GOTHAM CITY RESEARCH’S OPINIONS:

• AAC has used 20+ undisclosed related parties & dubious accounting to overstate & smoothen profits since 2014. In this regard, AAC reminds us of Longtop Financial Technologies.

• AAC has used these hidden entities to evade Apple’s labor standards specified in the Apple Supplier Code of Conduct.

• AAC’s share price will initially decline to 40 HKD – 50 HKD per share, as the undisclosed related party supplier revelations are digested.

• We see far greater downside potential to the share price if the company were to concurrently experience the same problems that other Apple suppliers have in the past, e.g. increased competition, pricing pressure from its customers, wage inflation, etc.

Example #2: ZhongBeiTong Magnetic Materials 沈阳中北通磁科技股份有限公司

Gotham City Research has reason to believe that ZhongBeiTong Magnetic Materials is a significant undisclosed related party:

• The company estimated it would enter into RMB 150 million transactions with AAC in 2016.

• ZhongBeiTong Magnetic Materials declared itself (in its filings) as a related party supplier to AAC because Ingrid Wu, one of the unit’s main shareholders and board members, shares the same name as the woman who is the wife of AAC CEO Mr. Pan and an AAC board member.

• In contrast, AAC has never disclosed ZhongBeiTong Magnetic Materials in its annual report.