BBMG Corporation — M&A Activity 2024

Dec 13, 2024

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

BBMG 台灣

北京金隅集團股份有限公司

BBMG Corporation

(a joint stock company incorporated in the People's Republic of China with limited liability)

(Stock Code: 2009)

DISCLOSABLE TRANSACTION

ACQUISITION OF TARGET EQUITY

ACQUISITION

The Board is pleased to announce that on 13 December 2024, the Purchaser, the Seller and the Target Company entered into the Equity Transaction Agreement, pursuant to which the Purchaser has conditionally agreed to acquire and the Seller has conditionally agreed to sell the Target Equity at an aggregate consideration of RMB635,028,600.

Upon completion of the Acquisition, the Target Company will become an indirect non-wholly owned subsidiary of the Company.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Acquisition exceeds 5% but all of the applicable percentage ratios are less than 25%, the Acquisition constitutes a discloseable transaction of the Company and is subject to notification and announcement requirements under Chapter 14 of the Listing Rules.

INTRODUCTION

The Board is pleased to announce that on 13 December 2024, the Purchaser, the Seller and the Target Company entered into the Equity Transaction Agreement, pursuant to which the Purchaser has conditionally agreed to acquire and the Seller has conditionally agreed to sell the Target Equity at an aggregate consideration of approximately RMB635,028,600. Upon completion of the Acquisition, the Target Company will become an indirect non-wholly owned subsidiary of the Company.

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THE EQUITY TRANSACTION AGREEMENT

A summary of the principal terms of the Equity Transaction Agreement is set out below:

Date

13 December 2024

Parties

(i) the Seller;
(ii) the Purchaser; and
(iii) the Target Company.

To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, the Seller, the Target Company and the ultimate beneficial owner of the Target Company are independent of and not connected with the Company and its connected person(s).

Consideration and payment terms

The Consideration is approximately RMB635,028,600 (equivalent to approximately HK$685,830,900). The Consideration is payable in cash in three installments. The details are as follows:

(i) 60% of the Consideration will be paid upon the fulfillment of conditions such as completion of the change of industrial and commercial registration procedure of the Target Company, making new register of members and capital contribution certificate available for inspection, waiver of pre-emptive right by the Seller and issuance of a certificate of no tax arrears by the Target Company.

(ii) 35% of the Consideration will be paid upon the fulfillment of conditions that the Target Company completes personnel optimization according to the established plan, signs the mining rights assignment agreement following the reserve expansion and obtains the new mining license, etc.

(iii) 5% of the Consideration will be paid upon the fulfillment of conditions such as completion of the asset mortgage of Nenjiang Dexin Hydropower Development Co., Ltd. (嫩江德馨水電開發有限公司), a wholly-owned subsidiary of the Target Company, by the Seller and completion of fire safety inspection for the 4,000t/d clinker production line.

The Consideration will be funded by internal resources of the Group.

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Basis of the determination of the Consideration

The Consideration is determined based on the appraised value of all equity interests of the Target Company of approximately RMB635,028,600 as at the Valuation Benchmark Date in the Asset Valuation Report as prepared by the Valuer according to the asset-based approach.

In order to assess the fairness and reasonableness of the Consideration, the Purchaser engaged the Valuer to perform the valuation. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, they are not aware of any relationships or interests between the Valuer and the Group, the Purchaser, or any of their respective substantial shareholders, directors or chief executives, or their respective associates that could reasonably be regarded as relevant to the independence of the Valuer.

Apart from general professional fees payable to Valuer in connection with valuation, no arrangement exists whereby the Valuer will receive any fees or benefits from the Company, the Purchaser, or any of their respective substantial shareholders, directors or chief executives, or any of their respective associates, and the Company is not aware of the existence of or change in any circumstances that would affect their independence.

The Directors have assessed the qualification, experience and the track record of the Valuer and are of the view that the department manager of the Valuer, who is also the signatory of the valuation report, has over 20 years of experience in the valuation and provided valuation services for a wide range of listed companies, is qualified, experienced and competent in performing the valuation.

Main assumptions and valuation parameters adopted in the Asset Valuation Report

The basic assumptions of the Asset Valuation Report include the enterprise going concern assumption, transaction assumption, open market assumption and assumption about the use of an asset for an existing purpose.

The general assumptions of the Asset Valuation Report include that there are no material changes in the social and economic environment of the region where the appraised assets are located; the operators of the enterprise are responsible, and the management is capable of performing its duties and maintaining the normal operation of the enterprise; the industry in which the appraised entity operates maintains a stable development trend, with no significant changes in industry policies, management systems and relevant regulations; based on the existing management method and management level, the scope and mode of operation remain consistent with the current direction; and there are no material changes in interest rates, exchange rates, tax bases and tax rates, and policy-based levies.

The special assumptions of the Asset Valuation Report include that the basic and financial information provided by the appraised entity are true, accurate and complete; there are no material changes in the business model and profit model of the Target Company, and the management’s business plan and additional investment can be realized as scheduled.

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The asset-based approach was adopted in the Asset Valuation Report and the valuation results was selected as the final valuation conclusion. The main valuation parameters of the asset-based approach include: economic life span, land restoration rate, discount rate of mining rights income and income period. The main valuation parameters of the income approach include: income period, gross profit margin, expense ratio during the period, income tax rate and discount rate, etc.

Reasons for selecting the asset-based approach

In accordance with the requirements of asset valuation standards, three approaches can be adopted in the valuation of the enterprise, namely the income approach, market approach and cost approach (asset-based approach):

(1) The income approach refers to the valuation method of determining the value of the valuation subject by capitalizing or discounting the expected income. The specific methods commonly used in the income approach include the dividend discount method and the discounted cash flow method.

(2) The market approach refers to the valuation method of determining the value of the valuation subject by comparing the valuation subject with comparable listed companies or comparable transaction cases.

(3) The cost approach (asset-based approach) refers to the valuation method of determining the value of the valuation subject by reasonably evaluating the value of each on-balance-sheet and identifiable off-balance-sheet asset and liability of the enterprise based on the balance sheet of the appraised entity on the Valuation Benchmark Date.

Upon inquiring domestic listed companies in the same industry with the appraised entity, there are few listed companies that are comparable in terms of product type, business model, enterprise scale, asset allocation, future growth, etc. In addition, there are fewer equity transactions that have similar industry characteristic and business model in the recent proprietary trading market, information such as transaction background and operating financial data of transaction cases cannot be obtained from public channels, therefore it does not have the basic conditions for the adoption of market approach.

The total equity value of the shareholders of the Target Company was appraised mainly by using the asset-based approach and income approach in the Asset Valuation Report, through analysis of the results under the asset-based approach and income approach.

The Target Company belongs to the basic raw materials manufacturing industry, which is significantly influenced by national policies, and its downstream related industries are the real estate and construction industries. The valuation results under the income approach depend on the reliability of the future operational data of the enterprise. Since the enterprise will be affected by various conditions such as macroeconomic factors, market changes and the effective use of assets, there are many uncertainties in the earnings in the future. In comparison, the asset-based approach is

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more prudent as it objectively reflects the market value of the enterprise's net assets from the re-acquisition of assets. Therefore, the Valuer ultimately adopted the valuation conclusion derived from the asset-based approach.

Analysis of the reasons for the difference between the appraised value in the Asset Valuation Report and the carrying value

As of the Valuation Benchmark Date, the appraised value of the entire equity of the Target Company in the Asset Valuation Report was higher than the carrying value of the net assets of the Target Company by 232.98%, amounting to approximately RMB444,318,000, which was mainly due to the following reasons:

1. Fixed assets: Valuation appreciation was approximately RMB238,661,400, representing an appreciation rate of approximately 115.59%, including (1) valuation appreciation of the buildings was approximately RMB35,288,500, representing an appreciation rate of approximately 100.94%; (2) valuation appreciation of the structures and ancillary facilities was approximately RMB57,661,600, representing an appreciation rate of approximately 55.80%; and (3) valuation appreciation of the machinery and equipment was approximately RMB140,563,700, representing an appreciation rate of approximately 208.25%. The appreciation was mainly due to the fact that the labor and materials costs as at the Valuation Benchmark Date increased as compared with that of the project construction period; and the depreciation life for fixed assets stipulated by the accounting policy of the Target Company is significantly shorter than the economic useful life calculated in the valuation.

According to the Asset Valuation Report, the buildings and equipment under the fixed assets were generally appraised by the cost approach. The cost approach is a common method of asset valuation, which is a method of estimating the value of assets based on the replacement cost of the appraised assets in a new state under the current conditions, less the actual depreciation, functional depreciation and economic depreciation of the assets. Based on the latest Notice on Issuing the Reference Opinions on the Settlement of Construction and Installation and Other Works in Heilongjiang Province for the Year of 2022 (《關於發佈黑龍江省2022年度建築安裝等工程結算參考意見的通知》), the unit cost of labor as at the Valuation Benchmark Date increased by 94.34% as compared with that of the construction period; and the price of some of the flooring materials as at the Valuation Benchmark Date increased by 82% as compared with that of the construction period.

1. Intangible assets: Valuation appreciation was approximately RMB195,365,800, representing an appreciation rate of approximately 246.23%, including (1) valuation appreciation of the land use rights was approximately RMB35,500,100, representing an appreciation rate of approximately 122.84%, which was mainly due to the fact that the original policy of lowering land use costs for qualified enterprises has been invalid since 2024, and the preferential policies previously enjoyed by the Target Company could not be included in valuation calculation as at the Valuation Benchmark Date, and the benchmark land price increased as at the Valuation Benchmark Date; and (2) valuation appreciation of the mineral rights was approximately

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RMB159,865,700, representing an appreciation rate of approximately 316.92%, which was mainly due to the fact that the appraised market value of the mineral rights was higher than the proceeds from the assignment of the mineral rights, and the market value was appraised based on the reserve expansion of 44,504,100 tonnes and the expanded production capacity of 1.96 million TPY (tonnes per year), resulting in a higher appreciation of the mineral rights.

The above two reasons contributed to the overall appreciation of the valuation.

The Board’s view on the fairness and reasonableness of the Consideration

The Acquisition is conductive to the Company’s comprehensive and unified management of the Target Group in terms of the development direction, business objectives, risk prevention and control, etc. Therefore, the Acquisition will enable the Company to exercise control over the Target Company and maximize the development of the Target Company, ultimately benefiting from the development of the Target Company. For details, please refer to the paragraph headed “REASONS FOR AND BENEFITS OF THE ACQUISITION” below. Considering that (i) the relevant regulatory authorities require that the Acquisition shall be based on fair market value or independent valuation; (ii) the Board has carefully reviewed the relevant basis, legal basis, assumptions and approaches of the aforementioned valuation, which are common and applied to comparable assets acquired and disposed of by other companies; and (iii) the independence, qualification, experience and the track record of the Valuer, the Board considers that the valuation is a reasonable estimate of the equity interest in the Target Company as at the Valuation Benchmark Date, and the Consideration is appropriate and fair and reasonable, in the interests of the Company and the shareholders as a whole.

Completion

Within 20 working days from the date of execution of the Equity Transaction Agreement, the Target Company shall complete the change of industrial and commercial registration procedure with the market supervision and administration department where it is registered.

Upon Completion of the Acquisition, the Target Company will become an indirect non-wholly owned subsidiary of the Company.

Confirmation of claims and debts

Claims and debts included in the Target Company’s audit report and the Asset Valuation Report shall be finalized by the Purchaser and the Seller on the Completion Date with respect to claims and debts incurred prior to the Completion Date, and the Debt Detail List (《債務明細清單》) shall be signed. The Target Company will no longer accept the debt obligations not be finalized for any reason other than the Purchaser’s failure to finalize the debt obligations within ten (10) days from the Completion Date. The Seller or other third parties will sign a tripartite agreement with the Target Company and creditors to transfer the non-receipt of debt obligations to the Seller or other third parties; during the transition period, the increase in claims and debts arising from the normal operation of the Target

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Company will be recognized by the Purchaser and the Seller one by one on the Completion Date, and the Purchaser and the Seller will sign the Supplemental Detailed List of Claims and Debts (« 債權債務補充明細清單 »).

Profit or loss during the transition period

The Seller shall ensure that the cumulative profit before tax of the Target Company for the period from 31 May 2024 to 31 December 2024 shall not be less than RMB100 million, any part of the profit falling short of RMB100 million shall be made up by the Seller in cash or deducted by the Purchaser from the remaining Consideration, and any part of the profit in excess of RMB100 million shall be attributed to the Seller. The profit for the aforesaid period shall be confirmed by a special audit conducted by an auditing institution jointly recognized by the Purchaser and the Seller as having qualifications in securities and futures related business.

Arrangements for employees

At present, the Target Company has 440 employees, and the Purchaser intends to accept 414 employees upon the Completion. The Seller shall be responsible for making arrangements in accordance with the laws for the remaining 26 employees.

INFORMATION ON THE TARGET COMPANY

The Target Company is a company established under the laws of the PRC with limited liability, and principally engaged in coal mining; mining of mineral resources of non-coal mines (other than rare earth, radioactive minerals and tungsten); manufacturing of cement products; manufacturing of plastic products; sale of plastic products; construction of landscaping projects; sale of recycled resources; sale of building materials and recycling of recycled resources (other than productive scrap metals). The Target Company was established in 1958 and was restructured as a state-owned enterprise in 1999 to become an all-employee-owned enterprise. The Target Company is based in Lingdong District, Shuangyashan City, Heilongjiang Province, with a 4,000t/d cement and clinker production line, a 2.60 million TPY cement grinding mill and a supporting 9MW residual heat power generation unit. Its self-owned mines are going through reserve expansion and other procedures, and it is expected that the producible reserves following the expansion can meet the production demand of the cement and clinker production line for more than 30 years. The production line has a complete set of relevant licenses and completed necessary registrations, and the overall level of construction is also relatively high with a reasonable process portfolio. The main equipment are all from Sinoma, Chengdu LEE JUN, Beijing Power Equipment Group and other first-line brands. In 2013, the production line went into service and operated satisfactorily. The profitability has been stable at a high level since the establishment of the factory. The Target Company has passed management system and product certification in relation to quality, environment, energy, occupational health and safety, and admitted onto the list of companies that assessed with the "Integration of Enterprise Informatisation and Industrialisation Management System", and in 2021, it was identified as a "National Green Factory" by the Ministry of Industry and Information Technology.

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According to the audited financial statements of the Target Company prepared in accordance with the China Accounting Standards for Business Enterprises, the key financial information of the Target Company for the two financial years ended 31 December 2023 and 31 December 2022 is as follows:

	For the year ended 31 December
	2023	2022
	RMB0'000	RMB0'000
	(Audited)	(Audited)
Net profit (before tax)	3,435.16	6,395.36
Net profit (after tax)	1,847.37	4,047.03

According to the audited financial statements of the Target Company, the net assets of the Target Equity as at the Valuation Benchmark Date were approximately RMB190,710,600.

INFORMATION ON THE SELLER

The Seller comprises 48 natural persons and Chinese residents, who are also third parties independent of and not connected with the Company and its connected persons.

INFORMATION ON THE GROUP

The Company is a joint stock company established under the laws of the PRC with limited liability and its A shares and H shares were listed on the Shanghai Stock Exchange and the Main Board of the Stock Exchange, respectively. The principal activities of the Company are investment holding and property investment. The Group is principally engaged in the manufacture of building materials supplemented by property development and property investment and management.

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REASONS FOR AND BENEFITS OF THE ACQUISITION

The Target Company is based in the eastern area of Heilongjiang Province, with its main sales market in this area. Due to the mountainous barriers, the market is relatively closed and less impacted by external cement and clinker, making it a high-price area in Heilongjiang Province and even the entire Northeast region. The eastern area of Heilongjiang Province forms a market synergy with Jidong area of Heilongjiang Province, where the Company is located and whose market covers the central region of Heilongjiang Province, enhancing the Company's influence in the Heilongjiang market. Furthermore, the Acquisition will prompt other local enterprises to engage in deeper cooperative synergy with the Company in this area, achieving a $1+1>2$ effect, which is beneficial for transforming the Company's key market area into a key profit area.

In view of the above, the Board (including the independent non-executive Directors) considers that the terms of the Acquisition are fair and reasonable, and the Acquisition is entered into in the ordinary and usual course of business of the Group and on normal commercial terms and in the interests of the Company and its shareholders as a whole.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Acquisition exceeds $5\%$ but all of the applicable percentage ratios are less than $25\%$, the Acquisition constitutes a discloseable transaction of the Company and is subject to notification and announcement requirements under Chapter 14 of the Listing Rules. No Director has a material interest in the Acquisition and none of them is required to abstain from voting on the relevant Board resolution to approve the Acquisition.

DEFINITIONS

In this announcement, unless the context otherwise requires, the expressions below shall have the following meanings:

"Acquisition" the Purchaser's acquisition of the Target Equity

"Asset Valuation Report" the Asset Valuation Report prepared by the Valuer in respect of the Target Equity

"Board" the board of directors of the Company

"Company" 北京金隅集團股份有限公司 (BBMG Corporation*), a joint stock company established under the laws of the PRC with limited liability, the H shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 02009) and the A shares of which are listed on the Shanghai Stock Exchange (Stock Code: 601992)

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"Completion"
the Target Equity shall be registered under the name of the Purchaser with the industry and commerce administration authorities, and a new business license shall be obtained

"Completion Date"
the date of completion

"connected person(s)", "percentage ratio(s)" and "subsidiary(ies)"
shall have the meaning ascribed thereto in the Listing Rules

"Consideration"
the consideration of the Acquisition

"Director(s)"
director(s) of the Company

"Equity Transaction Agreement"
the equity transaction agreement entered into between the Purchaser, the Seller and the Target Company in respect of the Acquisition on 13 December 2024

"Group"
the Company and its subsidiaries

"HK$"
Hong Kong dollars, the lawful currency of Hong Kong

"Hong Kong"
the Hong Kong Special Administrative Region of the PRC

"Listing Rules"
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

"PRC"
the People's Republic of China and for the purpose of this announcement, excludes Hong Kong, the Macau Special Administrative Region and Taiwan

"Purchaser"
Tangshan Jidong Cement Co. LTD, a joint stock company established in the PRC with limited liability and a non-wholly owned subsidiary of the Company

"RMB"
Renminbi, the lawful currency of the PRC

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“Seller”

48 natural persons and Chinese residents, including Tong Zhaoqi (佟兆啟), Zhang Yongli (張永利), Wang Chunliang (王純良), Liu Chengjie (劉成傑), Wang Hongyan (王鴻豔), Na Zhenkuan (那振寬), Niu Beisheng (牛北生), Liu Qingchang (劉慶長), Pei Shengyun (裴生雲), Wang Hongli (王洪利), Liu Chuanqing (劉傳慶), Liu Wanyou (劉萬友), Gao Jing (高靜), Mo Zhongliang (莫忠良), Wang Mingwei (王明偉), Jiang Qinliang (蔣勤亮), Guan Yunmiao (關雲淼), Yuan Xiaofang (原霄方), Wen Haimei (溫海梅), Wang Jing (王晶), He Xinlong (何新龍), Li Xiaodong (李曉東), Zhou Yuewei (周躍威), Li Jiahe (李家和), Zhang Dechang (張德昌), Wang Changfei (王長飛), Chen Hongku (陳洪庫), Qu Jingsheng (渠敬勝), Han Dan (韓丹), Gao Shan (高山), Tan Chengjian (譚成劍), Li Junyu (李軍育), Wu Yunjian (吳昀鍵), Li Yan (李豔), Mao Guocheng (毛國城), Zhang Xiumin (張秀敏), Xu Tianfu (許天富), Zhang Xin (張新), Liu Xingke (劉興科), Chen Weimin (陳維民), Liu Jianlin (劉建林), Wang Yuanyuan (王媛媛), Gong Lijun (宮立軍), Luo Mingfang (羅明方), Wang Yongqiang (王永強), Liu Yanshan (劉延山), Wang Hongtao (王鴻濤) and Li Maoquan (李茂全), are all existing shareholders of the Target Company

“shareholder(s)”

holder(s) of the shares

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Target Company”

雙鴨山新時代水泥有限責任公司 (Shuangyashan Xinshidai Cement Company Limited*), a company established in the PRC with limited liability

“Target Equity”

100% of equity interest in the Target Company to be acquired by the Purchaser under the Equity Transaction Agreement

“Valuation Benchmark Date”

31 May 2024

“Valuer”

北方亞事資產評估有限責任公司 (Northern Yashi Assets Appraisal Co., Ltd.*)

“%”

per cent.

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For the purpose of this announcement, the translation of RMB into HK$ is based on the approximate exchange rate of RMB1.00 = HK$1.08.

By order of the Board
BBMG Corporation*
Jiang Yingwu
Chairman

Beijing, the PRC, 13 December 2024

As at the date of this announcement, the executive directors of the Company are Jiang Yingwu, Gu Yu, Jiang Changlu and Zheng Baojin; the non-executive directors of the Company are Gu Tiemin and Hao Liwei; and the independent non-executive directors of the Company are Yu Fei, Liu Taigang, Hong Yongmiao and Tam Kin Fong.

• For identification purposes only

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