Alltronics Holdings Limited — Proxy Solicitation & Information Statement 2016

Dec 22, 2016

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealers or registered institutions in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in ALLTRONICS HOLDINGS LIMITED (華訊股份有限公司), you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker, registered dealer in securities or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

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ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

VERY SUBSTANTIAL TRANSACTION IN RELATION TO THE ACQUISITION OF BEIJING PROPERTY

AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial adviser to the Company

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A letter from the board of directors of Alltronics Holdings Limited is set out on pages 5 to 69 of this circular.

A notice convening an extraordinary general meeting of Alltronics Holdings Limited to be held at Unit 2401-02, Admiralty Centre I, 18 Harcourt Road, Hong Kong on 13 January 2017 at 3:00 p.m. is set out on pages EGM-1 and EGM-2 of this circular. A form of proxy for use at the extraordinary general meeting is also enclosed. Such form of proxy is also published on the website of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk).

Whether or not you are able to attend the extraordinary general meeting, you are requested to complete and return the accompanying proxy form in accordance with the instructions printed thereon to the branch share registrar of Alltronics Holdings Limited in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of such meeting or any adjournment thereof (as the case may be). Completion and return of the proxy form shall not preclude you from attending and voting in person at such meeting or any adjournment thereof should you so desire.

23 December 2016

CONTENTS

				Page
DEFINITIONS . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	1
**LETTER FROM THE **		BOARD . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .	5
FINANCIAL INFORMATION OF THE GROUP . . . . . .			. . . . . . . . . . . . . . . . . .	70
APPENDIX I	–	ACCOUNTANTS’ REPORT ON TARGET GROUP . . . .		I-1
APPENDIX II	–	FINANCIAL INFORMATION OF
		THE TARGET GROUP . . . . . .	. . . . . . . . . . . . . . . . . .	II-1
APPENDIX III	–	UNAUDITED PRO FORMA STATEMENT OF
		FINANCIAL INFORMATION OF
		THE ENLARGED GROUP . . .	. . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	–	PROPERTY VALUATION REPORT . . . . . . . . . . . . . . . .		IV-1
APPENDIX V	–	GENERAL INFORMATION . . .	. . . . . . . . . . . . . . . . . .	V-1
NOTICE OF EXTRAORDINARY GENERAL MEETING			. . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

In this circular, unless the contents otherwise requires, the following expressions have the meanings as set out below:

• “Acquisition”

• the acquisition by the Company of the Sale Share pursuant to the Acquisition Agreement

• “Acquisition Agreement”

• the sale and purchase agreement in relation to the Acquisition dated 19 September 2016 entered into between the Vendor, the Guarantor and the Purchaser

• “Beijing Property”

• “Pretty Shopping Centre* (飄亮購物中心)” located at Beijing, the PRC, being the principal asset of the Target Group upon completion of the Reorganisation

• “Beijing Wan Heng Da”

• Beijing Wan Heng Da Investment Company Limited (北京萬恒達投資有限公司), a company incorporated in the PRC with limited liability and an indirect wholly-owned subsidiary of the Target Company after the completion of the Reorganisation

• “Board” the board of Directors

• “Business Day”

• any day (other than Saturdays, Sundays and public holidays) on which commercial banks in Hong Kong are open to the public

• “BVI”

British Virgin Islands

• “Company”

• Alltronics Holdings Limited (華訊股份有限公司), a company incorporated in the Cayman Islands with limited liability and the issued shares of which are listed on the Stock Exchange

• “Completion”

• completion of the Acquisition contemplated under the Acquisition Agreement in accordance with its terms and conditions

• “Completion Date”

the date on which Completion occurs

• “connected persons”

has the meaning ascribed thereto in the Listing Rules

• “Consideration”

• the aggregate consideration for the Acquisition which being the aggregate of the cash consideration under the Acquisition Agreement and the outstanding loan of the Target Group to be assumed by the Purchaser

• For identification purposes only

– 1 –

DEFINITIONS

• “Director(s)”

• “Encumbrance”

• “Enlarged Group”

• “Extraordinary General Meeting” or “EGM”

• “Foshan Ying Hao Thai”

• “Group”

• “Guarantor”

• “HK$”

• “Hong Kong”

• “Independent Property Valuer”

• “Independent Third Party(ies)”

• the director(s) of the Company

• any agreement related to any mortgage, pledge, right of pledge, liability of pledge (expect incurred by execution of laws and regulation), priority or security interests, transactions with delay payments, retention of title, lease, arrangement on buying after selling, renting after selling or other arrangements over any property, asset or any kind of rights

• the Group and the Target Group after completion

• the extraordinary general meeting of the Company to be convened and held on 13 January 2017 to consider and approve, among other things, the Acquisition Agreement and the transactions contemplated thereunder

• Foshan Ying Hao Thai Trading Company Limited (佛 山市盈昊泰貿易有限公司), a company incorporated in the PRC with limited liability and ultimately beneficially owned by Mr. Gu

• the Company and its subsidiaries

• Mr. Gu, being the ultimate beneficial owner of the Vendor and the guarantor to guarantee the due and punctual performance of the Vendor of its obligation under the Acquisition Agreement, an Independent Third Party

• Hong Kong dollars, the lawful currency in Hong Kong

• the Hong Kong Special Administrative Region of the PRC

• LCH (Asia-Pacific) Surveyors Limited, an independent professional valuer nominated by the Company for the purpose of the Acquisition

• any person(s) or company(ies) and their respective ultimate beneficial owner(s), to the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, are third parties independent of and not connected with any director, chief executive or substantial shareholders of the Company and its subsidiaries or any of their respective associates (as defined in the Listing Rules) and are not connected persons of the Company

– 2 –

DEFINITIONS

• “Latest Practicable Date”

• “Listing Rules”

• “Long Stop Date”

• “Memorandum”

• “Mr. Gu”

• “PRC”

• “PRC Legal Advisor”

• “Purchaser” or “Sino Growth”

• “Reorganisation”

• “RMB”

• “Sale Share”

• 20 December 2016, being the latest practicable date prior to the despatch of this circular for ascertaining certain information referred to in this circular

• the Rules Governing the Listing of Securities on the Stock Exchange

• 31 March 2017 or such other date as the Vendor and Purchaser shall agree in writing

• the non-legally binding memorandum of understanding dated 30 June 2016 entered into among the Purchaser, the Vendor and the Guarantor in relation to the proposed Acquisition

• Mr. Gu Qi, an Independent Third Party, being the Guarantor and ultimate beneficial owner of the Vendor and Foshan Ying Hao Thai

• the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, Macau Special Administrative Region of the People’s Republic of China and Taiwan

• the PRC legal advisor to the Company in relation to the Acquisition

• Sino Growth Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company

• a corporate reorganisation implemented by the Target Company such that upon completion of such reorganisation, the Target Group shall be the owner of the entire interest of the Beijing Property and the Target Group has obtained new bank loans and other loans to repay the outstanding amount due to Foshan Ying Hao Thai to release the asset pledge of the Beijing Property and the joint guarantee given by Beijing Wan Heng Da

• Renminbi, the lawful currency in the PRC

the entire issued share capital of the Target Company owned by the Vendor

– 3 –

DEFINITIONS

• “Share(s)”

• “Shareholder(s)”

• “Shenzhen Chong Ruan”

• “Stock Exchange”

• “Target Company”

• “Target Group”

• “Triumph Consumer”

• “United States”

• “US$”

• “Vendor” or “Bonroy International”

• “%”

• share(s) of the Company

shareholder(s) of the Company

• Shenzhen Chong Ruan Finance Lease Company Limited (深圳市創潤融資租賃有限公司), a wholly foreign-owned enterprise incorporated in the PRC and an indirect wholly-owned subsidiary of the Target Company

The Stock Exchange of Hong Kong Limited

• Bonroy Limited, a company incorporated in Samoa with limited liability and is a wholly-owned subsidiary of Bonroy International Group Limited and its principal business being investment holding

the Target Company and its subsidiaries

• Triumph Consumer Goods Limited (創富日用品有限公 司), a company incorporated in Hong Kong with limited liability and a direct wholly-owned subsidiary of the Target Company

United States of America

• United States dollars, the lawful currency in the United States

Bonroy International Group Limited, a company incorporated in Samoa with limited liability, and its principal business being investment holding and is ultimately beneficially owned by Mr. Gu

per cent

– 4 –

LETTER FROM THE BOARD

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ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

Board of Directors:

Mr. Lam Yin Kee (Chairman)

Ms. Yeung Po Wah

• Ms. Liu Jing

• Mr. Lam Chee Tai, Eric

Registered office: Cricket Square Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

• Mr. So Kin Hung

• ^ Mr. Fan, William Chung Yue

• @ Mr. Pang Kwong Wah

• @ Mr. Yen Yuen Ho, Tony

• @ Mr. Yau Ming Kim, Robert

• Executive Director

• ^ Non-executive Director

Principal place of business in Hong Kong: Unit 408, 4/F Citicorp Centre 18 Whitfield Road Hong Kong

• @ Independent Non-executive Director

23 December 2016

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL TRANSACTION IN RELATION TO THE ACQUISITION OF BEIJING PROPERTY AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

On 19 September 2016, the Board made an announcement about Sino Growth, a wholly-owned subsidiary of the Company, as the Purchaser, entered into the Acquisition Agreement with Bonroy International, as the Vendor, and Mr. Gu, as the Guarantor, for the sale and purchase of the Sale Share, representing the entire issued share capital of the Target Company. Upon Completion, the Company will indirectly own the Beijing Property through the Target Company.

– 5 –

LETTER FROM THE BOARD

The Beijing Property is known as “Pretty Shopping Centre* (飄亮購物中心)” which is a commercial complex, mainly shopping mall, comprising two-storey and one-level of basement with a total gross floor area of approximately 40,083.94 square meters and located at No. 68 Anli Road, Chaoyang District, Beijing, the PRC.

THE ACQUISITION AGREEMENT

Background

On 30 June 2016, the Company entered into the non-legally binding Memorandum with the Vendor and the Guarantor in relation to the Acquisition. Pursuant to the Memorandum, the Vendor, the Purchaser and the Guarantor entered into the Acquisition Agreement on 19 September 2016 (after the trading hours of the Stock Exchange) in relation to the Acquisition.

Set out below are the principal terms and conditions of the Acquisition Agreement:

Date

19 September 2016

Parties

Vendor: Bonroy International Purchaser: Sino Growth Guarantor: Mr. Gu, the ultimate beneficial owner of the Vendor, being an Independent Third Party

Save as Mr. Gu, being the ultimate beneficial owner of the Vendor and the Guarantor, is a business partner of the Group and providing consultancy services to the Group in respect of the LED energy saving business, to the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, the Vendor, the Guarantor and their respective associates are Independent Third Parties. The Directors also confirm that to the best of their knowledge, information and belief after having made all reasonable enquiries, there is no prior transaction with each of the Vendor and the Guarantor or their ultimate beneficial owners or their respective associates which is required to be aggregated with the Acquisition pursuant to Rule 14.22 of the Listing Rules. The consultancy services provided by Mr. Gu to the Group was entered in the ordinary and usual course of business of the Group and on normal commercial terms and the aggregate consulting services fee paid to Mr. Gu by the Group is below 5% of the applicable percentage ratios (as calculated in accordance with Rule 14.07 of the Listing Rules) up to the Latest Practicable Date.

• For identification purposes only

– 6 –

LETTER FROM THE BOARD

Assets to be acquired

Pursuant to the Acquisition Agreement, the Vendor has conditionally agreed to sell and the Purchaser has conditionally agreed to purchase the Sale Share, representing the entire issued share capital of the Target Company, free from all Encumbrances and together with all existing and future rights and benefits attaching with or accruing to the Sale Share, subject to the satisfaction (or waiver, where applicable) of the conditions precedent as set out in the paragraph headed “Conditions precedent” below.

The Target Company principally engages in investment holding which owned the entire interest in the Beijing Property through Beijing Wan Heng Da, being an indirect wholly-owned subsidiary of the Target Company. As at the Latest Practicable Date, the Beijing Property is entirely owned by Beijing Wan Heng Da under 24 land use rights certificates and 24 real estate ownership certificates, of which 4 land use rights certificates shall be expired on 12 April 2043 and the remaining 20 land use rights certificates shall be expired on 12 April 2033. The PRC Legal Advisor confirmed that Beijing Wan Heng Da has obtained the land use rights certificates and the real estate ownership certificates of the Beijing Property. Therefore, Beijing Wan Heng Da has obtained the proper legal ownership of the Beijing Property.

The Beijing Property is a commercial complex which is mainly a shopping mall, known as “Pretty Shopping Centre* (飄亮購物中心)”, and is attached to the residential buildings. The Beijing Property was built in 1999 and comprises two-storey and one-level of basement with a total gross floor area of approximately 40,083.94 square meters. It locates at No. 68 Anli Road, Chaoyang District, Beijing, the PRC (北京市朝陽區安立路68號) in a position near to National Stadium in Beijing (known as “Bird’s Nest”) which is an area of commercial and residential districts in Chaoyang District with adequate flow of walkers and business travellers and known as Asia Olympic Game Golden Business Circle (亞奧黃金商圈) in Beijing.

The tenants of Beijing Property include supermarket, banks, cinema, restaurants and retail shops. Based on the information provided by the Vendor and to the best knowledge of the Directors, the tenants of Beijing Property are Independent Third Parties.

Pledge of asset and guarantee given by Beijing Wan Heng Da

Pursuant to asset pledge agreements, shareholding pledge agreement and irrecoverable guarantee agreement entered into between Foshan Ying Hao Thai as debtor, an Independent Third Party as creditor, and Beijing Wan Heng Da as the guarantor, the entire shareholding in Beijing Wan Heng Da and the ownership of Beijing Property have been pledged with such creditor and guarantee was given to such creditor by Beijing Wan Heng Da, for an outstanding amount due by Foshan Ying Hao Thai to such creditor. Such asset pledge was released on 17 October 2016 subsequent to a new asset pledge agreement entered on 28 September 2016. Further details are set out in the paragraph headed “Loan to Target Group” below. Foshan Ying Hao Thai was the intermediate holding company of Beijing Wan Heng Da before the Reorganisation. Both of the Vendor and Foshan Ying Hao Thai are ultimately wholly-owned by the Guarantor.

– 7 –

LETTER FROM THE BOARD

Consideration

Pursuant to the Acquisition Agreement, the cash consideration for the Sale Share is US$1.00. The cash consideration shall be settled upon Completion by cash. The Consideration was determined after arm’s length negotiations between the Vendor and the Purchaser after taking into account a number of factors including, among other things, the business nature and prospects of the Target Group, the financial status of the Target Group and the fair value of the Beijing Property which was approximately RMB2.14 billion (equivalent to approximately HK$2.50 billion) as at 30 June 2016 pursuant to the property valuation carried out by the Independent Property Valuer using term and reversion method of the income approach. The Directors consider that the terms of the Acquisition Agreement and the Acquisition are on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Loan to Target Group

On 27 September 2016, Beijing Wan Heng Da entered into an entrusted loan agreement with Changdu Ruten Rong Ching Finance Leasing Company Limited (昌都市瑞 德融晟融資租賃有限公司) (“ Changdu Ruten ”) to obtain a loan in the total amount of RMB1.5 billion on 28 September 2016, 10 October 2016 and 14 October 2016 respectively to settle the outstanding amount due to Foshan Ying Hao Thai by the Target Group. Below are the principal terms of the entrusted loan arrangement.

Entrusted Loan Agreement (“ Entrusted Loan Agreement ”)

Date:	27 September 2016
Entrusting Party:	Changdu Ruten
Entrusted Party:	Yingkou Coastal Bank
Borrower:	Beijing Wan Heng Da
Entrusted Loan:	RMB1.5 billion
Interest rate:	6.3% per annum
Loan period:	36 months
Repayment:	First repayment of principal amount RMB600 million on 28
	September 2019;

Second repayment of principal amount RMB600 million on 10 October 2019;

Third repayment of principal amount RMB300 million on 14 October 2019.

– 8 –

LETTER FROM THE BOARD

Handling fee:

RMB9,125,000 (being 0.2% of the principal amount ÷ 360 x 1,095). The handling fee is charged by Yingkou Coastal Bank and borne by Beijing Wan Heng Da, being the borrower of the entrusted loan.

Changdu Ruten is a company incorporated in the PRC and principally engaged in finance leasing and trading of leasing properties. It is owned by Mr. Gu and Independent Third Parties. Yingkou Coastal Bank is a commercial bank in the PRC and an Independent Third Party which is owned by a state-owned enterprise in the PRC.

The entrusted loan is for the Target Group to finance the repayment of outstanding amount of RMB1.5 billion due to Foshan Ying Hao Thai after the Reorganisation. The entrusted loan grants the flexibility for the loan repayment with the repayment period at the end of the third year from the agreement date. The Directors consider that the Entrusted Loan Agreement was entered into on normal commercial terms and its terms are fair and reasonable and in the interests of the Company and its shareholders as whole.

As the aggregate rental income from the tenants of Beijing Property is approximately RMB125.8 million per year with annual upward adjustment mechanism and the total sum of interest expenses and the handling fee of the Entrusted Loan is about RMB97.5 million per annum, the Directors consider that the rental income from Beijing Property is able to cover the interest and related fee of the Entrusted Loan and all expenses of Beijing Wan Heng Da.

Asset Pledge Agreement (“ Asset Pledge Agreement ”)

In order to obtain the funds to finance the loan from Changdu Ruten to Beijing Wan Heng Da, Changdu Ruten entered into a loan agreement with Northern International Trust Company Limited (北方國際信託股份有限公司) to obtain the loan in the total amount of RMB1.5 billion on 28 September 2016, 10 October 2016 and 14 October 2016 respectively. For the purpose to ensure the obligation of Changdu Ruten under this loan agreement, Beijing Wan Heng Da entered into the Asset Pledge Agreement at the request of Changdu Ruten as the mortgagor to pledge the entire interest in Beijing Property held by Beijing Wan Heng Da. Below are the principal terms of the Asset Pledge Agreement.

Date: 28 September 2016 Mortgagor: Beijing Wan Heng Da Mortgagee: Northern International Trust Company Limited (北方國際信 託股份有限公司) Pledged Asset: Beijing Property

– 9 –

LETTER FROM THE BOARD

Northern International Trust Company Limited (“ NIT ”) is a company incorporated in the PRC and an Independent Third Party. Its principal business is the provision of financial services in the PRC, including assets trust, lending and investment banks services. Pursuant to the Asset Pledge Agreement, Beijing Wan Heng Da agreed to pledge the entire interest in Beijing Property to NIT to guarantee a loan obtained by Changdu Ruten in the total amount of RMB1.5 billion. Such loan is in turn given to Beijing Wan Heng Da through the Entrusted Loan Agreement. Changdu Ruten has given an irrevocable undertaking and payment instruction to Beijing Wan Heng Da that all repayments from Beijing Wan Heng Da according to the Entrusted Loan Agreement shall be paid to NIT through Yingkou Coastal Bank directly. Changdu Ruten has also undertaken that it will use its best effort and to take all necessary actions (including but not limited to the repayment of all its loan from NIT and settlement of all relevant interests) to ensure that the pledge of the Beijing Property will be discharged immediately upon Beijing Wan Heng Da has repaid all the loan and settled all the interests under the Entrusted Loan Agreement. Changdu Ruten has also undertaken that it will not breach any of the terms of the loan agreements entered into between Changdu Ruten and NIT so as to ensure that the pledge of the Beijing Property will not be enforced, and has undertaken to indemnify Beijing Wan Heng Da for any loss that it may suffer should the pledge of the Beijing Property be enforced as a result.

The Directors consider that it is fair and reasonable for the Entrusted Loan Agreement facilitates the Target Group to settle the outstanding amount due to Foshan Ying Hao Thai and using its own Beijing Property as pledge under the Asset Pledge Agreement on a back-to-back basis for the entrusted loan provided by Changdu Ruten which funding source was obtained from NIT.

Put option

Pursuant to the Acquisition Agreement, the Vendor and the Guarantor have undertaken and irrevocably granted the right to the Purchaser to require the Vendor to buy back the entire equity interest of the Target Company from the Purchaser (inclusive of any outstanding loans and accrued interests for such loans obligation) at the Option Price, during the exercise period (being the period of three months from the third anniversary of the Completion Date) (the “ Put Option ”) on the condition that (i) the Beijing Property shall remain as the principal asset of the Target Group; (ii) the Purchaser having been unable to sell the Target Group (inclusive of any outstanding loans and accrued interests for such loans obligation) at the Option Price, or to sell the entire interest of the Beijing Property at or above of RMB1.5 billion (equivalent to approximately HK$1.76 billion) and (iii) all relevant consents and approvals having been obtained by the Purchaser and the Company in the exercise of the Put Option. The Company is required to comply with the notifiable transaction requirements under the Listing Rules if the Company intends to exercise the put option.

– 10 –

LETTER FROM THE BOARD

The Option Price shall be calculated by the formula as follows:

Option Price = A + B

• Whereas: A = US$1.00 (equivalent to the cash consideration payable by the Purchaser for the acquisition of the Sale Share under the Acquisition Agreement)

• B = any inter-company balances due by the Target Group on one part to the Group (excluding the Target Group) on another part as at the date of exercise of the Put Option

The purpose of the Put Option is to afford the Company an opportunity to restore its position to the state immediately before the Acquisition as much as possible in order to protect the interests of the Group.

The Vendor and the Guarantor will ensure the Purchaser, the Company and their associates to be released from all guarantee or obligations in relation to the Target Group at the time of exercise of the Put Option by the Purchaser and irrevocably indemnify the Purchaser, the Company and their associates for any losses if such guarantee or obligations in relation to the Target Group could not be released. For avoidance of doubt, notwithstanding the exercise of the Put Option, the Purchaser or its nominee shall be entitled to the rental income generated from the Beijing Property after deducting the bank interests and relevant expenses from the Beijing Property for the period immediately after Completion and before exercise of the Put Option free from any encumbrances.

Conditions precedent

Completion is conditional upon fulfillment or waiver (as the case may be) of the following conditions precedent:

• (i) the Purchaser being satisfied with the results of the due diligence review to be conducted on the assets, liabilities, operations, and affairs of the Target Group;

• (ii) the passing by the Shareholders at the EGM to be convened and held of ordinary resolution(s) to approve the Acquisition Agreement and the transactions contemplated thereunder;

– 11 –

LETTER FROM THE BOARD

• (iii) the Reorganisation having been completed (including but not limited to the grant of bank loans and other loans to the Target Group to repay the outstanding amount due by the Target Group to Foshan Ying Hao Thai after the Reorganisation, and the releases of the guarantee given by Beijing Wan Heng Da and the asset pledge of Beijing Property);

• (iv) a PRC legal opinion (in form and substance satisfactory to the Purchaser) issued by a PRC legal counsel nominated by the Company covering such matters which are relevant to the Acquisition Agreement and the transactions contemplated thereunder having been obtained;

• (v) all necessary approvals and consents in respect of the Acquisition having been obtained by the Vendor, the Target Company and the Guarantor;

• (vi) all necessary approvals and consents in respect of the Acquisition having been obtained by the Purchaser;

• (vii) a property valuation report (in form and substance satisfactory to the Company) to be issued by the Independent Property Valuer appointed by the Company indicating the fair value of the Beijing Property as at 30 June 2016 of not less than RMB2.0 billion having been obtained;

• (viii) the absence of any non-compliance or violation of any relevant fire safety laws, rules and regulation concerning the Beijing Property the existence of which would pose a material adverse impact to the business of the Target Group;

• (ix) all statements, guarantee and warranties given by the Vendor under the Acquisition Agreement remaining true and accurate and not misleading from, and there being no matters or events that might lead to the breach of the warranties given by the Vendor; and

• (x) the Purchaser believes and accepts that there being no material adverse change to any member of the Target Group since the date of the Acquisition Agreement.

The Purchaser may at any time waive conditions (i), (viii), (ix) and (x) as stated above while the other conditions cannot be waived by any parties to the Acquisition Agreement. As at the Latest Practicable Date, save and except condition precedent (iii), all other conditions precedent of the Acquisition Agreement had not been fulfilled.

– 12 –

LETTER FROM THE BOARD

Each party to the Acquisition Agreement shall use its/his best endeavours to ensure that the conditions precedent aforementioned shall be fulfilled by the Long Stop Date. If any of the conditions set out above is not fulfilled or, as the case may be, waived by the Purchaser on or before 6:00 p.m. on the Long Stop Date, then the obligations of the parties to the Acquisition Agreement shall cease and terminate (save and except those provisions dealing with termination, guarantee by the Guarantor, confidentiality, notice, fees and governing law and jurisdiction which shall continue to have full force and effect) and neither party shall have any claim under the Acquisition Agreement against the other save for any antecedent breaches of the terms thereof.

Completion

Completion shall take place on the Completion Date. Upon Completion, the Company will, through the Purchaser, be interested in the entire issued share capital of the Target Company and the Target Company will become a wholly-owned subsidiary of the Company. All the results, assets and liabilities of the Target Company and its subsidiaries will be consolidated into the financial statements of the Group. It is contemplated that the parties will proceed to complete the Acquisition within 30 days after conditions of the Acquisition Agreement fulfilled or waived.

INFORMATION OF THE VENDOR

Bonroy International, being the Vendor, is an investment holding company and incorporated in Samoa with limited liability on 20 May 2016 which is ultimately beneficially owned by Mr. Gu. The registered capital of Bonroy International was US$1 million. Bonroy International is an investment holding company and does not carry on any other business apart from holding the entire interest in the Target Group.

The Directors confirm that there is no agreement, arrangement, understanding or undertaking (whether formal or informal and whether express or implied) entered between the Vendor and any connected person of the Company as described in the Listing Rules with respect to the Acquisition.

– 13 –

LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP

The Target Company is an investment holding company incorporated in Samoa with limited liability on 20 May 2016. The Sale Share represents the entire issued share capital of the Target Company. As at the Latest Practicable Date, the Target Company was wholly-owned by the Vendor.

Set out below is the shareholding structure of the Target Group:

==> picture [169 x 417] intentionally omitted <==

----- Start of picture text -----

Vendor
100%
Target Company
(incorporated in Samoa with
limited liability)
100%
創富日用品有限公司
Triumph Consumer
(incorporated in Hong Kong
with limited liability)
100%
深圳市創潤融資租賃有限公司
Shenzhen Chong Ruan
(wholly foreign-owned enterprise
incorporated in PRC)
100%
北京萬恒達投資有限公司
Beijing Wan Heng Da
(limited liability company
incorporated in PRC)
----- End of picture text -----

– 14 –

LETTER FROM THE BOARD

Bonroy

Bonroy, the Target Company, is a company incorporated in Samoa on 20 May 2016 as limited liability company with a share capital of US$1 million, divided into 1,000,000 shares. The entire issued share capital of Bonroy was owned by Bonroy International. The principal business of Bonroy is an investment holding company.

Triumph Consumer

Triumph Consumer is a company incorporated in Hong Kong on 17 November 2009 as limited liability company with a share capital of HK$10,000, divided into 10,000 shares at HK$1 each. The entire issued share capital of Triumph Consumer was owned by Bonroy. The principal business of Triumph Consumer is an investment holding company.

Shenzhen Chong Ruan

Shenzhen Chong Ruan is a company incorporated in the PRC on 10 March 2015 as a foreign wholly-owned enterprise with limited liability. The total registered capital of Shenzhen Chong Ruan was US$15 million and it is wholly-owned by Triumph Consumer. The business scopes of Shenzhen Chong Ruan are finance leasing, properties investment and rental, leasing properties salvage value management and leasing related business.

Beijing Wan Heng Da

Beijing Wan Heng Da is a company incorporated in the PRC on 29 November 2010 as a domestic company invested by a foreign investment enterprise with limited liability. The total registered capital of Beijing Wan Heng Da is RMB570 million. Beijing Wan Heng Da is currently wholly-owned by Shenzhen Chong Ruan after the Reorganisation by the acquisition of Beijing Wan Heng Da from Foshan Ying Hao Thai. The business scopes of Beijing Wan Heng Da includes of project investment, investment management, asset management, corporation management, economic contract guarantee and leasing of commercial properties.

– 15 –

LETTER FROM THE BOARD

Upon Completion

==> picture [169 x 504] intentionally omitted <==

----- Start of picture text -----

The Company
100%
Sino Growth
(incorporated in the BVI
with limited liability)
100%
Target Company
(incorporated in Samoa
with limited liability)
100%
創富日用品有限公司
Triumph Consumer
(incorporated in Hong Kong
with limited liability)
100%
深圳市創潤融資租賃有限公司
Shenzhen Chong Ruan
(wholly foreign-owned enterprise
incorporated in PRC)
100%
北京萬恒達投資有限公司
Beijing Wan Heng Da
(limited liability company
incorporated in PRC)
----- End of picture text -----

– 16 –

LETTER FROM THE BOARD

BUSINESS OF THE TARGET GROUP

The Target Company is an investment holding company. Triumph Consumer Goods Limited is an investment holding company which is a wholly-owned subsidiary of the Target Company incorporated in Hong Kong with limited liability. Its wholly-owned subsidiary, Shenzhen Chong Ruan, is also an investment holding company. It is a wholly foreign-owned enterprise incorporated in PRC. It holds the entire share interest of Beijing Wan Heng Da, a limited liability company incorporated in PRC with the principal business of property investment. The Target Group has only one active business which is engaged in property investments in the PRC. The revenue of the Target Group during the three years ended 31 December 2015 and the six months ended 30 June 2016 were all derived from the rental income and management fee generated from the Beijing Property.

During the three years ended 31 December 2015 and the six months ended 30 June 2016, the revenue of the Target Group was approximately RMB38.5 million, RMB38.8 million, RMB39.6 million and RMB36.7 million respectively, which were all derived from the rental income and management fee generated from Beijing Property held by Beijing Wan Heng Da.

The competitive advantage of Beijing Property

The Beijing Property has two adjacent office towers which have the potential to provide a stable source of white-collar customers.

Beijing Property has a very strong location which is situated within a cluster of residential projects and a number of Grade B office towers. The potential demand from residents living nearby and office workers in the area is strong. It also has convenient access to and from major roads in the area. Although there are many competitors within a 2 km-radius, none of them are strong performers which make it relatively easy to outperform competitors in the area. It is also near several large residential communities including Anhui Beili Community and Xiuyuan Community behind the Beijing Property and Huizhongli Community across the street.

In addition, the development of the Olympic Area leads to a larger consumer base with higher disposable incomes that the Beijing Property may have chance to tap into the rising demand from the growing middle class.

Although the management team of Beijing Property is relatively not experienced that the shopping mall is disrepair and the floors are disordered without any maintenance which fail to attract customers, the Directors consider that the management team of the Target Group can provide more circumspect monitoring and management on the Beijing Property.

As the size of the mall is relatively small, it is easier and faster to lease up and focus on a niche market that suits the demands of the target customer.

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LETTER FROM THE BOARD

Since the Beijing Property is positioned as a wholesale market with domestic unbranded tenants and low-end brands without significant signs or direction boards, it has the potential to lease spaces to other luxury and premium brands with better installations such as set up of enquiry service centre inside the Beijing Property in the future.

Business Model of Beijing Property

Business of Beijing Property

The Target Group has only one investment portfolio, the Beijing Property which is a commercial complex, mainly a shopping mall known as “Pretty Shopping Centre* (飄亮購 物中心)” and is attached to the residential buildings. The Beijing Property was built in 1999 and comprises two-storey and one-level of basement with gross floor area of approximately 40,083.94 square meters. During the three years ended 31 December 2015 and six months period ended 30 June 2016, the rental income and management fee received from Beijing Property was approximately RMB38.6 million, RMB38.8 million, RMB39.6 million and RMB36.7 million respectively which represents all the revenue of Beijing Wan Heng Da during the same period.

Customers

The customers of the Target Group are the tenants of the Beijing Property. Prior to the acquisition of Beijing Wan Heng Da by Mr. Gu in September 2014, Beijing Wan Heng Da was controlled by 16 individual investors. During the prior possession by the previous owners of Beijing Wan Heng Da, the Beijing Property was poorly managed and there were divergent views among the management of the previous owners, as a result, the value of Beijing Property was not fully exploited and rented below the market rate. After change of ownership of Beijing Wan Heng Da to Mr. Gu, Beijing Wan Heng Da commenced to negotiate the lease term and rental rate with a major tenant Tenant A (as defined below) and repossessed an area of about 15,000 square meters which was previously sub-leased by Tenant A to other tenants.

For the three years ended 31 December 2013, 2014 and 2015, the tenants of Beijing Property included of Tenant A as the largest tenant of Beijing Property during the period and various small tenants which changed from time to time. After entering into a new lease agreement with Tenant B in 2016 and as at the Latest Practicable Date, there are only two tenants of Beijing Property, Tenant A and Tenant B (as defined below) respectively, who are independent from and not connected with the Group, the Vendor, the Guarantor, the Target Group and their respective associates.

• For identification purposes only

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LETTER FROM THE BOARD

Tenant A is principally engaged in the operation of supermarkets, department stores and discount stores in Beijing. Tenant A is owned by a foreign investment enterprise and principally engage in operation of chain-stores in the PRC, it has commenced the operation of supermarket under an international brand in the Beijing Property since 2001. As at the Latest Practicable Date, it has leased an aggregate area of 14,684.90 square meters of the Beijing Property as supermarket and department store and 150 car parking spaces. Tenant A contributed approximately 59%, 60%, 61% and 17% of the revenue of the Target Group for the three years ended 31 December 2015 and the six months ended 30 June 2016 respectively.

Tenant B is a member company of a property developer in the PRC (“ PRC Property Developer ”) which is one of the 100 largest real estate developers in the PRC. The PRC Property Developer had revenue at approximately RMB3.5 billion, total assets at approximately RMB6.0 billion and net assets at approximately RMB2.5 billion in 2015. The PRC Property Developer was ranked at top 10 property developers in Wuhan and it is principally engaged in the property development, investment, management and related business. It also engages in the investment, trading, energy business and advertising. Tenant B was established in 2009 and is a professional property management company and provides property management service in an area of over a million square meters, including residential buildings and a shopping center in Wuhan. It is the intention of the PRC Property Developer to expand its business into first tier cities in the PRC and it is their strategy for Tenant B to establish a stronghold in Beijing by commencing property management and shopping mall operation. Taking into account of the following factors, including, i) background and reputation of the parent group of Tenant B; ii) the professional experience and track record in property management of Tenant B; and iii) the rental rates of Tenant B are in line with the market range, the management of Beijing Wan Heng Da entered into the lease agreement between Tenant B and Beijing Wan Heng Da in February 2016 under which Tenant B has leased an aggregate area of 25,399.04 square meters for sub-lease to different tenants including chain store of beauty parlour, Japanese restaurant, chain coffee shop, international fast food store, Chinese fast food stores, chain cloth store, cinema and different retail booths in the Beijing Property. The management of Target Group considers that the terms of the lease agreement is fair and reasonable and Tenant B will be able to commit the rental payment according to the lease agreement. Tenant B contributed nil, nil, nil and 69% of the revenue of the Target Group for the three years ended 31 December 2015 and the six months period ended 30 June 2016 respectively.

Based on the gross floor area of Beijing Property in approximately 40,083.94 square meters and fully occupied during the six months period 30 June 2016, the average monthly rental rate of Beijing Property was approximately RMB152.5 per square meter.

Other individual tenants contributed approximately 41%, 40%, 39% and 14% of the revenue of the Target Group for the three years ended 31 December 2015 and the six months period ended 30 June 2016 respectively. Their tenancy agreements were expired before the Latest Practicable Date. Therefore, there were only two tenants of Beijing Property as at the Latest Practicable Date.

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LETTER FROM THE BOARD

Lease Agreements

Prior to the acquisition of the Beijing Property from previous owners by Foshan Ying Hao Thai, the lease agreements are entered between the previous owners’ companies or Beijing Wan Heng Da among the tenants. After the acquisition of Beijing Wan Heng Da by Foshan Ying Hao Thai, the lease agreements have been renegotiated. As at the Latest Practicable Date, all the lease agreements were entered between Beijing Wan Heng Da and tenants.

The term of lease agreement with Tenant A is 17 years commencing from 1 January 2016 to 12 April 2033 with upward adjustment mechanism. The term of lease agreement with Tenant B is 10 years commencing from 1 May 2016 to 30 April 2026 with upward adjustment mechanism. These two tenants entered into two long term lease agreements with Beijing Wan Heng Da for the Beijing Property and both lease agreements will continue to be enforceable upon Completion and will not be affected by the Acquisition.

Taking into account of average rental of similar properties in the same location in between RMB240-RMB360, the Directors note that there is a difference of approximately RMB316.02 per square meter in the average monthly rental rate per square meter between the two leases with Tenant A (approximately RMB61.29 per square meter) and Tenant B (approximately RMB377.31 per square meter) respectively. The Vendor advised that the management of the Target Group has taken into account of the following consideration when entered into the lease agreement with Tenant A. Firstly, Tenant A operates the supermarket operation under an international brand. The management of the Target Group considers that it will attract more customers to the shopping mall and the Beijing Property and the Target Group will be benefited as a whole; secondly, Tenant A leased the area in the basement of the Beijing Property which is a position inferior to the area leased by Tenant B in the first and second floor of the Beijing Property; thirdly, the lease agreement with Tenant A has a longer term and will be expired on 12 April 2033. After careful consideration, the Directors concur with the management of Target Group that the renewal of the lease agreement between Beijing Wan Heng Da and Tenant A is in the interest of Beijing Wan Heng Da as the lease agreement secures a stable long term return to Beijing Wan Heng Da, otherwise it may not be in the interest of the Target Group if there is a long vacant period of the area leased by Tenant A in Beijing Property. In order to maximize the return of the Beijing Property, the management of the Target Group will consider to recruit new tenant(s) when appropriate tenant(s) are available. The management of the Target Group will exercise careful consideration in case of terminating the lease agreement with Tenant A before it expires.

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LETTER FROM THE BOARD

The Directors also note that the rental income of Beijing Property is mainly derived from Tenant B which contributed to approximately 85% of the total rental income of Beijing Property for the year ending 31 December 2016 and the valuation of the Beijing Property is based on the existing lease agreements of the Target Group. In this regard, the management of the Target Group has considered the following factors. Firstly, the lease agreement entered between Beijing Wan Heng Da and Tenant B that Tenant B has committed full rental payment regardless of the occupancy rate for the rental area occupied by Tenant B. In addition, the management of the Target Group had carefully assessed the background, reputation and track record of Tenant B as disclosed above before entering into the lease agreement with Tenant B. Furthermore, the Target Group closely monitored the rental payment and operation performance of Tenant B and will take remedial measures if necessary when the rental payments are delayed or in default. These measures, among others, include forfeiture of the rental deposit of RMB20.0 million, terminating the lease agreement and finding replacement tenants or qualified property service companies immediately. Since the lease agreement with Tenant B initiated in May 2016, Tenant B has been in full compliance with the lease agreement and paying the rentals on time. Also, the management of the Target Group continuously monitors the background of the sub-tenants of Tenant B. The Target Group’s management believes that by entering into the lease agreement with Tenant B, Beijing Wan Heng Da could leverage the expertise of Tenant B in the property management and focus its own resources of the Target Group on the long term business planning and development.

Major terms of lease agreements of the Target Group

Rental areas (GFA)	Tenants	Leasing Terms	Rental	Note
14,684.90 square	Tenant A	1 January 2016 to	Monthly rental including rental	The tenant operates a
meters and		12 April 2033	and property management fee,	supermarket at the
150 car parks			with upward adjustment	basement floor of the
			mechanism.	Beijing Property.
			From 1 January 2017, the monthly
			rental will increase by 2% each
			year.
			The monthly rental for car parks
			with annual adjustment
			mechanism. The monthly rental
			will increase by 4% every two
			years.

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LETTER FROM THE BOARD

Rental areas		Leasing
(GFA)	Tenants	Terms	Rental	Deposit	Note
25,399.04 square	Tenant B	1 May	Monthly rental including rental	Tenant B is required to	Tenant B is a
meters		2016 to	and property management	pay a deposit of	professional
		30 April	fee, with upward adjustment	RMB20 million as	property
		2026	mechanism.	guarantee of its	management
				performance of	company.
			From 1 May 2016 to 30 April	obligations under the	According to the
			2019, the annual rental will	lease agreement.	lease agreement,
			increase by 5% each year.	Such deposit will be	Tenant B will use
				refunded to Tenant B	the area for
			From 1 May 2019 to 30 April	without interest	commercial and
			2020, the annual rental will	upon expiry of the	office purpose.
			increase by 20%.	lease agreement or	After entering into
				Beijing Wan Heng Da	the lease
			From 1 May 2020 to 30 April	has a right to forfeit	agreement with
			2026, the annual rental will	the deposit if Tenant B	Beijing Wan Heng
			increase by 5% each year.	breach of the lease	Da, it has then
				agreement or early	entered into
				termination the lease	various sub-lease
				agreement	agreements with
				unilaterally.	different tenants.

Credit control

The rental income of the Target Group is received through bank transfer from the tenants who usually pay in advance of each month and payable within 15 days from commencement each month. The accounting department of the Target Group conducts regular reviews on the tenants’ payment history and overdue payments (if any). The accounting department will issue rental invoice to the tenants and follow up with the tenants on their proper payment of rental. Overdue note will be issued to the tenants if any outstanding rental has been overdue for more than 7 days. The sales and marketing staff will follow up with such tenant(s) if rental payment has been overdue and require the tenant(s) to arrange payment for the outstanding amount immediately. If the tenant(s) still has not settled the outstanding rental within 30 days from the issue of overdue note, the accounting department will advise the management of the Target Group to take legal action against such tenant(s).

Suppliers

The principal business of the Target Group is property investment for rental income. Except for the property management services provided by Service Provider A, the Target Group does not have any other main suppliers or distributors. Service Provider A is principally engaged in the provision of property management services and is an Independent Third Party of the Group and the Target Group. It is responsible for the provision of maintenance, security and cleaning services to the Beijing Property. The service agreement with Service Provider A was entered into between Beijing Wa Heng Da

– 22 –

LETTER FROM THE BOARD

and Service Provider A on 1 May 2013 for a service period from 1 May 2013 to 17 March 2017. Although Service Provider A is the only service provider to the Beijing Property, the directors of the Target Group consider that the Target Group will not encounter any difficulties to seek for another similar service provider if the service agreement will not be renewed upon expiry.

During 2013 to 2015, the entire property management fee charged by Service Provider A was borne by the tenants, Beijing Wan Heng Da collected property management fee from the tenants on Service Provider A’s behalf and delivers the cash received to Service Provider A. Service Provider A issued invoices to the tenants directly and the Target Group acted as an agent to collect property management fee, therefore the Target Group netted off the property management fee received from tenants with those paid to Service Provider A. During 2016, two new rental agreements were entered into with Tenant A and Tenant B. The rental income from Tenant A and Tenant B were negotiated on a gross basis. Tenant A and Tenant B did not bear any additional property management fee. The Service Provider A charged the property management fee to Beijing Wan Heng Da, and issued the invoices to Beijing Wan Heng Da instead of the tenants. Beijing Wan Heng Da acted as a principal and therefore recognised revenue and property management fee on a gross basis.

The service fee to Service Provider A contributed approximately 56% of the Target Group’s administrative expenses for the six months period ended 30 June 2016.

Sales and Marketing

The management of the Target Group is responsible for recruitment of potential tenants to the Beijing Property. Although there is no public promotion or advertisement on the Beijing Property, the Beijing Property is already a well-known shopping mall and located at the prime location in Beijing. Enquiries for renting shopping areas in the Beijing Property are received occasionally. The management of the Target Group will also consider referral by Independent Third Party when appropriate tenants are introduced. In considering the acceptance of new tenants, the management of the Target Group will consider the reputation, offer rents and the market strategy of the tenant.

Legal Compliance

Save as disclosed below, as advised by the Company’s PRC legal advisers, the Target Group has obtained the relevant approvals, permits, licences and certificates for conducting its businesses in the PRC in all material respects and the PRC legal advisers are not aware of any violation of the applicable PRC laws, rules and regulations in all material respects by the Target Group during the three years ended 31 December 2015 and up to the Latest Practicable Date.

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LETTER FROM THE BOARD

Non-compliance issues of the Target Group are set out as belows:

Name of

Target Legal consequence and Group Non-compliance Cause of maximum potential companies incidents non-compliance Remedial actions penalty Triumph Triumph Due to the The deadline for According to Regulation Consumer Consumer oversight of the paying the of the People’s failed to pay Target Group’s registered capital of Republic of China on the registered finance staff to Shenzhen Chong the Administration of capital of the deadline for Ruan was extended Company Registration Shenzhen paying the to 18 February 2025 (2014 Revision) (《中華 Chong Ruan in registered (the deadline for 人民共和國公司登記管理 time. capital which the first phase of 條例（2014修訂）》), was approved registered capital) company registration by the relevant and 18 February authorities are entitled authority. 2045 (The second to order Triumph phase of registered Consumer to pay up capital), which had the registered capital been approved and within a prescribed registered by time limit and impose a relevant fine from 5% to 15% of government the amount of overdue department paying registered authorities. capital.

– 24 –

LETTER FROM THE BOARD

Name of

Target Group Non-compliance Cause of companies incidents non-compliance Remedial actions Shenzhen Shenzhen Chong The omissions Shenzhen Chong Chong Ruan failed to were principally Ruan had made Ruan make due to the relevant registration of unfamiliarity of registration on performing finance staff 11 July 2016. Foreign Direct and the Investment directors of the Internally Target Group funded has oversight to obligations in supervise the time. staff in the compliance with the statutory requirements.

Shenzhen Chong Ruan had made the relevant registration on 11 July 2016.

Legal consequence and maximum potential penalty

According to the Regulations of the People’s Republic of China on Foreign Exchange Administration (《中華人民共和國外匯 管理條例》), foreign exchange administrative authorities are entitled to order Shenzhen Chong Ruan to make registration within a prescribed time limited, issue a warning to Shenzhen Chong Ruan, and may impose a fine of less than RMB300,000 on Shenzhen Chong Ruan.

– 25 –

LETTER FROM THE BOARD

Name of

Name of
Target				Legal consequence and
Group	Non-compliance	Cause of		maximum potential
companies	incidents	non-compliance	Remedial actions	penalty
Beijing	Beijing Wang	The omission was	Beijing Wang Heng	Pursuant to the
Wang	Heng Da	primarily due to	Da has ceased the	Regulations on the
Heng Da	engaged in	the	operation outside	Investigation,
	operation	administrative	its registered office.	Treatment and Outlaw
	outside of its	staff was not		of Operation without
	registered office	familiar with		registration (《無照取締
	and fails to	the relevant		經營辦法》), the
	register such	laws and		administrative
	office with the	regulations.		department for
	relevant			industry and commerce
	authority as a			is entitled to outlaw the
	branch office.			unregistered office
				according to law and
				confiscate the illegal
				gains of Beijing Wan
				Heng Da.
Beijing	Beijing Wang	The omission of	Beijing Wang Heng	According to Regulation
Wang	Heng Da	was primarily	Da had registered	of the People’s
Heng Da	engaged in	due to	its business scope	Republic of China on
	commercial	administrative	“leasing	the Administration of
	building lease	staff was not	commercial	Company Registration
	business	familiar with	buildings” with	(2014 Revision) (《中華
	without making	the relevant	company	人民共和國公司登記管理
	a registration of	laws and	registration	條例（2014修訂）》),
	its business	regulations.	authorities on 6	company registration
	scope.		July 2016.	authorities are entitled
				to order Beijing Wan
				Heng Da to make
				registration within a
				prescribed time limit. If
				Beijing Wan Heng Da
				failed to do so,
				company registration
				authorities are entitled
				to impose a fine from
				RMB10,000 to
				RMB100,000.

– 26 –

LETTER FROM THE BOARD

Name of

Legal consequence and maximum potential penalty

Target Legal consequence and Group Non-compliance Cause of maximum potential companies incidents non-compliance Remedial actions penalty Beijing The two lease (i) the omission Beijing Wang Heng Pursuant to the Wang agreements and was primarily Da has not taken Administrative Heng Da one due to the proper remedial Measures for supplementary administrative actions for such Commodity House lease agreement staff was not non-compliance. Leasing (《商品房屋租賃 signed by familiar with 管理辦法》), the relevant Beijing Wang the relevant government authorities Heng Da and laws and is entitled to demand the independent regulations; the both parties of the parties has not lease agreements to been registered (ii) the tenants are register the lease with the unwilling to agreements within the relevant register those prescribed time limit. If government lease Beijing Wan Heng Da authorities. agreements fails to do so, the with the relevant government relevant authorities is entitled government to impose a fine authorities ranging between RMB1,000 to RMB10,000.

In order to prevent recurrence of non-compliances in the future, the Group and the Target Group will adopt the following measures:

• (i) Upon Completion, the Group will appoint an executive Director to assume the overall and general compliance duty of the Target Group.

• (ii) The Target Group will set up a control system within the administration department to record and report to the non-compliance issue and the relevant remedy actions have been taken.

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LETTER FROM THE BOARD

RISK IN RELATION TO THE BUSINESS OF THE TARGET GROUP

Reliance of single asset and income from Beijing Property

The Beijing Property is the only asset and single income source of the Target Group. The Directors expect that the Target Group will continue to derive all the revenue from the Beijing Property. The Directors and management of the Target Group has no intention to diversify the business of Target Group and has no planning to expand the asset portfolio of the Target Group. There is no assurance that the value of the Beijing Property will be stable which will be subject to the volatile market conditions of the PRC. The lack of diversify asset base causes the Target Group’s reliance on single asset and income source which will impose risk to the business of the Target Group in case of any factor which may have material adverse impact to the Beijing Property and there is no assurance that the Target Group would enjoy benefits from the future growth of the property market in the PRC.

Reliance of rental income from two tenants of Beijing Property

The income of Beijing Property is derived from the rental income from the tenants of the Beijing Property. In particular, the Beijing Property is currently leased to only two tenants for the entire floor area of the Beijing Property. There is no guarantee that the tenants will renew the tenancy agreements upon the expiry of the respective tenancy agreements or they will renewed in a timely manner or they may early terminate the respective tenancy agreements before the expiry of the tenancy agreements. The results of operation of the Target Group may be adversely affected if any one of tenants move out from the Beijing Property and the Target Group have to look for new tenants for such vacant area in the Beijing Property and may not guarantee to obtain a better terms of leasing from the new tenant(s).

The Target Group recorded net current liabilities as at 31 December 2015 and 30 June 2016 and any failure to manage the cash flows and liquidity prudently may materially and adversely affect the results of operations of the Target Group

As at 31 December 2015 and 30 June 2016, the Target Group recorded current liabilities of approximately RMB200.2 million and RMB1,535.1 million respectively, which was primarily caused by amount due to Foshan Ying Hao Thai at approximately RMB190.4 million at the year ended 31 December 2015 and dividends payable to Foshan Ying Hao Thai and Consideration payable for business combination under common control of approximately RMB930.0 million and RMB570.0 million respectively at 30 June 2016. The Target Group’s ability to repay its debts when they fall due relies heavily on its future operating cash flow and its ability to obtain the bank loans and other borrowings.

The net current liability position in 2015 of approximately RMB190.1 million may impair the Target Group’s ability to make necessary capital expenditures, develop business opportunities or make strategic acquisitions. There is no assurance that the Target Group’s business will generate sufficient cash flow from operations in future to meet its liabilities when they fall due and to make necessary capital expenditure. This would materially and adversely affect the Target Group’s operations and prevent itself from successfully implementing its business strategies.

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LETTER FROM THE BOARD

Financial performance of the Target Group may be affected by the appraisal value of the investment properties

During the three years ended 31 December 2013, 2014 and 2015 and the six months period ended 30 June 2016, the change in fair value of the investment properties of the Target Group had significantly affect the profit and loss of the Target Group. The decreases in fair value of investment properties for the three years ended 31 December 2015 were approximately 119.3%, 60.0% and 61.1% of the losses of the Target Group in those respective years. The increase in fair value of investment properties for the six months period ended 30 June 2016 was approximately 130.6% of the profit of the Target Group in that period. The fair value of the investment properties is determined and based on the existing tenancy agreements and remaining lease term of the land use rights of the Beijing Property. There is no assurance that the appraised value of the investment properties will be favourable to the financial performance of the Target Group. The financial performance of the Target Group may be adversely affected by the changes in the fair value of the Beijing Property.

Finance costs may increase in the future

As at 31 December 2013, 2014 and 2015 and 30 June 2016, the Target Group’s bank loans were amounting to RMB235.4 million, RMB480.0 million, nil and nil, respectively. The finance costs were approximately 70.7%, 105.3%, 102.5% and nil of revenue of the Target Group in these periods. As the finance cost of the Target Group amounted to a large proportion to the revenue of the Target Group for the three years ended 31 December 2015, any increase in the interest rates may increase the interest expenses of the Target Group and such increase in the finance cost of the Target Group may outpace the revenue growth hence the profitability of the Target Group may be materially and adversely affected or fluctuated. Although the Target Group obtained a loan for the amount of RMB1.5 billion at the interest rate and fee of 6.5% per annum, there is no guarantee that the Target Group will be able to extend the loan in future or obtain the same interest rate or terms of loan at the maturity of the loan.

Competition from other shopping malls in Beijing

A shopping mall boom in the suburban market in the PRC has given way to rapid mall growth in suburbs over the last two years. The business prospects of the Target Group will be affected by the attractiveness of the Beijing Property and competition from other shopping malls surrounding to the Beijing Property. The Beijing Property is situated in an area composed of commercial and residential districts in Chaoyang District, Beijing which is known as Asia Olympic Game Golden Business Circle. Therefore, the Beijing Property will compete with other shopping malls or department stores nearby. In case of any change in the visitors flowrate in the area, it will affect the attractiveness of the Beijing Property. The tenants may request for early termination of the tenancy agreements before they expire if the visitors flow rate of the Beijing Property is adversely affected, then the business prospects, results and operation of the Target Group will be severely affected.

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LETTER FROM THE BOARD

Land use right in the PRC is not perpetual

The Beijing Property is subject to land use rights which will expire on either 12 April 2033 or 12 April 2043 for commercial usage. It remains uncertain as to whether the land use rights can be extended when they expire. If the Target Group is required to make substantial payment to renew these land use rights, the financial condition may be materially and adversely affected. If the Target Group is unable to renew these land use rights, the value of the Beijing Property will be severely affected or totally being written off. In turn, the business prospects and result of operations of the Target Group will be materially and adversely affected.

Reliance on a few key personnel

The Target Group has relied on a few key personnel in its operation. The loss of services of any of these key personnel without an effective succession plan or a suitable or timely replacement or inability to attract, recruit and retain key management or personnel of high-calibre for any reason may adversely affect the operation of the Target Group and, hence, the revenue and profits of the Target Group.

The Target Group is subject to the regulations and tax in the PRC

The operation of the Target Group is primarily located at the PRC which is subject to the PRC laws, regulations and taxes. Any change of laws, regulations and taxes may affect the property markets in the PRC and the business of the Target Group. As the income of the Target Group is all derived from the Beijing Property in the PRC, the income of Beijing Property will be subject to withholding tax when such income is remitted to outside of the PRC. Any change of the withholding tax rate will affect the income to be remitted to the Group.

Natural disasters, fire or destructive event may affect the operation of Beijing Property

Natural disasters such as earthquakes, floods, severe weather conditions or other catastrophic events, natural or not, may severely affect the region or districts where the Beijing Property locates at. As the Beijing Property is the only investment property of the Target Group and the Target Group relies on the rental income derived from the Beijing Property, any fire or destructive event that may affect the operation of the Beijing Property will impose significant adverse impact to the business and income of the Target Group. Any catastrophic event resulting therefrom could have material adverse effect on the business prospects, financial condition and results of operation of the Target Group. As the Target Group may not be adequately prepared in terms of contingency plan or having recovery capabilities in place to deal with such incident or crisis, the operation of the Target Group would be adversely and materially affected.

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LETTER FROM THE BOARD

RISKS IN RELATION TO THE PROPERTY INVESTMENT

Properties investments are illiquid

Properties investment is generally illiquid. The Target Group may not be able to realise the investment in the Beijing Property in response to the changing economic, financial and investment conditions. The Target Group may not be able to sell the Beijing Property at the price or the terms satisfactorily if the Directors intend to realise the investment in the Target Group. Also, the sale of the Beijing Property may subject to the lease agreements signed which may have to obtain consent from or pay termination fees to the tenants.

The PRC property market is heavily regulated and subject to introduction of new regulations

The PRC government exerts considerable direct and indirect influence on the growth and development of the PRC property market through government policies and other economic measures such as setting interest rates, controlling the supply of credit by changing bank reserve ratios and implementing lending restrictions, increasing tax and stamp duties on property transfers and imposing foreign investment and currency exchange restrictions. In case, the PRC Government implemented further tightening measures to restrain the PRC property market or introduced new policies that may affect the leasing market at the national, provincial, municipal and/or local levels, the prospects of the Target Group may be adversely affected.

RISKS RELATING TO THE PRC

The Target Group’s business may be affected by the economic, political and social conditions as well as government policies in the PRC

The political, economic and social conditions in the PRC differ from those in other developed countries in many aspects, including but not limited to structure, government involvement, level of development, economic growth rate, control of foreign exchange, capital reinvestment, allocation of resources and trade balance position. The PRC Government continues to play a significant role in regulating industrial development, the allocation of natural resources and production, pricing and management of currency. There is no assurance that the PRC Government will continue to pursue a policy of economic reform or that the direction of reform will continue to be favourable to its business.

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The Target Group’s business may be affected by the changes in the PRC foreign exchange regulations

Although Renminbi has been included in the Special Drawing Rights basket of the International Monetary Fund since 1 October 2016, the PRC Government imposes controls on the conversion of RMB into foreign currencies. As all of the Target Group’s revenue is denominated in RMB, the Target Group’s revenue is primarily derived from dividend payments from the Beijing Property, which must convert their RMB earnings into foreign currency before they may pay cash dividends to the Company or repay foreign currency denominated obligations. Since the Target Group’s subsidiaries are foreign investment enterprises in the PRC, they are permitted to convert RMB into foreign currencies through designated foreign exchange banks. However, there is no assurance that the Target Group is able to pay dividends in foreign currency under the current foreign exchange control system in the PRC.

The Target Group’s business may be affected by the uncertainty in the interpretation of PRC laws and regulations

The Target Group’s business is conducted within the PRC and is governed by PRC laws and regulations. The PRC legal system is based on written statutes, and prior court decisions can only be cited as reference and are non-binding. The PRC Government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organisation and governance, commerce, taxation and trade, with a view to developing a comprehensive system of commercial law. However, due to the fact that these laws and regulations have not been fully developed, and because of the limited volume of published cases which have limited precedential value, interpretation and enforcement of PRC laws and regulations involve a degree of uncertainty. In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion of the Target Group’s resources and management attention. All these uncertainties may cause difficulties in the enforcement of the Target Group’s entitlements under its permits, and other statutory and contractual rights and interests.

DIRECTORS AND SENIOR MANAGEMENT

The detailed biographies of the other directors of the Target Company and members of its senior management are as below:

Ms. Hu Tze Fong (胡志芳) , the director and the general manager of Beijing Wan Heng Da, is responsible for the overall management of Beijing Wan Heng Da. She has joined Beijing Wan Heng Da since 2014 and has more than 10 years of experience in business management prior to joining the Target Group.

Mr. Liu Hong Lai (劉宏來) , the vice general manager of Beijing Wan Heng Da, is responsible for the marketing and operation of Beijing Property. He has joined Beijing Wan Heng Da since 2015 and has more than 10 years of experience in property management prior to the joining of Beijing Wan Heng Da.

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Mr. Lin Yong Kai (林永凱) , the marketing manager, is responsible for marketing of Beijing Property and tenant recruiting. He has joined Beijing Wan Heng Da since 2015 and has more than 6 years of experience in property marketing, tenant recruiting and commercial property management.

In order to strengthen and monitor the operation and the business of the Target Group, it is the intention of the Company to assign Ms. Liu Jing (“ Ms. Liu ”), an executive Director, to supervise the business and operation of the Target Group upon Completion. Ms. Liu has extensive experience in commercial property operation and management in the PRC and has held responsibility for the operation, investment and financial management of hotels, shopping malls, office buildings and other commercial properties. The Directors consider that the Company and the Target Group will have sufficient expertise in the management and development of the Target Group after the Acquisition.

STAFF AND EMPLOYEE OF THE TARGET GROUP

As at the Latest Practicable Date, the Target Group has a total of 16 employees, eight of them are responsible for the tenancy management, supervision of property maintenance, rental collection and property safeguard and the remaining eight employees are responsible for general and administrative function.

The Directors advised that the Company has no intention to change the existing business model or business relationship of the Target Group and it is the intention of the Company to retain the senior management and existing employees of the Target Group after Completion.

INSURANCE

The Target Group maintains commercial insurance coverage for the Beijing Property. The Target Group is also required to make social insurance and housing provident fund contributions for its employees. The Directors consider that the Target Group’s insurance coverage is adequate and in line with industry practices in the PRC.

LICENSE AND CERTIFICATES OF TARGET GROUP

As advised by the PRC legal adviser to the Company, Beijing Wan Heng Da has obtained all required licenses and certificates including 24 Premises Permit certificates and 24 land use rights certificates for its leasing business of the Beijing Property. Partial of the Beijing Property (i.e. gross floor area 29,719.41 square meters) was acquired from the previous owners of the Beijing Property in January 2011 and the remaining area of the Beijing Property (i.e. gross floor area 10,364.53 square meters) was acquired by way of capital increase investment from the shareholders in February 2011, thus the building certificate is not required to be obtained by Beijing Wan Heng Da as the construction work of Beijing Property was completed before 2010 by the property developer.

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FUTURE PLAN OF THE TARGET GROUP

Based on the Vendor’s information and save for the outstanding liabilities and loans of the Target Group, no further capital commitment is required for the Target Group. The Directors intend to acquire the Target Group, i.e. the Beijing Property, for long term investment until appropriate opportunity to realise this investment arises. The Group has no current intention to acquire additional properties in the PRC through the Target Group. However, the Directors may review and assess the status of the Beijing Property and may refurnish the Beijing Property, if necessary, upon the Completion.

The Company intends to acquire the Target Group for long term investment and continue the existing business model of the Target Group after the Completion. It is the intention of the Board to diversify the Group’s current business by the generation of stable return and cash flows to the Group. The Board considers that the Acquisition represents an excellent opportunity for the Group to explore and invest in the PRC property market given Beijing is the capital city of the PRC plus a stable cash income stream to the Group is incurred immediately after Completion. Therefore, the Board considers that the Acquisition is in line with the investment strategy of the Group as mentioned above and it is an appropriate expansion for the development of the Group’s business which should not be considered as fundamental change in the Group’s principal business as a result of the Acquisition.

FUTURE INTENTION OF THE GROUP

The Directors have no intention to dispose or terminate or reduce scale of the existing principal business of the Group. Save as the Acquisition and the sale and purchase agreement of the Group entered on 20 November 2015, the Directors confirm that the Group does not have any property acquisition undergoing nor acquired and the Group has no intention on purchasing any property in Hong Kong or the PRC as at the Latest Practicable Date. Although the Acquisition is a one-off transaction and the Directors have no intention to change the Group’s core business focus into property investments, the Directors will consider other property investments opportunity if it is in the interest of the Company and the Shareholders as a whole.

FINANCIAL INFORMATION OF THE TARGET GROUP

Set out below are the key audited financial information of the Target Group for the three years ended 31 December 2015 and for the six months ended 30 June 2016 under the Hong Kong Financial Reporting Standards. Details of financial information of the Target Group are set out in the Accountants’ Report on the Target Group in Appendix I and the financial information of the Target Group in Appendix II.

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				For the six
	For the year ended 31 December			months ended
	2013	2014	2015	30 June 2016
	RMB’000	RMB’000	RMB’000	RMB’000
Revenue	38,594	38,823	39,623	36,667
Net profit (loss) before
taxation and fair value
gains/(losses) on
investment properties	1,975	(9,891)	(8,303)	27,120
Net profit (loss) after
taxation and fair value
gains/(losses) on
investment properties Note 1	(2,011)	(13,668)	(11,953)	1,018,218
Total assets	855,252	1,083,856	817,893	2,198,858
Net assets	492,822	479,154	500,506	207,470

Note 1: During the three financial years ended 31 December 2015 and for the six months ended 30 June 2016, the Target Group has recorded fair value gains/(losses) on investment properties as follows:

Fair value gains/(losses) on investment properties	For the year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 (2,400) (8,200) (7,300)	For the six months ended 30 June 2016 RMB’000 1,330,200

For further financial information of the Target Group, please refer to Appendix I headed “Accountants’ Report on Target Group” and Appendix II “Financial Information of the Target Group”.

FINANCIAL EFFECTS OF THE ACQUISITION

Following the Completion of the Acquisition, the Target Group will become subsidiary of the Group. The assets, liabilities and financial results of the Target Group will be consolidated into the consolidated financial statements of the Company from the date of the Completion of the Acquisition.

The pro form financial statement of the Enlarged Group was disclosed in “ APPENDIX III – UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP ” which illustrates the financial position of the Enlarged Group as at 30 June 2016 and the financial performance and cash flows of the Enlarged Group for the year ended 31 December 2015 as if the Acquisition had taken place at 30 June 2016 and 1 January 2015, respectively.

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Total Assets

Upon Completion, the total assets of the Group will be increased from approximately HK$875.9 million to HK$3,434.6 million of which approximately HK$2,494.4 million will be the value of the Beijing Property and increase of cash balance in the amount of approximately HK$38.7 million.

Total Liabilities

The total liabilities of the Group will be increased from approximately HK$505.4 million to approximately HK$2,828.8 million upon Completion. The increase of liabilities consists of increases in deferred income tax liabilities in the amount of approximately HK$532.3 million and an amount of approximately HK$1,750.1 million which is the payable amount due to Foshan Ying Hao Thai by the Target Group during the Reorganisation. Pursuant to the Acquisition Agreement, it is one of the conditional precedents before the Completion that the Reorganisation having been completed (including but not limited to the grant of bank loans to the Target Group to repay the outstanding amount due to Foshan Ying Hao Thai after the Reorganisation, release the joint guarantee of Beijing Wan Heng Da and the asset pledge Beijing Property).

Net Assets

The net assets of the Group will be increased from approximately HK$370.5 million to approximately HK$605.8 million upon Completion. The increase of net assets is mainly due to the recognition of negative goodwill in the amount of approximately HK$242.1 million arise from the Acquisition.

Revenue

The revenue of the Enlarged Group will be increased from approximately HK$886.3 million to approximately HK$935.2 million which assuming the Acquisition was completed on 1 January 2015. Approximately HK$48.9 million and approximately RMB91.0 million (equivalent to approximately HK$112.3 million) will be derived from the rental income of Beijing Property during the year ended 31 December 2015 and the ten months ended 31 October 2016 respectively.

Operating Profit

The operating profit of the Enlarged Group will be increased from approximately HK$63.4 million to approximately HK$329.5 million which assuming the Acquisition was completed on 1 January 2015. The pro forma operating profit of the Enlarged Group will be approximately HK$87.5 million after exclusion of the amount of negative goodwill from the Acquisition of approximately HK$242.1 million.

Financial Ratios

For illustration purpose, the following table set forth certain financial ratios of the Group before and after the Acquisition which is based on the pro forma assets and liabilities of the Enlarged Group as at 30 June 2016, assuming the Acquisition was completed on 30 June 2016.

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			Enlarged
	The Group	Target Group	Group
	(unaudited)
Gearing ratio	1.36	9.60	4.67
Current ratio	1.15	0.04	1.18
Quick ratio	0.84	0.04	0.89
Return on equity	0.10	N/A	0.44
Return on total assets	0.05	N/A	0.08
Debt-to-equity	0. 80	9.41	4.25
Interest coverage	10.17	N/A	6.09

Notes:

1. Gearing ratio is calculated by dividing total debt (i.e. total liability) by total equity.

2. Current ratio is calculated by dividing current assets by current liabilities.

3. Quick ratio is calculated by dividing current asset (net of inventories) by current liabilities.

4. Return on equity is calculated by dividing net profit of the financial years by total equity as at the financial year ended 31 December 2015.

5. Return on total assets is calculated by dividing net profit of the financial years by total asset as at the financial year ended 31 December 2015.

6. Debt-to-equity ratio is calculated by dividing net debt (borrowings including amounts due to related companies, amounts due to directors, bank borrowings and obligation under finance lease net of cash and cash equivalent) by total equity as at the end of the financial years.

7. Interest coverage is calculated by profit before interest and tax divided by net financial costs.

Gearing ratio – the gearing ratio of the Target Group is relative high due to the equity of the Target Group is primarily the reserve arisen from the recognition of negative goodwill from the Acquisition. As such, the gearing ratio of the Enlarged Group will be increased from 1.36 to 4.67 upon Completion.

Current ratio – the current ratio of the Target Group is relative high due to the outstanding amount due to Foshan Ying Hao Thai is classified as current liabilities. Upon Completion, the amount due to Foshan Ying Hao Thai will be replaced by the entrusted loan which will be classified as non-current liabilities. As a result, the current ratio of the Enlarged Group will only slightly increase from 1.15 to 1.18 upon Completion.

Quick ratio – the quick ratio of the Target Group is relative high for the same reason explained as above. Upon Completion, the quick ratio of the Enlarged Group will improved from 0.84 to 0.89 after inclusion of the cash balance of the Target Group.

Return on equity – due to the operating loss of the Target Group for the year ended 31 December 2015, the return on equity of the Target Group is not available. However, with the recognition of negative goodwill from the Acquisition, the return on equity of the Enlarged Group will be increased from 0.10 to 0.44 which assuming the Acquisition was completed on 1 January 2015.

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Return on total assets – due to the operating loss of the Target Group for the year ended 31 December 2015, the return on total assets of the Target Group is not available. As the same reason for return on equity, with the recognition of negative goodwill from the Acquisition, the rate of return on total assets of the Enlarged Group will be increased from 0.05 to 0.08 which assuming the Acquisition was completed on 1 January 2015.

Debt-to-equity – as the equity of the Target Company is primarily the reserve from the recognition of negative goodwill, the gearing ratio and debt-to-equity of the Target Group is relative high. The debt-to-equity of the Enlarged Group is expected to be increased from 0.80 to 4.25 upon Completion.

Interest coverage – due to the operating loss of the Target Group for the year ended 31 December 2015, the interest coverage of the Target Group is not available for the year. Taking into account of the gains from the recognition of negative goodwill from the Acquisition, the Enlarged Group will record an operating profit in approximately HK$329.6 million which assuming the Acquisition was completed on 1 January 2015. As a result, the interest coverage of the Enlarged Group will decrease from 10.17 to 6.09 upon Completion. Although the operating profit of the Target Group is mostly derived from the negative goodwill, the management of the Target Group consider that the Target Group will be able to cover its interest expense which has taking into account of the fact that the new lease agreements have improved the rental income of the Target Group and the financing cost of the Group was fixed at 6.5% per annum under the entrusted loan.

INDEBTEDNESS

At the close of business on 31 October 2016, being the latest practicable date prior to the printing of this circular and for the purpose of this indebtedness statement, the Enlarged Group had outstanding bank loans and other borrowings, details of which are set out as follows:

The Group

As at 31 October 2016, the Group had total outstanding interest-bearing bank loans and other borrowings of approximately HKD302.4 million, comprising unsecured current bank loans of approximately HKD219.7 million, secured current bank loans of approximately HKD79.0 million, unsecured bank overdrafts of approximately HK$0.2 million, secured current other loans of approximately HK$1.5 million, current portion of obligations under finance leases of approximately HK$0.8 million, non-current obligations under finance leases of approximately HK$1.2 million.

As at 31 October 2016, the Group’s bank loans and other borrowings were secured by certain leasehold property, trade receivables and fixed deposits of the Group of approximately HK$186.9 million, HK$0.9 million and HK$8.7 million, respectively.

The Target Group

As at 31 October 2016, the Target Group had outstanding non-current entrusted loan of RMB1,500.0 million (equivalent to approximately HK$1,719.0 million), which was secured by certain investment properties of approximately HK$2,483.0 million.

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Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Enlarged Group did not, at the close of business on 31 October 2016, have any outstanding loan capital issued, outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptances credits, debentures, mortgages, charges, hire purchase commitments, guarantees or other material contingent liabilities.

Save as aforesaid or as otherwise disclosed herein, the Directors confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 October 2016.

WORKING CAPITAL

The Directors, after due and careful enquiry, are of the opinion that, after taking into account the Acquisition and the financial resources available to the Enlarged Group, including internally generated funds and banking facilities, the Enlarged Group has sufficient working capital for its present requirements for at least the next twelve months from the date of this circular, in the absence of unforeseeable circumstances.

REGULATIONS

Overviews

The Target Group has operation in the PRC and principally engaged in property investments in the PRC. Accordingly, the Target Group’s business is principally subject to the laws and regulations in the PRC. This section summarises the material aspects of the main laws, rules and regulations that are directly relevant to the Target Group’s operation in the PRC. As this is a summary, it does not contain detailed analysis of the PRC laws.

PRC Regulatory Overview

Set out below is a summary of certain material aspects of the PRC legal and regulatory provisions relating to the operations and business of the Target Group, including those laws and regulations under the following aspects:

• Establishment and Foreign Investment

• Transfer of Real Estate in the PRC

• Mortgage of Real Estate

• Lease of Real Estate

• Labour Protection

• Foreign exchange

• Taxation

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Establishment and Foreign Investment

Incorporation, operation and management of wholly foreign owned enterprise (“ WFOEs ”)

The establishment, operation and management of a company in the PRC are governed by the Company Law of the PRC (《中華人民共和國公司法》) (the “ PRC Company Law ”) which was promulgated by the Standing Committee of the National People’s Congress (全國人民代表大會常務委員會) (the “ SCNPC ”) on 29 December 1993 and became effective on 1 July 1994. It was last amended on 28 December 2013 and took effect on 1 March 2014. The major amendments include, but are not limited to, cancelling the paid-up capital registration and removing the statutory minimum registered capital requirements and the statutory timeframe for the capital contribution. The PRC Company Law also governs foreign-invested limited liability companies and joint stock limited companies. According to the PRC Company Law, where laws on foreign investment have other stipulations, such stipulations shall apply.

The Wholly Foreign Owned Enterprise Law of the PRC 《中華人民共和國外資企業( 法》) promulgated on 12 April 1986 by the National People’s Congress (the “ NPC ”) and amended on 31 October 2000 by the SCNPC and the Implementation Rules on the Wholly Foreign Owned Enterprise Law of the PRC 《中華人民共和國外資企業法實施細則》( ) promulgated by the Ministry of Foreign Trade and Economy on 12 December 1990 and last amended on 3 September 2016, govern the establishment procedures, approval procedures, registered capital requirements, foreign exchange control, accounting practices, taxation, employment and all other relevant matters of WFOEs. According to the latest amendment to Wholly Foreign Owned Enterprise Law of the PRC on 3 September 2016, foreign-invested enterprise which do not fall within the scope of special administrative measures for foreign investment admission stipulated by the State, approval procedures stipulated in Article 6, Article 10 and Article 20 of the Wholly Foreign Owned Enterprise Law of the PRC shall be changed to the filing procedures.

Pursuant to the Provisional Measures for Filing Administration of Establishment and Changes of Foreign-invested Enterprises 《外商投資企業設立及變更備案管理暫行辦( 法》) which was promulgated by the Ministry of Commerce on 8 October 2016 and became effective on the same date, where establishments and changes to a the foreign-invested enterprise do not fall within the scope of special administration measures for foreign investment admission as stipulated by the State, the foreign-invested enterprise shall go through filing procedures instead of the procedures for approvals. However, where establishments and changes to a foreign-invested enterprise fall within the scope of the special administration measures for foreign investment admission as stipulated by the State, the foreign-invested enterprise shall go through procedures for approvals according to the relevant laws and regulations governing foreign investment.

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Laws and Regulations Relating to the Catalogue of Industries for Guiding Foreign Investment

Pursuant to the Provisions on Guiding Foreign Investment Direction (《指導外商投資 方向規定》), which was promulgated by the State Council on 11 February 2002 and became effective on 1 April 2002, any investment conducted by foreign investors and foreign enterprises in the PRC is subject to the Catalogue for Guidance of Foreign Investment Industries 《外商投資產業指導目錄》( ) (the “ Guidance Catalogue ”), the latest version of which was promulgated by the Ministry of Commerce of the PRC (the “ MOFCOM ”) and the National Development and Reform Commission of the PRC (中華人民共和國國家發展 和改革委員會) on 10 March 2015 and came into effect on 10 April 2015. The Guidance Catalogue provides guidance for market access of foreign capital by categorizing industries into encouraged industries for foreign investment, restricted industries for foreign investment and prohibited industries for foreign investment. Those industries which are not stipulated in the Guidance Catalogue are deemed as “permitted industries for foreign investment”. According to the Guidance Catalogue, the industry in which our PRC subsidiaries engage are categorised as “permitted industries for foreign investment”.

Foreign-invested Lease Services in the PRC

Pursuant to Measures for the Administration of Foreign-invested Lease Services (《外商投 資租賃業管理辦法》) enacted by the MOFCOM on 5 March 2005 and revised on 28 October 2015, a foreign-invested lease services company shall fulfill following conditions:

• the registered capital shall be not less than US$10 million;

• The operating period of a foreign-invested lease company in the form of limited liability company shall not exceed 30 years; and

• It has the corresponding professionals and the senior management shall have the corresponding professional qualifications and at least 3 years of experience of practice.

Foreign-invested Commercial Factoring in the PRC

Pursuant to Notice of the Ministry of Commerce on the Pilot Program of Formation of Commercial Factoring Enterprises in Shenzhen and Guangzhou by Hong Kong and Macao Service Suppliers (《商務部關於香港、澳門服務提供者在深圳市、廣州市試點設立商 業保理企業的通知》) enacted by the MOFCOM on 12 July 2012, Hong Kong and Macao service suppliers are allowed to set up commercial factoring enterprises in the form of sino-foreign equity joint ventures, sino-foreign equity contractual joint ventures and WOFES in Shenzhen and Guangzhou from 1 January 2013. Hong Kong and Macao service suppliers applying for formation of commercial factoring enterprises shall have good credit standings and satisfactory performances and experience in the factoring business, and the senior executives of a commercial factoring enterprise shall have two or more staffs with management experience in the financial field and a spotless credit record. Besides, Hong Kong and Macao service suppliers shall respectively meet the definition of “service supplier” in the Mainland and Hong Kong Closer Economic Partnership Arrangement and the Mainland and Macao Closer Economic Partnership Arrangement

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and their supplements and the requirements of relevant provisions thereof. The registered capital of a commercial factoring enterprise shall not be less than RMB 50 million, and the value of its risk assets in business operations shall not exceed ten times the value of its net assets.

Transfer of Real Estate in the PRC

Pursuant to the Urban Real Estate Law and the Administrative Regulations on Transfer of Urban Real Estate 《城市房地產轉讓管理規定》( ) enacted by the MOHURD on 7 August 1995 and revised on 15 August 2001, a real estate owner may sell, give or otherwise legally transfer the real estate to another person or legal entity. When transferring real estate, the ownership of the real estate and the state-owned land use rights attached to the site on which the real estate is situated are transferred simultaneously. The parties to a transfer shall enter into a real estate transfer contract in writing and register the transfer with the local competent real estate administration in which the real estate is situated within 90 days of the execution of the transfer contract.

Lease of Real Estate

Pursuant to the Urban real estate Law and the Regulations on Leases of Commodity Housings 《商品房屋租賃管理辦法》( ) enacted by the MOHURD on 1 December 2010 and became effective from 1 February 2011, the parties to a lease of real estate shall enter into a lease contract in writing. A registration system is adopted for leases of properties. The parties shall file with the real estate registration authority under the local government of the city or county in which the real estate is situated for any newly signed leases, revisions or termination of leases. A party to a residential lease may entrust another person to handle lease registration and filing formalities in writing. For those who fail to comply with the above regulations, the relevant competent governmental construction (real estate) departments may impose a fine of less than RMB1,000 on individuals, and a fine of between RMB1,000 and RMB10,000 on units. Leasing of buildings and the underlying land use rights shall not exceed 20 years under the Contract Law of People’s Republic of China (《中華人民共 和國合同法》). The lease agreement becomes effective upon signing under the Contract Law of PRC; however, it must be registered with the relevant real estate administration authority at the municipality or county level within 30 days after its execution for the purpose of protecting the tenant’s interest against claims from third parties. A tenant may, upon obtaining consent from the landlord, assign or sublet the premises to sub-tenants.

On 30 July 2009, the Supreme People’s Court issued the Interpretation of Certain Issues concerning the Application of Law for Judging Disputes over Urban Building Leasing Contracts 《關於審理城鎮房屋租賃合同糾紛案件具體應用法律若干問題的解釋》( ) which became effective on 1 September 2009 (the “ Leasing Interpretation ”). The Leasing Interpretation clarifies that courts should not uphold the claim that a building leasing contract is invalid due to the failure of registration. However, if parties agreed on such registration being a condition precedent to the effectiveness of building leasing contract, the agreement prevails, unless that one party has performed major obligations which were accepted by the counter party.

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Mortgage of Real Estate

Under the Law of the PRC on Property Rights 《中華人民共和國物權法》( ) (“ The Property Law ”), which was adopted at the fifth session of the Tenth National People’s Congress (the NPC) (全國人民代表大會) on 16 March 2007 and came into effect on 1 October 2007, the Security Law of the People’s Republic of China (中華人民共和國擔保法) promulgated by the Standing Committee of the National People’s Congress on June 30, 1995, and the Measures for Administration of Mortgages of Urban Real Estate (城市房地產 抵押管理辦法) promulgated by the Ministry of Construction on May 9, 1997, as amended on August 15, 2001, when a mortgage is created on the ownership of a building legally obtained, a mortgage must be simultaneously created on the land-use rights of the land on which the building is situated. When a mortgage is created on land obtained by way of grant, a mortgage must be simultaneously created on the ownership of the building which is on the land. The mortgagor and the mortgagee must sign a mortgage contract in writing. China has adopted a system to register mortgages of real estate. Within 30 days after a real estate mortgage contract has been signed, the parties to the mortgage must register the mortgage with the real estate administration authority at the location where the real estate is situated. If a mortgage is created on the real estate in respect of which a real estate ownership certificate has been obtained legally, the registration authority will, when registering the mortgage, make an entry under “third party rights” on the original real estate ownership certificate and then issue a certificate of third party rights to the mortgagee.

The Property Law provides detailed rules regarding the following kinds of major property rights:

• The owner of real or movable property has the right to possess, use, seek profits from and dispose of the real or movable property according to law;

• a usufructuary right holder shall enjoy the right to possess, use and seek proceeds from the real or movable property owned by another party according to law;

• the holder of real property rights for security shall enjoy priority to receive payments from the property for security in case the obligor fails to pay its due debts or the circumstance for the realization of real rights for security as stipulated by the parties concerned occurs, unless otherwise prescribed by law;

• the real property rights of the state, collectives, individuals or any other right holder shall be protected by law and shall not be infringed by any entities or individuals;

• the term of the right to use land for construction for residential purposes shall be automatically renewed upon expiration. The term of the right to use land for construction not for residential purposes shall be renewed according to law. Where there are stipulations about the ownership of houses and other real properties on the aforesaid land, such stipulations shall prevail; if there is

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no such stipulation or the stipulations are not explicit, the ownership shall be determined according to the provisions in the laws and administrative regulations; and

• the owner of a building may manage the building and its affiliated facilities themselves or by entrusting a real property service enterprise or any other management personnel. The owners are entitled to change the real property service enterprise or any other management personnel hired by the construction entity according to law.

Labour Protection

Labour law

Companies in the PRC are subject to the PRC Labour Law 《中華人民共和國勞動法》( ) (the “ PRC Labour Law ”) which was promulgated by the SCNPC on 5 July 1994 and was further amended on 27 August 2009, the PRC Labour Contract Law (《中華人民共和國勞動合 同法》》) (the “ PRC Labour Contract Law ”) which was promulgated by the SCNPC on 29 June 2007 and was further amended by the SCNPC on 28 December 2012, and the Implementation Regulations of the PRC Labour Contract Law 《中華人民共和國勞動合同法( 實施條例》) which was promulgated by the State Council on 18 September 2008 and became effective on the same date, as well as other related regulations, rules and provisions issued by the relevant governmental authorities from time to time. Compared to previous PRC Laws and regulations, the PRC Labour Contract Law imposes stricter requirements in such respects as signing of labour contracts with employees, stipulation of probation period and violation penalties, termination of labour contracts, payment of remuneration and economic compensation, use of labour dispatches as well as social security premiums.

According to the PRC Labour Law and the PRC Labour Contract Law, a written labour contract shall be concluded when a labour relationship is to be established between an employer and an employee. An employer must pay an employee two times his salary for each month in the circumstance where he fails to enter into a written labour contract with the employee for more than a month but less than a year; where such period exceeds one year, the parties are deemed to have entered into a unfixed-term labour contract. Companies must pay wages that are not lower than the local minimum wage standards to the employees. Companies are also required to establish labour safety and sanitation systems, strictly abide by PRC rules and standards and provide relevant training to the employees.

According to the Provisions on the Prohibition of Using Child Labor (《禁止使用童工 規定》) which was promulgated by the State Council on 1 October 2002 and came into effect on 1 December 2002, the employers must verify the identification cards of the personnel to be employed and shall not employ any minor under 16 years old.

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Social insurance and housing provident funds

The PRC social insurance system is mainly governed by the Social Insurance Law of the PRC (the “ Social Insurance Law ”) 《中華人民共和國社會保險法》( ). The Social Insurance Law was promulgated by the SCNPC on 28 October 2010 and came into effect on 1 July 2011. According to Social Insurance Law, employers in the PRC shall conduct registration of social insurance with the competent authorities, and make contributions to the five basic types of social insurance for their employees, namely, basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance.

According to the Social Insurance Law, if an employing entity does not pay the full amount of social insurance fund contributions on time, the social insurance authority shall order it to pay the outstanding social insurance fund contributions within a prescribed time and impose a daily fine equivalent to 0.05% of the outstanding amount from the date on which the payment is overdue. If the payment is not made within the prescribed time, the social insurance authority shall impose a fine ranging from one to three times of the outstanding social insurance fund contributions.

According to the Regulations on Management of Housing Provident Funds (《住房公 積金管理條例》) which was promulgated by the State Council and came into effect on 3 April 1999 and was amended on 24 March 2002, all business entities (including foreign invested enterprises) are required to register with the local housing provident funds management centre and then maintain housing provident fund accounts with designated banks and pay the related funds for their employees. In addition, for both employees and employers, the payment rate for housing provident fund shall not be less than 5% of the average monthly salary of the employees in the previous year. The payment rate may be raised if the employer desires.

Foreign exchange

Foreign exchange control in the PRC is mainly regulated by the Regulations of the PRC on the Management of Foreign Exchange 《中華人民共和國外匯管理條例》( ), which was promulgated by the State Council on 29 January 1996 was last amended on 5 August 2008. According to the aforesaid regulations, RMB can be freely exchanged into foreign currency for payments under current accounts (such as foreign exchange transactions in relation to trade and service and dividends payment), but approval from the relevant foreign exchange administration shall be obtained before the exchange of RMB into foreign currency under foreign exchange accounts (such as direct investment, loan or stock investment outside the PRC).

Pursuant to the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capitals Settlement of Foreign-invested Enterprises 《國家外匯管理局( 關於改革外商投資企業外匯資本金結匯管理方式的通知》) (the “ Circular 19 ”), which was promulgated on 30 March 2015 by the State Administration of Foreign Exchange (the “ SAFE ”) and became effective on 1 June 2015, foreign-invested enterprises in the PRC may, according to their business demands, settle with a bank the portion of foreign exchange capital in their capitals account for which the local foreign exchange bureau has confirmed capital contribution rights and interests, and the portion allowed to be settled

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by a foreign-invested enterprise is tentatively 100%. Furthermore, where foreign-invested enterprises are engaging in equity investment in the PRC, they shall comply with the regulations on reinvestment within the territory of the PRC.

Taxation

Enterprise Income Tax

According to the EIT Law, promulgated by the NPC on 16 March 2007 and came into effect on 1 January 2008, and the Enterprise Income Tax Implementation Regulations of the PRC 《中華人民共和國企業所得稅法實施條例》( ) (the “ EITIR ”) which was promulgated by the State Council on 6 December 2007 and came into effect on 1 January 2008, the income tax rate for both domestic and foreign-invested enterprises is 25%.

Pursuant to the EIT Law and the EITIR, enterprises established outside the PRC whose “de facto management bodies” are located in the PRC are considered as “resident enterprises” and are subject to the uniform 25% enterprise income tax rate for their global income.

The EIT Law and the EITIR also provide that the enterprise income tax should be levied at the reduced rate of 20% for qualified “small and thin-profit enterprises”, and the enterprise income tax should be levied at the reduced rate of 15% for “high and new technology Enterprises” in need of special support by the PRC.

Income tax on indirect share transfer

Pursuant to the Notice of the State Administration of Taxation on Strengthening the Administration of Enterprise Income Tax on Gain Derived from Equity Transfer Made by Non-Resident Enterprises (《國家稅務總局關於加強非居民企業股權轉讓所得企業所得稅管理 的通知》) (the “ Notice 698 ”) promulgated by the State Administration of Taxation (中華人 民共和國國家稅務總局) (the “ SAT ”) on 10 December 2009 and came into effect from 1 January 2008, and the Announcement of the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises (《國家稅務總局關於非居民企業間接轉讓財產企業所得稅若干問題 的公告》) (the “ Announcement No.7 ”) promulgated by the SAT and came into effect on 3 February 2015, where a non-resident enterprise indirectly transfers properties such as equity in Chinese resident enterprises without any reasonable commercial purposes with the aim of avoiding to pay enterprise income tax, such indirect transfer shall be reclassified as a direct transfer of equity in Chinese resident enterprise in accordance with Article 47 of the EIT Law. Indirect transfer of Chinese taxable properties shall mean transactions of non-resident enterprises which are carried out through transfer of equity of enterprises abroad that directly or indirectly hold Chinese taxable properties (not including the Chinese resident enterprises registered abroad, hereinafter referred to as “enterprises abroad”) and other similar equities (hereinafter referred to as “ equity ”) and cause the concrete results same as or similar to that of direct transfer of Chinese taxable properties, including the circumstance that the restructuring of non-resident enterprises causes changes of shareholders of enterprises abroad. Non-resident enterprises that indirectly transfer Chinese taxable properties are referred to as equity transferor.

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Withholding tax on dividends

According to the EIT Law and the EITIR, non-resident enterprises which have not set up institutions or premises in the PRC, or which have set up institutions or premises in the PRC but whose income has no actual relationship with such institutions or premises shall be subject to the withholding tax of 10% on their income derived from the PRC. According to the Arrangements between Mainland China and Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion With Respect to Taxes On Income 《內地和香港特別行政區關於對所得避免雙重徵( 稅和防止偷漏稅的安排》), promulgated by the SAT and Hong Kong Special Administrative Region on 21 August 2006, dividends paid by a PRC enterprise to a Hong Kong resident may be taxed in the PRC according to the applicable PRC tax laws, and vice versa. Where the beneficial owner of the dividends is a resident of the other side (e.g. dividends of a PRC company paid to a Hong Kong resident), the tax charged shall not exceed: (a) where the beneficial owner is a company directly owing at least 25% of the equity interest of the company which pays the dividends, 5% of the gross amount of the dividends; and (b) in any other case, 10% of the gross amount of the dividends.

Pursuant to the Circular of the State Administration of Taxation on Relevant Issues Concerning the Implementation of Dividend Clauses in Tax Treaties (《國家稅務總局關於執 行稅收協定股息條款有關問題的通知》), which was promulgated by the SAT and became effective on 20 February 2009, all of the following requirements shall be satisfied for a taxpayer to be entitled to the tax rate specified in the tax agreement for dividends paid to it by a PRC resident company: (i) the tax fiscal resident of the other side who obtains dividends shall be a company as provided in the tax agreement; (ii) the proportions of the owner’s equity interests and voting shares of the PRC resident company directly owned by such tax resident shall comply with the prescribed proportions; and (iii) the proportions of the equity interests directly owned by such tax resident in the PRC resident company shall, at any time within the successive twelve months before obtaining of the dividends, comply with the proportions specified in the tax agreement.

According to the Administrative Measures for Non-resident Taxpayers to Enjoy the Treatments under Tax Treaties 《非居民納稅人享受稅收協定待遇管理辦法》( ) (the “ Administrative Measures ”), which was promulgated by the SAT on 27 August 2015 and came into effect on 1 November 2015, if non-resident taxpayers are eligible for the favorable tax treatment under the tax arrangements, they could enjoy such treatment when making tax declarations by themselves or through withholding agents. Under the Administrative Measures, when the non-resident taxpayers or their withholding agents make declarations to the relevant tax authority, they should deliver the relevant reports and materials to the tax authority and such non-resident taxpayers and withholding agents will be subject to the follow-up management of the tax authority.

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Value-added tax (VAT)

According to the Provisional Regulations of the PRC on Value-Added Tax 《中華人( 民共和國增值稅暫行條例》) promulgated by the State Council on 13 December 1993 and was amended on 6 February 2016, and the Rules for the Implementation of the Provisional Regulations of the PRC on Value-Added Tax 《中華人民共和國增值稅暫行條例實施細則》( ), which was promulgated by the Ministry of Finance of the PRC on 25 December 1993 and was amended on 28 October 2011, all entities and individuals engaging in the sales of goods, the provision of processing, repairs and replacement services, and the importation of goods within the territory of the PRC are subject to VAT, and shall pay VAT in accordance with these regulations. The applicable VAT rate for taxpayers selling or importing various goods, providing processing, repairs and replacement services shall be 17 percent, and that for taxpayers exporting goods shall be nil, unless otherwise stipulated.

Pursuant to Notice of the Ministry of Finance and the State Administration of Taxation on Implementing the Pilot Program of Replacing Business Tax with Value-Added Tax in an All-round Manner 《財政部、國家稅務總局關於全面推開營業稅改征增值稅試點的( 通知》) issued by the MOF and SAT on 23 March 2016, the entities and individuals selling services, intangible assets or immovable properties (hereinafter referred to as “ taxable acts ”) within the territory of the People’s Republic of China are value-added tax payers, and shall pay VAT instead of business tax. Where a taxpayer provides transportation, postal services, basic telecommunications, construction or immovable property leasing services, sells any immovable property, or transfers the right to use land, the tax rate shall be 11%. However, a general taxpayer may choose to calculate the tax payable at the levy rate of 5% by the simple tax computation method on its leasing of any immovable property acquired before 30 April 2016. The VAT amount was calculated on the basis of the sales amount and the VAT levy rate without deducting the input tax when applying simple tax computation method.

Urban maintenance and construction tax, education surcharge and local education surcharge

According to the Interim Regulation of the People’s Republic of China on Urban Maintenance and Construction Tax 《中華人民共和國城市維護建設稅暫行條例》( ) issued by the State Council on 8 February 1985 and amended on 8 January 2011, and the Circular of the State Administration of Taxation on Issues Concerning Urban Maintenance and Construction 《國家稅務總局關於城市維護建設稅徵收問題的通知》( ) promulgated on 12 March 1994 and effective as from the same day, any enterprise or individual liable to consumption tax, VAT and business tax shall also pay urban maintenance and construction tax. Amount of urban maintenance and construction tax shall be determined as per the consumption tax, VAT and business tax paid by taxpayers and shall be paid together with consumption tax, VAT and business tax. Besides, the rates of urban maintenance and construction tax shall be as follows: 7% for a taxpayer in a city; 5% for a taxpayer in a county town or town; and 1% for a taxpayer living in a place other than a city, county town or town.

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According to Interim Provisions on Imposition of Education Surcharge (《徵收教育附 加費的暫行規定》) newly amended by the State Council on 8 January 2011 and effective as from the same day, with the exception of organizations the pay surcharges for education undertaking in rural areas, all enterprises or individuals liable to consumption tax, VAT and business tax shall also pay education surcharges pursuant to the Provisions herein. Education surcharges shall be paid together with VAT, business tax and consumption tax based on 3% of the amount of VAT, business tax and consumption tax actually paid by respective enterprises or individuals.

According to Reply Letter of the Ministry of Finance on Agreeing to the Collection of Local Educational Surcharges by Beijing Municipality 《財政部關於同意北京市開征地方教( 育附加的復函》) issued by the MOF on 22 July 2016, Beijing Municipality shall levy local education surcharges at the rate of 2% on entities and individuals (including foreign-invested enterprises, foreign enterprises and expatriates) which pay value-added tax, consumption tax and business tax (hereinafter referred to as the “ three taxes ”) in the administrative regions of Beijing based on the actual payment of the “three taxes”.

Stamp Duty

Pursuant to the Provisional Regulations of the PRC on Stamp Duty 《中華人民共和( 國印花稅暫行條例》) (Decree No.11 of the State Council) enacted by the State Council on 6 August 1988 and was amended on 8 January 2011, for real estate rights transfer instruments, including those in respect of real estate ownership transfer, the rate of stamp duty shall be 0.05% of the amount stated therein; for permits and certificates relating to rights, including real estate ownership certificates and land use rights certificates, stamp duty shall be levied on an item basis of RMB 5 per item.

Urban Land Use Tax

Pursuant to the Provisional Regulations of the PRC Governing Land Use Tax in Cities and Towns (《中華人民共和國城鎮土地使用稅暫行條例》) enacted by the State Council on 27 September 1988 and was last amended on 7 December 2013:

• Land use tax shall be calculated on the basis of the areas of land actually occupied by taxpayers and shall be collected in accordance with the specified amount of tax. The measuring of the areas of land occupied shall be determined by the people’s governments of the provinces, autonomous regions, and municipalities directly under the Central Government in light of actual conditions.

• the annual amount land use tax rates per sq.m. are as follows: (i) between RMB1.5 and RMB30 in large cities; (ii) between RMB1.2 and RMB24 in medium cities; (iii) between RMB0.9 and RMB18 in small cities; (iv) between RMB0.6 and RMB12 in county towns, towns operated under an organizational system, and industrial and mining districts.

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Real Estate Tax

Pursuant to the Provisional Regulations of the PRC on Real Estate Tax 《中華人民共( 和國房產稅暫行條例》) enacted by the State Council on 15 September 1986 and was further amended on 8 January 2011, real estate tax shall be 1.2% if it is calculated on the basis of the residual value of the real estate, and 12% if it is calculated on the basis of the rental.

Deed Tax

Pursuant to the Provisional Regulations of the PRC on Deed Tax (《中華人民共和國契 稅暫行條例》) (Decree No.224 of the State Council) enacted by the State Council on 7 July 1997 and became effective on 1 October 1997:

• the transferee, whether an entity or individual, of the title to a land site or building in the PRC shall have to pay deed tax; and

• the rate of deed tax is form 3% to 5%. The people’s government of provinces, autonomous regions and municipalities may, within the foresaid range, determine and report their effective tax rates to the MOF and the SAT for record.

Land Appreciation Tax

According to the requirements of the Provisional Regulations of the PRC on Land Appreciation Tax 《中華人民共和國土地增值稅暫行條例》( ) (Decree No.138 of the State Council), which was enacted on 13 December 1993 and amended on 8 January 2011:

• any taxpayer who gains income from the transfer of real estate shall be subject to land appreciation tax;

• land appreciation tax shall be subject to a regime of four progressive rates: 30% on the amount of appreciation not exceeding 50% of the sum of deductible items; 40% on the amount of appreciation exceeding 50% but not exceeding 100% of the sum of deductible items; 50% on the amount of appreciation exceeding 100% but not exceeding 200% of the sum of deductible items; and 60% on the amount of appreciation exceeding 200% of the sum of deductible items;

• a taxpayer is exempt from land appreciation tax if: (i) the taxpayer builds houses of ordinary standard for sales and the amount of appreciation does not exceed 20% of the sum of deductible items; (ii) land and properties recalled and requisitioned for construction purposes by the PRC government according to law; and

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• deductions to be made in the calculation of land appreciation comprise: (i) the lease price paid for the use of the land; (ii) the cost and expenses spent in the development of the land; (iii) the cost and expenses in the construction of new buildings and attached installations, or the appraisal prices of old buildings and structures; (iv) tax payments arising from the transfer real estate; (v) other deductions as prescribed by the MOF.

Legal proceedings

• (a) On 14 April 2016, Beijing Wan Heng Da (as plaintiff) instituted litigation against 北 京亞奧閃耀商貿有限公司(Beijing Asia Olympic Bright Trading Limited) (as defendant, hereafter referred to as the “Beijing Asia Olympic Trading”), to claim for (i) the defendant, Beijing Asia Olympic Trading to vacate and reinstate the premises on the first and second floor of the Beijing Property immediately; (ii) payment of occupation fee of RMB4,800,000 in respect of the premises by the defendant, Beijing Asia Olympic Trading, on the basis of monthly occupation fee of RMB1,600,000 in respect of the premises for the period from 1 January 2016 to 31 March 2016 and until the date on which the premises; and (iii) costs and expenses of the litigation in respect of the case shall be borne by the defendant, Beijing Asia Olympic Trading. Thereafter, the court accepted the application by Beijing Wan Heng Da to add 北京亞 奧之星服裝市場有限公司 (Beijing Asia Olympic Star Clothing Limited, hereafter referred to as the “Beijing Asia Olympic Clothing”) as another defendant to the case. The case is being processed.

• (b) On 14 April 2016, Beijing Wan Heng Da (as plaintiff) instituted litigation against against Beijing Asia Olympic Trading (as defendant), to claim for (i) payment of rent of RMB7,147,439 owed by the defendant, Beijing Asia Olympic Trading; (ii) payment of occupation fee in respect of the premises of RMB1,600,000 for the period from 1 December 2015 to 31 December 2015 by the defendant, Beijing Asia Olympic Trading; (iii) repayment of the advance by Beijing Wan Heng Da in relation to electricity and water charges which amounted to RMB1,150,900 and RMB74,067 respectively by the defendant, Beijing Asia Olympic Trading; (iv) payment of interest accrued on the amount owed by the defendant, Beijing Asia Olympic Trading, such interest shall be calculated on the basis on the amount owed by the defendant, Beijing Asia Olympic Trading at 2% above the short term loan interest rate declared by The People’s Bank of China, for the period from the date of payment by the defendant, Beijing Asia Olympic Trading to the date of actual payment by the defendant, Beijing Asia Olympic Trading, and shall be settled together with the principal; (v) the payment of legal fees of RMB70,000 incurred of the case by the defendant, Beijing Asia Olympic Trading; and (vi) costs and expenses of the case shall be borne by the defendant, Beijing Ya Ao Trading. Thereafter, the court accepted the application by Beijing Wan Heng Da to add 北京旺市百利商業有限 公司 (Beijing Wang Shi Bai Li Mercantile Co., Ltd.) as the third party to the case. The case is being processed.

• For identification purposes only

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• (c) On 15 November 2016, 北京金馬長城房產建設有限責任公司 (Beijing Jinma Changcheng Real Estate Construction Co., Ltd) (“ Jinma Changcheng* ”) as plaintiff instituted litigation against Beijing Wan Heng Da as defendant in respect of the dispute on possession of properties, to claim for (i) Beijing Wan Heng Da to vacate the premises located at 2-05, 2-06, second floor of the Beijing Property, the venue of 286.09 sq.m. at the West Exit on the first floor of Beijing Property, the venue with an additional floor area of 501.74 sq.m. on the elevated corridor on the first floor of the Beijing Property and the venue with an additional floor area of 212.02 sq.m. at the west-side tunnel on the second floor of the Beijing Property; (ii) payment of a daily occupation fee of RMB19,719.3 by Beijing Wan Heng Da for the period from 1 January 2016 and until the date of actual relocation (which was in the amount of RMB6,290,456.7 as of 15 November 2016); and (iii) costs of the litigation in respect of the case shall be borne by Beijing Wan Heng Da. The court session in respect of the case is tentatively scheduled on 26 December 2016 at the Olympic Village Court of The People’s Court of Chaoyang District, Beijing.

After reviewing the PRC Legal Opinion prepared by the PRC Legal Advisor of the Company and the legal opinion prepared by the PRC legal advisor of Beijing Wan Heng Da for first two legal proceedings under paragraph (a) and (b), the Directors consider that the Target Group will have a strong case to recover the outstanding rent and electricity and water charges as well as occupation fee from the defendants in the aggregate amount of approximately RMB14.8 million. However, if the claims are denied by court or the claims are supported by the court but cannot be enforced, the estimated costs and other losses to be borne by Beijing Wan Heng Da will be approximately RMB6.7 million. Under the circumstances where the claims are denied by court, Tenant A has agreed to repay RMB6,500,000 to Beijing Wan Heng Da. Therefore, the Directors consider that the two legal proceedings of the Target Group that Beijing Wan Heng Da as the plaintiff to recover the outstanding rent and electricity and water charges as well as occupation fee from the defendants which will not have material adverse impact to the Target Group.

In the worst scenario, assuming that the Target Group cannot recover any of the outstanding rent and electricity and water charges as well as occupation fee from the defendants nor from the Tenant A, the Target Group will suffer an estimated loss of approximately RMB6.7 million (equivalent of approximately HK$7.8 million), representing the write off of other receivables of RMB6.5 million as disclosed in Note 13 on page I-30 of the Accountant’s Report on the Target Group plus the relevant legal fees. As a result, the net assets of the Target Group and the bargain purchase gain arising from the Acquisition would be reduced to approximately HK$234,262,000 as at 30 June 2016, representing a decrease of approximately 3.2% compared to the bargain purchase gain of HK$242,062,000 as shown in the Pro Forma Financial Information of the Enlarged Group included in Appendix III.

• For identification purpose only

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Taking into consideration of the legal opinion prepared by the legal advisor of Beijing Wan Heng Da, the ownership of the Beijing Property held by Beijing Wan Heng Da is undisputable, the amount claimed by Jinma Changcheng and the area claimed by Jinma Changcheng are not significant in terms of the value and total area of Beijing Property respectively, also considering the indemnity to be given by the Vendor and the Guarantor on a joint and several basis for all outstanding claims and liabilities on or before the Completion, the Directors consider that the legal proceeding under paragraph (c) will not have material impact to the value of the Beijing Property, nor the normal operation and business prospects of the Target Group.

The Directors note that it was reported by the media that the Beijing Property has suspension of electricity and heat supplies due to malicious injuries to the property. After reasonable enquiries by the Directors, the Directors note that the suspension of electricity and heat supplies during the period between 30 November 2016 to 3 December 2016 was due to normal maintenance and it has resumed operations since 4 December 2016. The Directors also note that certain areas in the second floor of Beijing Property has been vacant. The Directors was advised by the management of the Target Group that there are moving out of some sub-tenants since taking up the tenancy by Tenant B and Tenant B is considering to improve such areas to attract high spending customers. Since the total area rented by Tenant B has been committed by Tenant B, the Directors consider that the current vacant of some areas in the Beijing Property is temporary and the business of Beijing Property would remain in normal operation.

Save as disclosed above, no member of the Target Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Target Group as at the Latest Practicable Date.

INDUSTRY OVERVIEW

General

The Company has commissioned Jones Lang LaSalle Incorporated (“ JLL ”), an international market research firm with experience in conducting market research for various properties in the PRC and an Independent Third Party, to assess the overall industry situation and development trends and to analyse the competitive landscape of property industry in the PRC. In 1999, the merger of Jones Lang Wootton, a British firm founded in 1783, and LaSalle Partners, a United States Company found in 1968 and being listed on the New York Stock Exchange in 1997, formed JLL. The total consideration payable by the Company to JLL amounts to RMB100,000, which reflects the market rates.

Research methodology and Assumptions

JLL’s independent research was undertaken through primary research and secondary research. Primary research involves interviewing key stakeholders and industry experts in the PRC. Sources of secondary research include government department statistics, trade and business press, company annual reports and publicity materials, industry sources an data from the research database of JLL. JLL indicated that

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the methodology adopted has enabled a full-circle and multi-level information sourcing process, where information gathered can be cross-referenced to ensure accuracy. Intelligence gather by JLL has been analysed, assessed and validated using JLL’s in-house analysis models and techniques. When preparing the research, JLL assumed that the conditions and fundamentals of the economy and the property market will remain stable.

To the best knowledge and information and subject to the availability of up-to-date information from JLL and other industry sources, the Directors confirm that there were no material adverse changes in the market information since the Latest Practicable Date which may qualify, contradict or have an impact on the information set out in this section.

Overview of the PRC economy

1. PRC Gross Domestic Product (“ GDP ”) (2010 to 2020)

China GDP (nominal and real, 2010 to 2020E) Forecast Real GDP (% change pa) Source: The Economist Intelligence Unit, JLL Research PRC 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F Nominal GDP (RMB bn) 39,430.8 44,564.8 50,901.2 57,789.1 65,387.8 73,613.2 82,731.0 92,129.7 101,710.0 111,439.0 121,270.0 Nominal GDP (US$ bn) 13,329.1 15,595.0 17,996.7 20,876.1 24,132.8 27,632.1 31,794.6 36,284.7 41,113.5 46,231.7 51,570.6 Real GDP (% change pa) 10.3% 9.0% 8.7% 8.3% 8.2% 8.1% 7.4% 6.6% 6.0% 5.5% 5.1%

Source: The Economist Intelligence Unit, JLL Research

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According to the report of JLL, the nominal GDP of PRC reached RMB73.6 trillion in 2015. However, PRC’s economy has been slowing down and the real GDP growth has declined over the past several years. The pace of growth is expected to be further decelerated over the next five years. The Real GDP growth decreased from 10.3% in 2010 to 8.1% in 2015 and it is expected to further go down to 5.1% in 2020.

2. PRC GDP per capita (2010 to 2020)

China GDP per capita (2010 to 2020E)

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Forecast
GDP per capita (US$) Growth rate
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Source: The Economist Intelligence Unit, JLL Research

PRC 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F GDP per capita (US$ at PPP) 7,770.0 8,560.0 9,520.0 10,540.0 11,670.0 12,910.0 14,180.0 15,450.0 16,730.0 18,010.0 19,280.0 Growth rate 10.7% 10.2% 11.2% 10.7% 10.7% 10.6% 9.8% 9.0% 8.3% 7.7% 7.1% GDP per capita (RMB) 4,440.0 5,220.0 6,170.0 7,220.0 8,410.0 9,700.0 11,220.0 12,730.0 14,230.0 15,700.0 17,170.0

Source: The Economist Intelligence Unit, JLL Research

Based on the statistics of the market report of JLL, PRC’s population has been steadily growing at an annual growth rate of around 0.5% in 2011. In response to the end of the one-child policy, the population is expected to increase at a slightly faster rate in 2016 and 2017 at 0.7%, before stabilising at 0.6% in the next three years.

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3. PRC’s retail sales (2010 to 2020)

China Retail Sales Index (quarterly average, y-o-y, 2010 to 2020E)

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Forecast
Source: Oxford Economics, JLL Research
Beijing 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F
Retail sales value index
(yearly average, y-o-y) 23.4% 17.1% 14.5% 13.1% 12.0% 10.6% 10.2% 9.7% 9.5% 9.3% 9.1%
Source: Oxford Economics, JLL Research
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The retail sales in PRC decreased significantly in 2011 which has dropped 4.8% on the retail sales value index. From 2012, retail sales growth has continued to slow, slipping by around 1 percentage point annually. Over the forecast horizon, retail sale is expected to have a further decline in a slow and steady trend.

– 56 –

LETTER FROM THE BOARD

Overview of the Beijing Economy

1. Beijing GDP (2010 to 2020) and GDP per capita (2010 to 2020)

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Beijing GDP (nominal and real, 2010 to 2020E)
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Nominal GDP (US$ bn) Real GDP (% change pa)
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Source: The Economist Intelligence Unit, JLL Research

Beijing	2010	2011	2012	2013	2014	2015	2016F	2017F	2018F	2019F	2020F
Nominal GDP_(RMB bn)_	1,411.4	1,625.2	1,787.9	1,950.1	2,133.1	2,296.9	2,457.4	2,628.6	2,811.5	3,000.1	3,151.4
Nominal GDP_(US$ bn)_	208.5	251.5	283.2	314.7	347.2	368.8	372.8	383.5	396.8	422.4	457.0
Real GDP_(% change pa)_	10.3%	8.1%	7.7%	7.7%	7.3%	6.9%	6.5%	6.2%	5.6%	5.1%	4.6%

Source: The Economist Intelligence Unit, JLL Research

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Beijing GDP per capita (2010 to 2020E)
Forecast
GDP per capita (US$) Growth rate
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Source: The Economist Intelligence Unit, JLL Research

– 57 –

LETTER FROM THE BOARD

Beijing 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F GDP per capita (US$) 10,616.5 12,464.7 13,688.2 14,865.0 16,061.6 16,743.1 16,638.0 16,854.6 17,201.7 18,083.2 19,346.8 Growth rate 13.7% 17.4% 9.8% 8.6% 8.0% 4.2% –0.6% 1.3% 2.1% 5.1% 7.0% GDP per capita (RMB) 71,876.3 80,540.6 86,403.2 92,101.4 98,672.8 104,267.9 109,672.1 115,526.0 121,868.7 128,438.1 133,419.9

Source: The Economist Intelligence Unit, JLL Research

Beijing’s economy ranks among the most developed and prosperous city in the PRC and its GDP reached RMB2.3 trillion in 2015. However, given the economic slowdown nationwide, Beijing’s real GDP growth decreased from 10.3% in 2010 to 6.9% in 2015 over the past five years. It is further expected to be slowed down to 4.6% over the next five years.

2. Beijing Retail Sales (2010 to 2020)

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Beijing Retail Sales (2010 to 2020E)
Forecast
Total retail sales (RMB m) Growth rate
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Source: Oxford Economics, JLL Research

Beijing 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F Total retail sales (RMB m) 622,930 690,030 770,280 887,210 963,800 1,069,526 1,157,587 1,251,968 1,351,208 1,453,129 1,557,316 Growth rate 17.3% 10.8% 11.6% 15.2% 8.6% 11.0% 8.2% 8.2% 7.9% 7.5% 7.2%

Source: Oxford Economics, JLL Research

As Beijing is one of the prosperous city in the PRC, retail sales in Beijing are stronger than retail sales in the whole country in the PRC. Total retail sales in PRC reached RMB1.1 trillion in 2015. Following a peak in annual sales growth at 15.2% in 2013, the growth rate decreased significantly to 8.6% in 2014 before rebounding to 11.0% in 2015. However, retail sales growth in Beijing and the PRC are expected to drop again over the next five years.

– 58 –

LETTER FROM THE BOARD

Overview of the property market in the PRC and Beijing

1. General property prices of the PRC (2010 to 2019)

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China Property Pricing Index (2010-2019E)
PRC top 20 cities Grade A office Price index PRC top 20 cities Grade A & B office Price index
PRC tier 1 cities shopping mall price index PRC tier 2 cities shopping mall price index
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Source: JLL Research

The PRC Office Pricing Index grew significantly at the end of stimulus period (i.e. 2010 to 2011), driven by strong demand for office space and factoring in inflation. Meanwhile, the Pricing Index for PRC tier 2 cities fluctuated at around 100 due to oversupply, which is a common trend for smaller cities in PRC.

2. Trend of commercial property prices of Beijing (2010 to 2020)

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----- Start of picture text -----

Beijing Property Pricing Index (2010-2020E)
Beijing Grade A office price index Beijing Prime Retail price index
Source: JLL Research
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LETTER FROM THE BOARD

Office prices in Beijing, compared to pricing on the national index, grew more significantly during the stimulus era because of the strong demand for office space in the post-Olympic period. In the post-stimulus period, property prices in Beijing have continued to grow due to the rise of land prices and the limited supply of commercial properties for sale in the market.

3. The Trend of Investment Yield for Shopping Malls in PRC and Beijing (2010 to 2020)

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China and Beijing Yields (2010-2019E)
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----- Start of picture text -----

Shopping mall Yield PRC Tier 1s Shopping mall Yield Beijing
Source: JLL Research
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Yields of tier 1 cities in the PRC are expected to remain stable in the coming few years. However, several factors could cause the yield of Beijing’s shopping mall to decompress slightly over the next five years. Firstly, an increase in domestic capital seeking worthwhile investments is expected, with interest mainly coming from insurance companies and pension funds. Secondly, the slowing economy means that slower growth in consumption power and lower rental growth will be resulted, which will ultimately give pressure to yields, causing it to rise slightly in the future.

Commercial properties in Beijing

In general, properties are classified into two categories: commercial properties and non-commercial properties. Commercial properties can be further divided into office, retail properties, industrial properties, hotels and hospitality, and other properties.

Commercial properties in Beijing can also be categorized base on three definitions. Firstly, the commercial properties can be defined as hyper shopping centre with size more than 200,000 square meters, large shopping centre with size that is between 100,000 to 200,000 square meters, and medium shopping centre with size below 100,000 square meters. Alternatively, it can be sub-divided into luxury brands dominated property, premium brands dominated property and mid-range and mass-range dominated property. Lastly, it can be classified as urban shopping centre and suburban shopping centre.

– 60 –

LETTER FROM THE BOARD

Overview of the Beijing Retail Property Market

1. Demand of Retail Property

Since more innovative retail properties may be resulted as a response to threats from online, outlets, and overseas shopping, more hybrid stores will be established in the market, particularly in the urban market. Hybrid stores is likely to be more attractive to the customers and motivates them to spendmore while they were not intended to buy at first.

Meanwhile, Food and Beverage and Kids shops remain the main demand drivers for Beijing retails. These sectors tend to be more experience-driven, and as such, are less likely to be affected by the fast-growing Onilne to Offline market. For example, at newly opened suburban malls, Food and Beverage and Kids shops can be in total up to half of a property’s floor space. Fast Fashion and lifestyle brands are also popular. Fashion, meanwhile, is likely to continue to face pressure from online shopping, while the luxury sector continues to recover from the anti-corruption drive and the rebalancing of overseas retail pricing against domestic retail prices.

2. Supply of Retail Property

Development restrictions on the construction of new malls and department stores within the core six districts in Beijing had significantly limited the number of retail properties in the future. Facing the future changes to regulation, developers and operators are only likely to be able to upgrade or convert existing property instead of building a new property after 2020. Therefore, the Suburban market will be a key contributor to future supply.

3. Rents of Retail Property

The rental income of retail property is expected to be flat for the coming years as conditions and fundamentals are not expected to change. Though the economic growth of nearby provinces is not expected to be rebounded, the situation in Beijing should hold steady due to the influx of infrastructure-related stimulus imposed by the government. However, at the same time, slow economic growth and fierce competition in the market coupled with added pressure from mass and mid-range suburban malls will continue to restrain the growth in the urban market. In the coming years, rents for the urban market are expected to be growing slowly at around 2% per annum from 2016 to 2020 under the weak retail environment.

Over the forecast horizon, i.e. 2016 to 2020, more landlords are likely to adopt flexible rental terms with lower base rents and higher sales percentages, which allows the tenant to reduce risks when they spend more upfront on fit-out and operations, particularly for hybrid stores.

– 61 –

LETTER FROM THE BOARD

4. Investment of Retail Property

Due to the risky nature of retail, investors such as core funds or insurance companies are now more interested in pursuing opportunities that offer stability and income security under the current environment instead of chasing opportunistic assets which sit higher on the risk-reward spectrum. On the sell side, meanwhile, there are fewer suitable properties for investors being put on the market, making it harder for investors to find appropriate assets for investment.

The Trend of Rental of Shopping Malls in PRC and Beijing

The rental trend in aggregate and in terms of the average rental rate per square meter of shopping malls in the PRC and Beijing (2010 to 2019)

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Ground-floor Rents at Shopping Malls in China and Beijing (2010-2019E)
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----- Start of picture text -----

Shopping mall Rent PRC Tier 1s Shopping mall Yield Beijing
Source: JLL Research
RMB/sqm/month
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The rental of retail properties continued to grow in tier 1 cities across the PRC because it is supported by the rising income of the local residents. In tier 2 cities, the rental trend was more volatile due to oversupply in many cities and many new market entrants opened in decentralised locations in the PRC.

– 62 –

LETTER FROM THE BOARD

However, rental growth in Beijing is expected to retard to around 2% to 3% per year in the future. First reason is that the rise of e-commerce now accounts for 20% of total retail sales, which is the double of the national average, and is expected to grow in double-digits. Online growth has significantly impacted sales for fashion and accessories tenants, which traditionally pay the highest rents at shopping malls. However, a larger number of the tenants abovementioned faced significant decreases in revenues. Their rental affordability has dropped and it will be difficult for most of them to continue paying high rents. While some landlords have increased the percentage of Food and Beverage and Kids brands to replace the declining number of fashion tenants, they have a lower rental affordability than the fashion tenants. In addition, the rise of suburban shopping centres means that residents outside the city centre have more options which may be closer to their homes. Many suburban projects now offer the same or similar tenant than many mid-range urban shopping malls. This intensify the competition is likely to lead to a slower rental growth in the urban market in the future.

According to Beijing’s Catalogue for the Prohibition and Restriction of Newly Increased Industries (2015 Edition), the city has different regulations on retail properties for different districts detailed as below:

• Dongcheng District and Xicheng District (capital core function districts): the construction of retail properties larger than 10,000 square meter net leasable area (“ NLA ”) is prohibited.

• Chaoyang District, Haidian District, Fengtai District and Shijingshan District (city function expansion areas): (i) Within the East, West and North Fourth Ring and the South Third Ring, the construction of retail properties larger than 10,000 square meter NLA is prohibited; and (ii) Within the East, West and North Fifth Ring and South Fourth Ring, the construction of large-scale public buildings, such as hotels and office buildings, is prohibited, except for high-end industry areas.

The regulations mostly influence the unsold lands. In reality, unsold land that allows developers to design retail properties with area larger than 10,000 square meter NLA is rare in the market. Therefore, the impact of the regulations is insignificant. Given that the Beijing’s Catalogue for the Prohibition and Restriction of Newly Increased Industries is updated annually, the regulations are likely to change in the future which provide uncertainties to the leasing activity.

– 63 –

LETTER FROM THE BOARD

2. Indirect policy impact:

Beijing’s strict control over population growth stated in the 13th Five-Year Plan may have a negative impact on the local retail industry. The fast growth of Beijing’s resident population has been a strain on resources. In order to manage the situation in a better way, several population control targets have been set by the Beijing government.

Despite the plan mentioned above, there is still a potential for Beijing’s overall permanent resident population to grow over the next five years. However, population growth in the six core urban districts will be strictly controlled by redistributing the existing populations in these areas by the government. Therefore, the permanent resident population in these core districts is expected to decrease significantly in the future, which is expected to have a negative impact on retail sales in these areas.

Drivers and factors impacting retail property markets in PRC and Beijing

1. The path to a consumption led-economy

The future of PRC’s economic growth will likely rely on its ability to the transition from its current investment-based economy to a consumption-based economy. Many reforms are necessary for this result. It is only the beginning in PRC, the big reforms are still ahead, such as the overhaul of social services, the household registration system, and land reform.

Retail sales growth has consistently outperformed the GDP growth since the financial crisis. It will be a key driver of the development of PRC’s retail real estate market.

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----- Start of picture text -----

Growth in retail sales versus GDP
25%
20% Government stimulus
package fuels rise in
retail sales
15%
10%
5%
0%
Real GDP (%, y-o-y) Real Retail Sales (%, y-o-y)
Retail Sales Growth (y-o-y)
1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17
----- End of picture text -----

Source: Oxford Economics, JLL Research

– 64 –

LETTER FROM THE BOARD

2. Potential Shopping Centre Customers: the Consumer Class

The growth of the consumer class in PRC (defined by a relatively low income threshold of RMB 30,000 in 2005 terms) is impressive. The consumer class is estimated as the point at which people will begin consuming in modern shopping centres. These consumers are spending at malls now and they will contribute greatly to PRC’s consumption. By 2020, it is expected that large swaths of the country will be full of consumers who will have considerable discretionary income.

3. Demographic Changes

PRC’s population structure is not similar to those of most emerging markets. It has a bulge in the middle of the population. Therefore, it faces the same problem as many developed countries faced, rapidly aging. Generally the population born in pre-1975 is the “Saver Generation”, which means they prefer saving money instead of spending. However, the population born in post-1975 is more consumption-oriented as they had grown up in times of economic boom. Therefore, even as the working population size peaks, the consumer population will still grow by 83% between 2010 and 2020.

4. Wage Income Underpins Consumption Power

Wage growth in PRC appears across white-collar and blue-collar occupations presently. In PRC, there is a strong labour market with low unemployment. Nominal income has been growing 12.9% annually for the last 25 years. Therefore, rising incomes has fuelled strong growth in retail sales.

5. Urbanization is an Important Growth Driver in PRC

Urbanization is the fundamental source of demand for infrastructure, housing, services, and consumer goods. PRC doubled its urbanization rate over 20 years, but still has potential for further development. As people live further from the city centre, they need places closer to where they live to shop. Therefore, rapid urbanization is creating more retail clusters from single-centred cities to multi-centred cities, each of which requires more shopping malls to fulfill their needs.

Competition of shopping malls in Beijing

At the city level, the competition among shopping malls in Beijing is less intensive compared to Shanghai, for which total number of shopping malls is double of that of Beijing. In Beijing, malls in the urban market are increasingly facing pressure from malls in the suburban market. A shopping mall boom in the suburban market has given way to rapid mall growth in the suburbs over the last two years. Recently, several quality projects with reputable mass and mid-range offerings exist in outer locations, giving people more reasons to shop closer to home. At the same time, the overall vacancy rate in the urban market continues to be stable at around 5%. Given the limited new urban supply, the figure is not expected to rise significantly over the coming five years.

– 65 –

LETTER FROM THE BOARD

Rankings and major competitors of Beijing Property

To analyze the level of competition in the area, eight retail properties within 3 kilometers (“ km ”) of Beijing Property are investigated in the report of JLL. Given that Beijing Property is positioned as a community mall, the catchment area is expected to be within 3 km. Among the eight potential competitors, four of them are department stores, which are Legend Department Store, PRC North Star Shopping Centre, Tianyang Hengrui Plaza and Ito Yakado Department Store. Two of the potential competitors are shopping centres, which are Xin’ao Shopping Centre and a future project, Rijdoj (金泉港). The two remaining projects, which are the 5th Ave. Mall and Wanlong Market, are low-end business markets or wholesale markets.

Each project from 1 to 5 is rated based on ten important factors, including their sizes, locations, transportation, interior layout, exterior design, positioning, tenant mix, operation, services and foot flow.

Beijing Property is rated as the highest for its location as it has two adjacent office towers which have the potential to provide a stable source of white-collar customers. It is also near several large residential communities including Anhui Beili Community and Xiuyuan Community and Huizhongli Community across the street. It is rated 3 for transportation as it is located on a main road, Anli Road which is about 750 meters away from the Anli Road Metro Station on Line 15 and less than 50 meters away to a bus station with 20 bus lines passing by. Additionally, the Beijing Property achieved a score of 3 for external appearance, with a neat rooftop area with greenery, benches and sculptures, which have the potential for renovation to increase the attractiveness to customers.

Among the malls surveyed, Beijing Property is rated as the lowest for both positioning and services. It is positioned as a wholesale market with domestic unbranded tenants and low-end brands. As such, the Directors will review the strategy of Beijing Property after the completion in order to enhance the business and value of the Target Group.

INFORMATION OF THE COMPANY AND THE GROUP

The Company is an investment holding company with limited liability incorporated in the Cayman Islands. The principal activities of the Group are the manufacturing and trading of electronic products, plastic moulds, plastic and other components for electronic products, the trading of biodiesel products and the provision of energy saving business solutions.

– 66 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group has been focusing on diversifying its business into industries which will generate stable return and cash flows to the Group. Further to the acquisition of an office located in Hong Kong by the Group, which was completed on 27 January 2016 for long term investment purpose and as the permanent head office of the Group in Hong Kong, it is the intention of the Group to diversify the Group’s investment into property investments in the PRC to enhance the property investment portfolio of the Group. Having closely monitored the market environment and business prospects of the property investment business, and having assessed the relevant business risks and potential returns with a view to maximizing returns to Shareholders, the Board considers that it would be in the interest of the Company and its Shareholders as a whole for the Group to expand into the property investment business by way of acquiring the Beijing Property. The Board considers that the Acquisition will strengthen the property investment into the principal activities of the Group.

The Board has no intention to dispose of or terminate or reduce the scale of the existing principal business of the Group. The Board considers that the Acquisition represents an excellent opportunity for the Group to explore and invest in the PRC property market given Beijing is the capital city of the PRC which enjoys primary status in the country. Taking into account the potential growth of the PRC property market, the valuation of the Beijing Property of approximately RMB2.14 billion (equivalent to approximately HK$2.50 billion), and having considered that the Acquisition does not involve any immediate substantial cash outflow nor issue of any new Shares or securities, plus a stable cash income stream which will be brought to the Group immediately after Completion which the future development of the Group would clearly be benefited from, the Board is of the view that the Acquisition is a good investment opportunity for the Group to pursue, and believes that the Beijing Property will become an important asset in its property portfolio following Completion. The Board is also confident that the Acquisition would strengthen the Company’s financial position and diversify its income stream in the long run.

LISTING RULES IMPLICATIONS

As the applicable percentage ratios (as calculated in accordance with Rule 14.07 of the Listing Rules) for the Acquisition are more than 100%, the Acquisition constitutes a very substantial acquisition of the Company under Rule 14.06 of the Listing Rules. It is subject to the reporting, announcement and the Shareholders’ approval requirements under Chapter 14 of the Listing Rules. According to Rule 14.49 of the Listing Rules, no written shareholders’ approval will be accepted in lieu of holding a general meeting for a transaction constitutes very substantial acquisition.

– 67 –

LETTER FROM THE BOARD

GENERAL

The Company will convene the EGM for the Shareholders to consider and, if thought fit, approve by way of poll, the Acquisition and the transactions contemplated under the Acquisition Agreement.

To the best of the Directors’ knowledge, information and belief after having made all reasonable enquiries, no Shareholder has a material interest in the Acquisition and therefore no Shareholder is required to abstain from voting at the EGM.

THE EGM

Set out on pages EGM-1 and EGM-2 is a notice convening the EGM to be held at Unit 2401-02, Admiralty Centre I, 18 Harcourt Road, Hong Kong on 13 January 2017 at 3:00 p.m. at which the Shareholders attending the EGM in persons or by proxies or corporate representatives will be asked to consider and, if thought fit, to approve the relevant ordinary resolution(s) in respect of the Acquisition.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof.

Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish. The voting results of the EGM will be announced by the Company in accordance with the Listing Rules. The resolution set out in the notice of the EGM would be decided by poll in accordance with the Listing Rules and the articles of association of the Company. On a poll, every Shareholder present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy shall have one vote for every fully paid Share held. A Shareholder present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy who is entitled to more than one vote need not use all his/its votes or cast all his/its votes in the same way. After the conclusion of the EGM, the poll results will be published on the website of the Stock Exchange at www.hkexnews.hk

RECOMMENDATION

The Directors are of the opinion that the terms of the Acquisition Agreement and Acquisition are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that the Shareholders to vote in favour of all the resolutions to be proposed at the EGM.

– 68 –

LETTER FROM THE BOARD

FURTHER INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular. The notice of the EGM is set out at the end of this circular.

The Completion is subject to the satisfaction and/or waiver of conditions precedent set out in the Acquisition Agreement and therefore the Acquisition may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the securities of the Company.

Yours faithfully, By order of the Board of Alltronics Holdings Limited Lam Yin Kee Chairman

– 69 –

FINANCIAL INFORMATION OF THE GROUP

FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group (i) for the six months ended 30 June 2016, is disclosed on pages 2 to 29 of the interim report of the Company for the six months ended 30 June 2016 released on 21 September 2016; (ii) for the year ended 31 December 2015 is disclosed on pages 37 to 107 of the annual report of the Company for the year ended 31 December 2015 released on 26 April 2016; (iii) for the year ended 31 December 2014 is disclosed on pages 33 to 105 of the annual report of the Company for the year ended 31 December 2014 released on 20 April 2015; and (iv) for the year ended 31 December 2013 is disclosed on pages 32 to 101 of the annual report of the Company for the year ended 31 December 2013 released on 15 April 2014, which are available on the website of the Stock Exchange (www.hkexnews.hk) and the website of the Company (http://www.irasia.com/listco/hk/alltronics/index.htm). There was no qualified opinion issued for the audited financial information of the Group for the last three financial years.

Set out below are the management discussion and analysis of the Group as extracted from the interim report for the six months ended 30 June 2016 and annual reports of the Company for each of the three financial years ended 31 December 2015 (the “ Management Discussion and Analysis ”). Terms used below shall have the same meanings as those defined in the Management Discussion and Analysis. Furthermore, all pages/sections/appendices mentioned in the below text are referred to in those of the Management Discussion and Analysis.

For the six months ended 30 June 2016

Total turnover for the six months ended 30 June 2016 (the “ 2016 Interim Period ”) had increased by 8.0% to HK$471.1 million, as compared to HK$436.2 million for the same period in 2015.

Sales of electronic products comprise sales of finished electronic products; plastic moulds and components; and other components for electronic products. The increase in total sales revenue from electronic products was mainly due to the increase in sales of finished electronic products, which had increased from HK$324.6 million in 2015 to HK$351.3 million in 2016. Sales of irrigation controller products to the largest customer of the Group in the United States had increased by approximately HK$30.0 million.

Demand from customers in other geographical locations had remained stable. On the other hand, sales revenue from plastic moulds and components; and other components for electronic products had increased by HK$4.4 million and HK$2.1 million respectively during the 2016 Interim Period.

The sales revenue from biodiesel products had dropped by 34.9%. After the closure of the Group’s biodiesel production facilities located at Tuen Mun since September last year, the revenue from biodiesel business remains at low levels.

– 70 –

FINANCIAL INFORMATION OF THE GROUP

Regarding the energy saving business segment, total revenue generated during the 2016 Interim Period was HK$3.8 million, as compared to HK$1.1 million in 2015. The total revenue represented mainly the energy saving revenue generated from retail stores of Suning Commerce Group Co., Ltd. (“ Suning ”) and hotels operated by the HNA Group Co., Ltd. with LED lighting equipment installed. During the 2016 Interim Period, the inspection procedures for the LED installation work at a hotel at Beijing operated by HNA Group Co., Ltd. were completed and revenue was generated since January this year. During the 2016 Interim Period, the LED lighting equipment project (“ Suning EMC Project ”) with Suning continued.

In terms of geographical market, the United States continued to be the major market for the Group’s products and accounted for approximately 57.1% of the total turnover for the 2016 Interim Period. Sales to customers in Hong Kong had increased by HK$9.5 million while sales to customers in Europe had decreased by HK$11.2 million. Sales to other geographical locations had remained stable. The Group will continue its efforts to secure new customers in different markets so that the turnover by geographical location can be spread more evenly.

For the year ended 31 December 2015

Total revenue for the year ended 31 December 2015 had decreased by 7.4% to HK$886.3 million, as compared to HK$957.5 million for the year 2014. Sales of electronic products comprise sales of finished electronic products; plastic moulds; plastic and other components for electronic products. The decrease in total sales revenue from electronic products was mainly due to the drop in sales of finished electronic products, which had decreased from HK$711.1 million in 2014 to HK$642.8 million in 2015. This was mainly due to the slowdown of orders from customers in the United States. During the year, the demand for the Group’s major product, irrigation controllers, had decreased by HK$22.9 million. Demand from customers in other geographical locations had remained stable. Total sales of components for electronic products, including transformers and adapters, had decreased from HK$144.5 million in 2014 to HK$141.3 million in 2015. On the other hand, sales revenue from plastic moulds and plastic components for electronic products had increased from HK$67.0 million in 2014 to HK$93.0 million in 2015.

The sales revenue from biodiesel products had dropped by 58.1%. As a result of the continuous drop in the global oil commodity prices, the unit selling price for biodiesel products had also dropped during the year. Furthermore, biodiesel products will be less attractive to customers when oil commodity prices drop and there is less incentive for them to shift to use biodiesel products. During the year of 2015, the Group had ceased to lease the biodiesel production facilities located at Tuen Mun so as to reduce the operating costs for this business segment.

– 71 –

FINANCIAL INFORMATION OF THE GROUP

Regarding the energy saving business segment, total revenue generated during the year 2015 was HK$3.8 million, as compared to HK$21.8 million in 2014. During the year of 2015, the Suning EMC Project with Suning continued and about 200 retail stores of Suning had completed the installation work but pending completion of the inspection procedures. Energy saving revenue from these stores will be recognised when the inspection procedures are completed. As of 31 December 2015, the Group had completed the installation work at over 400 Suning retail stores in aggregate. The Group will continue the installation work at other Suning retail stores in 2016. During the year, the Group had also completed the installation work and the inspection procedures at a hotel at Beijing operated by HNA Group Co., Ltd.

In terms of geographical market, the United States continued to be the major market for the Group’s products and accounted for approximately 51.5% of the total revenue for the year of 2015. Sales to customers in Hong Kong had decreased by HK$5.7 million while sales to customers in Europe had decreased by HK$8.0 million. Sales to other geographical locations had remained stable. The Group will continue its efforts to secure new customers in different markets so that the revenue by geographical location can be spread more evenly.

For the year ended 31 December 2014

Total turnover for the year ended 31 December 2014 had increased by 23.4% to HK$957.5 million, as compared to HK$775.9 million for the year 2013. Sales of electronic products comprise sales of finished electronic products; plastic moulds; plastic and other components for electronic products. The demand for the Group’s finished electronic products was strong and the total sales of finished electronic products for 2014 were HK$711.1 million, as compared to HK$587.5 million for 2013.

During the year of 2014, the demand for the Group’s major product, irrigation controllers, had increased by HK$59.3 million. Sales of finished electronic products to most of the other customers had remained stable with steady growth. Total sales of components for electronic products, including transformers and adapters, had increased to HK$144.5 million, compared to HK$119.6 million for 2013. Total sales of plastic moulds and plastic components had also increased from HK$44.6 million in 2013 to HK$67.0 million in 2014.

Due to the expiry of the government contract for the supply of B5 biodiesel on 30 April 2013, there were no sales of biodiesel products to the Hong Kong Government during 2014. As a result, sales of biodiesel products had dropped from HK$21.6 million in 2013 to HK$13.0 million in 2014.

Regarding the energy saving business segment, total revenue generated during the year of 2014 was HK$21.8 million. During the year of 2014, the Suning EMC Project with Suning continued. As of 31 December 2014, the Group had completed the installation work and the inspection procedures at over 200 Suning retail stores. During the year of 2014, the Group has entered into an energy management agreement with a hotel at Beijing operated by HNA Group Co., Ltd. The Group expects to complete the LED lighting equipment installation work and the inspection procedures at this hotel during the second quarter of 2015.

– 72 –

FINANCIAL INFORMATION OF THE GROUP

In terms of geographical market, the United States continued to be the major market for the Group’s products and accounted for approximately 53.2% of the total turnover for the year 2014. Sales to customers in Hong Kong had increased by HK$54.6 million while sales to customers in other geographical locations had remained stable. The Group will continue its efforts to secure new customers in different markets so that the turnover by geographical location can be spread more evenly.

For the year ended 31 December 2013

Total turnover for the year of 2013 had dropped slightly by 1.6% to HK$775.9 million, as compared to HK$788.7 million for the year 2012. Sales of electronic products comprise sales of finished electronic products; plastic moulds; plastic and other components for electronic products. The demand for the Group’s finished electronic products was stable and the total sales of finished electronic products for 2013 were HK$587.5 million, as compared to HK$586.2 million for 2012. The demand for the Group’s major product, irrigation controllers, had remained strong during the year. On the other hand, sales of certain low margin electronic products to customers in Hong Kong had reduced. Total sales of components for electronic products, including transformers and adapters, had increased slightly to HK$119.6 million, compared to HK$114.9 million for 2012. Total sales of plastic moulds and plastic components had decreased from HK$45.6 million in 2012 to HK$44.6 million in 2013.

Due to the expiry of the government contract for the supply of B5 biodiesel on 30 April 2013, the sales of biodiesel products had dropped from HK$41.8 million in 2012 to HK$21.6 million in 2013. However, the sales of biodiesel products to other customers had remained stable.

Regarding the energy saving business segment, the Group has extended its energy saving business to Hong Kong customers, and had sold LED lighting equipment to two well-known Chinese restaurants in Hong Kong. Total revenue received from energy saving business segment during the year was HK$2.6 million. The Suning EMC Project with Suning continued during the year of 2013. As of 31 December 2013, 20 Suning retail stores at Nanjing had completed the inspection procedures and generating energy saving revenue.

On 21 October 2013, the Group has entered into an energy management agreement with a hotel at Tianjin operated by HNA Group Co., Ltd. The LED lighting equipment installation work and the inspection procedures had completed in February 2014, and energy saving revenue will be generated from the second quarter of 2014.

In terms of geographical market, the United States continued to be the major market for the Group’s products and accounted for approximately 55.2% of the total turnover for the year 2013 (2012: 50.1%). Sales to customers in Europe had increased by HK$38.0 million while sales to customers in Hong Kong had dropped by HK$75.6 million. The sales to customers in The PRC market had also dropped by HK$5.2 million. The Group will continue its efforts to secure new customers in different markets so that the turnover by geographical location can be spread more evenly.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

LIQUIDITY AND FINANCIAL RESOURCES AND CAPITAL STRUCTURE

At 30 June 2016, the Group’s total cash and cash equivalents, net of current bank overdrafts, amounted to HK$207.0 million. The net funds are sufficient to finance the Group’s working capital and capital expenditure plans.

At 30 June 2016, total borrowings of the Group amounted to HK$300.1 million, comprising bank overdrafts of HK$2.8 million, bank loans of HK$294.5 million, trust receipt loans of HK$0.4 million and obligations under finance leases of HK$2.4 million, all of which are denominated in Hong Kong dollars.

The Group has entered into various forward currency contracts to manage its exchange rate exposures. These forward currency contracts are not designated for hedge purposes and are measured at fair value through profit or loss. Change in the fair value of non-hedging currency derivatives were charged to the statement of profit or loss during the period. All forward currency contracts have been settled as at 30 June 2016.

The Group’s trade receivable turnover, inventory turnover and trade payable turnover were approximately 49 days, 86 days and 91 days respectively for the Period. These turnover periods are consistent with the respective policies of the Group on credit terms granted to customers and obtained from suppliers.

As at 30 June 2016, the Group’s total current assets had decreased by 1.3% to HK$579.4 million compared to HK$587.0 million as at 31 December 2015, and the Group’s total current liabilities had increased by 38.2% to HK$502.1 million compared to HK$363.2 million as at 31 December 2015. The current ratio (current assets/current liabilities) as at 30 June 2016 was 1.15 times, compared to 1.62 times as at 31 December 2015. The drop in current ratio was mainly due to the increase in mortgage loan and other bank borrowings as included in current liabilities at 30 June 2016.

As at the Latest Practicable Date, the Company had in issue a total of 502,182,220 ordinary shares. During the six months 30 June 2016, a new share option scheme was adopted by the shareholders at the annual general meeting of the Company held on 7 June 2016. There were no share options granted, exercised, lapsed or cancelled since the adoption of the 2016 Share Option Scheme. As at 30 June 2016, the Company did not have any share options outstanding.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirmed that there was no material adverse change in the financial or trading position or prospects of the Group since 31 December 2015, being the date to which the latest published audited financial statements of the Group were made.

– 74 –

FINANCIAL INFORMATION OF THE GROUP

FINANCIAL AND TRADING PROSPECT OF THE GROUP

The Group will continue to maintain the manufacturing and trading of electronic products, components for electronic products, biodiesel products, and provision of energy saving business solutions as its core business.

In view of the withdrawal of the United Kingdom from the European Union, and fluctuations in the global stock markets and foreign exchange rates, the Group foresees that the global economic environment in the second half of 2016 will remain uncertain. Factors such as the risk of fluctuation of exchange rate of Renminbi against United States dollars and Hong Kong dollars; the consistent upward adjustment on the minimum wage levels in the PRC; and the uncertain consequences of the withdrawal of the United Kingdom from the European Union will continue to affect the performance of the Group’s electronic products segment. The Group will continue its efforts to tighten controls over production costs and overheads, and to improve production efficiency so as to maximise the gross profit margin.

The demand for the Group’s irrigation controllers and other major electronic products will remain to be strong. On the other hand, some new products are expected to be launched during the last quarter of 2016. The Group has confidence that the overall performance of the electronic business segment will remain strong during the second half of 2016. The Group foresees that United States will still be the major market for its products in 2016. The Group will continue to devote efforts to explore new markets and new customers to broaden its customer base.

Regarding the 49% owned associate established in the PRC for the manufacture and sale of printers and other accessory products, the factory located at Yi Chun had commenced operations in the second half of 2015. However, the contribution from this associate is not expected to be significant for the year 2016.

The demand for the Group’s biodiesel products remained at low levels during the Period and management expects that the revenue from biodiesel products will remain stable during the second half of 2016.

Regarding the Suning EMC Project, the installation work continued during the Period and management expects the Group will complete the installation work at approximately 200 retail stores of Suning during the year 2016. The Group will continue the installation work at other retail stores of Suning in 2017.

As at 30 June 2016, the Group’s net current assets were HK$77.3 million with cash and cash equivalents balance of HK$209.8 million. After the Completion of the Acquisition, the Directors expect that the Group’s financial position shall remain strong and maintain positive net assets value for at least the current financial year ending 31 December 2016.

– 75 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

The following is the text of a report received from Ernst & Young, Certified Public Accountants – Accountants’ Report on Target Group for the purpose of incorporation in this Circular.

23 December 2016

The Board of Directors Alltronics Holdings Limited

Dear Sirs,

We set out below our report on the financial information of Bonroy Limited (the “ Target Company ”) and its subsidiaries (hereinafter collectively referred to as the “ Target Group ”) comprising the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Target Group for each of the years ended 31 December 2013, 2014, 2015, and the six months ended 30 June 2016 (the “ Relevant Periods ”), and the consolidated statements of financial position of the Target Group as at 31 December 2013 and 2014, 2015 and 30 June 2016, together with the notes thereto (the “ Financial Information ”), and the comparative consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows of the Target Group for the six months ended 30 June 2015 (the “ Interim Comparative Information ”), prepared on the basis of preparation set out in note 2.1 of Section II below, for inclusion in the circular of Alltronics Holdings Limited dated 23 December 2016 (the “ Circular ”) in connection with the proposed acquisition of the Target Company.

The Target Company was established in Samoa with limited liability on 20 May 2016. Pursuant to the group reorganisation (the “ Reorganisation ”) as set out in note 2 of section II below, which was completed on 16 June 2016, the Company became the holding company of the subsidiaries now comprising the Target Group. Apart from the Reorganisation, the principal activity of the Target Company is an investment holding company. The Target Group is principally engaged in property investment.

As at the end of the Relevant Periods, the Target Company had direct and indirect interests in the subsidiaries as set out in note 1 of Section II below. All companies now comprising the Target Group have adopted 31 December as their financial year end date. The statutory financial statements of the companies now comprising the Target Group were prepared in accordance with the relevant accounting principles applicable to these companies in the jurisdictions in which they were incorporated and/or established. Details of their statutory auditors during the Relevant Periods are set out in note 1 of Section II below.

– I-1 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

For the purpose of this report, the directors of the Target Company (the “ Directors ”) have prepared the consolidated financial statements of the Target Group (the “ Underlying Financial Statements ”) in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants, and the disclosure requirements of the Hong Kong Companies Ordinance. The Underlying Financial Statements for each of the years ended 31 December 2013, 2014, 2015 and the six months ended 30 June 2016 were audited by us in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”).

The Financial Information set out in this report has been prepared from the Underlying Financial Statements with no adjustments made thereon.

DIRECTORS’ RESPONSIBILITY

The Directors are responsible for the preparation of the Underlying Financial Statements, the Financial Information and the Interim Comparative Information that give a true and fair view in accordance with HKFRSs, and for such internal control as the Directors determine is necessary to enable the preparation of the Underlying Financial Statements, the Financial Information and the Interim Comparative Information that are free from material misstatement, whether due to fraud or error.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

It is our responsibility to form an independent opinion and a review conclusion on the Financial Information and the Interim Comparative Information, respectively, and to report our opinion and review conclusion thereon to you.

For the purpose of this report, we have examined the Underlying Financial Statements and have carried out procedures on the Financial Information in accordance with Auditing Guideline 3.340 Prospectuses and the Reporting Accountant issued by the HKICPA.

We have also performed a review of the Interim Comparative Information in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an opinion on the Interim Comparative Information.

– I-2 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

OPINION IN RESPECT OF THE FINANCIAL INFORMATION

In our opinion, for the purpose of this report and on the basis of preparation set out in note 2.1 of Section II below, the Financial Information gives a true and fair view of the state of affairs of the Target Group as at 31 December 2013, 2014, 2015 and 30 June 2016, and the consolidated financial performance and cash flows of the Target Group for each of the Relevant Periods.

REVIEW CONCLUSION IN RESPECT OF THE INTERIM COMPARATIVE INFORMATION

Based on our review which does not constitute an audit, for the purpose of this report, nothing has come to our attention that causes us to believe that the Interim Comparative Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

I FINANCIAL INFORMATION

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Notes REVENUE 4 Other income 4 Administrative expenses Changes in fair value of investment properties 11 Other expenses Finance costs 6 PROFIT/(LOSS) BEFORE TAX Income tax expense 9 PROFIT/(LOSS) FOR THE YEAR/PERIOD Attributable to : Owners of the parent	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 38,594 38,823 39,623 19,107 36,667 30 774 21 12 3 (4,191) (3,457) (2,139) (899) (6,323) (2,400) (8,200) (7,300) (4,300) 1,330,200 (5,155) (5,163) (5,208) (2,565) (3,227) (27,303) (40,868) (40,600) (23,318) – (425) (18,091) (15,603) (11,963) 1,357,320 (1,586) 4,423 3,650 2,956 (339,102) (2,011) (13,668) (11,953) (9,007) 1,018,218 (2,011) (13,668) (11,953) (9,007) 1,018,218	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 38,594 38,823 39,623 19,107 36,667 30 774 21 12 3 (4,191) (3,457) (2,139) (899) (6,323) (2,400) (8,200) (7,300) (4,300) 1,330,200 (5,155) (5,163) (5,208) (2,565) (3,227) (27,303) (40,868) (40,600) (23,318) – (425) (18,091) (15,603) (11,963) 1,357,320 (1,586) 4,423 3,650 2,956 (339,102) (2,011) (13,668) (11,953) (9,007) 1,018,218 (2,011) (13,668) (11,953) (9,007) 1,018,218
		1,357,320 (339,102)
		1,018,218
		1,018,218

– I-3 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

PROFIT/(LOSS) FOR THE YEAR/PERIOD OTHER COMPREHENSIVE INCOME FOR THE YEAR/PERIOD, NET OF TAX TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR/PERIOD Attributable to: Owners of the parent	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (2,011) (13,668) (11,953) (9,007) 1,018,218 – – – – – (2,011) (13,668) (11,953) (9,007) 1,018,218 (2,011) (13,668) (11,953) (9,007) 1,018,218	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (2,011) (13,668) (11,953) (9,007) 1,018,218 – – – – – (2,011) (13,668) (11,953) (9,007) 1,018,218 (2,011) (13,668) (11,953) (9,007) 1,018,218
		–
		1,018,218
		1,018,218

– I-4 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Property, plant and equipment Investment properties 11 Pledged deposits 14 Total non-current assets CURRENT ASSETS Trade receivables 12 Deposits and other receivables 13 Cash and cash equivalents 14 Total current assets CURRENT LIABILITIES Trade payables Deposits received, other payables and accruals 15 Total current liabilities NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred tax liabilities 17 Interest-bearing bank borrowings 16 Total non-current liabilities NET ASSETS EQUITY Share capital 18 Reserves Total equity	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 17 15 47 823,200 815,000 807,700 20,000 20,000 – 843,217 835,015 807,747 22 275 301 9,940 248,246 8,586 2,073 320 1,259 12,035 248,841 10,146 10 10 10 1,782 3,877 200,212 1,792 3,887 200,222 10,243 244,954 (190,076) 853,460 1,079,969 617,671 125,238 120,815 117,165 235,400 480,000 – 360,638 600,815 117,165 492,822 479,154 500,506 – – – 492,822 479,154 500,506 492,822 479,154 500,506	As at 30 June 2016 RMB’000 218 2,137,900 –
		2,138,118
		8,852 12,893 38,995
		60,740
		10 1,535,111
		1,535,121
		1,474,381
		663,737
		456,267 –
		456,267
		207,470
		– 207,470
		207,470

– I-5 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

At 1 January 2013 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year At 31 December 2013 and 1 January 2014 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year At 31 December 2014	Issued capital RMB’000 (note 18) – – – – – – – – –	Capital reserve* RMB’000 6,448 – – – 6,448 – – – 6,448	Retained Profits* RMB’000 488,385 (2,011) – (2,011) 486,374 (13,668) – (13,668) 472,706	Total RMB’000 494,833 (2,011) – (2,011) 492,822 (13,668) – (13,668) 479,154

– I-6 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)

At 31 December 2014 and 1 January 2015 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Bank loan interest borne by a related party (note 20 (i)) At 31 December 2015 and 1 January 2016 Profit for the period Other comprehensive income for the period Total comprehensive loss for the period Debt conversion** (note 20) Dividends declared (note 10) Consideration for business combination under common control (note 20) At 30 June 2016	Issued capital RMB’000 (note 18) – – – – – – – – – – – – –	Capital reserve* RMB’000 6,448 – – – 33,305 39,753 – – – 450,000 – – 489,753	Merger reserve* RMB’000 – – – – – – – – – – – (570,000) (570,000)	Retained Profits* RMB’000 472,706 (11,953) – (11,953) – 460,753 1,018,218 – 1,018,218 – (1,191,254) – 287,717	Total RMB’000 479,154 (11,953) –
					(11,953) 33,305
					500,506
					1,018,218 –
					1,018,218 450,000 (1,191,254) (570,000)
					207,470

– I-7 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (continued)

(Unaudited) At 31 December 2014 and 1 January 2015 Loss for the period Other comprehensive income for the period Total comprehensive loss for the period Bank loan interest borne by a related party (note 20(i)) At 30 June 2015	Issued capital RMB’000 (note 18) – – – – – –	Capital reserve* RMB’000 6,448 – – – 16,652 23,100	Retained Profits* RMB’000 472,706 (9,007) – (9,007) – 463,699	Total RMB’000 479,154 (9,007) – (9,007) 16,652 486,799

• These reserve accounts comprise the consolidated reserves of RMB492,822,000, RMB479,154,000, RMB500,506,000 and RMB207,470,000 as at 31 December 2013, 2014, 2015 and 30 June 2016, respectively, in the consolidated statements of financial position.

• ** On 1 April 2016, Beijing Wan Heng Da Investment Limited, a wholly-owned subsidiary of Target Company, entered into an agreement with the ex-shareholder to convert a debt amounted to RMB450,000,000 into capital from a payable to the ex-shareholder. The registration for change in capital with the industrial and commercial bureau has been completed on 30 April 2016 and a capital verification report was issued on 6 May 2016.

– I-8 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

CONSOLIDATED STATEMENTS OF CASH FLOWS

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Finance costs 6 Bank interest income 4 Depreciation Changes in fair value of investment properties 11 Decrease/(increase) in trade receivables Decrease/(increase) in prepayments, deposits and other receivables Decrease/(increase) in deposits received, other payables and accruals Cash received from operations Interest received Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment Decrease/(increase) in pledged time deposits Net cash flows from/(used in) investing activities	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 (425) (18,091) (15,603) 27,303 40,868 40,600 (28) (716) (21) 23 16 6 2,400 8,200 7,300 29,273 30,277 32,282 266 (253) (26) 300 (1,394) (5,123) (915) 70 (1,068) 28,924 28,700 26,065 28 716 21 28,952 29,416 26,086 – (14) (38) (20,000) – 20,000 (20,000) (14) 19,962	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) (11,963) 1,357,320 23,318 – (12) (3) 3 9 4,300 (1,330,200) 15,646 27,126 – (8,552) (5,106) (4,306) (1,085) 23,645 9,455 37,913 12 3 9,486 37,916 – (180) 20,000 – 20,000 (180)	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) (11,963) 1,357,320 23,318 – (12) (3) 3 9 4,300 (1,330,200) 15,646 27,126 – (8,552) (5,106) (4,306) (1,085) 23,645 9,455 37,913 12 3 9,486 37,916 – (180) 20,000 – 20,000 (180)
			27,126
			(8,552) (4,306) 23,645
			37,913 3
			37,916
			(180) –
			(180)

– I-9 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Notes CASH FLOWS FROM FINANCING ACTIVITIES New bank loans Repayment of bank loans and other borrowing Interest paid Net cash flows used in financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/period CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 14 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 14 Cash and bank balances as stated in the statement of financial position 14 Cash and cash equivalents at end of year/period 14	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 261,581 264,600 956,186 (252,200) (254,887) (994,000) (27,303) (40,868) (7,295) (17,922) (31,155) (45,109) (8,970) (1,753) 939 11,043 2,073 320 2,073 320 1,259 2,073 320 1,259 2,073 320 1,259 2,073 320 1,259	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) 471,737 – (494,000) – (6,665) – (28,928) – 539 37,736 320 1,259 859 38,995 859 38,995 859 38,995 859 38,995	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) 471,737 – (494,000) – (6,665) – (28,928) – 539 37,736 320 1,259 859 38,995 859 38,995 859 38,995 859 38,995
			–
			37,736 1,259
			38,995
			38,995
			38,995
			38,995

– I-10 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

II NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE AND GROUP INFORMATION

The Target Company was established in Samoa with limited liability on 20 May 2016, The Target Company’s registered office is located at Sertus Chambers, P.O Box 603, Apia SAMOA.

The Target Company is an investment holding company. The Target Group is principally engaged in property investment.

In the opinion of the Directors, the immediate holding company and ultimate controlling party of the Target Company are Bonroy International Group Limited (“ Bonroy International ”) and Mr. Gu Qi, respectively.

As at the end of the Relevant Periods, the Target Company had direct and indirect interests in its subsidiaries, all of which are private limited liability companies, the particulars of which are set out below:

	Place and date of
	incorporation/		Percentage of equity
	registration and	Registered	attributable to the
Company name	operations	share capital	Target Company			Principal activities
			Direct	Indirect
			%		%
Triumph Consumer Goods	Hong Kong	HK$10,000	100		–	Investment holding
Limited (創富日用品有限公司) (i)	17 November 2009
Shenzhen Chong Ruan Finance	PRC/Mainland China	USD15,000,000	–	100		Investment holding
Lease Company Limited	10 March 2015
(“Shenzhen Chong Ruan”)
(深圳市創潤融資租賃有限公司) (ii)
Beijing Wan Heng Da	PRC/Mainland China	RMB570,000,000	–	100		Property investment
Investment Limited	29 November 2010
(“Beijing Wan Heng Da”)
(北京萬恒達投資有限公司) (iii)

• (i) The statutory financial statements of Triumph Consumer Goods Limited for the years ended 31 December 2014 and 2015 were prepared in accordance with the Small and Medium-sized Entity Financial Reporting Standard issued by the Hong Kong Institute of Certified Public Accountants and were audited by CHUI & KWOK Certified Public Accountants, a certified public accountants registered in Hong Kong.

• (ii) The statutory financial statements of Shenzhen Chong Ruan for the year ended 31 December 2015 were prepared under PRC Generally Accepted Accounting Principles and were audited by Shenzhen Bangde Certified Public Accountants (深圳邦德會計師事務所), a certified public accountants registered in the PRC.

• (iii) The statutory financial statements of Beijing Wan Heng Da for the year ended 31 December 2015 were prepared under PRC Generally Accepted Accounting Principles and were audited by Zhongrui Certified Public Accountants (中睿會計師事務所), a certified public accountants registered in the PRC.

The English names of certain of the subsidiaries registered in the PRC represent the best effort made by management of the Target Company to translate their Chinese names as those subsidiaries do not have official English names.

– I-11 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

2.1 BASIS OF PRESENTATION

The Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants, and the disclosure requirements of the Hong Kong Companies Ordinance. All HKFRSs effective for the accounting period commencing from 1 January 2016, have been early adopted by the Target Group in the preparation of the Financial Information throughout the Relevant Periods and in the period covered by the Interim Comparative Information.

The Financial Information has been prepared under the historical cost convention, except for Investment properties which have been measured at fair value. The Financial Information is presented in Renminbi (“ RMB ”) and all values are rounded to the nearest thousand except when otherwise indicated.

As at 31 December 2015 and 30 June 2016, the Target Group had net current liabilities of approximately RMB190,076,000 and RMB1,474,381,000, respectively. The Group’s ability to repay its debts when they fall due relies heavily on its future operating cash flow and its ability to obtain the bank loans and other borrowings. In view of the above, the directors have carefully assessed the Target Group’s liquidity position having taken into account (i) the estimated operating cash inflows of the Target Group for the next twelve months from the end of the current reporting period; and (ii) the new long-term entrusted loan amount of RMB1,500,000,000 obtained in late September 2016. Details of the entrusted loan are set out in note 25 to the financial information.

On the basis of the above consideration, the directors believe that the Target Group can satisfy its financial obligations in the foreseeable future and accordingly, the interim financial report has been prepared on a going concern basis.

Basis of consolidation

The Company has undertaken a series of restructuring steps in 2016. The Reorganisation was completed on 16 June 2016, and the Target Company became the holding company of the companies then comprising the Group on 16 June 2016. Triumph Consumer Goods Limited, Shenzhen Chong Ruan and Beijing Wan Heng Da are under common control of Mr. Guqi after the completion of the Restructuring. On 16 June 2016, Foshan Ying Hao Thai Company Limited (“ Foshan Ying Hao Thai ”), as the ex-shareholder of Beijing Wan Heng Da, has transferred its 100% interest to Shenzhen Chong Ruan with the consideration payable by Shenzhen Chong Ruan amounted to RMB570,000,000.

The Target Company was incorporated on 20 May 2016 and became the holding company of the companies now comprising the Target Group on 16 June 2016. These companies were under the common control of the same controlling shareholder before and after the Reorganisation. Accordingly, for the purpose of this report, the Financial Information has been prepared on a consolidation basis by applying the principles of merger accounting as if the Reorganisation had been completed at the beginning of the Relevant Periods.

The consolidated statement of profit or loss, the consolidated statement of comprehensive income, the statements of the changes in equity and the statements of cash flows of the Target Group for the Relevant Periods include the results and cash flows of all companies now comprising the Target Group from the earliest date presented or since the date when the subsidiaries first came under the common control of the controlling shareholder, where this is a shorter period. The consolidated statements of financial position of the Target Group as at 31 December 2013, 2014 and 2015 and 30 June 2016 have been prepared to present the assets and liabilities of the subsidiaries and/or businesses using the existing book values from the controlling shareholder’s perspective. No adjustments are made to reflect fair values, or recognize any new assets or liabilities as a result of the Reorganization.

The consolidated financial statements include the financial statements of the Target Group for the Relevant Periods. The financial statements of the subsidiaries are prepared for the same reporting period as the Target Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Target Group obtains control, and continue to be consolidated until the date that such control ceases.

– I-12 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

All intra-Target Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Target Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Target Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Target Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Target Group had directly disposed of the related assets or liabilities.

2.2. ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Target Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in the financial statements.

HKFRS 9 Financial Instruments[1] HKFRS 15 Revenue from Contracts with Customers[1] HKFRS 16 Lease[2]

1 Effective for annual periods beginning on or after 1 January 2018

2 Effective for annual periods beginning on or after 1 January 2019

Further information about those HKFRSs is as follows:

In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting.

HKFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under HKFRSs. In September 2015, the HKICPA issued an amendment to HKFRS 15 regarding a one-year deferral of the mandatory effective date of HKFRS 15 to 1 January 2018.

HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. It distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Subject to limited exceptions for short term leases and low value assets, distinctions of operating and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees. However, the standard does not significantly change the accounting of lessors.

The Target Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application, but is not in a position to state whether these new and revised HKFRSs will have a significant impact on the Target Group’s results of operations and financial position.

– I-13 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Target Company. Control is achieved when the Target Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Target Group the current ability to direct the relevant activities of the investee).

When the Target Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Target Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• (a) the contractual arrangement with the other vote holders of the investee;

• (b) rights arising from other contractual arrangements; and

• (c) the Target Group’s voting rights and potential voting rights.

The Target Company’s investments in subsidiaries that are not classified as held for sale in accordance with HKFRS 5 Non-current Assets Held for sale and Discontinued Operations are stated at cost less any impairment loss.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Target Group, liabilities assumed by the Target Group to the former owners of the acquiree and the equity interests issued by the Target Group in exchange for control of the acquiree. For each business combination, the Target Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Target Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previously held equity interests, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Target Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

– I-14 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually if events or changes in circumstances indicate that the carrying value may be impaired. The Target Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Target Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the Target Group are assigned to those units or groups of units.

Where goodwill has been allocated to a cash-generating unit (or Target Group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Fair value measurement

The Target Group measures its investment properties at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Target Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Target Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Target Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets and investment properties), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for

– I-15 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the consolidated statement of comprehensive income in the period in which it arises.

Related parties

A party is considered to be related to the Target Group if:

• (a) the party is a person or a close member of that person’s family and that person

• (i) has control or joint control over the Target Group;

• (ii) has significant influence over the Target Group; or

• (iii) is a member of the key management personnel of the Target Group or of a parent of the Target Group;

or

• (b) the party is an entity where any of the following conditions applies:

• (i) the entity and the Target Group are members of the same group;

• (ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

• (iii) the entity and the Target Group are joint ventures of the same third party;

• (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

• (v) the entity is a post-employment benefit plan for the benefit of employees of either the Target Group or an entity related to the Target Group;

• (vi) the entity is controlled or jointly controlled by a person identified in (a);

• (vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and

• (viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Target Group or to the parent of the Target Group.

– I-16 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost (or valuation) less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Target Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Furniture, fittings and other equipment 9% to 20%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of the reporting period.

Gains or losses arising from changes in the fair values of investment properties are included in the profit or loss in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of profit or loss in the year of the retirement or disposal.

For a transfer from investment properties to owner-occupied properties or inventories, the deemed cost of a property for subsequent accounting is its fair value at the date of change in use. If a property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under “Property, plant and equipment and depreciation” up to the date of change in use, and any difference at that date between the carrying amount and the fair value of the property is accounted for as a revaluation.

– I-17 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Operating leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Target Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases, including prepaid land lease payments under finance leases, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the statement of profit or loss so as to provide a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Target Group is the lessor, assets leased by the Target Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the statement of profit or loss on the straight-line basis over the lease terms. Where the Target Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the statement of profit or loss on the straight-line basis over the lease terms.

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Target Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in the statement of profit or loss. The loss arising from impairment is recognised in the statement of profit or loss in finance costs for loans and in other expenses for receivables.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Target Group’s consolidated statement of financial position) when:

• the rights to receive cash flows from the asset have expired; or

• the Target Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material

– I-18 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

delay to a third party under a “pass-through” arrangement; and either (a) the Target Group has transferred substantially all the risks and rewards of the asset, or (b) the Target Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Target Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Target Group continues to recognise the transferred asset to the extent of the Target Group’s continuing involvement. In that case, the Target Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Target Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Target Group could be required to repay.

Impairment of financial assets

The Target Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Target Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Target Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Target Group.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other expenses in the statement of profit or loss.

– I-19 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially as a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

The Target Group’s financial liabilities include trade and other payables, an amount due to the ultimate holding company and interest-bearing bank and other borrowings.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

– I-20 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Target Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Target Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

• when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax

– I-21 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Target Group and when the revenue can be measured reliably, on the following bases:

• (a) rental income, on a time proportion basis over the lease terms;

• (b) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Retirement benefits

The employees of the Target Group’s subsidiaries which operate in Mainland China are covered by government-regulated defined contribution retirement benefit schemes under which the employees are entitled to a monthly pension. The Target Group contributes a percentage of the employees’ salaries to these retirement benefit schemes on a monthly basis. Under these schemes, the Target Group has no legal obligation for retirement benefits beyond the contributions made. Contributions to these schemes are expensed as incurred.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Dividends

Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting. Following the implementation of the Hong Kong Companies Ordinance (Cap. 622), proposed final dividends are disclosed in the notes to the financial statements.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

– I-22 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Target Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Target Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Target Group as lessor

The Target Group has entered into commercial property leases on its investment property portfolio. The Target Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Estimation of fair value of investment properties

In the absence of current prices in an active market for similar properties, the Target Group considers information from a variety of sources, including:

• (a) current prices in an active market for properties of a different nature, condition or location, adjusted to reflect those differences;

• (b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

• (c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The carrying amount of investment properties for the years ended 31 December 2013, 2014 and 2015 and six months ended 30 June 2016 was RMB823,200,000, RMB815,000,000, RMB807,700,000 and RMB2,137,900,000, respectively. Further details, including the key assumptions used for fair value measurement and a sensitivity analysis, are given in note 11 to the financial statements.

– I-23 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

4. REVENUE AND OTHER INCOME

Revenue, which is also the Target Group’s turnover, represents the gross rental income received and receivable from investment properties during the Relevant Periods.

An analysis of revenue and other income is as follows:

Revenue Gross rental income Other income Bank interest income Others	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 38,594 38,823 39,623 28 716 21 2 58 – 30 774 21	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) 19,107 36,667 12 3 – – 12 3	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) 19,107 36,667 12 3 – – 12 3
			3 –
			3

5. PROFIT/(LOSS) BEFORE TAX

The Target Group’s profit/(loss) before tax is arrived at after charging/(crediting):

		Year	ended 31 December		Six months	ended 30 June
	Notes	2013	2014	2015	2015	2016
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
					(Unaudited)
Business tax and surcharges		5,150	5,163	5,208	2,565	2,215
Depreciation		23	16	6	3	9
Employee benefit expense
(including directors’
and chief executive’s
remuneration_(note 7)_,
wages and salaries		378	496	518	281	373
Pension scheme
contributions		128	48	140	52	76
Bank interest income	4	(28)	(716)	(21)	(12)	(3)
Changes in fair value of
investment properties	11	2,400	8,200	7,300	4,300	(1,330,200)

6. FINANCE COSTS

		Year ended 31 December		Six months ended 30 June	Six months ended 30 June
	2013	2014	2015	2015	2016
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Total interest expense
on bank borrowings	27,303	40,868	40,600	23,318	–

– I-24 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

The finance costs of the Target Group included penalty on overdue interest of RMB10,186,000 and expense for early repayment of the bank borrowings of RMB3,600,000 for the years ended 31 December 2014 and 31 December 2015 respectively.

7. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION

No directors or chief executive received any fees or emoluments in respect of their services rendered to the Company during the Relevant Periods.

8. FIVE HIGHEST PAID EMPLOYEES

The number of five highest paid employees of the Target Group during the Relevant Periods are analysed as follows:

		Year ended	31	December		Six months ended	30	June
	2013			2014	2015	2015			2016
Non-director
employees	5			5	5	5			5

Details of the remuneration of the above non-director and non-chief executive, highest paid employees during the Relevant Periods are as follows:

		Year ended 31 December		Six months ended 30 June	Six months ended 30 June
	2013	2014	2015	2015	2016
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Salaries, allowances and
benefits in kind	260	210	208	110	155

The number of these non-director and non-chief executive, highest paid employees whose remuneration fell within the following band is as follows:

		Year ended	31	December		Six months ended	30	June
	2013			2014	2015	2015			2016
Nil to RMB100,000	5			5	5	5			5

9. INCOME TAX

The Target Group is subject to income tax on an entity basis on profits arising in or derived from the jurisdictions in which members of the Target Group are domiciled and operated.

Hong Kong profit tax rate is 16.5% of the Target Group’s assessable profit derived from Hong Kong. Since the Target Group had no such assessable profit during the reporting period, no provision for Hong Kong profits tax has been made.

Pursuant to the PRC Corporate Income Tax Law (the “ PRC Tax Law ”) effective on 1 January 2008, the PRC corporate income tax rate of the Target Group’s subsidiaries operating in Mainland China during the reporting period was 25% of their taxable profits.

– I-25 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Current Deferred_(note 17)_ Total tax charge for the year/period	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 – – – 1,586 (4,423) (3,650) 1,586 (4,423) (3,650)	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) – – (2,956) 339,102 (2,956) 339,102	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) – – (2,956) 339,102 (2,956) 339,102
			339,102

A reconciliation of the income tax expense applicable to profit before tax using the statutory rate for the location in which the Target Company’s principal subsidiaries are domiciled to the tax expense at the effective tax rate, and a reconciliation of the applicable rate to the effective tax rate, are as follows:

Profit/(loss) before tax Tax at the statutory tax rate Expenses not deductible for tax Tax losses utilized from previous period Tax charge at the Target Group’s effective tax rate	Year ended 31 December 2013 2014 RMB’000 % RMB’000 % (425) (18,091) (106) 25.0 (4,523) 25.0 1,692 (398.1) 100 (0.6) – – – – 1,586 (373.1) (4,423) 24.4	Six months ended 30 June 2015 2015 2016 RMB’000 % RMB’000 % RMB’000 % (Unaudited) (15,603) (11,963) 1,357,320 (3,901) 25.0 (2,991) 25.0 339,330 25.0 251 (1.6) 35 (0.3) 86 – – – – – (314) – (3,650) 23.4 (2,956) 24.7 339,102 25.0	Six months ended 30 June 2015 2015 2016 RMB’000 % RMB’000 % RMB’000 % (Unaudited) (15,603) (11,963) 1,357,320 (3,901) 25.0 (2,991) 25.0 339,330 25.0 251 (1.6) 35 (0.3) 86 – – – – – (314) – (3,650) 23.4 (2,956) 24.7 339,102 25.0
			25.0

10. DIVIDENDS

Note Dividend declared by: Beijing Wan Heng Da (a) Total:	Year 2013 RMB’000 – –	ended 31 December 2014 2015 RMB’000 RMB’000 – – – –	ended 31 December 2014 2015 RMB’000 RMB’000 – – – –	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) – 1,191,254 – 1,191,254	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) – 1,191,254 – 1,191,254
			–		1,191,254

(a) The dividend of RMB261,254,000 and RMB930,000,000 to Foshan Ying Hao Thai, the ex-shareholder of Beijing Wan Heng Da, has been approved by the shareholders of Beijing Wan Heng Da on 15 January 2016 and 28 January 2016, respectively.

– I-26 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

11. INVESTMENT PROPERTIES

Carrying amount at 1 January Net gains/(loss) from fair value adjustment Carrying amount at 31 December/ 30 June	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 825,600 823,200 815,000 (2,400) (8,200) (7,300) 823,200 815,000 807,700	As at 30 June 2016 RMB’000 807,700 1,330,200
		2,137,900

The Target Group’s investment properties are held under medium term leases and are situated in Mainland China. The investment properties are leased to third parties under operating leases.

All investment properties were revalued at the end of the years/period based on valuations performed by the independent qualified valuer, LCH (Asia-Pacific) Surveyors Limited an industry specialist in investment property valuation, with appropriate qualification and experience. The valuation for completed investment properties was arrived at by considering the capitalised income to be derived from the existing tenancies and the reversionary potential of the properties, where appropriate, by reference to market evidence of transaction prices for the similar properties in the same locations and conditions.

At 31 December 2013 and 2014, the Target Group’s investment properties with a carrying value of RMB823,200,000 and RMB815,000,000 were pledged to secure general banking facilities granted to the Target Group (note 16).

Pursuant to an asset pledge agreement dated 18 May 2015 entered into between Foshan Ying Hao Thai and Potevio International Trading Company Limited (“ Potevio ”), an independent third party, the Target Group’s investment properties were pledged with Potevio for a trade facility in the amount of not more than RMB2.3 billion which was granted by Potevio to Foshan Ying Hao Thai in respect of trading transaction commencing from 20 May 2015 to 19 May 2020 between Foshan Ying Hao Thai and Potevio. The trade facility was guaranteed by Beijing Wan Heng Da.

As at the date of this report, the Target Group has obtained the real estate certificates for all the above investment properties.

Fair value hierarchy

Recurring fair value measurement for: As at 30 June 2016 Commercial properties As at 31 December 2015 Commercial properties As at 31 December 2014 Commercial properties As at 31 December 2013 Commercial properties	Fair value each Quoted prices in active markets (Level 1) RMB’000 – – – –	measurement as at the end of reporting period using Significant observable Inputs (Level 2) Significant unobservable inputs (Level 3) RMB’000 RMB’000 – 2,137,900 – 807,700 – 815,000 – 823,200	Total RMB’000 2,137,900
			807,700
			815,000
			823,200

– I-27 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

The Target Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. At 31 December 2013 and 2014, 2015 and 30 June 2016, all the Target Group’s investment properties were categorised as Level 3 fair value hierarchy.

Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:

Carrying amount at 1 January 2013 Net loss from a fair value adjustment recognised in profit or loss Carrying amount at 31 December 2013 and 1 January 2014 Net loss from a fair value adjustment recognised in profit or loss Carrying amount at 31 December 2014 and 1 January 2015 Net loss from a fair value adjustment recognised in profit or loss Carrying amount at 31 December 2015 and 1 January 2016 Net gain from a fair value adjustment recognised in profit or loss Carrying amount at 30 June 2016	Investment properties RMB’000 825,600 (2,400)
	823,200 (8,200)
	815,000 (7,300)
	807,700 1,330,200
	2,137,900

Below is a summary of the valuation techniques used and the key inputs to the valuation of investment properties:

	Valuation	Significant unobservable
	techniques	inputs		Range or weighted	average
						As at
			As at 31 December			30 June
			2013	2014	2015	2016
Commercial	Income Approach	Term Yields	3.50%	3.50%	3.50%	5.90%
properties	in particular,	Market Yields	5.50%	5.50%	5.50%	5.90%
	Term and
	Reversionary
	(“T&R”)
	Method

The T&R Method measures the value of the properties as the total of term value and reversionary value, which have taken into account the rental income derived from the existing leases with due allowance for the reversionary income potential of the leases. The term value was estimated based on the existing rents and tenancy periods as stated in the lease agreements and the term yields during the term periods. The reversionary value was estimated based on the market rents of the properties, market yields and the reversionary periods which were estimated as the periods from the expiration dates of the existing tenancies to the end of land use right.

The term yields were developed based on an independent research on the sales and rental evidences of the comparable properties in the market and the consideration of lower risk exposure during the term periods. The market yields were developed based on the research on the sales and rental evidences of the properties in Beijing market. The market rents were estimated based on the market rents of comparable properties in the neighborhood and with reference to the term rents of the last tenancy periods.

– I-28 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Below is a summary of significant unobservable inputs to the valuation of financial instruments together with a quantitative sensitivity analysis as at the end of the Relevant Periods:

	Increase/(decrease)
	in significant	(Decrease)/increase
	unobservable inputs	in fair value by
	%	RMB’000
Year ended 31 December 2013
Term Yields	2/(2)	(19,700)/22,300
Market Yields	2/(2)	(113,600)/150,400
Year ended 31 December 2014
Term Yields	2/(2)	(15,400)/17,200
Market Yields	2/(2)	(111,100)/144,600
Year ended 31 December 2015
Term Yields	2/(2)	(11,500)/12,800
Market Yields	2/(2)	(108,000)/138,400
Eight months ended 31 August 2016
Term Yields	2/(2)	(114,800)/133,600
Market Yields	2/(2)	(188,400)/247,500

During the six months ended 30 June 2016, the Target Group has recorded a gain in fair value of investment properties in the amount of approximately RMB1.33 billion. The significant increase in fair value of investment properties was due to the re-negotiation of the lease agreements with tenants in 2015 and two new lease agreements in early 2016 which will substantially increase rental income. Since the T&R method considers the rental receivable from the lease agreements existed as at the valuation date, the increase in the rental income pursuant to the new lease agreements led to the increase in the fair value of the investment properties as at 30 June 2016.

12. TRADE RECEIVABLES

Trade receivables Impairment Trade receivables, net	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 22 275 301 – – – 22 275 301	As at 30 June 2016 RMB’000 8,852 –
		8,852

The Target Group seeks to maintain strict control over its outstanding receivables and to minimise credit risk. Trade receivables are non-interest-bearing.

– I-29 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

An aged analysis of the trade receivables as at the end of each of the Relevant Periods, based on the invoice date and net of provision for impairment, is as follows:

Within 60 days 61 to 90 days Over 90 days Impairment of trade receivables	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 22 275 289 – – – – – 12 22 275 301 – – – 22 275 301	As at 30 June 2016 RMB’000 8,852 – –
		8,852 –
		8,852

As at 30 June 2016, the Group’s largest customer accounted for approximately 81% of total trade receivables. This customer has entered into a long term lease agreement with the Group with no defaults in the past and hence the Group does not consider there is any significant credit risk in this regard.

13. DEPOSITS AND OTHER RECEIVABLES

Deposits and other receivables Loans to a related party (note 20) Loans to employees	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 594 1,291 4,931 9,335 245,396 – 11 1,559 3,655 9,940 248,246 8,586	As at 30 June 2016 RMB’000 9,165 – 3,728
		12,893

During the six months ended 30 June 2016, the Target Group paid an amount of RMB8,500,000 to a major tenant (the “ Tenant A ”) in return for the creditor’s claims to collect an amount of RMB11,431,000, which represented the rentals, penalty and overdue fine related to the sublease of certain properties by the Tenant A to another tenant, an independent third party of the Target Group (the “ Third Party Tenant ”). The Tenant A has also paid the rental deposit received from the Third Party Tenant of RMB2,000,000 to the Target Group.

The Tenant A has agreed that if the Target Group file a lawsuit to claim for the unpaid debt due from the Third Party Tenant before 25 November 2017 and cannot collect the unpaid debt by a final judgment, The Tenant A will repay the Target Group the amount of RMB6,500,000, which represented the amount paid by Target Group of RMB8,500,000 after netting off the deposit amount of RMB2,000,000 as abovementioned. In April 2016, the Target group took judicial proceedings against the Third Party Tenant and notified the Tenantin A writing.

As at 30 June 2016, the Target Group’s deposits and other receivables included the amount of RMB6,500,000 recoverable from the Tenant A which is the amount the Major Tenant has agreed to repay the Target Group if the Target Group cannot collect the unpaid debt by a final judgment. The excess of the unpaid debt over the amount of RMB6,500,000 recoverable by the Target Group from the Tenant A has not been accounted for in the financial statements of the Target Group. The lawsuit against the Third Party Tenant is in process up to the date of this report.

None of the assets is either past due or impaired.

– I-30 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

14. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

Cash and bank balances Time deposits Less: Pledged time deposits: Pledged for long term bank loans Cash and cash equivalents	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 2,073 320 1,259 20,000 20,000 – (20,000) (20,000) – 2,073 320 1,259	As at 30 June 2016 RMB’000 38,995 –
		–
		38,995

15. DEPOSITS RECEIVED, OTHER PAYABLES AND ACCRUALS

Deposit received from tenants Accrued salary and welfare Due to a related party (note 20) Other payables Dividends payable to Foshan Ying Hao Thai (note 20) Consideration payable for business combination under common control (note 20)	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 521 1,027 796 3 – – – – 190,445 1,258 2,850 8,971 – – – – – – 1,782 3,877 200,212	As at 30 June 2016 RMB’000 33,511 – – 1,600 930,000 570,000
		1,535,111

The other payables are non-interest-bearing and are due for payment within one year.

16. INTEREST-BEARING BANK BORROWINGS

As at 31 December Effective interest rate (%) Maturity NON-CURRENT Interest-bearing bank loans – secured 5.90 2023 As at 2013 RMB’000 Repayable: Beyond five years 235,400	2013 As at 31 December RMB’000 Effective interest rate (%) Maturity 235,400 5.90-8.52 2023 235,400 31 December 2014 2015 RMB’000 RMB’000 480,000 –	2014 RMB’000 480,000
		480,000
		As at 30 June 2016 RMB’000 –

– I-31 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

The interest-bearing bank borrowings are all denominated in RMB.

• (a) As at 31 December 2013 and 2014, the Target Group’s bank loans amounting to RMB235,400,000 and RMB480,000,000, respectively, were secured by:

• (i) Certain of the Target Group’s pledged deposits with a net book value of RMB20,000,000 and RMB20,000,000 as at 31 December 2013 and 2014, respectively (note 14);

• (ii) The Target Group’s investment properties with a net book value of RMB823,200,000, RMB815,700,000 as at 31 December 2013 and 2014, respectively (note 11); and

• (iii) A minimum of RMB940,000,000 accounts receivable from revenue generated by the pledged investment properties (including but not limited to rent and management fees).

• (b) The Target Group’s bank loans as at 31 December 2013 and 2014 were classified as non-current liabilities. On 28 January 2015, Foshan Ying Hao Thai repaid the Target Group’s bank loans amounting to RMB480,000,000 on behalf of Beijing Wan Heng Da in advance (note 20).

17. DEFERRED TAX

The movements in deferred tax liabilities and assets during the year are as follows:

Deferred tax liabilities

At 31 December 2012 and 1 January 2013 Deferred tax credited to the profit or loss during the year At 31 December 2013 and 1 January 2014 Deferred tax credited to the profit or loss during the year At 31 December 2014 and 1 January 2015 Deferred tax credited to the profit or loss during the year At 31 December 2015 and 1 January 2016 Deferred tax charged to the profit or loss during the period At 30 June 2016	Revaluation of Investment properties RMB’000 128,192 (600)
	127,592 (2,050)
	125,542 (1,825)
	123,717 332,550
	456,267

– I-32 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Deferred tax assets

At 31 December 2012 and 1 January 2013 Deferred tax charged to the profit or loss during the year At 31 December 2013 and 1 January 2014 Deferred tax credited to the profit or loss during the year At 31 December 2014 and 1 January 2015 Deferred tax credited to the profit or loss during the year At 31 December 2015 and 1 January 2016 Deferred tax charged to the profit or loss during the period At 30 June 2016	Losses available for offsetting against future taxable profits RMB’000 4,540 (2,186)
	2,354 2,373
	4,727 1,825
	6,552 (6,552)
	–

For presentation purposes, certain deferred tax assets and liabilities have been offset in the statement of financial position. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes:

Net deferred tax liabilities recognised in the consolidated statement of financial position Net deferred tax assets recognised in the consolidated statement of financial position	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 127,592 125,542 123,717 (2,354) (4,727) (6,552) 125,238 120,815 117,165	As at 30 June 2016 RMB’000 456,267 –
		456,267

18. ISSUED CAPITAL

				As at
	**As at **	31 December		30 June
	2013	2014	2015	2016
	USD$	USD$	USD$	USD$
Issued and fully paid:
1 ordinary shares of USD$1 each	–	–	–	1

– I-33 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

19. OPERATING LEASE COMMITMENTS

As lessor

The Target Group leases its investment properties (note 11 to the Financial Information) under operating lease arrangements, with leases negotiated for terms ranging from half to 18 years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

As at the end of each of the Relevant Periods, the Target Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive Beyond five years	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 38,823 39,623 40,415 163,213 166,577 169,908 367,898 325,228 281,481 569,935 531,427 491,804	As at 30 June 2016 RMB’000 210,826 583,928 1,007,541
		1,712,295

20. RELATED PARTY TRANSACTIONS AND BALANCES

In addition to the transactions detailed elsewhere in these financial statements, the Target Group had the following material transactions with related parties during the period:

• (i) Foshan Ying Hao Thai bore the bank loan interest of the Group amounting to RMB33,305,000 in 2015, which was accounted for as an equity transaction;

• (ii) Pursuant to the Reorganization, the entire interest in Beijing Wan Heng Da, including the Beijing Property owned by it, has been transferred to Shenzhen Chong Ruan from Foshan Ying Hao Thai and a consent has been obtained from Potevio (note 24). The outstanding amount due to Foshan Ying Hao Thai by the Target Group was about RMB1,500,000,000 as at 30 June 2016, including dividend payable of RMB930,000,000 and consideration payable for acquiring the entire equity interest in Beijing Wan Heng Da of RMB570,000,000;

• (iii) The dividend of RMB261,254,000 and RMB930,000,000 to Foshan Ying Hao Thai, the ex-shareholder of Beijing Wan Heng Da, has been approved by the shareholder of Beijing Wan Heng Da on 15 January 2016 and 28 January 2016, respectively;

• (iv) On 28 January 2015, Foshan Ying Hao Tai repaid the Target Group’s bank loans amounting to RMB480,000,000 on behalf of Beijing Wan Heng Da in advance. As at 31 December 2015, the outstanding balance due to Foshan Ying Hao Tai is amounted to RMB190,445,000 after netting the balance due from Foshan Ying Hao Tai;

• (v) On 1 April 2016, Beijing Wan Heng Da entered into an agreement with Foshan Ying Hao Tai, the ex-shareholder to convert a debt due by Beijing Wan Heng Da to Fosha Ying Hao Thai amounted to RMB450,000,000 into capital which was composed of dividend payable amounted to RMB261,254,000 (note 10) and the other balance due to Foshan Ying Hao Tai of RMB188,746,000 (equivalent to RMB190,445,000 as at 31 December 2015) as at 31 March 2016. The registration for change in capital with the industrial and commercial bureau has been completed on 30 April 2016 and a capital verification report was issued on 6 May 2016;

– I-34 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

• (vi) Pursuant to an asset pledge agreement dated 18 May 2015 entered into between Foshan Ying Hao Thai and Potevio, an independent third party, the investment property of Beijing Wan Heng Da has been pledged with Potevio for a trade facility in the amount of not more than RMB2.3 billion which was granted by Potevio to Foshan Ying Hao Thai in respect of trading transaction commencing from 20 May 2015 to 19 May 2020 between Foshan Ying Hao Thai and Potevio. The trade facility was also guaranteed by Beijing Wan Heng Da.

(vii) Outstanding balances with related parties

Loans to a related party: Ex-shareholders Foshan Ying Hao Thai Due to a related party: Foshan Ying Hao Thai Dividends payable to a related party: Foshan Ying Hao Thai	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 9,335 – – – 245,396 – – – 190,445 – – –	As at 30 June 2016 RMB’000 – –
		570,000
		930,000

• Foshan Ying Hao Thai is the then controlling shareholder of Beijing Wan Heng Da, one of the Target Company’s subsidiaries before the Reorganisation.

The carrying amounts of the remaining balances with related parties that were neither past due nor impaired relate to related parties for whom there was no recent history of default. The carrying amounts of the balances with the related party approximate to their fair values.

21. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of the Target Group’s each of the categories of financial instruments as at the end of each of the Relevant Periods are as follows:

Financial assets at amortised cost Trade receivables Financial assets included in deposits and other receivables Pledged deposits, non-current portion Cash and cash equivalents	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 22 275 301 9,940 248,246 8,586 20,000 20,000 – 2,073 320 1,259 32,035 268,841 10,146	As at 30 June 2016 RMB’000 8,852 12,893 – 38,995
		60,740

– I-35 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Financial liabilities at amortised cost As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 Trade and bills payables 10 10 10 Financial liabilities included in other payables and accruals 1,782 3,877 200,212 Interest-bearing bank borrowings 235,400 480,000 – 237,192 483,887 200,222	As at 30 June 2016 RMB’000 10 1,535,111 –
	1,535,121

22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Target Group’s principal financial instruments, comprise interest-bearing bank borrowings and cash and cash equivalents. The main purpose of these financial instruments is to raise finance for the Target Group’s operations. The Target Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The main risks arising from the Target Group’s financial instruments are interest rate risk, credit risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Interest rate risk

The effective interest rates and terms of repayment of the interest-bearing bank borrowings of the Target Group are set out in note 16 above.

Credit risk

The Target Group trades only with recognised and creditworthy third parties. It is the Target Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Target Group’s exposure to bad debts is not significant.

The credit risk of the Target Group’s other financial assets, which mainly comprise cash and cash equivalents, pledged deposits, and financial assets included in deposits and other receivables arise from default of the counterparty, with a maximum exposure equal to the carrying amounts of these financial assets.

Since the Target Group trades only with recognised and creditworthy third parties and the security deposit is required, there is no significant credit risk within the Target Group.

Further quantitative data in respect of the Target Group’s exposure to credit risk arising from trade receivables are disclosed in note 12 to the financial statements.

Liquidity risk

The Target Group’s policy is to maintain sufficient cash and cash equivalents and have available funding through capital contribution and financial support from related parties and bank borrowings.

– I-36 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

The maturity profile of financial liabilities as At 31 December 2013, 2014, 2015 and 30 June 2016, based on the contractual undiscounted payments, was as follows:

Trade payables Financial liabilities included in other payables and accruals Interest-bearing bank borrowings Trade payables Financial liabilities included in other payables and accruals Interest-bearing bank borrowings Trade payables Financial liabilities included in other payables and accruals	On demand RMB’000 – – – – On demand RMB’000 – – – – On demand RMB’000 – – –	As at 31 December 2013 Less than 1 year Over 1 year RMB’000 RMB’000 – 10 1,782 – 13,877 360,291 54,047 360,301 As at 31 December 2014 Less than 1 year Over 1 year RMB’000 RMB’000 – 10 3,877 – 28,296 734,664 32,173 734,674 As at 31 December 2015 Less than 1 year Over 1 year RMB’000 RMB’000 – 10 200,212 – 200,212 10	Total RMB’000 10 1,782 374,168
			375,960
			Total RMB’000 10 3,877 762,960
			766,847
			Total RMB’000 10 200,212
			200,222

– I-37 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

Trade payables Financial liabilities included in other payables and accruals	On demand RMB’000 – – –	As at 30 June 2016 Less than 1 year Over 1 year RMB’000 RMB’000 – 10 1,535,111 – 1,535,111 10	Total RMB’000 10 1,535,111
			1,535,121

Capital management

The primary objective of the Target Group’s capital management is to safeguard the Target Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value. The Target Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Target Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2013, 2014, 2015 and six months ended 30 June 2016.

The Target Group monitors capital using a gearing ratio, which is net debt divided by capital plus net debt. Net debt is calculated as interest-bearing bank borrowings, trade and bills payables, financial liabilities included in other payables and accruals and amount due to related parties and directors less cash and cash equivalents and pledged deposits. Capital represents equity attributable to owners of the parent. The Target Group’s policy is to keep the gearing ratio at a reasonable level. The gearing ratios at the end of each of the Relevant Periods are as follows:

Interest-bearing bank borrowings Trade payables Other payables and accruals Less: Cash and cash equivalents and pledged deposits Net debt Equity attributable to owners of the parent Capital and net debt Gearing ratio	As at 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 235,400 480,000 – 10 10 10 1,782 3,877 200,212 (22,073) (20,320) (1,259) 215,119 463,567 198,963 492,822 479,154 500,506 707,941 942,721 699,469 30% 49% 28%	As at 30 June 2016 RMB’000 – 10 1,535,111 (38,995)
		1,496,126
		207,470
		1,703,596
		88%

– I-38 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

23. STATEMENT OF FINANCIAL POSITION OF THE TARGET COMPANY

Information about the statement of financial position of the Target Company at the end of the reporting period is as follows:

Notes NON-CURRENT ASSETS Investments in a subsidiary Total non-current assets CURRENT LIABILITIES Other payables Total current liabilities Net assets EQUITY Issued capital Total equity	As at 30 June 2016 RMB’000 8
	8
	8
	8
	–
	–
	–

24. CONTINGENT LIABILITIES

Pursuant to an asset pledge agreement dated 18 May 2015 entered into between Foshan Ying Hao Thai and Potevio International Trading Company Limited (“ Potevio ”), an Independent Third Party, the Target Group's investment properties were pledged with Potevio for a trade facility in the amount of not more than RMB2.3 billion granted by Potevio to Foshan Ying Hao Thai in respect of trading transaction commencing from 20 May 2015 to 19 May 2020 between Foshan Ying Hao Thai and Potevio. The trade facility was guaranteed by Beijing Wan Heng Da. The pledge of investment properties and the guarantee given by Beijing Wan Heng Da has been released on 17 October 2016.

On 15 November 2016, 北京金馬長城房產建設有限責任公司 (Beijing Jinma Changcheng Real Estate Construction Co., Ltd) (“ Jinma Changcheng* ”) as plaintiff instituted litigation against Beijing Wan Heng Da as defendant in respect of the dispute on possession of properties, to claim for (i) Beijing Wan Heng Da to vacate the premises located at 2-05, 2-06, second floor of the Beijing Property, the venue of 286.09 sq.m. at the West Exit on the first floor of Beijing Property, the venue with an additional floor area of 501.74 sq.m. on the elevated corridor on the first floor of the Beijing Property and the venue with an additional floor area of 212.02 sq.m. at the west-side tunnel on the second floor of the Beijing Property; (ii) payment of a daily occupation fee of RMB19,719.3 by Beijing Wan Heng Da for the period from 1 January 2016 and until the date of actual relocation (which was in the amount of RMB6,290,456.7 as of 15 November 2016); and (iii) costs of the litigation in respect of the case shall be borne by Beijing Wan Heng Da. The court session in respect of the case is tentatively scheduled on 26 December 2016 at the Olympic Village Court of The People’s Court of Chaoyang District, Beijing. Taking into consideration of the legal opinion prepared by the legal advisor of Beijing Wan Heng Da, the Directors believe that the legal proceeding will not have material impact to financial statements of the Target Group.

• For identification purpose only

– I-39 –

APPENDIX I

ACCOUNTANTS’ REPORT ON TARGET GROUP

25. EVENTS AFTER THE REPORTING PERIOD

In September 2016, the Target Group obtained an entrusted loan of RMB1,500 million with an annual interest rate of 6.3% from Changdu Ruten Rong Ching Finance Leasing Limited Company which is owned by Mr. Gu Qi and other independent third parties. The entrusted loan was secured by investment properties of the Group with a carrying amount of approximately RMB2,137 million as at 30 June 2016. The entrusted loan is repayable on 28 September 2019.

III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements for the acquisition date have been prepared by the Target Company in respect of any period subsequent to 30 June 2016 up to the date of this report. No dividend or distribution have been declared or made by the Target Company in respect of any period subsequent to 30 June 2016.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

– I-40 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

The significant accounting policies adopted by the Target Group for the three years ended 31 December 2013, 2014 and 2015 and for the six months ended 30 June 2016 and the critical accounting judgement in connection herewith are set out in the Accountants’ Report of the Target Group contained in Appendix I.

Set out below is the management discussion and analysis of the Target Group for each of the three financial years ended 31 December 2015 and the six months period ended 30 June 2016, which shall be read in conjunction with the accountant report on the Target Group as set out in Appendix I to this circular.

Results of Operation

The Target Company was established in Samoa with limited liability on 20 May 2016 which is an investment holding company. The Target Group is principally engaged in property investment. The following table set forth of the consolidated income statements of the Target Group for the years/period included:

REVENUE Other income Administrative expenses Changes in fair value of investment properties Other expenses Finance costs PROFIT/(LOSS) BEFORE TAX Income tax expense PROFIT/(LOSS) FOR THE YEAR/PERIOD	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 38,594 38,823 39,623 19,107 36,667 30 774 21 12 3 (4,191) (3,457) (2,139) (899) (6,323) (2,400) (8,200) (7,300) (4,300) 1,330,200 (5,155) (5,163) (5,208) (2,565) (3,227) (27,303) (40,868) (40,600) (23,318) – (425) (18,091) (15,603) (11,963) 1,357,320 (1,586) 4,423 3,650 2,956 (339,102) (2,011) (13,668) (11,953) (9,007) 1,018,218	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 38,594 38,823 39,623 19,107 36,667 30 774 21 12 3 (4,191) (3,457) (2,139) (899) (6,323) (2,400) (8,200) (7,300) (4,300) 1,330,200 (5,155) (5,163) (5,208) (2,565) (3,227) (27,303) (40,868) (40,600) (23,318) – (425) (18,091) (15,603) (11,963) 1,357,320 (1,586) 4,423 3,650 2,956 (339,102) (2,011) (13,668) (11,953) (9,007) 1,018,218
		1,357,320 (339,102)
		1,018,218

– II-1 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

Description in the Consolidated Income Statement of the Target Group

Revenue

The Target Group is principally engaged in property investment. Therefore, the revenue, which is also the Target Group’s turnover, represents the gross rental income received and receivable from the Beijing Property during the three years ended 31 December 2015 and six months period ended 30 June 2016 (“ Relevant Period ”).

Revenue Gross rental income Other income Bank interest income Others	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 38,594 38,823 39,623 28 716 21 2 58 – 30 774 21	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) 19,107 36,667 12 3 – – 12 3	Six months ended 30 June 2015 2016 RMB’000 RMB’000 (Unaudited) 19,107 36,667 12 3 – – 12 3
			3 –
			3

The revenue and other income of the Target Group during the Relevant Period as follows:

The revenue of the Target Group for the three years ended 31 December 2015 remains stable which were all derived from the rental income of Beijing Property. During the three years ended 31 December 2013, 2014 and 2015, the rental income of the Beijing Property were approximately RMB38.6 million, RMB38.8 million and RMB39.6 million respectively. These rental income were mainly derived from the rental payments from Tenant A for its operation of supermarket in the Beijing Property and sub-leased to other tenants. During the three years ended 31 December 2015, the rental income of the Target Group were slightly increased by RMB229,000 and RMB800,000 for the years ended 31 December 2014 and 31 December 2015 respectively which represented an increase of approximately 0.6% and 2.1% respectively. Such increase was due to the minor change of occupancy rate. The revenue of the Target Group for the six months ended 30 June 2016 increased to approximately RMB36.7 million from RMB19.1 million for the six months ended 30 June 2015. The increase was due to the re-negotiation of the lease agreements with tenants in 2015 and new lease agreements were entered in January 2016 and February 2016 with two major tenants of Beijing Property to increase the rental income of the Target Group.

– II-2 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

The other income was derived from the bank interest of deposits and cash of the Target Group during the Relevant Period. The bank interest income of the Target Group increased from RMB28,000 for the year ended 31 December 2013 to RMB716,000 for the year ended 31 December 2014 was due to the increase of a term deposit of RMB20,000,000 which was pledged for long term bank loans. Others income represented the forfeiture of the rental deposits from various small tenants for early termination of lease agreements.

Administrative expenses

The following table sets out the breakdown of the administrative expenses of the Target Group during the Relevant Period:

Depreciation Property management fee Employee benefit expense (including wages and salaries) Pension scheme contributions Professional fee Maintenance fee	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 23 16 6 3 9 – – – – 3,541 378 496 518 281 373 128 48 140 52 76 290 514 192 82 719 3,372 2,383 1,283 481 1,605 4,191 3,457 2,139 899 6,323	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 23 16 6 3 9 – – – – 3,541 378 496 518 281 373 128 48 140 52 76 290 514 192 82 719 3,372 2,383 1,283 481 1,605 4,191 3,457 2,139 899 6,323
		6,323

Its administrative expenses mainly comprise property management fee, employee benefit expenses, pension scheme, depreciation, professional fees and maintenance fee. For each of the three years ended 31 December 2013, 2014 and 2015 and six months period 30 June 2016, administrative expenses of approximately RMB4.2 million, RMB3.5 million RMB2.1 million and RMB6.3 million respectively, represented approximately 10.9%, 8.7%, 5.4% and 17.2% of its total revenue respectively.

Change in fair value of investment properties

The Beijing Property is the only investment properties of the Target Group during the Relevant Period. As at 31 December 2013 and 2014, the Target Group’s investment properties with a carrying value of RMB823,200,000 and RMB815,000,000 were pledged to secure general banking facilities granted to the Target Group. Pursuant to an asset pledge agreement dated 18 May 2015 entered between Foshan Ying Hao Thai and Potevio International Trading Company Limited (“ Potevio ”), an Independent Third Party, the Target Group’s investment properties has been pledged with Potevio as guarantee for a relevant trade facility in the amount of not more than RMB2.3 billion which was granted by Potevio to Foshan Ying Hao Thai and guaranteed by the Target Group.

– II-3 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

The valuation of the Beijing Property adopted the term and reversion method which is based on the reversionary interests and the rate of return by taking into account the current rent receivable from existing tenancy agreements. The reversionary value of Beijing Property was estimated based on the market rents of the property, market yields and the reversionary periods. The reversionary periods were estimated as the periods from the expiration dates of the existing tenancies to the end of land use right. The changes in fair value of investment properties of the Target Group during the Relevant Period are set out in the following table:

Changes in fair value of investment properties	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (2,400) (8,200) (7,300) (4,300) 1,330,200 (2,400) (8,200) (7,300) (4,300) 1,330,200	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (2,400) (8,200) (7,300) (4,300) 1,330,200 (2,400) (8,200) (7,300) (4,300) 1,330,200
		1,330,200

The fair value of investment properties of the Target Group for each three years ended 31 December 2013, 2014 and 2015 were decreased by approximately RMB2.4 million, RMB8.2 million and RMB7.3 million respectively, however it recorded an increase of approximately RMB1.3 billion for six months period 30 June 2016 due to the significant increase in rental income resulted from the renewal and entering into new tenancy agreements during the period. The decreases in fair value of investment properties for the three years ended 31 December 2015 were approximately 119.3%, 60.0% and 61.1% of the losses of the Target Group during the period. The increase in fair value of investment properties of the Target Group for the six months period ended 30 June 2016 was approximately 130.6% of the profit of the Target Group during the period. The fluctuation in the fair value of the Target Group’s investment properties has affected the financial performance of the Target Group. Please refer to “Risk in relation to the business of the Target Group – Financial performance of the Target Group may be affected by the appraisal value of the investment properties”.

– II-4 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Other expenses

The other expenses are mainly the business tax and surcharges for the rental income of the Beijing Property during the Relevant Period. Set out the table of other expenses of the Target Group as below:

Business tax and surcharges Others	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 5,150 5,163 5,208 2,565 2,215 5 – – – 1,012 5,155 5,163 5,208 2,565 3,227	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 5,150 5,163 5,208 2,565 2,215 5 – – – 1,012 5,155 5,163 5,208 2,565 3,227
		3,227

The other expenses were approximately 13.4%, 13.3%, 13.1% and 8.8% of revenue of the Target Group during the Relevant Period and mainly consisted of the business tax and surcharges. The others of RMB1,012,000 for the six months ended 30 June 2016 represented mainly the compensation of RMB1,000,000 paid to Tenant A for changing the terms of the lease agreement.

Finance costs

The finance costs are mainly the interest expenses on the bank borrowings of the Target Group during the Relevant Period. Set out the table of finance costs of the Target Group as below:

				Six months ended	Six months ended	Six months ended
	Year	ended 31 December		30 June
	2013	2014	2015	2015		2016
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Total interest expenses on bank
borrowings	27,303	40,868	40,600	23,318		–

As at 31 December 2013, 2014 and 2015 and 30 June 2016, the Target Group’s bank loans amounting to RMB235,400,000, RMB480,000,000, nil and nil, respectively. The finance costs were approximately 70.7%, 103.2%, 102.4% and nil of revenue of the Target Group during the Relevant Period. The effective interest rate of the Target Group as at 31 December 2013, 2014, 2015 and 30 June 2016 were approximately 11.61%, 8.51%, nil and nil respectively.

– II-5 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

The finance costs of the Target Group included penalty on overdue interest of RMB10,186,000 and expense for early repayment of bank borrowings of RMB3,600,000 for the years ended 31 December 2014 and 31 December 2015 respectively. The overdue interest was incurred by 16 individual of previous owners of Beijing Wan Heng Da which was settled after the acquisition of Beijing Wan Heng Da by Foshan Ying Hao Thai in 2014. The directors of the Target Group consider that such overdue would not incur again after the obtaining of new bank loan.

FOR THE YEAR ENDED 31 DECEMBER 2013

Financial review of operations

Revenue

During the year ended 31 December 2013, the Target Group recorded a turnover of approximately RMB38.6 million which was all derived from the rental income of Beijing Property. Based on the gross floor area of Beijing Property of approximately 40,083.94 square meters during the year ended 31 December 2013, the average monthly rental rate of Beijing Property was approximately RMB80.0 per square meter.

Changes in fair value of investment properties

The fair value of the Beijing Property was decreased by approximately RMB2.4 million for the year ended 31 December 2013 which was mainly due to the diminishing value for reducing of remaining years to the expiry of existing land use terms of the Beijing Property.

Administrative expenses

The administrative expenses of the Target Group for the year ended 31 December 2013 was approximately RMB4.2 million which was mainly the maintenance fee in the amount of RMB3,372,000, the employee benefit expenses in the amount of RMB378,000, professional fee in the amount of RMB290,000, pension scheme contributions in the amount of RMB128,000 and depreciation in the amount of RMB23,000.

Other expenses

The other expenses of the Target Group for the year ended 31 December 2013 was approximately RMB5.2 million which mainly consists of business tax and surcharges in the amount of RMB5.15 million.

Finance costs

The finance costs of the Target Group for the year ended 31 December 2013 was approximately RMB27.3 million which was caused by the outstanding bank borrowings of the Target Group. Based on the outstanding bank borrowing of the Target Group in the amount of approximately RMB235.4 million as at 31 December 2013, the effective interest rate of the Target Group was approximately 5.9%. The interest-bearing bank borrowings are all denominated in RMB.

– II-6 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FOR THE YEAR ENDED 31 DECEMBER 2014

Financial review of operations

Revenue

During the year ended 31 December 2014, the Target Group recorded a turnover of approximately RMB38.8 million which was increased by approximately 0.6% in comparing with the revenue of the Target Group in last year which shown a stable rental income for the period. The revenue was all derived from the rental income of Beijing Property. Based on the gross floor area of Beijing Property in approximately 40,083.94 square meters, the average monthly rental rate of Beijing Property was approximately RMB80.7 per square meter.

Changes in fair value of investment properties

The fair value of the Beijing Property was decreased by approximately RMB8.2 million for the year ended 31 December 2014 which was mainly due to the diminishing value for reducing the remaining years to the expiry of existing land use terms of the Beijing Property.

Administrative expenses

The administrative expenses of the Target Group for the year ended 31 December 2014 was approximately RMB3.5 million which was mainly the maintenance fee in the amount of RMB2,383,000, the employee benefit expenses in the amount of RMB496,000, professional fee in the amount of RMB514,000, pension scheme contributions in the amount of RMB48,000 and depreciation in the amount of RMB16,000. The administrative expenses for the year ended 31 December 2014 decreased by approximately RMB734,000 in comparing with last year which was due to the decrease of maintenance expenses as no major maintenance activities was carried out in 2014.

Other expenses

The other expenses of the Target Group for the year ended 31 December 2014 was slightly increased by RMB8,000 to approximately RMB5.2 million which was mainly the business tax and surcharges in the amount of RMB5.16 million.

Finance costs

The finance costs of the Target Group for the year ended 31 December 2014 was approximately RMB40.9 million, including penalty on overdue interest of RMB10,186,000, which was caused by the outstanding bank borrowings of the Target Group. The overdue was incurred before September 2014 by 16 individuals of previous owners of Beijing Wan Heng Da and was settled after Foshan Ying Hao Thai took control of Beijing Wan Heng Da in September 2014. Based on the outstanding bank borrowing of the Target Group in the amount of approximately RMB480.0 million as at 31 December 2014, the effective interest rate of the Target Group was approximately 8.5%. The interest-bearing bank borrowings are all denominated in RMB.

– II-7 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FOR THE YEAR ENDED 31 DECEMBER 2015

Financial review of operations

Revenue

During the year ended 31 December 2015, the Target Group recorded a turnover of approximately RMB39.6 million which was increased by approximately 2.1% in comparing with the revenue of the Target Group in last year. The slight change in revenue of the Target Group was due to minor change of occupancy rate during the period. The revenue was all derived from the rental income of Beijing Property. Based on the gross floor area of Beijing Property in approximately 40,083.94 square meters, the average monthly rental rate of Beijing Property was approximately RMB82.4 per square meter.

Changes in fair value of investment properties

The fair value of the Beijing Property was decreased by approximately RMB7.3 million for the year ended 31 December 2015 which was mainly due to the diminishing value for reducing the remaining years to the expiry of existing land use terms of the Beijing Property.

Administrative expenses

The administrative expenses of the Target Group for the year ended 31 December 2015 was approximately RMB2.1 million which was mainly the maintenance fee in the amount of RMB1,283,000, the employee benefit expenses in the amount of RMB518,000, professional fee in the amount of RMB192,000, pension scheme contributions in the amount of RMB140,000 and depreciation in the amount of RMB6,000. The administrative expenses for the year ended 31 December 2015 decreased by approximately RMB1.3 million in comparing to the last year which was due to the decrease of maintenance costs as less maintenance activities were carried out in 2015.

Other expenses

The other expenses of the Target Group for the year ended 31 December 2015 was slightly increased by approximately RMB45,000 to approximately RMB5.21 million which was the business tax and surcharges in the amount of approximately RMB5.21 million.

Finance costs

The finance costs of the Target Group for the year ended 31 December 2015 was approximately RMB40.6 million which was financing cost on the outstanding bank borrowings of the Target Group during the period of RMB37.0 million and penalty paid to the bank of RMB3.6 million for early repayment of the bank borrowings. The finance cost was reduced for the year ended 31 December 2015 by approximately RMB268,000 which was due to the early repayment of the outstanding bank borrowings of the Target Group. The interest-bearing bank borrowings are all denominated in RMB.

– II-8 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2016

Financial review of operations

Revenue

During the six months period ended 30 June 2016, the Target Group recorded a turnover of approximately RMB36.7 million which was increased by approximately 91.9% in comparing with the revenue of the Target Group in last period. The revenue was all derived from the rental income of Beijing Property. The increase was due to the re-negotiation of the lease agreements with tenants in 2015 and new lease agreements were entered into in January 2016 and February 2016 with two major tenants of Beijing Property to increase the rental income of the Target Group.

Below is a table comparing the monthly rental rate of Beijing Property for the years 2015 and 2016 with similar properties in the same location during the same period:

Average monthly rental per square meter	Average rental of Beijing Property in 2015 RMB82	Average rental of Beijing Property in 2016 (Jan – June 2016) RMB262	Average rental of similar properties in the same location RMB240-RMB360	Average rental of shopping mall in Zhongguancun in Beijing according to JLL RMB720

As shown above, the average monthly rental income of Beijing Property per square meter in 2015 was substantially below the market rate, under the terms of the previous lease agreements entered into before the acquisition of Beijing Wan Heng Da by Foshan Ying Hao Thai. After the change of ownership of Beijing Wan Heng Da to Foshan Ying Hao Thai in September 2014, Beijing Wan Heng Da commenced to re-negotiate the lease term and rental rate with Tenant A and repossessed an area of about 15,000 square meters (since January 2016) which was previously sub-leased by Tenant A to other tenants. As a result, the average monthly rental of Beijing Property was improved and has become in line with the market rates of similar properties.

Changes in fair value of investment properties

The fair value of the Beijing Property was significantly increased by approximately RMB1,330.2 million for the six months period ended 30 June 2016 which was mainly due to the renewal of a lease agreement with Tenant A in January 2016 and a new lease agreement with Tenant B in February 2016 for leasing an area recovered from Tenant A that was previously rented out at below market rate. The fair value of the investment properties of the Target Group is based on the existing tenancy agreements. The change in the rental income pursuant to the new lease agreements increased the fair value of the investment properties of the Target Group accordingly.

– II-9 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Administrative expenses

The administrative expenses of the Target Group for the six months period ended 30 June 2016 was approximately RMB6.3 million which was mainly the property management fee in the amount of RMB3,541,000, maintenance fee in the amount of RMB1,605,000, the employee benefit expenses in the amount of RMB373,000, professional fee in the amount of RMB719,000, pension scheme contributions in the amount of RMB76,000 and depreciation in the amount of RMB9,000. The administrative expenses for six months period ended 30 June 2016 significantly increased by approximately RMB5.4 million in comparing to the last correspondence period which was due to the significant increase in property management fee. Due to the entering into two new lease agreements in January 2016 and February 2016, the Target Group has to bear the property management fee according new terms of the lease agreements. The property management fee was bear by the tenants before entering into the new lease agreements.

Other expenses

The other expenses of the Target Group for the six months period ended 30 June 2016 was increased by approximately RMB662,000 to approximately RMB3.23 million which consists of business tax and surcharges in the amount of approximately RMB2.22 million.

Finance costs

There is no finance cost of the Target Group for the six months period ended 30 June 2016 as there is no outstanding bank borrowings of the Target Group during the period.

Description in the Balance Sheet Items of the Target Group

Property, plant and equipment

The property, plant and equipment as at the three years ended 31 December 2013, 2014 and 2015 and 30 June 2016 were approximately RMB17,000, RMB15,000, RMB47,000 and RMB218,000 which was mainly the office equipment of the Target Group during the Relevant Period.

– II-10 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Investment Properties

The Beijing Property is the only investment properties of the Target Group. The following table set out the carrying value and adjustment of fair value of the investment properties during the Relevant Period.

Carrying amount at 1 January Increase/(decrease) in fair value Carrying amount as at 31 December/30 June	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 825,600 823,200 815,000 (2,400) (8,200) (7,300) 823,200 815,000 807,700	Six months ended 30 June 2016 RMB’000 807,700 1,330,200
		2,137,900

The Beijing Property is held under medium term leases and is subject to a mortgage in favour of NIT for a term commencing from 22 September 2016 to 13 October 2017. There are two existing lease agreements of the Beijing Property with the terms of 17 years and 10 years respectively. The investment properties were revalued at the end of the year based on valuations performed by an independent qualified property valuer,

Pledged deposits

The Target Group has a pledged deposit in the amount of RMB20.0 million as at 31 December 2013 and 31 December 2014 for the long term bank loans during the period. As there was no outstanding bank loan as at 31 December 2015 and 30 June 2016, the time deposits in pledge for the bank loans were released.

Trade receivables

The trade receivables of the Target Group as at 31 December 2013, 2014, 2015 and 30 June 2016 were in the amount of approximately RMB22,000, RMB275,000, RMB301,000 and RMB8,852,000 which were the rental income of the Target Group. The trade rental income receivables of the Target Group are non-interest-bearing. The Target Group seeks to maintain strict control over its outstanding receivables and to minimize credit risk. The trade receivable of the Target Group as at 30 June 2016 was increased to RMB8.85 million, it mainly represent the difference between the rental income recognised on a straight-line amortization basis over the lease term and the actual amount of rentals received by the Target Group. As the rentals are adjusted upwardly each year pursuant to the terms of the new lease agreement entered into in January 2016 and February 2016, the rental income recognised on the straight line basis each year is more than the actual rental received in the early periods of the lease terms, and therefore the Target Group accrued a significant trade receivables.

– II-11 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Deposits and other receivables

The following set out the deposits and other receivable of the Target Group:

Deposits and other receivables Loans to related parties Loans to employee	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 594 1,291 4,931 9,335 245,396 – 11 1,559 3,655 9,940 248,246 8,586	Six months ended 30 June 2016 RMB’000 9,165 – 3,728
		12,893

The deposits and other receivables were due from various third parties. As at 30 June 2016, the other receivables of the Target Group’s other receivables in the amount RMB9,165,000 which included an amounted RMB6,500,000 due from the Tenant A. As the Target Group paid an amount of RMB8,500,000 to the Tenant A in return for the creditor’s claims to collect an amount of RMB11,431,000, which represented the rentals, penalty and overdue fine related to the sublease of certain properties by the Tenant A to another tenant, an independent third party of the Target Group (the “ Third Party Tenant ”). The Tenant A has also paid the rental deposit received from the Third Party Tenant of RMB2,000,000 to the Target Group. The Tenant A has agreed that if the Target Group file a lawsuit to claim for the unpaid debt due from the Third Party Tenant before 25 November 2017 and cannot collect the unpaid debt by a final judgment, The Tenant A will repay the Target Group the amount of RMB6,500,000, which represented the amount paid by Target Group of RMB8,500,000 after netting off the deposit amount of RMB2,000,000 as abovementioned. Further details was disclosed in the Accountants’ Report on the Target Group in relation to the deposits and other receivables.

As at 31 December 2013, there was an outstanding loan due from ex-shareholders of Beijing Wan Heng Da in the amount of approximately RMB9.3 million. As at 31 December 2014, there was an outstanding loan due from Foshan Ying Hao Thai in the amount of RMB245.40 million. Those amounts had been repaid as at 30 June 2016. The outstanding loan due from employee in the amount of approximately RMB3.7 million will be settled before 31 December 2016.

Trade payable

The trade payable of the Target Group as at 31 December 2013, 2014, 2015 and 30 June 2016 was approximately RMB10,000, representing payable of renovation expenses and etc.

– II-12 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Deposits received, other payables and accruals

The following table set out the deposits received, other payables and accruals of the Target Group during the Relevant Period.

Deposit received from tenants Accrued salary and welfare Due to a related party Other payables Dividends payable to Foshan Ying Hao Thai Consideration payable for business combination under common control	Year ended 31 December 2013 2014 2015 RMB’000 RMB’000 RMB’000 521 1,027 796 3 – – – – 190,445 1,258 2,850 8,971 – – – – – – 1,782 3,877 200,212	Six months ended 30 June 2016 RMB’000 33,511 – – 1,600 930,000 570,000
		1,535,111

The deposits received from tenants were the rental deposits during the Relevant Period. The deposits received from tenants was increased to RMB33.5 million as at 30 June 2016 due to the entering of new tenancy agreement with Tenant B which increased the rental deposit received. An amount of approximately RMB190.4 million was due to Foshan Ying Hao Thai as at 31 December 2015 which was a shareholder loans. As at January 2016, Beijing Wan Heng Da declared a dividend to Foshan Ying Hao Thai in the amount of RMB930.0 million before the Reorganisation. An amount of payable to Foshan Ying Hao Thai in the amount of RMB570.0 million was arisen from the Reorganisation. It is the intention of the Directors to settle the outstanding amount due to Foshan Ying Hao Thai by third party loans at the Completion. Foshan Ying Hao Thai is the then controlling shareholder of Beijing Wan Heng Da before the Reorganisation. The other payables are non-interest-bearing and are due to mature within one year.

– II-13 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Liquidity and financial resources

The following table below sets out a summary of its net cash flow for the years/periods of the Target Group during the Relevant Period:

CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 28,952 29,416 26,086 9,486 37,916 (20,000) (14) 19,962 20,000 (180) (17,922) (31,155) (45,109) (28,928) – (8,970) (1,753) 939 539 37,736 2,073 320 1,259 859 38,995	Year ended 31 December Six months ended 30 June 2013 2014 2015 2015 2016 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 28,952 29,416 26,086 9,486 37,916 (20,000) (14) 19,962 20,000 (180) (17,922) (31,155) (45,109) (28,928) – (8,970) (1,753) 939 539 37,736 2,073 320 1,259 859 38,995
		(180)
		–
		37,736 38,995

Cash flows in operating activities

For the year ended 31 December 2013, the Target Group had net cash inflow from operating activities of approximately RMB29.0 million which was derived from the rental income of the Beijing Property in the amount of RMB38.6 million and after reduction of administrative expenses in the amount of RMB4.2 million and other expense in the amount of RMB5.2 million and as a result of decrease in trade receivables in the amount of RMB266,000, decrease in prepayments and deposits in the amount of RMB300,000 and offset by increase in deposit received in the amount of RMB915,000.

For the year ended 31 December 2014, the Target Group had net cash inflow from operating activities of approximately RMB29.4 million which was derived from the rental income of the Beijing Property in the amount of approximately RMB38.8 million and after reduction of administrative expenses in the amount of RMB3.5 million and other expense in the amount of RMB5.2 million and reduced by increase in trade receivables in the amount of RMB253,000, increase in prepayments and deposits in the amount of RMB1.4 million and the addition by decrease in deposit received in the amount of RMB70,000.

– II-14 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

For the year ended 31 December 2015, the Target Group had net cash inflow from operating activities of approximately RMB26.1 million which was derived from the rental income of the Beijing Property in the amount of approximately RMB39.6 million and after reduction of administrative expenses in the amount of RMB2.1 million and other expense in the amount of RMB5.2 million and reduced by the increase in trade receivables in the amount of RMB26,000, increase in prepayments and deposits in the amount of RMB5.1 million and offset by increase in deposit received in the amount of approximately RMB1 million.

For the six months period ended 30 June 2016, the Target Group had net cash inflow from operating activities of approximately RMB37.9 million which was derived from the rental income of the Beijing Property in the amount of approximately RMB36.7 million and after reduction of administrative expenses in the amount of RMB6.3 million and other expense in the amount of RMB3.2 million and reduced by increase in trade receivables in the amount of approximately RMB8.6 million, increase in prepayments and deposits in the amount of approximately RMB4.3 million and the addition of decrease in deposit received and other payables in the amount of approximately RMB23.6 million.

Cash flows in investing activities

For the year ended 31 December 2013, the Target Group had net cash used in investing activities of approximately RMB20.0 million which was due to the increase in pledge time deposits in the amount of RMB20.0 million.

For the year ended 31 December 2014, the Target Group had net cash used in investing activities of RMB14,000 which was used in the purchase of plant and equipments.

For the year ended 31 December 2015, the Target Group had net cash from investing activities of approximately RMB20.0 million which was due to the release of pledge time deposits in the amount of RMB20.0 million and set off by the purchase of plant and equipments in the amount of RMB38,000.

For the six months period ended 30 June 2016, the Target Group had net cash used in investing activities approximately of RMB180,000 which was used in the purchase of plant and equipments.

Financing activities

For the year ended 31 December 2013, the Target Group had net cash used in financing activities of approximately RMB17.9 million, mainly due to repayment of a bank loan of approximately RMB252.2 million and interest paid in the amount of RMB27.3 million, which was offset by loans obtained of RMB261.6 million.

For the year ended 31 December 2014, the Target Group had net cash used in financing activities of approximately RMB31.2 million, mainly due to repayment of a bank loan of approximately RMB254.9 million and interest paid in the amount of RMB40.9 million, which was offset by loans obtained of RMB264.6 million.

– II-15 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

For the year ended 31 December 2015, the Target Group had net cash used in financing activities of approximately RMB45.1 million, mainly due to repayment of a bank loan of approximately RMB994.0 million and interest paid in the amount of RMB7.3 million, which was offset by loans obtained of RMB956.2 million.

For the six months period ended 30 June 2016, the Target Group did not have outstanding bank loan and did not have cash flow in financing activities.

Net assets

The net assets of the Target Group as at 31 December 2013, 2014, 2015 and 30 June 2016 were approximately RMB492.8 million, RMB479.2 million, RMB500.5 million and RMB207.5 million. The reduced amount of net asset of the Target Group as at 30 June 2016 was due to the increase of deferred tax liabilities in the amount of RMB456.3 million and dividend in an amount of RMB930.0 million was declared by Beijing Wan Heng Da before 30 June 2016.

The gearing ratio of the Target Group as at 31 December 2013, 2014, 2015 and 30 June 2016 were approximately 0.74, 1.26, 0.63 and 9.60 respectively which is calculated by dividing total debt (i.e. total liability) by total equity of the Target Group. The gearing of the Target Group as at 30 June 2016 was increased due to the increase of other payable from the declaration of dividend to its shareholders and additions of other payable during the Reorganisation which offset the increase in the fair value of the investment properties of the Target Group and the reduced of bank borrowings of the Target Group during the six months 30 June 2016. Other than the deferred tax liabilities and other payables, the Target Group has no outstanding bank borrowings as at 30 June 2016.

The current ratio of the Target Group as at 31 December 2013, 2014, 2015 and 30 June 2016 were approximately 6.72, 64.0, 0.05 and 0.04 respectively which is calculated by dividing current assets by current liabilities of the Target Group. The significant lower of current ratios of the Target Group as at 31 December 2015 and 30 June 2016 was due to the increase of other payable due to Foshan Ying Hao Thai during the Reorganisation. The amount due to Foshan Ying Hao Thai by the Target Group will be settled upon the Completion.

Indebtedness

Bank borrowings

As at 31 December 2013, 2014, 2015 and 30 June 2016, the Target Group has bank loans amounting to RMB235.4 million, RMB480.0 million, nil and nil respectively, which was in the terms beyond of five years, denominated in RMB, have interest rate at 5.9% per annum and were secured by the pledged deposits in the amount of RMB20.0 million, the Beijing Property, a minimum of RMB940.0 million accounts receivable from revenue generated by the pledged investment properties. On 28 January 2015, Foshan Ying Hao Thai repaid the Target Group’s bank loans amounting to RMB480.0 million on behalf of Beijing Wan Heng Da in advance.

– II-16 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

Charges of assets

As at the Latest Practicable Date, the Beijing Property is the only investment properties of the Target Group which is held under medium term leases and is subject to a mortgage in favour of NIT for a term commencing from 22 September 2016 to 13 October 2017. Please refer to “Loan to the Target Group” in the Letter from the Board for details.

Contingent liabilities

Save as the deferred tax liabilities, the Target Group did not have any material contingent liability as at 30 June 2016.

Capital Commitment

During the Relevant Period, the Target Group did not have any capital commitment and there is no outstanding capital commitment of the Target Group as at the Latest Practicable Date.

Foreign currency exposure

During the Relevant Period, the revenue of the Target Group was primarily dominated in Renminbi. Amounts of deposits, other payables, deferred tax liabilities and receivables of the Target Group were all denominated in Renminbi.

As the exchange rates of Renminbi against Hong Kong dollars has been depreciated during the Relevant Period, the Target Group may exposure to fluctuations in exchange rates between Reniminbi and Hong Kong dollars. The Target Group will closely monitor the foreign currency exposure however the Directors and the management of the Target Group has no current intention to arrange for hedging facilities.

Material acquisitions and disposals

Save as the Reorganisation, the Target Group did not have any material acquisition and disposal during the Relevant Period.

Significant investments

During the Relevant Period, the Target Group did not have any significant investment.

– II-17 –

APPENDIX III

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the unaudited pro forma financial information of the Enlarged Group (the “ Unaudited Pro Forma Financial Information ”), including the unaudited pro forma consolidated statement of financial position, the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated cash flow statement of the Enlarged Group, which have been prepared by the Directors to illustrate the financial position of the Enlarged Group as at 30 June 2016 as if the transactions contemplated under the Acquisition Agreement had been completed on 30 June 2016, and on 1 January 2015 for the unaudited pro forma consolidated income statement, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated cash flow statement. The Unaudited Pro Forma Financial Information has been prepared by the Directors for illustrative purposes only and because of its hypothetical nature, it does not purport to represent the true picture of the financial position of the Enlarged Group as at 30 June 2016 or at any future date had the transaction taken place on 30 June 2016.

The Unaudited Pro Forma Financial Information is prepared based on the audited consolidated income statement, the audited consolidated statement of comprehensive income and the audited consolidated cash flow statement of the Group for the year ended 31 December 2015 extracted from the 2015 annual report of the Company, the unaudited consolidated statement of financial position of the Company as at 30 June 2016 extract from the 2016 interim report and the audited consolidated statement of financial position of the Target Group as 30 June 2016 as set out in Appendix II to this Circular, the audited consolidated income statement, the audited consolidated statement of comprehensive income and the audited consolidated cash flow statement of the Target Group for the year ended 31 December 2015 as set out in Appendix II to this Circular after giving effect to the pro forma adjustments described in the accompanying notes and is prepared in accordance with Rule 4.29 of the Listing Rules.

– III-1 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

ENLARGED GROUP UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

NON-CURRENT ASSETS Property, plant and equipment Leasehold land and land use rights Intangible assets Interest in an associate Available-for-sale financial assets Prepayments and deposits Long term receivable Investment properties Deferred tax assets Total non-current assets CURRENT ASSETS Inventories Long term receivable-current portion Trade receivables Prepayments, deposits and other receivables Amounts due from non-controlling shareholders of a subsidiary Financial assets at fair value through profit or loss Tax recoverable Pledged bank deposits Cash and cash equivalents Total current assets Total assets	The Group as at 30 June 2016 (Unaudited) HK$’000 (Note 1) 226,552 1,695 11,672 18,111 5,000 24,957 6,933 – 1,561 296,481 157,957 21,426 138,097 39,742 644 214 23 11,538 209,804 579,445 875,926	The Target Group as at 30 June 2016 (Audited) HK$’000 (Note 2) 254 − – – − – – 2,494,352 – 2,494,606 – – 10,328 15,043 – – – – 45,497 70,868 2,565,474	Pro forma adjustments Payment of the Initial Purchase Price Settlement of the amount due to Foshan Ying Hao Thai Recognition of Transaction costs (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 (Note 3) (Note 5) (Note 6) − – – − – – – – – – – – − – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (6,800) – – (6,800) – – (6,800)	Pro forma Enlarged Group (Unaudited) HK$’000 226,806 1,695 11,672 18,111 5,000 24,957 6,933 2,494,352 1,561
				2,791,087
				157,957 21,426 148,425 54,785 644 214 23 11,538 248,501
				643,513
				3,434,600

– III-2 –

APPENDIX III

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

Equity Share capital Reserves Non-controlling interests in equity Total equity NON-CURRENT LIABILITIES Borrowings Deferred revenue Deferred income tax liabilities Total non-current liabilities CURRENT LIABILITIES Trade and bills payables Accruals and other payables Deferred revenue Tax payable Borrowings Total current liabilities Total liabilities Total equity and liabilities	The Group as at 30 June 2016 (Unaudited) HK$’000 (Note 1) 4,496 372,700 (6,676) 370,520 1,364 1,880 17 3,261 147,768 45,661 1,443 8,579 298,694 502,145 505,406 875,926	The Target Group as at 30 June 2016 (Audited) HK$’000 (Note 2) – 242,062 – 242,062 – – 532,340 532,340 12 1,791,060 – – – 1,791,072 2,323,412 2,565,474	Pro forma adjustments Payment of the Initial Purchase Price Settlement of the amount due to Foshan Ying Hao Thai Recognition of Transaction costs (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 (Note 3) (Note 5) (Note 6) – – – – – (6,800) – – – – – (6,800) – 1,750,095 – – – – − – − − 1,750,095 − – – – – (1,750,095) – – – – – – – – – – – (1,750,095) – – – – − – (6,800)	Pro forma Enlarged Group (Unaudited) HK$’000 4,496 607,962 (6,676)
				605,782
				1,751,459 1,880 532,357
				2,285,696
				147,780 86,626 1,443 8,579 298,694
				543,122
				2,828,818
				3,434,600

– III-3 –

APPENDIX III

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

ENLARGED GROUP UNAUDITED CONSOLIDATED INCOME STATEMENT

Revenue Cost of sales Gross profit Distribution costs Administrative expenses Other (losses)/gain – net Changes in fair value of investment properties Operating profit Finance income Finance costs Finance costs – net Share of profit of an associate Profit before income tax Income tax expense Profit for the year Attributable to: Owners of the Company Non-controlling interests	The Group for the year ended 31 December 2015 (Unaudited) HK$’000 (Note 1) 886,305 (722,075) 164,230 (7,419) (88,478) (4,888) − 63,445 1,729 (5,776) (4,047) 192 59,590 (15,521) 44,069 41,410 2,659	The Target Group for the year ended 31 December 2015 (Audited) HK$’000 (Note 2) 48,883 – 48,883 – (2,639) (6,399) (9,006) 30,839 – (50,088) (50,088) − (19,249) 4,503 (14,746) (14,746) –	Pro forma adjustments Recognition of gain on bargain purchase Recognition of transaction costs (Unaudited) (Unaudited) HK$’000 HK$’000 (Note 4) (Note 6) – – – – – – – – – (6,800) 242,062 – − − 242,062 (6,800) – – – – – – − − 242,062 (6,800) – – 242,062 (6,800) 242,062 (6,800) – –	Pro forma Enlarged Group (Unaudited) HK$’000 935,188 (722,075)
				213,113
				(7,419) (97,917) 230,775 (9,006)
				329,546
				1,729 (55,864)
				(54,135)
				192
				275,603 (11,018)
				264,585
				261,926 2,659

– III-4 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

ENLARGED GROUP UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Profit for the year Other comprehensive loss Currency translation differences Total other comprehensive loss for the year Total comprehensive income for the year Total comprehensive income for the year attributable to: Owners of the Company Non-controlling interests	The Group for the year ended 31 December 2015 (Audited) HK$’000 (Note 1) 44,069 (9,141) (9,141) 34,928 32,209 2,719	The Target Group for the year ended 31 December 2015 (Audited) HK$’000 (Note 2) (14,746) (20,270) (20,270) (35,016) (35,016) –	Pro forma adjustments Recognition of gain on bargain purchase Recognition of transaction costs (Unaudited) (Unaudited) HK$’000 HK$’000 (Note 4) (Note 6) 242,062 (6,800) − − − − 242,062 (6,800) 242,062 (6,800) – –	Pro forma Enlarged Group (Unaudited) HK$’000 264,585
				(29,411)
				(29,411)
				235,174
				232,455 2,719

– III-5 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

ENLARGED GROUP UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

Cash flows from operating activities Cash generated from operations Interest income Interest paid Income tax paid Net cash generated from operating activities Cash flows from investing activities Investment in an associate Increase in prepayments for non-current assets Purchase of property, plant and equipment Proceeds from disposals of property, plant and equipment Purchase of available-for-sale financial assets Decrease/(increase) in pledged time deposits Net cash used in investing activities	The Group for the year ended 31 December 2015 (Audited) HK$’000 (Note 1) 71,627 1,729 (5,776) (13,715) 53,865 (11,952) (32,908) (8,489) 776 (5,000) – (57,573)	The Target Group for the year ended 31 December 2015 (Audited) HK$’000 (Note 2) 26,065 21 – – 26,086 – – (38) – – 20,000 19,962	Pro forma adjustments Payment of the Initial Purchase Price Settlement of the amount due to Foshan Ying Hao Thai Payment of Transaction costs (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 (Note 3) (Note 5) (Note 6) – – (6,800) – – – – – – – – – − − (6,800) – – – – – – – – – – – – – – – – – – – – –	Pro forma Enlarged Group (Unaudited) HK$’000 90,892 1,750 (5,776) (13,715)
				73,151
				(11,952) (32,908) (8,527) 776 (5,000) 20,000
				(37,611)

– III-6 –

APPENDIX III

UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

Cash flows from financing activities Proceeds from issue of shares Capital element of finance lease payments Decrease/(increase) in non-current long-term receivable Dividends paid to the Company’s shareholders Repayments of borrowings Proceeds from borrowings Settlement of amount due to Foshan Ying Hao Thai Increase in pledged bank deposits Interest paid Net cash generated from/ (used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange losses on cash and cash equivalents Cash and cash equivalents, net of bank overdrafts at end of the year	The Group for the year ended 31 December 2015 (Audited) HK$’000 (Note 1) 128,083 (1,104) 13,070 (46,691) (134,357) 193,819 – (20) – 152,800 149,092 48,220 (536) 196,776	The Target Group for the year ended 31 December 2015 (Audited) HK$’000 (Note 2) – – – – (994,000) 956,186 – – (7,295) (45,109) 939 320 − 1,259	Pro forma adjustments Payment of the Initial Purchase Price Settlement of the amount due to Foshan Ying Hao Thai Payment of Transaction costs Pro forma Enlarged Group (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 (Note 3) (Note 5) (Note 5) – – – 128,083 – – – (1,104) – – – 13,070 – – – (46,691) – – – (1,128,357) – 1,750,095,000 – 1,751,245,005 −(1,750,095,000) −(1,750,095,000) – – – (20) – – – (7,295) − − − 107,691 − − (6,800) 143,231 – – − 48,540 − − − (536) − − (6,800) 191,235	Pro forma adjustments Payment of the Initial Purchase Price Settlement of the amount due to Foshan Ying Hao Thai Payment of Transaction costs Pro forma Enlarged Group (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 (Note 3) (Note 5) (Note 5) – – – 128,083 – – – (1,104) – – – 13,070 – – – (46,691) – – – (1,128,357) – 1,750,095,000 – 1,751,245,005 −(1,750,095,000) −(1,750,095,000) – – – (20) – – – (7,295) − − − 107,691 − − (6,800) 143,231 – – − 48,540 − − − (536) − − (6,800) 191,235
				107,691
				143,231 48,540 (536)
				191,235

– III-7 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. The unadjusted audited consolidated income statement, the unadjusted audited consolidated statement of comprehensive income and the unadjusted consolidated cash flow statement of the Group for the year ended 31 December 2015 are extracted from published annual report of the Company for the year ended 31 December 2015. The unadjusted unaudited consolidated statement of financial position as at 30 June 2016 of the Group is extracted from the published interim report for the 6 months period ended 30 June 2016.

2. The audited consolidated financial position of the Target Group as at 30 June 2016, the audited consolidated income statement, the audited consolidated statement of comprehensive income, and the audited consolidated statement of cash flows of the Target Group for the year ended 31 December 2015 are extracted from the financial information of the Target Group as set out in Appendix I to this circular. The exchange rate adopted for the purpose of the compilation of the Pro Forma Financial Information is RMB0.8571 to HK$1 for statement of financial position and RMB0.8105 to HK$1 for income statement and cash flow statement.

3. Pursuant to the Acquisition Agreement, the Vendor has conditionally agreed to sell and the Purchaser has conditionally agreed to purchase the Sale Share at the cash consideration of US$1.00. The cash consideration shall be settled upon Completion by cash. For the purpose of preparing the Unaudited Pro Forma Financial Information, it is assumed that the Initial Purchase Price had been settled in its full amount of USD1.

4. These represent the fair value adjustments to the Target Companies’ net identifiable assets and the recognition of a gain from bargain purchase.

The excess amount of the fair value of the identifiable assets and liabilities acquired of the Target Companies over the cash consideration given is recognised as gain on bargain purchase:

Cash consideration Fair value of the identifiable assets and liabilities of the Target Companies acquired as at 30 June 2016 Gain on bargain purchase	HK$’000 – 242,062
	(242,062)

1. As at the date of the Acquisition Agreement, the total outstanding amount of liabilities due by the Target Group to Foshan Ying Hao Thai was RMB1,500,000,000 (equivalent to HK$1,750,095,000). For the purpose of preparing the Unaudited Pro Forma Financial Information, it is assumed that the Target Group has obtained the entrusted loan of RMB1,500,000,000 to repay the amount due to Foshan Ying Hao Thai as at 30 June 2016. The entrusted loan is classified as non-current liabilities as it is expected to be settled in more than 1 year.

2. Recognition of estimated transaction costs in relation to the acquisition of Beijing Property amounting to HK$6,800,000.

3. None of the above pro forma adjustments is expected to have continuing effect on the financial statements of the Enlarged Group in subsequent years.

– III-8 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION INCLUDED IN A CIRCULAR

The following is the text of a report received from Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

23 December 2016

The Directors Alltronics Holdings Limited

We have completed our assurance engagement to report on the compilation of pro forma financial information of Alltronics Holdings Limited (the “ Company ”) and its subsidiaries (hereinafter collectively referred to as the “ Group ”), and Bonroy Limited and its subsidiaries (the “ Target Companies ”) (together with the Group hereafter collectively referred to as the “ Enlarged Group ”) by the directors of the Company (the “ Directors ”) for illustrative purposes only. The pro forma financial information consists of the pro forma consolidated statement of financial position as at 30 June 2016, the pro forma consolidated income statement, the pro forma consolidated statement of comprehensive income and the pro forma consolidated cash flow statement for the year ended 31 December 2015 of the Enlarged Group (the “ Pro Forma Financial Information ”). The applicable criteria on the basis of which the Directors have compiled the Pro Forma Financial Information are set out in Section A of Appendix III to the circular of the Company dated 23 December 2016 (the “ Circular ”).

The Pro Forma Financial Information has been compiled by the Directors, for illustrative purpose only, to provide information about how the acquisition of the Target Company by the Company might have affected the financial position of the Group as at 30 June 2016 and the Group’s financial performance and cash flows for the year ended 31 December 2015 as if the transaction had taken place at 30 June 2016 and 1 January 2015, respectively. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s condensed consolidated financial statements for six months ended 30 June 2016, on which no auditor’s report or review conclusion has been published. Information about the Group’s financial performance and cash flows has been extracted by the Directors from the Group’s audited consolidated financial statements for the year ended 31 December 2015, on which an auditor’s report has been published.

– III-9 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

Directors’ responsibility for the Pro Forma Financial Information

The Directors are responsible for compiling the Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”).

Reporting Accountants’ responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountant comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Pro Forma Financial Information, in accordance with paragraph 4.29 of the Listing Rules and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Pro Forma Financial Information.

The purpose of Pro Forma Financial Information included in the Circular is solely to provide information about how the acquisition of the Target Company by the Company might have affected the financial position of the Group as if the transaction had taken place at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the transaction would have been as presented.

A reasonable assurance engagement to report on whether the Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the transaction, and to obtain sufficient appropriate evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and

– III-10 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF FINANCIAL INFORMATION OF THE ENLARGED GROUP

• The Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the transaction in respect of which the Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

• (a) the Pro Forma Financial Information has been properly compiled on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purpose of the Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

– III-11 –

APPENDIX IV

PROPERTY VALUATION REPORT

The following is the text of a letter and the valuation certificate prepared for the purpose of incorporation in this circular received from LCH (Asia-Pacific) Surveyors Limited, an independent professional surveyor, in connection with its valuation as at 30 September 2016 of the property interests held by the Beijing Wan Heng Da.

PROFESSIONAL SURVEYOR PLANT AND MACHINERY VALUER BUSINESS & FINANCIAL ASSETS VALUER

The readers are reminded that the report which follows has been prepared in accordance with the reporting guidelines set by the International Valuation Standard 2013 (the “ IVS ”) published by the International Valuation Standards Council as well as the HKIS Valuation Standards 2012 Edition (the “ HKIS Standards ”) published by The Hong Kong Institute of Surveyors (the “ HKIS ”). Both standards entitle the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer. Translations of terms in English or in Chinese are for reader’s identification purpose only and have no legal status or implication in this report. This report was prepared and signed off in English format, translation of this report in language other than English shall only be used as a reference and should not be regarded as a substitute for this report. Piecemeal reference to this report is considered to be inappropriate and no responsibility is assumed from our part for such piecemeal reference. It is emphasised that the findings and conclusion presented below are based on the documents and facts known to us at the Latest Practicable Date of this circular. If additional documents and facts are made available, we reserve the right to amend this report and its conclusion.

17th Floor, Champion Building Nos. 287-291 Des Voeux Road Central Hong Kong

23 December 2016

The Board of Directors Alltronics Holdings Limited Unit 408, 4th Floor Citicorp Centre No. 18 Whitfield Road Hong Kong

Dear Sirs,

In accordance with the instructions given by the present management of Alltronics Holdings Limited (hereinafter referred to as the “ Instructing Party ”) to us to conduct a valuation of a real property proposed to be acquired (same as the word “ property ” in this report) by Alltronics Holdings Limited (hereinafter referred to as the “ Company ”) and its

– IV-1 –

APPENDIX IV

PROPERTY VALUATION REPORT

subsidiaries (collectively, together with the Company hereinafter referred to as the “ Group ”) in the People’s Republic of China (hereinafter referred to as the “ PRC ” or “ China ”), we confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary to support our findings and our conclusion of value of the property as at 30 September 2016 (hereinafter referred to as the “ Valuation Date ”) for the Instructing Party’s internal management reference purpose. We are given to understand the real property is currently held by 北京萬恒達投資有限公司 (translated as Beijing Wan Heng Da Investment Company Limited and hereinafter referred to as “ Beijing Wan Heng Da ”) and the Group has intention to acquire the entire equity interests of Beijing Wan Heng Da.

We understand that the use of our work product (regardless of form of presentation) will form part of the Instructing Party’s due diligence but we have not been engaged to make specific sales or purchase recommendations, or to give opinion for financing arrangement. We further understand that the use of our work product will not supplant other due diligence which the Instructing Party should conduct in reaching its business decision regarding the property valued. Our work is designed solely to provide information that will give the Instructing Party a reference in its due diligence process, and our work should not be the only factor to be referenced by the Instructing Party. Our findings and conclusion of value of the property are documented in a valuation report and submitted to the Instructing Party at today’s date (hereinafter referred to as the “ Report Date ”).

At the request of the Instructing Party, we prepared this summary report (including this letter and the valuation certificate) to summarise our findings and conclusion of value as documented in the valuation report for the purpose of inclusion in this circular at the Report Date for the Company’s shareholders’ reference. Terms used herein without definition shall have the same meanings as in the valuation report, and the assumptions and caveats adopted in the valuation report also apply to this summary report.

BASIS OF VALUATION AND ASSUMPTIONS

According to the IVS which the HKIS Standards also follows, there are two valuation bases, namely market value basis and valuation bases other than market value. In this engagement, we have provided our conclusion of value of the property on the market value basis.

The term “Market Value” is defined by the IVS and the HKIS Standards as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

– IV-2 –

APPENDIX IV

PROPERTY VALUATION REPORT

Unless otherwise stated, our valuation of the real property has been made on the assumptions that, as at the Valuation Date,

1. the legally interested party in the property has free and uninterrupted rights to assign its relevant property interest for the whole of the unexpired terms as granted, and any premium payable have already been fully paid;

2. the legally interested party in the property sells its relevant property interests in the market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which could serve to increase the value of the property interest;

3. the legally interested party in the property has absolute title to its relevant property interest;

4. the legally interested party in the property has obtained relevant government’s approvals for the sale of the property and is able to dispose of and transfer free of all encumbrances (including but not limited to the cost of transaction) in the market; and

5. the property can be freely disposed of and transferred free of all encumbrances as at the Valuation Date for its existing use in the market to both local and overseas purchasers without payment of any premium to the government.

Should any of the above not be the case, it will have adverse impact to the value as reported.

APPROACH TO VALUE

There are three generally accepted approaches in arriving at the market value of a property on an absolute title basis, namely the Sales Comparison Approach (or known as the Market Approach), the Cost Approach and the Income Approach.

In valuing the property which is subject to tenancy agreements as at the Valuation Date, we have adopted the term and reversion method of the Income Approach or sometimes referred to as a method of the Market Approach because the reversionary interests and the rate of return are market-derived by taking into account the current rent receivable from the existing tenancy agreements and the reversionary potential of the property interest.

Unless otherwise stated, we have not carried out any valuation on a redevelopment basis to the property and the study of possible alternative development options and the related economics do not come within the scope of our work.

– IV-3 –

APPENDIX IV

PROPERTY VALUATION REPORT

MATTERS THAT MIGHT AFFECT THE VALUE REPORTED

For the sake of valuation, we have adopted the areas as they appeared in the copies of the documents as provided and no further verification work has been conducted. Should it be established subsequently that the adopted areas were not the latest approved, we reserve the right to revise our report and the valuation accordingly.

Unless otherwise stated, no allowance has been made in our valuation for any charges, mortgages, outstanding premium or amounts owing on the property valued nor any expenses or taxation which may be incurred in affecting a sale of the property. It is assumed that the property is free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect its value.

Unless otherwise stated, in our valuation, we have assumed that the property is able to be sold and purchased in the market without any legal impediment (especially from the regulators). Should this not be the case, it will affect the reported value significantly. The readers are reminded to have their own legal due diligence work on such issue. No responsibility or liability is assumed.

Save as the legal proceedings as disclosed on page 51-53 of this circular, as at the Latest Practicable Date of this circular, we were unable to identify any adverse news against the property which may affect the reported value in our work product. Thus, we are not in a position to report and comment on its impact (if any) to the property. However, should it be established subsequently that such news did exist at the Valuation Date, we reserve the right to adjust the value reported herein.

ESTABLISHMENT OF TITLES

Due to the purpose of this engagement and the market value basis of valuation, the Instructing Party or the appointed personnel of the Company provided us the necessary copies of documents to support that the legally interested party in the property (in this instance, Beijing Wan Heng Da) has free and uninterrupted rights to occupy, to transfer, to mortgage or to let its relevant property interests (in this instance, an absolute title) for the whole of the unexpired terms as granted, free of all encumbrances and any premiums payable have already been paid in full or outstanding procedures have been completed or is in processing, and Beijing Wan Heng Da has the right to occupy and use the property. However, our procedures to value, as agreed, with the Instructing Party, did not require us to conduct legal due diligence on the legality and formality on the way that the legally interested party obtained the property from the relevant authorities. We agreed with the Instructing Party that this should be the responsibility of the legal advisor to the Instructing Party. Thus, no responsibility or liability is assumed from our part to the origin and continuity of the titles to the property.

– IV-4 –

APPENDIX IV

PROPERTY VALUATION REPORT

The land registration system of China forbids us to search the original documents of the property that are filed in the relevant authorities, and to verify legal titles or to verify any material encumbrances or amendment which may not appear on the copies handed to us. For the purpose of valuation, we have relied solely on a copy of the PRC legal opinions provided by the Instructing Party or the appointed personnel of the Company with regards to the legal titles of the property. We are given to understand that the PRC legal opinions was prepared by a qualified PRC legal advisor Hills & Co. dated 23 December 2016.

We need to state that we are not legal professionals and are not qualified to ascertain the titles and to report any encumbrances that may be registered against the property. However, we have complied with the requirements as stated in Chapter 5 and Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and relied solely on the copies of documents and the copy of legal opinions provided by the Instructing Party or the appointed personnel of the Company in our valuation. No responsibility or liability from our part is assumed in relation to those legal opinions.

In our report, we have assumed that Beijing Wan Heng Da has obtained all the approval and/or endorsement from the relevant authorities to own the property, and that there would be no legal impediment (especially from the regulators) for Beijing Wan Heng Da to continue the legal titles to the property. Should this not be the case, it will affect our findings or conclusion of value in this report significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.

INSPECTIONS AND INVESTIGATIONS OF THE PROPERTY

We have conducted inspections to the exterior, and where possible, the interior of the property in respect of which we have been provided with such information as we have requested for the purpose of engagement. The property was inspected by Sr Elsa Ng in June 2016. We have not inspected those parts of the property which were covered, unexposed or inaccessible and such parts have been assumed to be in a reasonable condition. We cannot express an opinion about or advice upon the condition of the property and our work product should not be taken as making any implied representation or statement about the condition of the property. No building survey, structural survey, investigation or examination has been made, but in the course of our inspections, we did not note any serious defects in the property inspected. We are not, however, able to report that the property is free from rot, infestation or any other structural defects. No tests were carried out to the utilities or systems (if any) and we are unable to identify those utilities or systems covered, unexposed or inaccessible.

We have not carried out on-site measurements to verify the correctness of the areas of the property, but have assumed that the areas shown on the documents and official layout plans handed to us are correct. All dimensions, measurements and areas are approximations.‘

– IV-5 –

APPENDIX IV

PROPERTY VALUATION REPORT

Our engagement and the agreed procedures to value the property did not include an independent land survey to verify the legal boundaries of the property. We need to state that we are not in the land survey profession, therefore, we are not in a position to verify or ascertain the correctness of the legal boundaries of the property that appeared on the documents handed to us. No responsibility from our part is assumed. The Instructing Party or the interested party in the property should conduct their own legal boundaries due diligence work.

We have not arranged for any investigation to be carried out to determine whether or not any deleterious or hazardous material has been used in the construction of the property, or has since been incorporated, and we are therefore unable to report that the property is free from risk in this respect, and therefore we have not considered such factors in our valuation.

We are not aware of the content of any environmental audit or other environmental investigation or soil survey which may have been carried out on the property and which may draw attention to any contamination or the possibility of any such contamination. In undertaking our work, we have assumed that no contaminative or potentially contaminative uses have ever been carried out in the property. We have not carried out any investigation into past or present uses of the property or of any neighbouring land, to establish whether there is any contamination or potential for contamination to the property from these uses or sites, and have therefore assumed that none exists. However, should it be established subsequently that contamination, seepage or pollution exists at the property or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the value now reported or affect our findings.

If the Instructing Party or the Company is proposing to acquire the property and wants to satisfy themselves as to its condition or usage, then they should obtain a surveyor’s detailed inspection and report of their own before deciding whether or not to enter into an agreement for sale and purchase.

SOURCES OF INFORMATION AND ITS VERIFICATION

In the course of our work, we have been provided with copies of the documents regarding the property, and these copies have been referenced without further verifying with the relevant bodies and/or authorities. Our procedures did not require us to conduct any searches or to inspect the original documents to verify ownership or to verify any amendment which may not appear on the copies handed to us. We need to state that we are not legal professionals, therefore, we are not in a position to advise and comment on the legality and effectiveness of the documents provided by the Instructing Party or the appointed personnel of the Company.

We have relied solely on the information provided by the Instructing Party or the appointed personnel of the Company without further verification and have fully accepted advice given to us on such matters as planning approvals or statutory notices, locations, titles, easements, tenure, occupation, lettings, rentals, site and floor areas and all other relevant matters.

– IV-6 –

APPENDIX IV

PROPERTY VALUATION REPORT

Our valuation has been made only based on the advice and information made available to us. While a limited scope of general inquiries had been made to the local real property market practitioners, we are not in a position to verify and ascertain the correctness of the advice given by the relevant personnel. No responsibility or liability is assumed.

Information furnished by others, upon which all or portions of our report are based, is believed to be reliable but has not been verified in all cases. Our procedures to work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our work product.

When we adopted the work products from other professions, external data providers and the Instructing Party or the appointed personnel of the Company in our works, the assumptions and caveats that adopted by them in arriving at their figures also applied to this report. The procedures we have taken do not provide all the evidence that would be required in an audit and, as we have not performed an audit, accordingly, we do not express an audit opinion.

The scope of valuation has been determined by reference to the property list provided by the Instructing Party. All properties on the list have been included in our report. The Instructing Party has confirmed to us that Beijing Wan Heng Da has no property interests other than those specified on the list supplied to us and included in this report.

We are unable to accept any responsibility for the information that has not been supplied to us by the Instructing Party or the appointed personnel of the Company. Also, we have sought and received confirmation from the Instructing Party or its appointed personnel that no material factors have been omitted from the information supplied. Our analysis and valuation are based upon full disclosure between us and the Instructing Party of material and latent facts that may affect the works.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Instructing Party or the appointed personnel of the Company. We consider that we have been provided with sufficient information to reach an informed view, and have had no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary amounts are in Renminbi Yuan (“ RMB ”).

LIMITING CONDITIONS IN THIS SUMMARY REPORT

Our findings or conclusion of value of the property in this summary report is valid only for the stated purpose and only for the Valuation Date, and for the sole use of the Instructing Party. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this summary report, and we accept no responsibility whatsoever to any other person.

– IV-7 –

APPENDIX IV

PROPERTY VALUATION REPORT

Unless otherwise stated, our valuation has been made on the assumption that no unauthorised alteration, extension or addition has been made in the property, and that the inspections and the use of this report do not purport to be a building survey of the property. We have assumed that the property is free of rot and inherent danger or unsuitable materials and techniques.

No responsibility is taken for changes in market conditions and local government policy, and no obligation is assumed to revise this summary report to reflect events or conditions, which occur or make known to us subsequent to the date hereof. Neither the whole nor any part of this summary report or any reference made hereto may be included in any published documents, prospectus or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this summary report in this circular for the Company’s shareholders’ reference.

Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

The Company and the Instructing Party are required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our work product except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

STATEMENTS

This summary report is prepared in line with the requirements contained in Chapter 5 and Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as well as the reporting guidelines contained in the IVS and the HKIS Standards. The valuation has been undertaken by us, acting as external valuer, for the purpose of this valuation.

We retain a copy of this summary report and the detailed valuation report together with the data and document provided by the Instructing Party for the purpose of this valuation, and these data and documents will, according to the Laws of Hong Kong, be kept for a period of 6 years from the date it provided to us and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without the Instructing Party’s authorisation and prior arrangement made with us in writing. Moreover, we will add the Company’s information into our client list for our future reference.

– IV-8 –

APPENDIX IV

PROPERTY VALUATION REPORT

The analysis or valuation of the property depends solely on the assumptions made in this report and not all of which can be easily quantified or ascertained exactly. Should some or all of the assumptions prove to be inaccurate at a later date, it will affect the reported findings or conclusion of value significantly.

We hereby certify that the fee for this service is not contingent upon our conclusion and we have no significant interest in the property, the Group, Beijing Wan Heng Da or the value reported.

The valuation certificate is attached.

Yours faithfully,

For and on behalf of

LCH (Asia-Pacific) Surveyors Limited

Elsa Ng Hung Mui B.Sc. M.Sc. RPS(GP)

Executive Director

Sr Elsa Ng Hung Mui has been conducting valuation of real properties in Hong Kong, Macau and mainland China since 1994. She is a Fellow of The HKIS and a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuation in Connection with Takeovers and Mergers published by The HKIS.

– IV-9 –

APPENDIX IV

PROPERTY VALUATION REPORT

VALUATION CERTIFICATE

Property held by the Beijing Wan Heng Da for investment in the PRC and valued on the Market Value basis

			Amount of
			valuations in
			existing state
			attributable to
			Beijing Wan Heng
			Da as at
Property	Description and tenure	Particulars of occupancy	30 September 2016
			RMB
A commercial complex located at	The property comprises a	As inspected and confirmed	2,137,000,000
the whole of Levels 1 and 2, and	2-storey shopping arcade	by the Instructing Party and
Basement Level 1 of a shopping	plus a basement level which	the appointed personnel of	(100 per cent.
centre known as 飄亮購物中心	was completed in 1999. The	the Company, the property	interest)
(Pretty Shopping Centre) which	property has a total gross	was subject to 2 various
is located at the junction	floor area of 40,083.94 sq.m.	tenancy agreements as at the	RENMINBI TWO
of Hui Zhong Bei Road and	(See Notes 1 and 2 below).	Valuation Date for retail	BILLION ONE
Anli Road at		purposes. (See Note 3 Below)	HUNDRED AND
Chaoyang District	The basement level is		THIRTY SEVEN
Beijing	designated for car parking		MILLION
The People’s Republic of China	purpose.
100101
	The property is currently
	occupied by various tenants
	for different trades including
	a supermarket.
	The locality where the
	property situated is an area
	of commercial and
	residential development in
	Chaoyang District and
	known as Asia Olympic
	Game Golden Business Circle
	(亞奧黃金商圈) in Beijing.
	The property is subject to a
	right to use the land for two
	various terms till 12 April
	2033 and 12 April 2043 for
	commercial usage and office
	usage, respectively.

Notes:

1. The rights to possess the land is held by the State and the rights to use the land has been granted by the State to 北京萬恒達投資有限公司 (translated as Beijing Wan Heng Da Investment Company Limited and hereinafter referred to as “ Beijing Wan Heng Da ”), via the following ways:

2. (i) pursuant to 24 various State-owned Land Use Rights Certificates and the corresponding 24 various Realty Title Certificates, the legally interested party in the property having a total gross floor area of 40,083.94 sq.m. and a total allocated site area of 4,272.76 sq.m. is Beijing Wan Heng Da; and

3. (ii) among the 24 various State-owned Land Use Rights Certificates mentioned above, 4 of them are for Level 2 with the respective lease term of the land use rights till 12 April 2043 for office usage and 20 of them are for Level 1 and Basement Level 1 with the respective lease term of the land use rights till 12 April 2033 for commercial usage.

4. The property is subject to a mortgage in favour of 北方國際信托股份有限公司 for a term commencing from 22 September 2016 to 13 October 2017.

– IV-10 –

APPENDIX IV

PROPERTY VALUATION REPORT

1. The property is subject to two various tenancy agreements with a total current annual rental of RMB125,800,000 inclusive of management fee and utilities charges. Major terms of the tenancy agreements are as follows:

				Annual
				Rental As at
				Valuation	Rental Increments
Lessee		Lease Term	Leased Area	Date	(per annum)
			(sq.m.)	(RMB)
Tenant	A	1 January 2016 –	14,684.90 and	10,800,000	2%
		12 April 2033	right to use
			not less than
			150 car
			parking
			spaces in
			basement
			level
Tenant	B	1 May 2016 –	25,399.04	115,000,000	5% for 2017 and 2018,
		30 April 2026			20% in 2019 and 5%
					thereafter

1. The property is subject to a management contract entered between Beijing Wan Heng Da and 北京陽光城 物業管理有限公司 (Beijing Sunshine City Property Management Co., Ltd and hereafter referred to as “ Beijing Sunshine ”) and dated 1 May 2013 and its supplementary agreement dated 1 January 2015. Beijing Sunshine is responsible to provide property management service to the property including provision of maintenance repair, cleaning, security, utilities etc. at a current management fee of RMB737,401.07 per month commencing from 1 January 2015 to 17 March 2017 payable by Beijing Wan Heng Da. Beijing Sunshine is an independent third party of the Group, as advised.

2. Pursuant to a copy of the Enterprise Legal Person Business Licence (企業法人營業執照) dated 26 August 2016, Beijing Wan Heng Da is a limited liabilities company registered in the PRC for an operational period commencing from 29 November 2010 to 28 November 2020.

3. The property was acquired by Beijing Wan Heng Da in 2011.

4. According to the legal opinion as prepared by the Company’s PRC legal adviser, Hills & Co dated 23 December 2016, the following opinions are noted:-

5. (i) Beijing Wan Heng Da is the legally interested party in the property and all the consideration has been paid. Its rights in the property are protected by the relevant laws in China;

6. (ii) The property is subject to a mortgage as disclosed in Note 2 above; and

7. (iii) Beijing Wan Heng Da has the right to use, occupy, transfer, lease and mortgage the property.

– IV-11 –

APPENDIX V

GENERAL INFORMATION

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES OR DEBENTURES OF THE COMPANY OR ANY OF ITS ASSOCIATED CORPORATIONS

As at the Latest Practicable Date, the interests and short positions of the Directors or chief executive of the Company in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“ SFO ”)) which are required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO); or (b) pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) in the Listing Rules to be notified to the Company and the Stock Exchange were as follows:

(i) Interests in the Company

			Approximate
		Interests in	percentage
Name	Nature of Interest	Shares (Note 1)	shareholding
Mr. Lam Yin Kee	Beneficial owner	3,058,290 (L)	0.58%
(Note 2 and 3)
	Interest in a	244,300,000 (L)	46.48%
	controlled	(Note 2)
	corporation
Ms. Yeung Po Wah	Interest of spouse	247,358,290 (L)	47.06%
(Note 2 and 3)
Ms. Liu Jing	Beneficial owner	69,172,000 (L)	13.16%
Mr. Lam Chee Tai, Eric	Beneficial owner	1,677,060 (L)	0.32%
(Note 4)

– V-1 –

APPENDIX V

GENERAL INFORMATION

Notes:

1. The letter “L” denotes a long position in the Shares.

2. 244,300,000 Shares are owned by Profit International Holdings Limited, a company incorporated in the British Virgin Islands, which is owned as to 95% by Mr. Lam Yin Kee and as to 5% by Ms. Yeung Po Wah. Ms. Yeung Po Wah is the spouse of Mr. Lam Yin Kee.

3. Mr. Lam Yin Kee and Ms. Yeung Po Wah are directors and beneficial owners of Profit International Holdings Limited.

4. Mr. Lam Chee Tai, Eric is the son of Mr. Lam Yin Kee and Ms. Yeung Po Wah.

(ii) Interests in associated corporations of the Company

				Approximate
	Name of associated	Nature of	Interests in	percentage
Name	corporation	interest	shares(Note 1)	shareholding
Mr. Lam Yin Kee	Profit International	Beneficial	950	95%
(Note 2)	Holdings Limited	Interest
Ms. Yeung Po Wah	Profit International	Beneficial	50	5%
(Note 2)	Holdings Limited	Interest

Notes:

1. The letter “L” denotes a long position in the shares.

2. Profit International Holdings Limited, a company incorporated in the British Virgin Islands, is owned as to 95% by Mr. Lam Yin Kee and as to 5% by Ms. Yeung Po Wah. Ms. Yeung Po Wah is the spouse of Mr. Lam Yin Kee.

Save as disclosed above, the Directors and Chief Executives also hold shares of certain subsidiaries solely for the purpose of ensuring that the relevant subsidiary has more than one member.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which are required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO); or (b) pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code in the Listing Rules to be notified to the Company and the Stock Exchange.

– V-2 –

APPENDIX V

GENERAL INFORMATION

SUBSTANTIAL SHAREHODLERS’ INTERESTS

So far as it is known to the Directors of the Company, as at the Latest Practicable Date, the following persons (other than the Directors and the chief executive of the Company) had, or were deemed to have, an interest or short position in the Shares or the underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, interested in 10% or more of the issued voting shares of the members of the Enlarged Group:

(i) Interests or short positions in the Shares and underlying shares of the Company

			Approximate
		Number of	percentage of
Name of the shareholder	Nature of interest	Shares (Note 1)	shareholding
Profit International	Beneficial owner	244,300,000 (L)	46.48%
Holdings Limited
(Note 2)
Lijiang Investment	Beneficial owner	52,562,020 (L)	10%
Holdings Limited

Notes:

1. The letter “L” denotes a long position in the Shares.

2. Profit International Holdings Limited, a company incorporated in the British Virgin Islands, is owned as to 95% by Mr. Lam Yin Kee and as to 5% by Ms. Yeung Po Wah. Ms. Yeung Po Wah is the spouse of Mr. Lam Yin Kee.

(ii) Interests or short positions in other members of the Enlarged Group

			Number	Approximate
Name of the	Name of member of		of shares	percentage of
shareholder	the Enlarged Group	Nature of interest	(Note 1)	shareholding
Lam On Bong	Southchina Engineering	Beneficial owner	190,000 (L)	19%
	and Manufacturing
	Limited
Ieong Kin San	Southchina Engineering	Beneficial owner	150,000 (L)	15%
	and Manufacturing
	Limited
Leung Hon	Southchina Engineering	Beneficial owner	150,000 (L)	15%
Kwong	and Manufacturing
	Limited
Good Plan	Dynamic Progress	Beneficial owner	4,900 (L)	49%
International	International Limited
Limited

– V-3 –

APPENDIX V

GENERAL INFORMATION

Notes:

1. The letter “L” denotes a long position in the shares.

2. Good Plan International Limited is owned as to 47% by Mr. Yau Wing On, as to 47% by Mr. Choi Steve Sau and as to 6% by Mr. Steven Wanyne Lord.

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware, of any other person (other than the Directors and the chief executive of the Company) who had, or was deemed to have, an interest or short position in the Shares or underlying shares, which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the issued voting shares of any other member of the Enlarged Group.

COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or any of their respective close associates had engaged in any business that competes or may compete with the business of the Group or has or may have any other conflict of interests with the Group.

DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing service contract or proposed service contract with any member of the Enlarged Group which will not expire or determinable by the Company within one year without payment of compensation (other than statutory compensation).

DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE AND ASSETS

As at the Latest Practicable Date, save as a tenancy agreement entered between the Purchaser and Profit Home Investments Limited, a connected person (as it is owned as to 60% by Ms. Yeung Po Wah, an executive Director of the Company, and 20% by Mr. Lam Chee Tai, Eric, an executive Director of the Company), for leasing of a property for a period from 1 April 2015 to 31 March 2017 for a monthly rent of HK$150,000, none of the Directors had any direct or indirect interest in any assets which had been, since 31 December 2015, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by, or leased to any member of the Enlarged Group, or were proposed to be acquired or disposed of by, or leased to any member of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Enlarged Group which contract or arrangement is subsisting as at the Latest Practicable Date and which is significant in relation to the business of the Enlarged Group.

– V-4 –

APPENDIX V

GENERAL INFORMATION

LITIGATION

1. On 27 September 2016, the Company, as plaintiff, has issued a Writ of Summons (the “ Writ ”) against P2 Mobile Technologies Limited (“ P2MT ”) and the two founders(the “ Founders ”) of P2MT. Under the statement of claim endorsed on the Writ, the Company claims against P2MT and the Founders for the losses and damages suffered by the Company arising from the fraudulent and/or negligent misrepresentations given by P2MT and the Founders at or around the time the Company invested HK$5,000,000 for 710 shares in P2MT. Subsequent to the issue of the Wirt, the Company has resolved and settled all the disputes with P2MT and the Founders. On 4 November 2016, the Company has filed a notice of discontinuance to the High Court of Hong Kong to discontinue the claims.

2. On 30 September 2016, the Company has been served on a petition (the “ Petition ”) made by United Group (Global) Limited (the “ Petitioner ”) to wind up P2MT under the provisions of the Companies (Winding-Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) in the Court of the First Instance of the High Court of Hong Kong under action number HCCW 349 of 2016. The Company, being one of the shareholders of P2MT, is named as one of the respondents of the Petition. The Petitioner, holder of 1.92% of P2MT’s shares, alleged that the misconducts of the Founders constituted breaches of their fiduciary duties as directors and shareholders of P2MT that were owed to both P2MT and other shareholders of P2MT, and the affairs of P2MT were being conducted by the Founders in a manner unfairly prejudicial to the other shareholders of P2MT, which in the circumstances rendered it just and equitable to wind up P2MT. The hearing of Petition was scheduled to be heard on 7 December 2016. Subsequent to the issue of the Petition, the Founders and the Petitioner and its related party had entered into a deed of settlement in respect of the full and final settlement of all claims and disputes as between them. Pursuant to the deed of settlement, inter alia, the Petition shall be withdrawn or dismissed. Further details of the Petition are set out in the announcements issued by the Company dated 7 October 2016 and 27 October 2016.

Save as disclosed above and in the sub-section headed ”Legal proceedings” of the section headed ”Letter From the Board”, as at the Latest Practicable Date, none of the companies in the Enlarged Group was engaged in any litigation, arbitration or claims of material importance and no litigation, arbitration or claims of material importance is known to the Directors to be pending or threatened against any company in the Enlarged Group.

MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) had been entered into by members of the Enlarged Group within two years preceding the Latest Practicable Date and are or may be material:

• (a) the joint venture agreement dated 20 October 2014 entered into between a subsidiary of the Company, Alltronics Industries Limited, and Shenzhen Buyang Anfang Technology Company Limited (深圳市步陽安防技術有限公司)

– V-5 –

APPENDIX V

GENERAL INFORMATION

in relation to the establishment of the joint venture company, which is proposed to be principally engaged in the manufacturing and sale of printers and other accessory products for printers. Pursuant to the joint venture agreement, the registered capital of the joint venture company shall be RMB30 million (approximately HK$37.8 million), among which Shenzhen Buyang Anfang Technology Company Limited and Alltronics Industries Limited shall hold 51% and 49% of its equity interest respectively;

• (b) the tenancy agreement dated 31 March 2015 entered into between Alltronics Tech. Mftg. Limited, a wholly-owned subsidiary of the Company and Profit Home Investments Limited, a connected person (as it is owned as to 60% by Ms. Yeung Po Wah, an executive director of the Company, and as to 20% by Mr. Lam Chee Tai, Eric, an executive director of the Company), for leasing of a property for a period from 1 April 2015 to 31 March 2017 for a monthly rent of HK$150,000;

• (c) the placing agreement dated 31 July 2015 (which was terminated on 21 August 2015 pursuant to a termination agreement entered into between the Company and CNI Securities Group Limited) entered into between the Company, as an issuer, and CNI Securities Group Limited, as the placing agent, in relation to the placing of up to 69,172,000 new Shares at the placing price of HK$1.88 per placing share on a best effort basis;

• (d) the placing agreement dated 20 November 2015 entered into between the Company, as an issuer, and CNI Securities Group Limited, as the placing agent, in relation to the placing of 69,172,000 new Shares to the placee, Ms. Liu Jing at the placing price of HK$1.88 per placing share on a best effort basis, which was completed on 7 December 2015 and the net proceeds of which amounted to approximately HK$127.84 million;

• (e) the preliminary agreement for sale and purchase dated 6 November 2015 and entered into between Seajet Investments Limited as vendor and Alltronics Tech. Mftg. Limited, an indirect wholly-owned subsidiary of the Company as the purchaser in relation to the sale and purchase of the office located on the 4th floor of Citicorp Centre, 18 Whitfield Road, Hong Kong and car parking space no. 7 on the 1st floor and car parking space nos. 19, 19A and 21 on the 2nd floor of Citicorp Centre, 18 Whitfield Road, Hong Kong at a consideration of HK$176,000,000;

• (f) the formal sale and purchase agreement dated 20 November 2015 and entered into between Seajet Investments Limited as vendor and Alltronics Tech. Mftg. Limited, an indirect wholly-owned subsidiary of the Company as the purchaser in relation to the sale and purchase of the office located on the 4th floor of Citicorp Centre, 18 Whitfield Road, Hong Kong and car parking space no. 7 on the 1st floor and car parking space nos. 19, 19A and 21 on the 2nd floor of Citicorp Centre, 18 Whitfield Road, Hong Kong at a consideration of HK$176,000,000;

– V-6 –

APPENDIX V

GENERAL INFORMATION

• (g) the equity transfer agreement dated 16 June 2016 entered into between Foshan Ying Hao Thai as vendor and Shenzhen Chong Ruan as purchaser, pursuant to which Foshan Ying Hao Thai agreed to transfer the entire equity interest in Beijing Wan Heng Da to Shenzhen Chong Ruan at a consideration of RMB570 million (equivalent to approximately HK$665 million);

• (h) the subscription agreement dated 17 August 2016 and entered into between the Company as the issuer and Lijiang Investment Holdings Limited as subscriber in relation to the subscription of an aggregate of 52,562,020 new Shares at the subscription price of HK$1.49 per subscription Share;

• (i) the Acquisition Agreement;

• (j) the sale and purchase agreement dated 27 October 2016 and entered into between the Company as the purchaser and the Founders of P2MT as the vendors in relation to the acquisition of 5,228 issued shares of P2MT at a consideration of HK$8,000,000; and

• (k) the subscription agreement dated 31 October 2016 and entered into between the Company as the issuer and Wealth Channel Global Limited as subscriber in relation to the subscription of an aggregate of 23,437,980 new Shares at the subscription price of HK$1.49 per subscription Share.

EXPERTS AND CONSENTS

The following are the qualification of the experts who had given their opinion or advice contained in this circular:

Name Qualification Ernst and Young Certified Public Accountants LCH (Asia-Pacific) Surveyors Limited Professional Survey

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report(s) and/or letter(s) and/or opinion(s) and/or valuation certificate(s) and references to its name in the form and context in which it appears.

As at the Latest Practicable Date, each of the above experts:

• (i) was not beneficially interested in the share capital of any member of the Enlarged Group;

• (ii) did not have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group; and

• (iii) did not have any interest, either directly or indirectly, in any asset which had been acquired or disposed of by or leased to any member of the Enlarged Group or which were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 December 2015 (being the date to which the latest published audited accounts of the Company were made up).

– V-7 –

APPENDIX V

GENERAL INFORMATION

GENERAL

• (a) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.

• (b) The principal place of business of the Company in Hong Kong is located at Unit 408, 4/F, Citicorp Centre, 18 Whitfield Road, Hong Kong.

• (c) The Hong Kong branch share registrar and transfer office of the Company is Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (d) The company secretary of the Company is Mr. Leung Fuk Cheung, a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.

• (e) In the event of any inconsistency, the English text of this circular shall prevail over the Chinese text.

DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection during normal office hours at Unit 408, 4/F, Citicorp Centre, 18 Whitfield Road, Hong Kong from the date of this circular and up to and including the date of the EGM:

• (a) this circular;

• (b) the Memorandum and Articles of Association of the Company;

• (c) the annual reports of the Company for the two years ended 31 December 2014 and 2015;

• (d) the interim report of the Company for the six months ended 30 June 2016;

• (e) the letter and valuation certificate prepared by LCH (Asia-Pacific) Surveyors Limited and valuation report of the Beijing Property, the text of which is set out in Appendix IV to this circular;

• (f) accountants’ report on the Target Group for the three years ended 31 December 2015 and the six months ended 30 June 2016 prepared by Ernst and Young as set out in Appendix I to this circular;

• (g) the report on the unaudited pro forma statement of financial information of the Enlarged Group prepared by Ernst and Young as set out in Appendix III to this circular;

• (h) the material contracts referred to in the section headed “Material contracts” of this appendix; and

• (i) the letter of consent referred to under the section headed “Experts and consents” in this appendix.

– V-8 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [65 x 44] intentionally omitted <==

ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (“ Meeting ”) of Alltronics Holdings Limited (the “ Company ”) will be held at Unit 2401-02, Admiralty Centre I, 18 Harcourt Road, Hong Kong on 13 January 2017 at 3:00 p.m. for the purpose of considering and, if thought fit, passing with or without modifying the following resolution which will be proposed as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT :

• (a) the conditional sale and purchase agreement (the “ Acquisition Agreement ”) dated 19 September 2016 and entered into among Bonroy International Group Limited as the vendor, Mr. Gu Qi as the guarantor and Sino Growth Holdings Limited, a wholly-owned subsidiary of the Company, as purchaser in relation to the sale and purchase of the entire issued share capital of Bonroy Limited (a copy of which is marked “A” and produced to the Meeting and signed by the chairman of the Meeting for identification purpose) and the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified; and

• (b) any director of the Company be and is hereby authorised to do all such acts and things, to sign and execute all such further documents (in case of execution of documents under seal, to do so by any two directors of the Company or any director of the Company together with the secretary of the Company) and to take such steps as he/she may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Acquisition Agreement and the transactions contemplated thereunder and all other matters incidental thereto or in connection therewith, and to agree to and make such variations, amendments or waivers of any of the matters relating thereto or in connection therewith.”

By Order of the Board Alltronics Holdings Limited Lam Yin Kee Chairman

Hong Kong, 23 December 2016

– EGM-1 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered office: Head office and principal place Cricket Square of business in Hong Kong: Hutchins Drive Unit 408, 4th Floor P.O. Box 2681 Citicorp Centre Grand Cayman KY1-1111 18 Whitfield Road Cayman Islands Hong Kong

Notes:

1. A member of the Company who is entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint a proxy to attend and vote on his behalf.

2. A proxy need not be a member of the Company but must attend in person to represent the member.

3. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.

4. In order to be valid, the form of proxy (enclosed under the circular of the Company dated the same date of this notice) together with any power of attorney or other authority under which it is signed, or a certified copy of such power of attorney or authority, must be deposited with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 22/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time fixed for holding the Meeting, or any adjournment thereof. Delivery of the form of proxy shall not preclude a member of the Company from attending and voting in person at the meeting and in such event, the instrument appointing a proxy shall be deemed to be revoked.

As at the date of this notice, the Board of the Company comprises Mr. Lam Yin Kee, Ms. Yeung Po Wah, Ms. Liu Jing, Mr. Lam Chee Tai, Eric and Mr. So Kin Hung as executive Directors; Mr. Fan, William Chung Yue as non-executive Director; and Mr. Pang Kwong Wah, Mr. Yau Ming Kim, Robert and Mr. Yen Yuen Ho, Tony as independent non-executive Directors.

– EGM-2 –