“Ausnutria” or the “Company”) detailing an extensive investigation which indicated that Ausnutria inflates revenues, hides costs, misleads Chinese consumers and secretly enriches executives through undisclosed related party transactions. Less than 24 hours later, Ausnutria issued a hasty, incomplete and flimsy 6-page response (the “Response”) which barely addressed our Report in any substantive or meaningful way. Ausnutria’s Response was so hasty we wonder if management even had time to read our Report before concocting blanket denials and tepid admissions. In this rebuttal, not only do we present NEW evidence from the Company’s ESG data suggesting Ausnutria misrepresents its financial performance, but we also pick apart the Response.