C&D Property Management Group Co., Ltd - M&A Activity 2018

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 dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Sandi Holdings Limited, you should at once hand this circular together with the enclosed form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or 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.

CHINA SANDI HOLDINGS LIMITED 中國三迪控股有限公司

(incorporated in Bermuda with limited liability)

(Stock Code: 910)

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION – ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF ALL EXCEL INDUSTRIES LIMITED INVOLVING ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; (2) CONNECTED TRANSACTIONS UPON COMPLETION OF THE ACQUISITION; AND

(3) NOTICE OF THE SGM

Financial adviser to the Company

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

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Capitalised terms used in this cover page shall have the same meanings as those defined in this circular.

A letter from the Board is set out from pages 8 to 32 of this circular. A letter from the Independent Board Committee is set out on pages 33 to 34 of this circular. A letter from the Independent Financial Adviser, is set out on pages 35 to 79 of this circular.

A notice convening the SGM to be held at 11:00 a.m. on Wednesday, 16 January 2019 at .Macau Jockey Club (HK Clubhouse), 3/F, East Wing Shun Tak Centre, Merchant Tower, 200 Connaught Road, Central, Hong Kong form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s Hong Kong branch share registrar and transfer office, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as practicable but in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

26 December 2018

		Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		8
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . .		33
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . . . . . . . . . .		35
APPENDIX I	– FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . . . .	I-1
APPENDIX II	– MANAGEMENT DISCUSSION AND ANALYSIS
	OF THE GROUP AND THE TARGET GROUP. . . . . . . . . . . . . . . . .	II-1
APPENDIX III	– ACCOUNTANTS’ REPORT OF THE TARGET GROUP . . . . . . . . . . .	III-1
APPENDIX IV	– UNAUDITED PRO FORMA FINANCIAL
	INFORMATION OF THE ENLARGED GROUP. . . . . . . . . . . . . . . .	IV-1
APPENDIX V	– VALUATION REPORT OF THE PROPERTIES. . . . . . . . . . . . . . . . . .	V-1
APPENDIX VI	– GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGM-1

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“Acquisition”
the acquisition of the Target Share, which represents the entire issued share capital of All Excel, from Primary Partner as contemplated under the Agreement
“Agreement” the sale and purchase agreement dated 21 September 2018 entered into among Grand Supreme, Primary Partner and Mr. Guo in respect of the Acquisition, as amended and supplemented by the Supplement Deed
“All Excel” All Excel Industries Limited (全盛實業有限公司), a company incorporated in the British Virgin Islands with limited liability which is wholly-owned by Primary Partner as at the Latest Practicable Date
“Announcement” the announcement dated 21 September 2018 made by the Company in relation to the Acquisition
“Asset Appraisal”
Asset Appraisal Limited, an independent professional valuer
“associate(s)” has the same meaning as ascribed to it under the Listing Rules
“Baoji Property Project” the property project of the Target Group located in Baoji City, Shaanxi Province, the PRC
“Baoji Sandi”
Baoji Sandi Real Estate Development Co., Limited (寶雞三迪房地產開發有限公司), a company established in the PRC with limited liability which is wholly-owned by Fuzhou Gaojia
“Board”
the board of Directors
“Business Day” a day on which banks in Hong Kong and PRC are open for normal business (excluding Saturday, Sunday, public holidays in Hong Kong or PRC or days on which a tropical cyclone signal number 8 or above or black rain storm warning is hoisted at any time between 9:00 a.m. to 12:00 noon and which has not been lowered by 12:00 noon on the same day)

“Company” China Sandi Holdings Limited (Stock Code: 910), a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange

– 1 –

DEFINITIONS

“Completion”
the completion of the Acquisition pursuant to the terms and conditions of the Agreement
“Connected Transactions”
has the meaning ascribed to it in the paragraph headed “Connected Transactions Upon Completion of the Acquisition” in the section headed “Letter from the Board” in this circular
“controlling shareholder” has the meaning ascribed to it in the Listing Rules
“Consideration”
the total consideration of the Acquisition being an amount of HK$1,500 million, which shall be satisfied as to HK$200 million by way of cash, as to HK$600 million by way of the issue of the Promissory Note, as to HK$200 million by the issue of the Consideration Shares and as to HK$500 million by the issue of the Convertible Bonds
“Consideration Shares”
485,436,893 Shares to be issued by the Company at HK$0.412 per Consideration Share for settling part of the Consideration
“Conversion Share(s)”
the Share(s) to be allotted and issued upon exercise of the rights attached to the Convertible Bonds to convert the principal amount (or any part(s) thereof) of the Convertible Bonds into Shares pursuant to the terms and conditions of the Convertible Bonds
“Convertible Bonds” the convertible bonds in the principal amount of HK$500 million to be issued by the Company to Primary Partner or its nominee(s) to settle part of the Consideration and are convertible into Conversion Shares at an initial conversion price of HK$0.412 per Conversion Share pursuant to the terms and conditions of the Agreement
“Director(s)”
the director(s) of the Company
“Enlarged Group”

the Group as enlarged by the Target Group immediately upon Completion

– 2 –

DEFINITIONS

“Fuzhou Gaojia” Fuzhou Gaojia Real Property Development Company Limited (福州高佳房地產開發有限公司), a company established in the PRC with limited liability and is wholly-owned by Guoshi Investment
“Fujian Property Project” the property project of the Target Group located in Fujian Province, the PRC
“Grand Supreme” Grand Supreme Limited, a company incorporated in the British Virgin Islands with limited liability which is whollyowned by the Company as at the Latest Practicable Date
“Group” the Company and its subsidiaries
“GFA” gross floor area
“Guoshi Properties” Guoshi Properties Limited (郭氏置業有限公司), a company incorporated in Hong Kong with limited liability which is wholly-owned by All Excel
“Guoshi Investment” Guoshi Investment Group Company Limited (郭氏投資集團有限公司), a company established in the PRC with limited liability which is wholly-owned by Guoshi Sandi
“Guoshi Sandi” Guoshi Sandi (Fujian) Real Property Development Company Limited (郭氏三迪(福建)置業有限公司), a company established in the PRC with limited liability which is whollyowned by Guoshi Properties
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” the independent board committee (comprising all the independent non-executive Directors) which has been established by the Board to make recommendation to the Independent Shareholders on the Agreement and the transactions contemplated thereunder (including the Connected Transactions)
“Independent Financial Adviser”/“Messis Capital”
Messis Capital Limited, a licensed corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Agreement and the transactions contemplated thereunder (including the Connected Transactions)

– 3 –

DEFINITIONS

“Independent Shareholders”
Shareholders other than United Century, King Partner and their respective associates and other Shareholders who have a material interest in the Acquisition
“Independent Third Party(ies)”
third party(ies) independent of the Company and its connected persons (as defined under the Listing Rules)
“Initial Conversion Price”
HK$0.412 per Conversion Share, being the initial conversion price of the Convertible Bonds, subject to adjustments as agreed in the Agreement
“Jilin First”
Jilin First Real Estate Development Co., Limited (吉林首創房地產開發有限公司), a company established in the PRC with limited liability which is owned by Fuzhou Gaojia as to 51%
“Jilin Property Project” the property project of the Target Group located in Jilin Province, the PRC
“King Partner” King Partner Holdings Limited, a company incorporated in the British Virgin Islands with limited liability which is whollyowned by Mr. Guo as at the Latest Practicable Date
“Last Trading Day” 21 September 2018, being the last day on which the Shares were trade on the Stock Exchange prior to publication of the Announcement
‘Latest Practicable Date” 21 December 2018, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date”
31 March 2019 or such other date as otherwise agreed in writing by the parties to the Agreement
“Mr. Guo”/“Guarantor”
Mr. Guo Jiadi, an executive Director, the chairman of the Board and a controlling shareholder of the Company
“Ms. Amika Guo”
Ms. Amika Lan E Guo, an executive Director and the daughter of Mr. Guo
“Ms. Shum”
Ms. Shum Xi Xia, the sister-in-law of Mr. Guo

– 4 –

DEFINITIONS

“Nanping Sandi” Nanping Sandi Real Estate Development Co., Limited (南平三迪房地產開發有限公司), a company established in the PRC with limited liability which is owned by Fuzhou Gaojia as to 51%
“Primary Partner” Primary Partner International Limited, a company incorporated in the British Virgin Islands with limited liability which is wholly-owned by Mr. Guo as at the Latest Practicable Date
“PRC” the People’s Republic of China “Promissory Note” the promissory note in the principal amount of HK$600 million to be issued by the Company to settle part of the Consideration
“Properties” the real properties owned by the Target Group “Property Projects” Shanghai Property Project, Fujian Property Project, Baoji Property Project and Jilin Property Project
“SFO” the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong)
“SGM” the special general meeting of the Company to be convened and held for the Independent Shareholders to consider and, if thought fit, approve the resolution(s) in respect of the Agreement and the transactions contemplated thereunder, including the issue of the Consideration Shares and the Convertible Bonds under the Specific Mandate and the Connected Transactions
“Shanghai Gaojia” Shanghai Gaojia Real Estate Development Co., Limited (上海高佳房地產開發有限公司), a company established in the PRC with limited liability which is wholly owned by Fuzhou Gaojia as at the Latest Practicable Date
“Shanghai Property Project” the property project of the Target Group located in Shanghai City, the PRC
“Shanghai Sandi” Shanghai Sandi Real Estate Development Co., Limited (上海三迪房地產開發有限公司), a company established in the PRC with limited liability which is wholly-owned by Fuzhou Gaojia

– 5 –

DEFINITIONS

“Shareholder(s)” holder(s) of the Shares “Shares” the shares of the Company “Specific Mandate” the specific mandate to be granted by the Shareholders at the SGM to allot and issue the Consideration Shares and the Conversion Shares

“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Supplemental Deed” the supplemental deed dated 21 December 2018 entered into among Grand Supreme (as purchaser), Mr. Guo (as guarantor) and Primary Partner (as vendor) in relation to the addition of various terms to the Agreement
“Takeovers Code” the Hong Kong Code on Takeovers and Mergers
“Target Group” All Excel and its subsidiaries which are engaged in property investment and/or property development after completion of the reorganisation as stipulated in the Agreement
“Target Share” 1 share of US$1 of All Excel held by Primary Partner, representing the only issued share of All Excel as at the Latest Practicable Date
“United Century” United Century International Limited, a company incorporated in the British Virgin Islands with limited liability which is wholly-owned by Mr. Guo as at the Latest Practicable Date
“Wuyishan Gaojia” Wuyishan Gaojia Real Estate Dvelopment Co., Limited (武夷山高佳房地產開發有限公司), a company established in the PRC with limited liability which is owned by Fuzhou Gaojia as to 51%

– 6 –

DEFINITIONS

“Yongtai Sandi” Yongtai Sandi Real Estate Development Co., Limited (永泰三迪房地產開發有限公司), a company established in the PRC with limited liability which is wholly-owned by Fuzhou Gaojia “%” per cent.

For reference, the names of the PRC established companies or entities (if any) and the PRC laws and regulations (if any) have generally been included in this circular in both Chinese and English languages and in the event of inconsistency, the Chinese language shall prevail.

– 7 –

LETTER FROM THE BOARD

CHINA SANDI HOLDINGS LIMITED 中國三迪控股有限公司

(incorporated in Bermuda with limited liability)

(Stock Code: 910)

Executive Directors: Registered Office: Mr. Guo Jiadi (Chairman) Clarendon House Ms. Amika Lan E Guo 2 Church Street Mr. Wang Chao Hamilton HM 11 Bermuda

Non-executive Director:

Dr. Wong Yun Kuen

Independent Non-executive Directors:

Mr. Chan Yee Ping, Michael Mr. Yu Pak Yan, Peter

Head office and principal place of business: Unit 3309, West Tower, Shun Tak Centre, 168-200 Connaught Road Central Sheung Wan, Hong Kong

Ms. Ma Shujuan

Mr. Zheng Yurui

26 December 2018

To the Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION – ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF ALL EXCEL INDUSTRIES LIMITED INVOLVING ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; AND (2) CONNECTED TRANSACTIONS UPON COMPLETION OF THE ACQUISITION

– 8 –

LETTER FROM THE BOARD

INTRODUCTION

As disclosed in the Announcement, on 21 September 2018, Grand Supreme (as purchaser), Primary Partner (as vendor) and Mr. Guo (as guarantor) entered into the Agreement, pursuant to which Grand Supreme has conditionally agreed to acquire, and Primary Partner has conditionally agreed to sell the Target Share, which represents the entire issued share capital of All Excel, at the Consideration of HK$1,500 million. The Target Group is principally engaged in the development, sale and investment of properties in the PRC.

The purpose of this circular is to provide you with, among other things, (i) further details of the Agreement and the transactions contemplated thereunder; (ii) the accountants’ reports of the Target Group; (iii) letter from the Independent Board Committee; (iv) letter from the Independent Financial Adviser; (v) the property valuation report; (vi) the pro forma financial information of the Enlarged Group; (vii) the details of the Corporate Guarantees; (viii) the notice of the SGM; and (ix) other information as required under the Listing Rules for the purpose of considering and approving the Agreement and the transactions contemplated thereunder and the Connected Transactions.

(1) THE ACQUISITION

On 21 September 2018, Grand Supreme (as purchaser), Primary Partner (as vendor) and Mr. Guo (as guarantor) entered into the Agreement, pursuant to which Grand Supreme has conditionally agreed to acquire, and Primary Partner has conditionally agreed to sell the Target Share, which represents the entire issued share capital of All Excel, at the Consideration of HK$1,500 million. The Target Group is principally engaged in the development, sale and investment of properties in the PRC.

THE AGREEMENT AS SUPPLEMENTED BY THE SUPPLEMENTAL DEED

The principal terms of the Agreement (as supplemented by the Supplemental Deed) are summarised as follows:

Date

21 September 2018

Parties

(1) Grand Supreme, as purchaser;
(2) Mr. Guo, as guarantor; and
(3) Primary Partner, as vendor.

– 9 –

LETTER FROM THE BOARD

Assets to be acquired

The asset to be acquired under the Agreement is the Target Share, which represents the entire issued share capital of All Excel, which indirectly holds the entire equity interest in Fuzhou Gaojia which in turn through its subsidiaries owns the Properties. The substance of the Acquisition is the principal property assets held by the Target Group, comprising (i) the Shanghai Property Project; (ii) the Fujian Property Project; (iii) the Baoji Property Project; and (iv) the Jilin Property Project.

Please refer to the paragraphs headed “Information on the Target Group” below for details of the Properties.

Consideration

The Consideration for the Acquisition is HK$1,500 million and shall be satisfied at Completion as follows:

(i) payment of cash amount of HK$200 million to Primary Partner (or its nominee(s));
(ii) issue of the Promissory Note in principal amount of HK$600 million to Primary Partner (or its nominee(s));
(iii) issue of 485,436,893 Consideration Shares at HK$0.412 per Consideration Share (worth HK$200 million) to Primary Partner (or its nominee(s)); and
(iv) issue of the Convertible Bonds in principal amount of HK$500 million to Primary Partner (or its nominee(s)).

The Consideration was determined after arm’s length negotiation between Primary Partner and the Company with reference to, among other things, (i) the unaudited combined net asset value of the Target Group as at 31 December 2017; (ii) the valuation of the Properties of approximately RMB7,385 million prepared by a professional valuer based on market approach; and (iii) a certain discount to the unaudited combined net asset value of the Target Group as at 31 December 2017 as adjusted by the preliminary property valuation.

– 10 –

LETTER FROM THE BOARD

Conditions precedent

Completion is conditional upon the fulfilment (or, if applicable, the waiver) of the following conditions:

(i) Grand Supreme being satisfied with the results of the due diligence review on the assets, liabilities, operations and affairs of the Target Group;
(ii) all warranties given by Primary Partner in the Agreement remaining true, correct and complete in all respects;
(iii) there has been no material adverse change to the Target Group which may affect the transactions contemplated under the Agreement since the date of the Agreement;
(iv) all relevant third party consents, permits, approvals, authorisations and waivers which are necessary or appropriate for the entering into and consummation of the transactions contemplated under the Agreement being obtained;
(v) all material third party consents, permits, approvals, authorisations, waivers and registration certificate which are necessary for the Target Group to carry out their existing businesses under the relevant law and regulations being obtained;
(vi) the Stock Exchange having granted the listing of, and permission to deal in, the Consideration Shares and the Conversion Shares to be issued upon exercise of the conversion right under the Convertible Bonds;
(vii) the passing of the necessary resolution(s) by the Independent Shareholders at the SGM to approve the Agreement and the transactions contemplated thereunder (including but not limited to the allotment and issuance of the Consideration Shares and the Convertible Bonds under the Specific Mandate) and the Connected Transactions;
(viii) the Target Group having fully settled the relevant debt and Fuzhou Gaojia having retrieved the remaining 45.45% equity interest of Shanghai Gaojia; and
(ix) the reorganisation of the Target Group as stipulated in the Agreement being completed.

– 11 –

LETTER FROM THE BOARD

Save for conditions (iv), (vi) and (vii) above, all of the above conditions precedent can be waived by Grand Supreme. In the event that the conditions precedent to the Agreement are not fulfilled or waived by the Long Stop Date or such later date as agreed in writing between the parties to the Agreement, the Agreement shall be terminated and the parties shall cease to have any obligations thereunder save for any antecedent breach.

As at the Latest Practicable Date, condition (viii) has been fulfilled.

Guarantee

The Guarantor unconditionally and irrevocably guarantees to Grand Supreme to procure the due and punctual performance by Primary Partner of all the obligations, commitments and undertakings contained in or assumed by it under the Agreement and the warranties given or provided by Primary Partner to Grand Supreme under the Agreement are true, accurate and correct. The Guarantor also undertakes to indemnify and keep effectively indemnified Grand Supreme or the Target Group against all liabilities, losses, costs, expenses and damages against the Target Group due to any events occurred or committed by the Target Group prior to the Completion.

Completion

Completion shall take place within the fifth Business Day after all the conditions precedent under the Agreement have been fulfilled or waived by Grand Supreme (as the case may be) (or such other date as agreed by the parties to the Agreement).

Upon Completion, All Excel will become an indirect wholly owned subsidiary of the Company and the financial statements of the Target Group will be consolidated into the financial statements of the Group.

ISSUE OF THE CONSIDERATION SHARES

The 485,436,893 Consideration Shares shall be allotted and issued pursuant to the Specific Mandate.

The Consideration Shares represent (i) approximately 10.9% of the existing share capital of the Company as at the Latest Practicable Date; and (ii) approximately 9.8% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

– 12 –

LETTER FROM THE BOARD

The issue price of HK$0.412 per Consideration Share represents (i) a discount of approximately 9.5% to the closing price of HK$0.455 per Share as quoted on the Stock Exchange on the date of the Agreement; (ii) a discount of approximately 9.8% to the average of the closing prices of HK$0.457 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Date; (iii) a discount of approximately 9.7% to the average of the closing prices of HK$0.4565 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Date; and (iv) a discount of approximately 7.4% to the closing price of HK$0.445 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The issue price was determined after arm’s length negotiation between Primary Partner and the Group with reference to a discount of approximately 10% to 5-day average closing prices of the Shares as quoted on the Stock Exchange up to and including the date of the Agreement. The Directors consider that the aforesaid issue price is fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

The aggregate nominal value of the Consideration Shares (with a par value of HK$0.01 each) will be HK$4,854,369.

The Company will apply to the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

ISSUE OF THE CONVERTIBLE BONDS

The Convertible Bonds shall be issued by the Company at Completion to settle part of the Consideration. The principal terms of the Convertible Bonds are as follows:

Issuer : The Company Subscriber : Primary Partner (or its nominee(s)) Principal amount : HK$500 million Maturity Date : The day falling the fifth anniversary of the date of issue of the Convertible Bonds, provided that if such date is not a Business Day, the Business Day immediately after such date Interest : 1% per annum, payable annually in arrears

– 13 –

LETTER FROM THE BOARD

Conversion rights

Conversion price

: Holder of the Convertible Bonds will have the right, at any time during the period commencing on the date of issue of the Convertible Bonds and ending on the fifth anniversary of the date of issue of the Convertible Bonds, to convert the Convertible Bonds in whole or in part of the outstanding principal amount of the Convertible Bonds into Conversion Shares, provided that the exercise of the conversion rights will not (i) result in the Company being in breach of any provision of the Listing Rules, including the requirement to maintain any prescribed minimum percentage of the issued share capital of the Company held by the public, or (ii) trigger a mandatory offer obligation under Rule 26 of the Takeovers Code on the part of the holder(s) of the Convertible Bonds which exercised the conversion rights
: The Initial Conversion Price shall be HK$0.412 per Conversion Share, subject to adjustment arising from alteration of the nominal amount of the Shares caused by share consolidation, share subdivision, rights issue or any other reasons as provided in the terms and conditions of the Convertible Bonds.

The Initial Conversion Price of HK$0.412 per Conversion Share represents (i) a discount of approximately 9.5% to the closing price of HK$0.455 per Share as quoted on those Stock Exchange on the date of the Agreement; (ii) a discount of approximately 9.8% to the average of the closing prices of HK$0.457 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Date; (iii) a discount of approximately 9.7% to the average of the closing prices of HK$0.4565 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Date; and (iv) a discount of approximately 7.4% to the closing price of HK$0.445 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

– 14 –

LETTER FROM THE BOARD

The Initial Conversion Price was determined after arm’s length negotiation between Primary Partner and the Group with reference to a discount of approximately 10% to the 5-day average closing prices of the Shares as quoted on the Stock Exchange up to and including the date of the Agreement. The Directors consider that the Initial Conversion Price is fair and reasonable and in the interests of the Company and its Shareholders as a whole.

Conversion Shares
: Based on the Initial Conversion Price of HK$0.412 per Conversion Share, a maximum of 1,213,592,233 Conversion Shares will be allotted and issued upon exercise of the conversion rights attaching to the Convertible Bonds in full. The 1,213,592,233 Conversion Shares represent approximately 27.2% of the existing issued share capital of the Company as at the Latest Practicable Date and represent approximately 19.7% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares and the Conversion Shares in full.

The aggregate nominal value of the Conversion Shares (with a par value of HK$0.01 each) will be HK$12,135,922.

The Conversion Shares shall be allotted and issued pursuant to the Specific Mandate.

Redemption

: The Company may voluntarily redeem all or any part of the Convertible Bonds at any time following the issue of the Convertible Bonds and prior to the maturity date by repaying the holder(s) of the Convertible Bonds all outstanding principal amount together with unpaid interest accrued thereon up to the date of voluntary redemption. Holder(s) of the Convertible Bonds has/have no right to require the Company to redeem the Convertible Bonds, whether on the maturity date or otherwise.

– 15 –

LETTER FROM THE BOARD

Transferability

Transferability : Holder(s) of the Convertible Bonds may transfer the Convertible Bonds to any other persons, subject to compliance with relevant requirements of Listing Rules where applicable. Voting rights : Holder(s) of the Convertible Bonds shall not be entitled to attend or vote at any meetings of the Company by reason only of it being a holder of the Convertible Bonds. Listing : No application will be made by the Company for the listing of the Convertible Bonds on the Stock Exchange or any other stock exchange.

The Company will apply to the Stock Exchange for the listing of and permission to deal in the Conversion Shares to be allotted and issued upon exercise of the conversion rights attached to the Convertible Bonds.

Status : The Convertible Bonds constitute direct, unsubordinated, and unsecured obligations of the Company and shall at all times rank pari passu among themselves and with all existing and future unsubordinated and unsecured obligations, and shall entitle holder(s) thereof to receive repayment in priority over the Shareholders.

ISSUE OF THE PROMISSORY NOTE

The Promissory Note shall be issued by the Company at Completion to settle part of the Consideration. The principal terms of the Promissory Note are as follows:

Issuer : The Company Subscriber : Primary Partner (or its nominee(s)) Principal amount : HK$600 million Maturity Date : The day falling the fifth anniversary of the date of issue of the Promissory Note, provided that if such date is not a Business Day, the Business Day immediately after such date

– 16 –

LETTER FROM THE BOARD

Interest

: 3% per annum for the first and second years after the date of issuance, 4.5% per annum for the third and fourth years after the date of issuance and 6% per annum for the fifth year after the date of issuance, payable annually in arrears

Repayment

: The principal balance will be due and payable on the maturity date

Early redemption

: The Company has the discretion to repay all or part of the principal balance at any time prior to the maturity date by giving 10 Business Day’s prior written notice to holder(s) of the Promissory Note
Transferability : Holder(s) of the Promissory Note may transfer the Promissory Note to any other persons

INFORMATION ON THE TARGET GROUP

All Excel is a company incorporated in the British Virgin Islands with limited liability. All Excel holds the entire equity interest in Guoshi Properties which in turn owns the entire equity interest in Guoshi Sandi. Guoshi Sandi, through its direct wholly-owned subsidiary, Guoshi Investment, holds the entire equity interests in Fuzhou Gaojia. All Excel, Guoshi Properties, Guoshi Sandi, Guoshi Investment and Fuzhou Gaojia are principally engaged in the businesses of investment holding.

Fuzhou Gaojia, through its subsidiaries incorporated in the PRC, is engaged in property development, holding of property for investment, sale and rental purpose mainly in the Shanghai, Fujian Province, Shaanxi Province and Jilin Province. The following diagrams depict the group structure of the Target Group as at the Latest Practicable Date and immediately after the Completion:

– 17 –

LETTER FROM THE BOARD

Shareholding structure of the Target Group as at the Latest Practicable Date

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Mr. Guo
100%
Primary Partner
100%
All Excel
100%
Guoshi Properties
100%
Guoshi Sandi
100%
Guoshi
Investment
100%
Fuzhou Gaojia
100% 100% 51% 100% 100% 51% 51% 51-100%
Shanghai
Gaojia Shanghai Sandi Nanping Sandi Yongtai Sandi SandiBaoji Jilin First WuyishanGaojia Other subsidiaries (Note 2)
(Note 1)
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Notes:

(1) Due to debt arrangement, 45.45% equity interest in Shanghai Gaojia has been held by an Independent Third Party as at the Agreement date. Upon repayment of debts, such 45.45% equity interest would be transferred back to Fuzhou Gaojia, which will then wholly own Shanghai Gaojia. The aforesaid transfer is one of the conditions precedent to the Acquisition and has been completed as at the Latest Practicable Date.
(2) Other subsidiaries of Fuzhou Gaojia, which are neither engaged in property development and property investment business nor form part of the business to be acquired under the Acquisition, will be transferred out of the Target Group through a reorganisation before the Completion.

– 18 –

LETTER FROM THE BOARD

Shareholding structure of the Target Group immediately after the Completion

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Company
100%
Grand Supreme
100%
All Excel
100%
Guoshi Properties
100%
Guoshi Sandi
(PRC)
100%
Guoshi Investment
100%
Fuzhou Gaojia
100% 100% 51% 100% 100% 51% 51%
Shanghai Shanghai Nanping Yongtai Baoji Jilin First Wuyishan
Gaojia Sandi Sandi Sandi Sandi Gaojia
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– 19 –

LETTER FROM THE BOARD

The following table sets out certain information on the Property Projects held by the Target Group:

Remaining Construction GFA/Planned Construction GFA

												Property
												Number
								Valuation	Book value	Equity		in
							Estimated	as at	as at	interests		Valuation
			Office/		Others		costs to	30 Sep	31 Dec	attributable	Completion/	Report
		Residential	Hotel	Retail	(Note 1)	Total	completion	2018	2017	to Target	Estimated	(Appendix
Location	Project	(sq.m.)	(sq.m.)	(sq.m.)	(sq.m.)	(sq.m.)	(RMB’M)	(RMB’M)	(RMB’M)	Group	completion	V)
Shanghai	Sandi Manhattan
Property	-Phase I	–	4,492	195	–	4,687	N/A	134	870	100%	Completed	11
	-Phase IIA	–	58,623	4,998	39,046	102,667	500	870		100%	Sep 2019	19
	-Phase IIB -Phase III	– –	73,073 64,554	36,081 6,237	61,096 45,027	170,250 115,818	900 1,200	1,440 780	2,596	100% 100%	Sep 2019 Dec 2021	19 24
Fujian Property	-Gaojiayuan Kaixuan Fengdan	– 863	– –	– –	3,655 3,772	3,655 4,635	N/A N/A	13 49	79	100% 100%	Completed Completed	17 9
		7,780	2,813	–	2,715	13,308	N/A	233	225	100%	Completed	18
Project	-Xicheng Fengdan	117,818	–	2,892	44,033	164,743	204	695	130	51%	Jun 2020	22
	Jiangshan Shore	181,507	–	–		181,507	TBD	216	156	100%	TBD	25
	-Wuyishan	–	197,811	–		197,811	TBD	123	–	51%	TBD	26
	(Note 2)
Baoji	Sandi Century
Property	New City
Project	-Phase I	15,919	42,381	146,169	6,869	211,338	N/A	1,742		100%	Completed	1 to 8, 12
									2,003			to 16
	-Phase II	462,575	7,800	37,101	157,943	665,419	1,200	980		100%	TBD	20 &21
Jilin	Shouchuang	88,478	–	3,320	5,627	97,425	204	110	81	51%	late 2019	10 &23
Property	International
Project	Plaza
Total		874,940	451,547	236,993	369,783	1,933,263	4,208	7,385	6,140

Notes: (1) Others mainly comprise car parks and ancillary facilities.

(2) Jiangshan Shore and Wuyishan Project represent land bank without any development plan at present.

– 20 –

LETTER FROM THE BOARD

(A) Shanghai Property Project

The Sandi Manhattan Project is situated in the prime location of Shanghai Songjiang District, the PRC. The project involves (a) (Phase I) a site area of 33,663 sq.m. with a developable GFA of 125,190 sq.m., which has been completed and a majority of the property units have been sold; (b) (Phase II) a mixed-use development complex and an office and shopping complex, with a total site area of 70,540 sq.m. and a planned construction GFA of 272,917 sq.m. respectively, the construction work of which has been commenced and is expected to be completed in September 2019; and (c) (Phase III) a vacant land of 33,710 sq.m. with a developable GFA of 70,791 sq.m. plus basement area of 45,027 sq.m., which is planned to be developed into a 15-storey hotel, office and arcade and the construction work is expected to be completed in December 2021. As at the Latest Practicable Date, project area of 88,626 sq.m. of Phase I of the Sandi Manhattan Project has been sold or pre-sold.

(B) Fujian Property Project

Gaojiayuan and Kaixuan Fengdan have been completed and most of the property units have been sold and handed over to buyers. As at the Latest Practicable Date, the total unsold project construction GFA was 21,598 sq.m. which mainly represents a hotel, a restaurant, a kindergarten and certain carpark area held for lease.

Xicheng Fengdan is located in Xiqu Eco-City involving a site area of 66,707 sq.m. with a plot ratio of 1.81 and a green space ratio of 35%. The land will be developed into 26 blocks of residential and commercial property with a total construction GFA of 164,743 sq.m., of which 51,689 sq.m. residential units have been pre-sold. The project is currently under construction and is expected to be completed by June 2020.

Jianshan Shore is situated in Yongtai County, Fujian Province, the PRC. The project has a site area of 173,605 sq.m. with a planned construction GFA of 181,507 sq.m. It is a low-rise residential and hotel development project, offering a convenient, beautiful scenery and natural living environment. Construction work is yet to be commenced.

Wuyishan is situated in Wuyishan City, Fujian Province, the PRC. The project has a planned construction GFA of 197,811 sq.m. Construction work is yet to be commenced.

(C) Baoji Property Project

Sandi Century New City is located in Jintai district, Baoji City, Shaanxi Province, involving a site area of 235,955 sq.m. planned for a residential and commercial development of which 211,338 sq.m. was completed and 665,419 sq.m. is under construction. As at the Latest Practicable Date, project area of 220,144 sq.m. has been sold or pre-sold.

– 21 –

LETTER FROM THE BOARD

(D) Jilin Property Project

Shouchuang International Plaza has a site area of 67,362 sq.m. which is planned for a residential/hotel development of 2 phases. Phase 1 of the development with a project area of 87,680 sq.m. was completed and Phase 2 with a project area of 93,283 sq.m. is still under construction which is expected to be completed by late 2019. As at the Latest Practicable Date, project area of 75,226 sq.m. has been sold or pre-sold.

The Property Projects are self-developed by the Target Group. As at the Latest Practicable Date, the Property Projects that are currently under construction are (i) Phases II & III of the Sandi Manhattan Project, (ii) Xicheng Fengdan, (iii) Sandi Century New City and (iv) Shouchuang International Plaza. As the Target Group has already obtained certain presales permits for these projects, the Target Group intends to self-finance these projects by utilizing proceeds to be generated from the pre-sales of properties. Based on the sales plans of the Target Group, it is expected that a saleable area of approximately 352,684 sq.m. (representing approximately 36.6% of the total saleable construction GFA of 964,413 sq.m.) of the Property Projects that are currently under development will be pre-sold during the two years ending 31 December 2020, an aggregate generating for proceeds of approximately RMB4,758 million, which shall be sufficient to cover the expected costs to the completion of the Property Projects totaling approximately RMB4,208 million, representing an average selling price of RMB13,491 per sq.m. Therefore, no fund is expected to be injected by the Group into these projects.

Financial information of the Target Group

Set out below are the audited financial information of the Target Group prepared in accordance with Hong Kong Financial Reporting Standards for each of the two years ended 31 December 2016 and 2017 as extracted from Appendix III to this circular:

	For the year	ended
	31 December
	2017	2016
	(RMB million)	(RMB million)
Revenue	863.9	2,144.2
Profit before taxation	240.3	620.8
Profit after taxation	177.0	377.9

The audited net asset value of the Target Group was RMB1,524.1 million as at 30 June 2018.

– 22 –

LETTER FROM THE BOARD

INFORMATION ON THE PARTIES TO THE AGREEMENT

Grand Supreme and the Group

Grand Supreme is an investment holding company directly wholly-owned by the Company. The Group is principally engaged in property development and property investment business. The property development projects are mainly located in Shaanxi Province and Fujian Province, the PRC and the property investment projects are mainly located in Fujian Province, the PRC.

Primary Partner

Primary Partner is a company incorporated in the British Virgin Islands with limited liability, and is wholly held by Mr. Guo as at the Latest Practicable Date, hence a connected person of the Company. Primary Partner is principally engaged in investment holding.

Mr. Guo

Mr. Guo is a merchant with over 18 years’ experience in property development and property investment. He is also an executive Director, the chairman of the Board and a controlling Shareholder of the Company.

EFFECT ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

The shareholding in the Company (a) as at the Latest Practicable Date; (b) immediately after issue of the Consideration Shares; and (c) immediately after issue of the Consideration Shares and full conversion of the Convertible Bonds (assuming no further Shares will be issued or repurchased from the Latest Practicable Date up to the date upon which the Convertible Bonds are fully converted) are as follows:

– 23 –

LETTER FROM THE BOARD

Shareholders United Century_(Note) King Partner(Note)_ Primary Partner Mr. Guo and his concerted parties Public shareholders Total	As at the Latest Practicable Date No. of Shares Approx % 2,581,054,801 57.9 320,414,201 7.2 – – 2,901,469,002 65.1 1,557,432,086 34.9 4,458,901,088 100.0	After issue of the Consideration Shares No. of Shares Approx % 2,581,054,801 52.2 320,414,201 6.5 485,436,893 9.8 3,386,905,895 68.5 1,557,432,086 31.5 4,944,337,981 100.0	After (i) issue of the Consideration Shares and (ii) full conversion of the Convertible Bonds No. of Shares Approx % 2,581,054,801 41.9 320,414,201 5.2 1,699,029,126 27.6 4,600,498,128 74.7 1,557,432,086 25.3 6,157,930,214 100.0	After (i) issue of the Consideration Shares and (ii) full conversion of the Convertible Bonds No. of Shares Approx % 2,581,054,801 41.9 320,414,201 5.2 1,699,029,126 27.6 4,600,498,128 74.7 1,557,432,086 25.3 6,157,930,214 100.0
				74.7 25.3
				100.0

Note: Each of United Century and King Partner is a corporation controlled by Mr. Guo. By virtue of the SFO, Mr. Guo is deemed to be interested in the Shares owned by each of United Century and King Partner.

The Acquisition will not result in a change in control of the Company.

– 24 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is principally engaged in the property development and property investment business in the PRC. In view of the continued growth of the PRC economy, the Group is optimistic about the property market in the PRC in the long run, and believes that with the qualification of Class 1 Real Estate Development Enterprise（房地產開發企業一級資質）attained by Fuzhou Gaojia, the Acquisition can enhance the scope of the property development projects in which the Group is allowed to participate in the future.

The Directors are also of the view that the Acquisition provides an attractive opportunity for the Company to (i) diversify its property development and property investment business into different regions in the PRC and (ii) strengthen the earnings and financial position of the Group.

Taking into account the above, the Directors (including the independent non-executive Directors whose views are contained in the letter from the Independent Board Committee) consider that the terms of the Agreement are fair and reasonable and on normal commercial terms and the entering into of the Agreement is in the interests of the Company and its Shareholders as a whole.

FINANCIAL EFFECTS OF THE ACQUISITION

Assets and liabilities

Based on the unaudited pro forma financial information on the Enlarged Group as set out in Appendix IV to this circular (the “ Pro Forma Financial Information ”), the unaudited pro forma consolidated total assets of the Enlarged Group as at 30 September 2018 would increase from approximately RMB6,637.3 million to approximately RMB15,782.9 million and the unaudited pro forma consolidated total liabilities of the Enlarged Group as at 30 September 2018 would increase from approximately RMB3,886.2 million to approximately RMB12,485.6 million assuming the Acquisition had taken place on 30 September 2018.

Earnings

Following the Completion, the Target Group will become a wholly-owned subsidiary of the Company and the Group will be able to consolidate the results of the Target Group. According to Pro Forma Financial Information, assuming the Acquisition had been completed on 1 April 2017, the pro forma net profit of the Enlarged Group for the year ended 31 March 2018 attributable to the owners of the Company would decrease from approximately RMB131.8 million to approximately RMB60.1 million.

Further information regarding the financial position and financial performance, as well as the management discussions and analysis and other financial information of the Target Group is contained in Appendices II, III and IV to this circular.

– 25 –

LETTER FROM THE BOARD

(2) CONNECTED TRANSACTIONS UPON COMPLETION OF THE ACQUISITION

BACKGROUND

As at the Latest Practicable Date, certain members of the Target Group has provided corporate guarantees to various entities (the “ CP Group ”) that were indirectly whollyowned or controlled by Mr. Guo or Ms. Shum, the sister-in-law of Mr. Guo, to guarantee the payment obligations of the bank loans (the “ Loans ”) obtained by the CP Group. As Mr. Guo is an executive Director, the chairman of the Board and a controlling Shareholder and Ms. Shum is a deemed connected person of the Company under Rule 14A.21(1)(a), each of the entities of the CP Group is an associate of Mr. Guo or Ms. Shum and therefore a connected person of the Company. Upon Completion, members of the Target Group will become subsidiaries of the Enlarged Group. As such, any provision of corporate guarantee by the Target Group (the “ Corporate Guarantees ”) to the CP Group after Completion will constitute connected transactions (the “ Connected Transactions ”) of the Company under Chapter 14A of the Listing Rules, and is subject to the approval of the Independent Shareholders at the SGM.

Details of the Corporate Guarantees which were provided by members of the Target Group to the CP Group as at the Latest Practicable Date are as follows:-

			Member of	Loan	Outstanding				Value of
			the Target	Principal	Loan	Interest	Loan’s	Loan’s	pledged
Member of the CP	Date of loan		Group as	amount	amount	rate	drawdown	repayment	properties
Group as borrower	agreements	Lender	guarantor	(RMB)	(RMB)	(%)	date	date	(RMB)
Fujian Sandi Real	23 November 2018	Huaxia Bank Fuzhou	Fuzhou Gaojia	690,000,000	690,000,000	5.4%	23 November	16 October	1,150,850,000
Estate Development		Taijiang Sub-					2018	2028
Company Limited（福		branch（華夏銀行
建三迪房地產開發		福州台江支行）
有限公司）
Fujian Sandi Real	22 August 2018	Hang Seng Bank	Fuzhou Gaojia	420,000,000	413,700,000	6.98%	22 August	16 August	664,464,225
Estate Development		(China) Limited					2018	2023
Company Limited（福		Fuzhou Branch
建三迪房地產開發		（恆生銀行福州分
有限公司）		行）
Guoshi (Fujian) Footwear	14 May 2018	China Construction	Guoshi	30,000,000	30,000,000	4.35%	14 May	13 May	–
Company Limited		Bank Putian	Investment				2018	2019
（郭氏（福建）鞋業有		Branch（建設銀
限公司）		行莆田分行）

– 26 –

LETTER FROM THE BOARD

Member of the CP Group as borrower Date of loan agreements Lender Member of the Target Group as guarantor Guoshi (Fujian) Footwear Company Limited（郭氏（福建）鞋業有限公司） 17 July 2017 China Construction Bank Putian Branch（建設銀行莆田分行） Guoshi Investment Guoshi (Fujian) Footwear Company Limited（郭氏（福建）鞋業有限公司） 9 October 2018 Bank of China Putian Branch（中國銀行莆田分行） Guoshi Investment Guoshi (Fujian) Footwear Company Limited（郭氏（福建）鞋業有限公司） 13 December 2018 Huaxia Bank Fuzhou Taijiang Sub- Branch （華夏銀行福州台江支行） Guoshi Investment Guoshi (Fujian) Footwear Company Limited （郭氏（福建）鞋業有限公司） 29 September 2018 Nanyang Commercial Bank Shantou Branch （南洋商業銀行汕頭分行） Guoshi Investment Putian Sandi Xiefu Company Limited （莆田市三迪鞋服有限公司） 12 July 2017 China Construction Bank Putian Branch（建設銀行莆田分行） Guoshi Investment Baoji Jianbang Wuzi Company Limited （寶雞建邦物資有限公司） 18 May 2017 Chang’an Bank （長安銀行） Baoji Sandi Baoji Jianbang Wuzi Company Limited （寶雞建邦物資有限公司） 16 November 2018 Agricultural Bank of China（中國農業銀行） Baoji Sandi	Loan Principal amount (RMB) 55,300,000 12,000,000 60,000,000 30,000,000 90,000,000 18,000,000 5,000,000 1,410,300,000	Outstanding Loan amount (RMB) Interest rate (%) Loan’s drawdown date Loan’s repayment date 50,000,000 4.35% 17 July 2017 18 July 2019 12,000,000 4.35% 9 October 2018 8 October 2019 60,000,000 6.09% 13 December 2018 12 December 2019 30,000,000 5.87% 29 September 2018 28 September 2019 50,000,000 4.35% 12 July 2017 21 March 2021 17,850,000 6.18% 18 May 2017 18 May 2019 5,000,000 6.00% 16 November 2018 7 November 2019 1,358,550,000	Value of pledged properties (RMB) – – – – – – –
			1,815,314,225

As at the Latest Practicable Date, the outstanding Loans which were guaranteed by members of the Target Group amounted to approximately RMB1,358,550,000. None of the Loans is overdue.

– 27 –

LETTER FROM THE BOARD

THE SUPPLEMENTAL DEED

The Corporate Guarantees will become contingent liability of the Enlarged Group upon Completion. In the event that any of the Corporate Guarantees is enforced, the Enlarged Group shall settle any of the Loans on behalf of the CP Group.

In order to protect the Enlarged Group from the potential liabilities arising from the Corporate Guarantees, on 21 December 2018, Grand Supreme (as purchaser), Mr. Guo (as guarantor) and Primary Partner (as vendor) entered into a supplemental deed, pursuant to which:–

(i) any amount that shall be borne by the Enlarged Group under the Corporate Guarantees will be set off against (a) the equivalent sum of amount payable owed by the Enlarged Group to Mr. Guo and/or the CP Group and/or any companies under the control of Mr Guo and his associates; and (b) in the event that the Enlarged Group does not owe any balance to Mr. Guo and his controlled entities or such a balance is insufficient to cover the amount paid and any loss incurred by the Enlarged Group, Mr. Guo has undertaken to indemnify the Enlarged Group in full on the shortfall in cash on a dollar-to-dollar basis (the “ Indemnities ”);
(ii) Mr. Guo undertakes not to demand or in any manner require the Enlarged Group to repay any amount due by the Enlarged Group to Mr. Guo and/or the CP Group and/ or any companies under the control of Mr. Guo and his associates which amounted to approximately RMB686 million (the “ Amount Due to CP Group ”) as at the Latest Practicable Date;
(iii) the Promissory Note in the principal amount of HK$600 million (equivalent to approximately RMB527 million) and the Convertible Bonds in the principal amount of HK$500 million (equivalent to approximately RMB439 million) shall upon Completion be delivered to and held in escrow by an escrow agent to be jointly appointed by Mr. Guo (as the sole shareholder of Primary Partner) and the Company;
(iv) the Amount Due to CP Group, the Promissory Note and the Convertible Bonds in the aggregate amount of approximately RMB1,652 million will be charged as first charge in favour of the Company; and
(v) the Amount Due to CP Group, the outstanding principal amounts of the Promissory Note and/or the Convertible Bonds held in the escrow account shall at all times exceed the aggregate amount of the outstanding loan(s) of the CP Group being guaranteed by the Enlarged Group (the “ Minimum Escrow Balance ”). For the avoidance of doubt, Mr. Guo is entitled to (a) demand a repayment of the Amount Due to CP Group or (b) withdraw the Promissory Note and/or the Convertible Bonds held in the escrow account and/or release the charge thereon provided the Minimum Escrow Balance is maintained following such demand and withdrawal.

– 28 –

LETTER FROM THE BOARD

The Board believes that the above measures taken in particular the escrow arrangement for the Promissory Note and the Convertible Bonds, together with the set-off mechanism under the Indemnities adequately protect the Enlarged Group from any potential liability in the event of any default of the Loans. For the same reason, the fact that no consideration will be paid by Mr. Guo in return for the guarantees is justified.

Internal control measures adopted by the Group on the Connected Transactions

In order to safeguard the Enlarged Group’s interest in the Connected Transactions, the Company has adopted the following measures:–

the CP Group shall provide monthly updates to the Board on the status of the outstanding Loans;
the Board can request the CP Group at any time to provide the Company with its latest financial information so as to allow the Company to assess and monitor the CP Group’s ability to repay the Loans; and
the Indemnities and the escrow arrangement as contemplated under the Supplemental Deed as described above.

Reasons for the Supplemental Deed

The purpose of the Supplemental Deed is to protect the Enlarged Group from the potential liabilities that might arise from the Corporate Guarantees.

Having considered that (1) the continuation of the Corporate Guarantees is part and parcel to the Acquisition; (2) the reasons and benefits of the Acquisition; and (3) the internal control measures taken by the Group on the Corporate Guarantees, the Board considers that the Corporate Guarantees (together with the measures taken) is fair and reasonable and the entering into the Supplemental Deed is in the interests of the Company and the Shareholders as a whole.

– 29 –

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

As one or more applicable percentage ratios under the Rule 14.07 of the Listing Rules in respect of the Acquisition exceed(s) 100%, the Acquisition constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules. Further, as at the Latest Practicable Date, the entire issued share capital of Primary Partner is held by Mr. Guo, who is an executive Director, the chairman of the Board and a controlling shareholder of the Company. Hence, Primary Partner is a connected person of the Company by virtue of being an associate of Mr. Guo and the Acquisition also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. Therefore, the Acquisition and the transactions contemplated under the Agreement (including the Connected Transactions) are subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapters 14 and 14A of the Listing Rules.

The Independent Board Committee (comprising all independent non-executive Directors) has been established to advise as to whether the terms of the Agreement and the transactions contemplated thereunder (including the Connected Transactions) are fair and reasonable, on normal commercial terms or better and in the ordinary and usual course of business of the Group and in the interests of the Company and the Independent Shareholders as a whole and on how to vote. The Company has appointed the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.

As each of Mr. Guo and Ms. Amika Guo has material interests in the Agreement, each of them has abstained from voting at the relevant Board resolutions approving the Agreement and the transactions contemplated thereunder (including the Connected Transactions).

Save as disclosed above, to the best of the Directors’ knowledge, information and belief having made all reasonable enquires, no other Shareholder has a material interest in the Agreement and the transactions contemplated thereunder (including the Connected Transactions) and is required to abstain from voting on the resolution(s) to approve the Agreement and the transactions contemplated thereunder (including the Connected Transactions) at the SGM.

– 30 –

LETTER FROM THE BOARD

THE SGM

The SGM will be convened and held to consider and, if thought fit, approve, among other things, (i) the Agreement and the transactions contemplated thereunder, including the issue of the Consideration Shares and the Convertible Bonds; and (ii) the Connected Transactions.

A notice convening the SGM to be held at 11:00 a.m. on Wednesday, 16 January 2019 at Macau Jockey Club (HK Clubhouse), 3/F, East Wing Shun Tak Centre, Merchant Tower, 200 Connaught Road, Central, Hong Kong. The register of members of the Company will be closed from Friday, 11 January 2019 to Wednesday, 16 January 2019, both days inclusive, during which period no transfer of Shares can be registered. In order to qualify for attending and voting at the SGM, all transfer forms accompanied by the relevant share certificates must be lodged for registration with the branch share registrar and transfer office of the Company in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Thursday, 10 January 2019.

A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s Hong Kong branch share registrar and transfer office, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as practicable but in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

Pursuant to Rule 13.39 (4) of the Listing Rules, voting at the SGM will be conducted by way of poll. The chairman of the SGM will therefore demand a poll on the resolutions put forward at the SGM pursuant to the bye-laws of the Company. As at the Latest Practicable Date, United Century holds 2,581,054,801 Shares, representing approximately 57.9% of the issued share capital of the Company and King Partner holds 320,414,201 Shares, representing approximately 7.2% of the issued share capital of the Company. United Century and King Partner, both wholly-owned by Mr. Guo, hold and have control over the voting right in respect of these Shares will therefore be required to abstain from voting on the resolution(s) approving the Agreement and the transactions contemplated thereunder (including the Connected Transactions) at the SGM.

An announcement on the poll results of the SGM will be published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (http://www.chinasandi.com.hk/) after the SGM.

GENERAL

The Independent Board Committee (comprising all of the four independent non-executive Directors, namely, Ms. Chan Yee Ping, Michael, Mr. Yu Pak Yan, Peter, Ms. Ma Shujuan and Mr. Zheng Yurui) has been established to advise the Independent Shareholders on the Agreement and the transactions contemplated thereunder, including but not limited to the issue of the Consideration Shares and the Convertible Bonds and the Connected Transactions.

– 31 –

LETTER FROM THE BOARD

RECOMMENDATION

Your attention is drawn to (i) the letter from the Independent Board Committee as set out on pages 33 to 34 of this circular which contains its recommendation to the Independent Shareholders on the terms of the Agreement and the transactions contemplated thereunder (including the Connected Transactions); and (ii) the letter of advice from the Independent Financial Adviser as set out on pages 35 to 79 of this circular which contains, amongst other matters, its advice to the Independent Board Committee and the Independent Shareholders on the terms of the Agreement and the transactions contemplated thereunder (including the Connected Transactions) together with the principal factors and reasons considered by it in concluding its advice.

Having considered the factors mentioned above, the Directors (including the independent non-executive Directors) are of the view that the Agreement and the transactions contemplated thereunder (including the Connected Transactions) are on normal commercial terms and in the ordinary and usual course of business of the Group, fair and reasonable and in the interest of the Shareholders and the Company as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Agreement and the transactions contemplated there under, including the issue of the Consideration Shares and the Convertible Bonds as well as the Connected Transactions.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices and the notice of the SGM, which form part of this circular.

By Order of the Board China Sandi Holdings Limited Guo Jiadi Chairman

– 32 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

CHINA SANDI HOLDINGS LIMITED 中國三迪控股有限公司

(incorporated in Bermuda with limited liability)

(Stock Code: 910)

26 December 2018

To the Independent Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION – ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF ALL EXCEL INDUSTRIES LIMITED INVOLVING ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; AND (2) CONNECTED TRANSACTIONS UPON COMPLETION OF THE ACQUISITION

We refer to the circular of the Company dated 26 December 2018 (the “ Circular ”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

We have been appointed by the Board as members to form the Independent Board Committee and to advise you as to whether, in our opinion, the terms of the Agreement and the transactions contemplated thereunder, including but not limited to the issue of the Consideration Shares and Convertible Bonds, as well as the Connected Transactions are on normal commercial terms and in the ordinary and usual course of business of the Group and that the Acquisition and the Connected Transactions are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Messis Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Details of its advice, together with the principal factors and reasons taken into consideration in arriving at such advice, are set out on pages 35 to 79 of the Circular.

Your attention is also drawn to the letter from the Board set out on pages 8 to 32 of the Circular and the additional information set out in the appendices of the Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms and conditions of the Agreement and the advice and recommendation of the Messis Capital, we consider that the terms of the Agreement and the transactions contemplated thereunder (including the Connected Transactions) are on normal commercial terms and in the ordinary and usual course of business of the Group, and that the Agreement and the transactions contemplated thereunder (including the Connected Transactions) are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder (including the Connected Transactions).

Yours faithfully,

Independent Board Committee of China Sandi Holdings Limited

Mr. Chan Yee Ping, Michael Mr. Yu Pak Yan, Peter Independent non-executive Director Independent non-executive Director

Ms. Ma Shujuan Independent non-executive Director

Mr. Zheng Yurui Independent non-executive Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from Messis Capital Limited for the purpose of inclusion in this circular, to the Independent Board Committee and the Independent Shareholders in respect of the Agreement and the transactions contemplated thereunder (including the Connected Transactions).

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26 December 2018

To: The Independent Board Committee and the Independent Shareholders of China Sandi Holdings Limited

Dear Sir or Madam,

(2) CONNECTED TRANSACTION UPON COMPLETION OF THE ACQUISITION

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Agreement and the transactions contemplated thereunder (including the Connected Transactions), details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company dated 26 December 2018 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

On 21 September 2018, Grand Supreme (as purchaser), Primary Partner (as vendor) and Mr. Guo (as guarantor) entered into the Agreement, pursuant to which Grand Supreme has conditionally agreed to acquire, and Primary Partner has conditionally agreed to sell the Target Share, which represent the entire issued share capital of All Excel, at the Consideration of HK$1,500 million. The Target Group is principally engaged in the development, sale and investment of properties in the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As one or more of the applicable percentage ratios under the Rule 14.07 of the Listing Rules in respect of the Acquisition exceeds 100%, the Acquisition constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, the entire issued share capital of Primary Partner is held by Mr. Guo, who is an executive Director, the chairman of the Board and a controlling shareholder of the Company. Primary Partner is hence a connected person of the Company by virtue of being an associate of Mr. Guo and the Acquisition also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. Therefore, the Agreement and the transactions contemplated thereunder (including the Connected Transactions) are subject to reporting, announcement and the Independent Shareholders’ approval requirements under Chapter 14 and Chapter 14A of the Listing Rules.

As each of Mr. Guo and Ms. Amika Guo has material interests in the Agreement, each of them has abstained from voting on the relevant Board resolutions approving the Agreement and the transactions contemplated thereunder (including the Connected Transactions). As at the Latest Practicable Date, United Century holds 2,581,054,801 Shares, representing approximately 57.9% of the issued share capital of the Company and King Partner holds 320,414,201 Shares, representing approximately 7.2% of the issued share capital of the Company. United Century and King Partner, both wholly owned by Mr. Guo, hold and have control over the voting right in respect of these Shares will therefore be required to abstain from voting on the resolution(s) approving the Agreement and the transactions contemplated thereunder (including the Connected Transactions) at the SGM. Save as disclosed above, to the best of the Directors’ knowledge, information and belief having made all reasonable enquires, no other Shareholder has a material interest in the Agreement and the transactions contemplated thereunder (including the Connected Transactions) and is required to abstain from voting on the resolution(s) to approve the Agreement and the transactions contemplated thereunder (including the Connected Transactions) at the SGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee (comprising all independent non-executive Directors, namely Mr. Chan Yee Ping, Michael, Mr. Yu Pak Yan, Peter, Ms. Ma Shujuan and Mr. Zheng Yurui), has been formed in accordance with Chapter 14A of the Listing Rules to advise the Independent Shareholders on the Agreement and the transactions contemplated thereunder (including the Connected Transactions). We, Messis Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in these regards.

As at the Latest Practicable Date, we did not have any relationship with or interest in the Company and any other parties that could reasonably be regarded as relevant to our independence. During the past two years, we have not acted as an independent financial adviser to the Company. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser, no arrangement exists whereby we will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence and we are independent from the Company pursuant to Rule 13.84 of the Listing Rules.

BASIS OF OUR OPINION

In arriving at our recommendations, we have relied on the statements, information and representations contained in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information and representations which have been provided by the Company, the Directors and the management of the Company for which they are solely and wholly responsible, are true and accurate at the time they were made and will continue to be accurate as at the Latest Practicable Date. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the management of the Company.

The 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 the 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 therein or the document misleading.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any material facts or circumstances which would render the information provided and representations made to us untrue, inaccurate or misleading. We consider that we have performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. We have not, however, carried out any independent verification of the information provided by the Company, the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group and any parties in relation to the transaction.

This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Agreement and the transactions contemplated thereunder (including the Connected Transactions). Except for its inclusion in the Circular, this letter is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinions and recommendations, we have taken into consideration the following principal factors and reasons:

1. BACKGROUND AND REASONS FOR THE ACQUISITION

1.1 Background information of the Group

The Group is principally engaged in property development and property investment business. The property development projects are mainly located in Shaanxi Province and Fujian Province, the PRC and the property investment projects are mainly located in Fujian Province, the PRC.

1.2 Financial performance of the Group

Set out below is a summary of the consolidated statements of profit or loss of the Group for each of the three financial years ended 31 March 2016, 2017 and 2018, which are extracted from the Company’s annual report for the year ended 31 March 2018 (the “ 2018 Annual Report ”), the Company’s annual report for the year ended 31 March 2017 (the “ 2017 Annual Report ”), and the Company’s interim results announcement for the six months ended 30 September 2018 (the “ 2018 Interim Results ”), respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				For the six months	For the six months
	For the	year ended 31	March	ended 30 September
	2018	2017	2016	2018	2017
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Audited)	(Audited)	(Audited)	(Unaudited)	(Unaudited)
		(restated)1
Revenue	707,694	297,559	109,750	90,672	473,795
– Sale of properties	594,250	198,315	–	20,251	420,905
– Rental Income, and
Property Management
related fee income	113,444	99,244	109,750	70,421	52,890
Profit/ (loss) of the year/period	160,820	(176,017)	160,601	(83,350)	129,053

Note 1: As stated in the 2018 Annual Report, the financial results for the year ended 31 March 2017 has been restated to include assets and liabilities and the operating results of Xian Sandi Real Estate Development Co., Ltd (“ Xian Sandi ”) and Fujian Jingdu Land Co., Ltd (“ Fujian Jingdu ”) as if these acquisitions had been completed since the dates the respective entities or businesses came under the control of Mr Guo.

For the year ended 31 March 2018

Revenue of the Group increased from approximately HK$297.6 million for the year ended 31 March 2017 (“ FY2017 ”) to approximately HK$707.7 million for the year ended 31 March 2018 (“ FY2018 ”), representing an increase of approximately 137.8%. Such increase was mainly attributable to (i) the increase in revenue from sales of properties of approximately 199.7% from approximately HK$198.3 million for the FY2017 to approximately HK$594.3 million for the FY2018 as a result of the increase in gross floor area (GFA) sold to approximately 52,260 square meter of properties located in Fuzhou City of Fujian Province and Xian City of Shaanxi Province; and (ii) the increase in rental income and property management related fee income from approximately HK$99.2 million for the FY2017 to approximately HK$$113.4 million for the FY2018 as a result of the improvement in occupancy rate of the Group’s investment properties during the FY2018.

The profit of the Group for the FY2018 was approximately HK$160.8 million as compared with the loss of approximately HK$176.0 million for the FY2017. The turnaround was attributable to (i) the increase in revenue with reasons as mentioned above; (ii) the turnaround from other losses of approximately HK$52.4 million of FY 2017 to other net gain of approximately HK$21.7 million, which was mainly due to the fair value gain on investments held for trading; (iii) the fair value gain on investment properties of approximately HK$2.8 million for FY2018 as compared to a fair value loss on investment properties of approximately HK$81.1 million for the FY2017; (iv) the decrease in finance costs of approximately 42.4% which was mainly due to the decrease in interests on notes payable which were early redeemed in January 2017 and no interest expenses on such notes was incurred in the FY2018.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 March 2017

The Group’s revenue increased from approximately HK$109.8 million for the year ended 31 March 2016 (“ FY2016 ”) to approximately HK$297.6 million for FY2017, representing an increase of approximately 171.1%, which was mainly due to the increase in revenue from sale of properties following the completion of acquisition of Xian Sandi and Fujian Jingdu.

Despite the increase in revenue as discussed above, the Group recorded a loss for the FY2017 of approximately HK$176.0 million as compared to a profit of approximately HK$160.6 million for FY2016. The turnaround from profit to loss of the Group was mainly attributable to (i) the recognition of a fair value loss of investments held for trading of approximately HK$52.4 million while a fair value gain of approximately HK$75.5 million was recorded in FY2016; and (ii) the recognition of a non-cash fair value loss of an investment property of approximately HK$81.1 million as compared to a fair value gain on an investment property of approximately HK$96.7 million was recorded in FY2016.

For the six months ended 30 September 2018

The Group’s revenue decreased from approximately HK$473.8 million for the six months ended 30 September 2017 to approximately HK$90.7 million for the six months ended 30 September 2018, representing a decrease of approximately 80.9%, which was mainly due to the decrease in revenue derived from sale of properties.

In line with the decrease in revenue discussed above, the Group recorded a loss for the six months ended 30 September 2018 of approximately HK$83.4 million as compared to a profit of approximately HK$129.1 million for the six months ended 30 September 2017. The turnaround from profit to loss of the Group was mainly attributable to there was no completion of property development projects for the six months ended 30 September 2018 which led to a decrease in revenue from sale of properties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.3 Financial position of the Group

	As at
	30 September	As at 31 March		As at 1 April
	2018	2018	2017	2016
	HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Audited)	(Audited)	(Audited)
			(restated)2	(restated)2
Cash and cash equivalent	257,109	201,622	40,824	427,303
Total assets	7,556,521	7,236,360	5,975,083	5,989,246
Total liabilities	4,424,403	3,800,267	2,937,079	2,650,850
Total equity	3,132,118	3,436,093	3,038,004	3,338,396

Note 2: As stated in the 2018 Annual Report, the consolidated financial position has been restated to adjust the carrying amounts of the assets and liabilities of the Group as at 1 April 2016 and 31 March 2017 as if Fujian Jingdu and Xian Sandi were combined from the date when they first came under control of Mr. Guo.

As at 1 April 2016, the Group’s cash and cash equivalent amounted to approximately HK$427.3 million and decreased to approximately HK$40.8 million as at 31 March 2017 and then increased to approximately HK$201.6 million as at 31 March 2018 and approximately HK$257.1 million as at 30 September 2018. The reason of such decrease as at 31 March 2017 was mainly due to (i) the increase in deposit paid for acquisition of Fujian Jingdu and Xian Sandi, (ii) the increase in loans to third parties; (iii) the increase in repayment of bank borrowings, and (iv) cash payment for early redemption of notes payable. The increase in cash and cash equivalent as at 31 March 2018 was mainly attributable to (i) cash proceeds from settlement of loans receivable. (ii) cash proceeds from exercise of warrants, and (iii) the increase in balance with related companies. The further increase in cash and cash equivalent as at 30 September 2018 was mainly attributable to cash generated from pre-sales of properties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Total assets of the Group as at 1 April 2016, 31 March 2017, 31 March 2018 and 30 September 2018 amounted to approximately HK$6.0 billion and HK$6.0 billion, HK$7.2 billion and HK$7.6 billion respectively. Total assets of the Group remained stable as at 1 April 2016 and 31 March 2017 and increased to approximately HK$7.2 billion as at 31 March 2018 which was mainly attributable to (i) increase in cash and cash equivalent as mentioned above and (ii) increase in properties under development for sale and properties held for sale to approximately HK$1.2 billion. The Group’s total assets further increased to approximately HK$7.6 billion as at 30 September 2018 which mainly attributable to (i) the increase in interest in an associate of approximately HK$0.2 billion; (ii) the increase in inventories of properties of approximately HK$1.0 billion. Total liabilities of the Group amounted to approximately HK$2.7 billion, HK$2.9 billion, HK$3.8 billion and HK$4.4 billion as at 1 April 2016, 31 March 2017, 31 March 2018 and 30 September 2018, respectively. The increase in total liabilities as at 31 March 2017 was mainly due to the increase in long term bank borrowings. Total liabilities of the Group further increased to approximately HK$3.8 billion as at 31 March 2018, which was mainly attributable to increase in advances received from pre-sale of properties to approximately HK$1.3 billion. It further increased to approximately HK$4.4 billion as at 30 September 2018 which was mainly attributable to the increase in contract liabilities of approximately HK$2.0 billion.

As a result of the foregoing, the Group’s net assets were approximately and HK$3.3 billion, HK$3.0 billion, HK$3.4 billion and HK$3.1 billion as at 1 April 2016, 31 March 2017, 31 March 2018 and 30 September 2018, respectively.

1.4 Background information of the Target Group

All Excel is a company incorporated in the British Virgin Islands with limited liability. It holds the entire equity interest in Guoshi Properties which in turn owns the entire equity interest in Guoshi Sandi. Guoshi Sandi, through its direct wholly-owned subsidiary, Guoshi Investment, holds the entire equity interests in Fuzhou Gaojia. All Excel, Guoshi Properties, Guoshi Sandi, Guoshi Investment and Fuzhou Gaojia are principally engaged in the businesses of investment holding. Fuzhou Gaojia, through its subsidiaries incorporated in the PRC, is engaged in property development, holding of property for investment, sale and rental purpose mainly in the Shanghai, Fujian Province, Shaanxi and Jilin Province. The following diagrams depict the group structure of the Target Group as at the Latest Practicable Date and immediately after the Completion:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shareholding structure of the Target Group as at the Latest Practicable Date:

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

Mr. Guo
100%
Primary Partner
100%
All Excel
100%
Guoshi Properties
100%
Guoshi Sandi
100%
Guoshi
Investment
100%
Fuzhou Gaojia
100% 100% 51% 100% 100% 51% 51% 51-100%
Shanghai
Shanghai Nanping Yongtai Baoji Wuyishan Other subsidiaries
Gaojia Sandi Sandi Sandi Sandi Jilin First Gaojia (Note 2)
(Note 1)
----- End of picture text -----

Notes:

(1) Due to debt arrangement, 45.45% equity interest in Shanghai Gaojia has been held by an Independent Third Party as at the date of the Agreement. Upon repayment of debts, such 45.45% equity interest would be transferred back to Fuzhou Gaojia, which will then wholly own Shanghai Gaojia. The aforesaid transfer is one of the conditions precedent to the Acquisition and has been completed as at the Latest Practicable Date.
(2) Other subsidiaries of Fuzhou Gaojia, which are neither engaged in property development and property investment business nor form part of the business to be acquired under the Acquisition, will be transferred out of the Target Group through a reorganisation before the Completion.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shareholding structure of the Target Group immediately after the Completion:

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Set out below is the key financial information of the Target Group after reorganisation for each of the three financial years ended 31 December 2017 and for the six months ended 30 June 2018, which was extracted from Note 40 the Accountants’ Report of the Target Group as set out in Appendix III of the Circular.

		For the year		For the	six months
		ended 31 December		ended 30 June
	2015	2016	2017	2017	2018
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Audited)	(Unaudited)	(Audited)
Revenue	404,519	2,144,184	863,881	495,333	76,775
– Sale of properties	382,077	2,100,269	818,698	471,445	52,996
– Property rental	13,547	18,073	18,300	9,639	12,161
– Hotel accommodation	8,391	11,156	11,767	5,336	6,332
– Catering service	504	14,686	15,116	8,913	5,286
Cost of sales and services	(299,833)	(1,507,669)	(730,260)	(438,469)	(41,882)
Gross profit	104,686	636,515	133,621	56,864	34,893
Profit/(loss) for the year/period	284,858	377,942	177,002	132,517	(20,844)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 December 2016

The revenue of the Target Group, mainly comprised of sale of properties and property rental, increased significantly by approximately 430.1% from approximately RMB404.5 million to approximately RMB2,144.2 million, which was mainly attributable to the significant increase in the revenue from the sale of properties segment by approximately RMB1,718.2 million.

In line with the increase in revenue, the gross profit of the Target Group increased significantly by approximately 508.0% from approximately RMB104.7 million to RMB636.5 million for the year ended 31 December 2016 with a gross profit margin of 25.9% and 29.7% recorded for the year ended 31 December 2015 and 2016, respectively. The improvement was driven primarily by the completion and delivery of Phase 1 of Sandi Manhattan located in Shanghai, which generally commanded higher selling prices.

The net profit of the Target Group increased by approximately 32.7% from approximately RMB284.8 million to RMB377.9 million for the year ended 31 December 2016, which was mainly due to the combined effect of (i) the increase in revenue and gross profit as discussed above; (ii) the increase in change in fair value of investment properties of approximately RMB46.6 million; (iii) the decrease of change in fair value upon transfer from inventories of properties to investment properties for approximately RMB361.3 million, and (iv) the increase in finance costs of approximately RMB10.6 million.

For the year ended 31 December 2017

The revenue of the Target Group decreased by approximately 59.7% from approximately RMB2,144.2 million to approximately RMB863.9 million, which was mainly due to the significant decrease in the revenue from the sale of properties segment by approximately RMB1,281.6 million.

In line with the decrease in revenue, the gross profit of the Target Group decreased by approximately 79.0% from approximately RMB636.5 million to RMB133.6 million for the year ended 31 December 2017, with a gross profit margin of 15.5% and 29.7% recorded for the year ended 31 December 2016 and 2017, respectively. The decrease in gross profit margin in 2017 as compared to that in 2016 was primarily due to the fact that the increases in both construction costs per square metre and land acquisition costs per square metre were larger than the increase in the average selling price per square metre of the properties the Target Group delivered.

The net profit of the Target Group decreased by approximately 53.2% from approximately RMB377.9 million to RMB177.0 million for the year ended 31 December 2017, which was mainly due to the combined effect of (i) the decrease in the revenue and gross profit for the year as discussed above; and (ii) decrease of change in fair value upon transfer from inventories of properties to investment properties for approximately RMB76.8 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the six months ended 30 June 2018

The revenue of the Target Group decreased by approximately 84.5% from approximately RMB495.3 million to approximately RMB76.8 million, which was mainly attributable to the significant decrease in the revenue from the sale of properties segment by approximately RMB418.4 million as comparing to the corresponding period in 2017.

In line with the decrease in revenue, the Target Group recorded a decrease in gross profit by approximately 38.7% from approximately RMB56.9 million to approximately RMB34.9 million for the six months ended 30 June 2017 and 2018, respectively, with a gross profit margin of 11.5% and 45.4% recorded for the six months ended 30 June 2017 and 2018, respectively. The improvement in gross profit margin was mainly attributable from increase in selling prices per square metre in Shaanxi region.

The Target Group recorded a loss of approximately RMB20.8 million for the six months ended 30 June 2018 as compared to a profit of approximately RMB132.5 million for the six months ended 30 June 2017. Such turnaround from profit to loss was mainly due to (i) the decrease in revenue and gross profit as discussed above and (ii) the recognition of non-recurring gain on disposal of subsidiaries of approximately RMB159.4 million for the six months ended 30 June 2017 as compared to nil for the six months ended 30 June 2018. Should the one-off gain on disposal is not taken into account, a loss of approximately RMB26.9 million would be recorded for the six months ended 30 June 2017.

				As at
		As at 31 December		30 June
	2015	2016	2017	2018
	RMB’000	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Audited)	(Audited)
Non-current assets	1,984,058	2,749,797	2,926,595	3,051,999
Current assets	4,734,113	6,152,035	5,988,933	6,238,709
Total assets	6,718,171	8,901,832	8,915,528	9,290,708
Non-current liabilities	1,260,544	2,608,452	2,844,950	2,709,912
Current liabilities	4,371,087	4,828,897	4,404,590	5,056,719
Total liabilities	5,631,631	7,437,349	7,249,540	7,766,631
Total equity	1,086,540	1,464,483	1,665,988	1,524,077

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The total assets of the Target Group increased by approximately RMB2,183.7 million from approximately RMB6,178.2 million as at 31 December 2015 to approximately RMB8,901.8 million as at 31 December 2016. The increase in total assets was mainly due to (i) the increase in investment properties for approximately RMB205.4 million; (ii) the increase in inventories of properties for approximately RMB1,021.3 million, which primarily consists of Phase IIA & IIB, Sandi Manhattan and Phase II of Sandi Century Property New City. However, the total liabilities of the Target Group increased for approximately RMB1,805.7 million from RMB5,631.6 million as at 31 December 2015 to approximately RMB7,437.3 million as at 31 December 2016, which was mainly due to (i) the increase in amounts due to related parties for approximately RMB182.0 million; (ii) the increase in bank and other borrowings for approximately RMB1,509.9 million. As a result of the foregoing, the net assets of the Target Group increased from approximately RMB1,086.5 million to RMB1,464.5 million.

The total assets of the Target Group increased by approximately RMB13.7 million from approximately RMB8,901.8 million as at 31 December 2016 to approximately RMB8,915.5 million as at 31 December 2017. Such increase in total assets was mainly due to the combined effect of (i) the increase in investment properties for approximately RMB68.5 million; (ii) the increase in inventories of properties for approximately RMB162.3 million; and (iii) the decrease in trade receivables, other receivables and prepayments for approximately RMB152.9 million. The total liabilities of the Target Group decreased by approximately RMB187.8 million from approximately RMB7,437.3 million as at 31 December 2016 to approximately RMB7,249.5 million as at 31 December 2017, which was mainly due to the combined effect of (i) the decrease in deposits received for sale of properties of approximately RMB188.0 million; (ii) the decrease in amounts due to related parties of approximately RMB270.0 million; and (iii) the increase in bank and other borrowings of approximately RMB551.3 million. As a result of the foregoing, the net assets of the Target Group increased from approximately RMB1,464.5 million to approximately RMB1,666.0 million.

As at 30 June 2018, the total assets of the Target Group amounted to approximately RMB9,290.7 million, representing an increase of approximately RMB375.2 million from approximately RMB8,915.5 million as at 31 December 2017. The increase in total assets of the Target Group was mainly due to (i) the increase in inventories of properties by approximately RMB815.6 million. The total liabilities of the Target Group increased by approximately RMB517.1 million from approximately RMB7,249.5 million as at 31 December 2017 to approximately RMB7,766.6 million which was mainly due to the combined effect of (i) the decrease of deposits received for sale of properties by approximately RMB681.7 million; and (ii) the increase of contract liabilities by approximately RMB1,582.5 million. As a result of the foregoing, the net assets decreased from approximately RMB1,666.0 million to approximately RMB1,524.1 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.5 Reasons for and benefits of the Acquisition

The Group is principally engaged in property development and holding of property for investment and rental purpose. As stated in the 2018 Annual Report, the Group would continue to leverage on its competitive advantage in Fuzhou and Xian, solidify and further develop its property investment and development business across the PRC. The Group would maintain prudent investment strategies, and acquire sufficient and quality land reserve through a wide array of approaches. In December 2016, the Group announced to acquire Xian Sandi and Fujian Jingdu, both of which involving property development projects in Shaanxi Province and Fujian Province, respectively. Such acquisition was completed in June 2017 and brought positive financial impact to the Group for the FY2018. Further, the Group announced in October 2017 that Xian Sandi succeeded in public auction for the acquisition of land use rights for 2 land parcels in Xian City with a total site area of approximately 22,183 square meters for the development of commercial and residential properties. In addition, the Group announced in January 2018 that Fujian Sinco Industrial Company Limited, together with an Independent Third Party, succeeded in jointly acquiring the land use rights of two pieces of lands in Wuyishan City, Fujian Province via public auction with a total site area of approximately 140,000 square meters for residential use. As a result of the above business development, as discussed in paragraph headed “1.2 Financial performance of the Group” above, the Group achieved business growth through sale of properties as well as investment in different properties in the PRC with revenue increased by approximately 137.8%.

Based on the above, we are given to understand that it’s the Group strategy and ordinary business to acquire land and companies involving property development projects to strengthen its asset base and broaden its revenue stream. As a result, we concur with the view of the Directors that the Acquisition is in line with the business strategies of the Group to solidify and further develop its property investment and development business across the PRC and hence is in the ordinary and usual course of business of the Group.

As stated in the Letter from the Board, in view of the continued growth of the PRC economy, the Group is optimistic about the property market in the PRC in the long run, and believes that with the qualification of Class 1 Real Estate Development Enterprise（房地產開發企業一級資質）attained by Fuzhou Gaojia, the Acquisition can enhance the scope of the property development projects in which the Group is allowed to participate in the future. Set out below is the table showing certain information on the Property Projects held by the Target Group:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Remaining Construction GFA/Planned Construction GFA

												Property
									Book			Number
								Valuation	value as	Equity		in
							Estimated	as at	at	interests		Valuation
			Office/		Others		costs to	30 Sep	31 Dec	attributable	Completion/	Report
		Residential	Hotel	Retail	(Note 1)	Total	completion	2018	2017	to Target	Estimated	(Appendix
Location	Project	(sq.m.)	(sq.m.)	(sq.m.)	(sq.m.)	(sq.m.)	(RMB’M)	(RMB’M)	(RMB’M)	Group	completion	V)
Shanghai	Sandi Manhattan
Property	-Phase I	–	4,492	195	–	4,687	N/A	134	870	100%	Completed	11
	-Phase IIA	–	58,623	4,998	39,046	102,667	500	870		100%	Sep 2019	19
	-Phase IIB -Phase III	– –	73,073 64,554	36,081 6,237	61,096 45,027	170,250 115,818	900 1,200	1,440 780	2,596	100% 100%	Sep 2019 Dec 2021	19 24
Fujian Property	-Gaojiayuan Kaixuan Fengdan	– 863	– –	– –	3,655 3,772	3,655 4,635	N/A N/A	13 49	79	100% 100%	Completed Completed	17 9
		7,780	2,813	–	2,715	13,308	N/A	233	225	100%	Completed	18
Project	-Xicheng	117,818	–	2,892	44,033	164,743	204	695	130	51%	Jun 2020	22
	Fengdan
	Jiangshan Shore	181,507	–	–		181,507	TBD	216	156	100%	TBD	25
	-Wuyishan	–	197,811	–		197,811	TBD	123	–	100%	TBD	26
	(Note 2)
Baoji	Sandi Century
Property	New City
Project	-Phase I	15,919	42,381	146,169	6,869	211,338	N/A	1,742		100%	Completed	1 to 8, 12
									2,003			to 16
	-Phase II	462,575	7,800	37,101	157,943	665,419	1,200	980		100%	TBD	20 &21
Jilin	Shouchuang	88,478	–	3,320	5,627	97,425	204	110	81	51%	late 2019	10 &23
Property	International
Project	Plaza
Total		874,940	451,547	236,993	369,783	1,933,263	4,208	7,385	6,140

Notes: (1) Others mainly comprise car parks and ancillary facilities.

(2) Jianshan Shore and Wuyishan Project represent land bank without any development plan at present.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Shanghai Property Project is situated in the prime location of Shanghai Songjiang District, the PRC. The project involves (a) (Phase I) a site area of 33,663 sq.m. with a developable GFA of 125,190 sq.m.; (b) (Phase II a mixed-use development complex and an office and shopping complex, with a total site area of 70,540 sq.m. and a planned construction GFA of 272,917 sq.m. respectively, the construction work of which has been commenced and is expected to be completed in September 2019; and (c) (Phase III) a vacant land of 33,710 sq.m. with a developable GFA of 70,791 sq.m. plus basement area of 45,027 sq.m., which is planned to be developed into a 15-storey hotel, office and arcade and is expected to be completed in December 2021. As at the Latest Practicable Date, project area of 88,626 sq.m. of Phase I of the Sandi Manhattan Project has been sold or pre-sold.

The Fujian Property Project involves (i) Gaojiayuan and Kaixuan Fengdan project with total unsold project construction GFA was 21,598 sq.m. as at the Latest Practicable Date, which mainly represents a hotel, a restaurant, a kindergarten and certain carpark area held for lease; (ii) Xicheng Fengdan project will be developed into 26 blocks of residential and commercial property with a total construction GFA of 164,743 sq.m., of which 51,689 sq.m. residential units have been pre-sold. The project is currently under construction and is expected to be completed by June 2020; (iii) Jianshan Shore project with a planned construction GFA of 181,507 sq.m. It is a low-rise residential and hotel development project, offering a convenient, beautiful scenery and natural living environment. Construction work is yet to be commenced; and (iv) Wuyishan with a planned construction GFA of 197,811 sq.m. which construction work is yet to be commenced.

The Baoji Property Project is planned for a residential and commercial development which involves a planned construction GFA of 876,757 sq.m., of which 211,338 sq.m. was completed and the remaining 665,419 sq.m. is still under construction. As at the Latest Practicable Date, project area of 220,144 sq.m. has been sold or pre-sold.

The Jilin Property Project in planned for a residential/hotel development which involves a planned total construction GFA of 180,963 sq.m. The construction work for project area of 87,680 sq.m. was completed and the remaining area of 93,283 sq.m. is still under construction which is expected to be completed by late 2019. As at the Latest Practicable Date, project area of 75,226 sq.m. has been sold or pre-sold.

In assessing the outlook of the property markets in Shanghai, Fujian Province, Shaanxi Province and Jilin Province (the “ Target Regions ”) in the PRC, we have studied the statistics published by the National Bureau of Statistics of the PRC as follows:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Statistics of gross domestic products of property market in Target Regions

						Cumulative
						annual
						growth
						rate (the
	2016	2015	2014	2013	2012	“CAGR”)
	RMB	RMB	RMB	RMB	RMB
	billion	billion	billion	billion	billion	%
Shanghai	212.56	169.98	153.10	142.71	114.70	13.13
Fujian Province	126.97	107.79	109.02	109.51	103.97	4.08
Shaanxi Province	74.72	69.55	57.94	51.86	45.01	10.67
Jilin Province	47.66	43.61	43.29	43.19	24.09	14.62

Source: Website of the National Bureau of Statistics of the PRC.

Note: The gross domestic products of property market include the monetary value of all the finished goods and services (including but not limited to finished properties, property management services, valuation services, legal services, etc) produced in first-hand properties market and the second-hand properties market in the Target Regions in a specified period of time.

Statistics of average selling price of commercialised buildings in the Target Regions

	2016	2015	2014	2013	2012	CAGR
	_RMB/Sq.m _	_RMB/Sq.m _	_RMB/Sq.m _	_RMB/Sq.m _	RMB/Sq.m	%
Shanghai	24,747	20,949	16,787	16,420	14,061	11.97
Fujian Province	9,218	8,880	9,136	9,050	8,646	1.29
Shaanxi Province	5,471	5,362	5,166	5,280	5,156	1.19
Jilin Province	5,364	5,476	5,112	4,483	4,147	5.28

Source: Website of the National Bureau of Statistics of the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the National Bureau of Statistics of the PRC, in the regional performance of property market in the Target Regions, they achieved growth in gross domestic products of property market and the average selling price of commercialised buildings over the years in 2012-2016. The gross domestic products of property market in Shanghai, Fujian Province, Shaanxi Province and Jilin Province rose from approximately RMB114.70 billion, RMB103.97 billion, RMB45.01 billion and RMB24.09 billion, respectively in 2012 to approximately RMB212.56 billion, RMB126.97 billion, RMB74.72 billion and RMB47.66 billion, respectively in 2016, representing an increase in CAGR of approximately 13.13%, 4.08%, 10.67% and 14.62%, respectively. The average selling price of commercialised buildings in Shanghai, Fujian Province, Shaanxi Province and Jilin Province also rose from approximately RMB14,061 per square meter, RMB8,646 per square meter, RMB5,156 per square meter and RMB4,147 per square meter, respectively in 2012 to RMB24,747 per square meter, RMB9,218 per square meter, RMB5,471 per square meter and RMB5,364 per square meter, respectively in 2016, representing an increase in CAGR of approximately 11.97%, 1.29%, 1.19% and 5.28%, respectively.

To further review the prospects of the property markets in the Target Regions, we have also reviewed the Outline of the 13th Five-Year Plan for National Economic and Social Development of the PRC (中華人民共和國國民經濟和社會發展第十三個五年規劃綱要)(the “ PRC 13th Five-Year Plan* ”) which were issued by the government of the PRC on 17 March 2016. Under the 13th Five-Year Plan, the government of the PRC implemented the measures of (i) providing housing subsidy and monetary rental assistance; (ii) extending public rental housing policies to cover non-registered urban residents and develop these policies to enable assistance through the provision of monetary subsidies; (iii) deepening the city construction and redevelopment such as improving the social facilities; (iv) stabilising the housing price and housing supply for long-term demand; (v) actively developing the property leasing market by encouraging the development of enterprises which specialising in house leasing; and (vi) developing of new forms of business such as tourist real estate, senior citizen real estate, and cultural real estate.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the 2018 Annual Report, the Target Regions are designated to serve “One Belt One Road” national strategies. According to the “Shanghai’s Action Plan for Serving the Belt and Road Construction (上海服務國家“一帶一路”建設發揮橋頭堡作用行動方案) on the Belt and Road Portal website (https://eng.yidaiyilu.gov.cn/index.htm), the Shanghai municipal government aim to maximise the impact of existing policies to better serve demands from countries and regions involved in the Belt and Road initiative in aspects including trade and financing, cultural exchanges, education and human resources, innovation and technological development, and policy making. According to the 2018 Belt and Road Construction Action Plan of Baoji (寶雞市“一帶一路”建設2018年行動計畫), the Baoji government aimed to accelerate in promoting Baoji as an internationalised livable city in terms of city infrastructure, historical and cultural, technical and innovation, etc. The Fujian Provincial Development and Reform Commission issued the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road, indicating that the PRC government supports Fujian in becoming the core area of the 21st Century Maritime Silk Road and taking the lead in connectivity realisation, economic cooperation, institutional innovation and people-to-people exchange. Under the Belt and Road initiatives for Jilin Province, taking advantage of its geographical location, it is aimed to make Jilin more open to the international market by first cooperating with Russia to build the Binhai 2 international transport corridor* (濱海2號國際運輸走廊) which aims at becoming a transit transport passage between the PRC and Russia, so as to develop local and international economic cooperation district. As the above mentioned, these should help to promote the new business opportunities and it is anticipated that the economies of the Target Regions will continue to generate sustained growth. Along with the government policies, the Directors consider that the demand for commercialised and/or residential buildings in the Target Regions will gradually increase. Concurring with the above statistics and analysis, it is considered that the prospects of the property markets in the Target Regions will remain positive given the past records and hence will enhance the financial performance and strengthen the earnings and financial position of the Group by diversifying its property development and property

investment business into different regions of the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed the Group’s property portfolio and have discussed with the management of the Company regarding their knowledge and experience. Pursuant to the 2018 Annual Report, the Group’s current property investment business was the development, operation and management of a home improvement plaza in Fuzhou, namely Sandi Household Plaza. Further to our discussion with the management of the Company, we are given to understand that Sandi Plaza has started operating since 2012 which enable them to possess over 5 years’ experience in monitoring property portfolio located in Fujian Province. Besides, as discussed above, the Group has acquired (i) 95% of the equity interest of Fujian Jingdu which is involved in developing a commercial and hotel complex, namely Fuzhou Sandi Chuangfu Plaza, in Fuzhou City of Fujian Province on 26 May 2017; and (ii) 95% of the equity interest of Xian Sandi which is involved in developing a residential and commercial project, namely Qujiang Xiangqsong Fengdan•Xian Sandi in Xian City of Shaanxi Province on 16 June 2017. Furthermore, prior to the above acquisitions, both Fujian Jingdu and Xian Sandi were owned by Fuzhou Gaojia which was ultimately owned as to approximately 95% by Mr. Guo. Meanwhile, we are advised by the management of the Company that Mr. Guo, an executive Director and one of the management of the Company has over 18 years of experience in property development and investment across different part of China (including properties located in the Target Regions). Based on the above and taking into account the growth in business in terms of revenue and profit of the Group, we concur with the view of the Directors that the Group possess experience and expertise in developing and managing properties in the Target Regions.

Taking into account that (i) each of the Property Projects is in the ordinary and usual course of the Group’s property development and investment as stated above; (ii) the Group has relevant knowledge and experience in developing, and investing in, the property market in the PRC; (iii) Mr. Guo, an executive Director has relevant knowledge and experience in developing, and investing in, the property market in the Target Regions; (iv) the prospects of the property markets in the Target Regions are expected to be positive as discussed above; and (v) the recent development plan of the PRC government in the Target Regions, we concur with the view of the Directors, that each of the Property Projects offers an opportunity for the Group to expand its property portfolio and expand its scope of business and income stream to generate stable and greater return to the Company in long-run. The Acquisition is therefore in the interest of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. T H E T E R M S O F T H E AG R E E M E N T A S S U P P L E M E N T E D B Y T H E SUPPLEMENTAL DEED

2.1 Details of the Agreement

Set out below is the summarised key terms of the Agreement (as supplemented by the Supplemental Deed):

Date: 21 September 2018 Parties: (1) Grand Supreme, as purchaser; (2) Primary Partner, as vendor; and (3) Mr. Guo, as Guarantor. Assets to be acquired: The asset to be acquired under the Agreement is the Target Share, which represents the entire issued share capital of All Excel, which indirectly holds the entire equity interest in Fuzhou Gaojia which in turn through its subsidiaries owns the Properties. The substance of the Acquisition is the principal property assets held by the Target Group, comprising (i) the Shanghai Property Project; (ii) the Fujian Property Project; (iii) the Baoji Property Project; and (iv) the Jilin Property Project.

Guarantee and undertakings by The Guarantor unconditionally and irrevocably the Guarantor: guarantees to Grand Supreme to procure the due and punctual performance by Primary Partner of all the obligations, commitments and undertakings contained in or assumed by it under the Agreement and the warranties given or provided by Primary Partner to Grand Supreme under the Agreement are true, accurate and correct. The Guarantor also undertakes to indemnify and keep effectively indemnified Grand Supreme or the Target Group against all liabilities, losses, costs, expenses and damages against the Target Group due to any events occurred or committed by the Target Group prior to the Completion.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Consideration:

The Consideration for the Acquisition is HK$1,500 million and shall be satisfied at Completion as follows:

(i) payment of cash amount of HK$200 million to Primary Partner (or its nominee(s));
(ii) issue of the Promissory Note in principal balance of HK$600 million to Primary Partner (or its nominee(s));
(iii) issue of 485,436,893 Consideration Shares at HK$0.412 per Consideration Share (worth HK$200 million) to Primary Partner (or its nominee(s)); and
(iv) issue of the Convertible Bonds in principal balance of HK$500 million to Primary Partner (or its nominee(s)).

For further details of the Agreement, please refer to the Letter from the Board.

2.2 Assessment on fairness and reasonableness on the Consideration

As stated in the Letter from the Board, the Consideration was determined after arm’s length negotiations between the Company and Primary Partner with reference to, among other things, (i) the unaudited combined net asset value of the Target Group as at 31 December 2017; (ii) the valuation of the Properties of approximately RMB7,385 million prepared by a professional valuer (the “ Valuer ”) based on market approach; and (iii) a certain discount to the unaudited combined net asset value of the Target Group as at 31 December 2017 as adjusted by the Property Valuation (the “ Adjusted NAV ”).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Accordingly, as advised by the Directors, the Adjusted NAV of the Target Group is as follows:

Calculation of the Adjusted NAV for the Target Group after reorganisation

	RMB million
	(approx.)
Net asset value as at 31 December 2017 after reorganisation	1,666
Add: Fair Value of the properties interests as appraised by
the Valuer as at 30 September 2018_(Note)_	7,262
Less: Book Value of the properties interests as at
31 December 2017	6,140
Adjusted NAV	2,788
The Consideration	HK$1,500 million
	(Approximately
	RMB1,427.4 million)

Note: Only included properties interests which recorded in the financial statements of the Target Group as at 31 December 2017, being total properties valuation of RMB7,385 million minus property valuation of Wuyishan Property Project of RMB123 million.

Based on the valuations as stated in the Valuation Report (as defined below) and the Adjusted NAVs as calculated above, the Consideration represents a discount of approximately RMB1,361 million to the Adjusted NAV of the Target Group after reorganisation. As advised by the Directors, the aggregate book value of the Properties as at 30 June 2018 was approximately RMB6,535 million. The Consideration still represents a discount to the adjusted net assets value of the Target Group as at 30 June 2018. Taking into account of the above and the net asset value of the Target Group after reorganisation as at 30 June 2018 of approximately HK$1,524 million which is still higher than that the Consideration, we are of the view that the terms of the Agreement including the Consideration are fair and reasonable.

In order to assess the fairness and reasonableness of the valuation of the Properties (the “ Property Valuation ”) as set out in the valuation report (details of which are set out in Appendix V of the Circular) (the “ Valuation Report ”), we have reviewed the Valuation Report and discussed with the Valuer regarding the methodology adopted for and the basis and assumptions used in arriving at the Property Valuation. In the course of our discussion with the Valuer, we noted that the Valuer carried out a site visit and inspected the Properties in August 2018, and have been provided with copies of documents in relation to the title of the property interests. We also noted from the Valuer that in the course of the aforesaid inspection, the Valuer did not notice any serious defects.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on our discussion with the Valuer, we are given to understand the valuation of any asset can be broadly classified into three approaches, namely the cost approach, the market approach and the income approach. In any valuation analysis, all three approaches must be considered, and the approach deemed most relevant will then be selected for use in the fair value analysis of that asset. We noted that the Valuer had adopted the market approach, and understood from the Valuer that the cost approach and the income approach were not applicable to the Property Valuation as at the valuation date.

Regarding the income approach, an economic benefit stream of the asset under analysis is selected, usually based on historical and/or forecasted cash flow. The focus is to determine a benefit stream that is reasonable reflective of the asset’s most likely future benefit steam. This selected benefit is then discounted to present value with an appropriate risk-adjusted discount rate. Discount rate factors often include general market rates of return at the valuation date, business risks associated with the industry in which the company operates, and other risks specific to the asset being valued. As the future economic benefit stream and the discount rate requires various assumptions, significant level of judgements to be made to arrive at, amongst others, detailed cash flow projection, and subject to various uncertainties, such as economic environment in the future, therefore, the Valuer considers that the adoption of income approach in this case is not considered appropriate for the Property Valuation.

Regarding the cost approach, through our discussion with the Valuer, we are given to understand that cost approach will only be considered when there is no public market information available in relation to acquisition of property. In addition, under cost approach, the value is established based on the land costs and the costs of construction in reproducing the property, but without taking into accounts the market conditions. Given that there is public market information available in relation to acquisition of the Properties, the Valuer considers that the adoption of cost approach in this case may not be appropriate for the Property Valuation as the future earning potentials of the Target Group will not be captured in such approach.

Given the income approach and cost approach may not be appropriate for the Property Valuation; the Valuer has adopted the market approach. We have reviewed the Valuation Report and enquired with the management of the Company and we noted that after reorganisation, the Target Group possess all the properties as stipulated in the Valuation Report. We further noted that the Properties are divided into 4 groups which are (i) properties held for sale; (ii) properties held for investment; (iii) properties held under development and (iv) properties held for future development. We have discussed with the Valuer and noted that depending the current status of the Properties (i.e. held for sale or leased or under development), the Valuer has adopted different comparison methods in valuating each group of the Properties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to assess the fairness and reasonableness of the basis and assumptions used in the Valuation Report, we have obtained and reviewed the working papers of the valuation prepared by the Valuer (the “ Working Papers ”). We noted that 15 properties held by the Target Group are valued under the direct comparison method. During our discussions with the Valuer and the review on the Valuation Report, we understand how the valuation was being derived and how the comparable properties of similar size, age, character and location were weighed against their respective advantages and drawbacks. We have discussed with the Valuer on the valuation methodology applied, and reviewed the comparables provided by the Valuer. During our review of the Working Papers, we noted that the Valuer has selected at minimum of 2 comparables for each of the Properties. We have reviewed each of the comparables and noted that those comparables are for commercial and/or residential purposes. We have enquired with the Valuer and are given to understand that, for completed shop units, the age of such properties was not taken into account as the Valuer considered that the age of properties would not materially affect the value of such shop units, and thus not relevant to the valuation. For other completed commercial or residential units, the Valuer have selected those units within the same property which already on sale as comparables, and it is considered that the selected comparables represent a closest reference to the Properties. Regarding the locations of those comparable properties, we have performed desktop search and noted that all of the comparables are located in in proximity to the relevant properties under direct comparison method. In addition, we noted from the Working Papers that the Valuer has made some adjustments on the valuation regarding the different storey of the properties located. We have discussed with the Valuer and noted that different storey of a property has a different market value. As such, we consider that the basis and assumption for the inclusion of such adjustments are fair and reasonable. Based on the above, we considered that the basis and assumption adopted for the valuation of 15 properties under direct comparison method are fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In addition to the 15 properties being valued under direct comparison approach, we noted that the Valuer has adopted market capitalisation method to determine the market value of 6 other properties with existing tenancies. As advised by the Valuer, market value of a property is deduced by the summation of its term interest value and its reversionary value under market capitalisation method. Term interest value is measured by capitalisation of actual rental incomes over the unexpired term of the existing tenancy and reversionary value reflects the present value of the market value on vacant possession basis as measured by the market approach. In particular, the use of income capitalisation approach involves the determination of capitalisation rate. In this regard, the Valuer is required to determine capitalisation rate to capitalise the income derived from existing tenancies. We are advised by the Valuer that the capitalisation rate is determined by the yield rate of the property (i.e. annual rent divided by recent market values of the market comparables). As such, the present value of the existing tenancies are determined. Subsequently, upon expiry of existing tenancies, the Valuer is required to determine the reversionary value and assuming the properties will be on vacant possession basis. In determining the reversionary value, the Valuer make reference to the market comparables to determine the average unit rate per square meter of the properties. As such, the reversionary value of the properties are calculated with (i) the average unit rate per square meter; and (ii) gross floor area of the properties and thus discounted to present value with the capitalisation rate as mentioned above. As we further enquired with the Valuer, their selection criteria for determining market comparables for the income capitalisation includes a number of factors such as location, nature of use, size and quality of the property. We have reviewed the each of the comparables used in market capitalisation method and noted that the usage of those comparables are relevant to commercial and/or residential or education purposes. Regarding the locations of those comparable properties, we have performed desktop search and noted that all of the comparables are located in in proximity to the relevant properties under direct comparison method. Based on the above, we considered that the basis and assumption adopted for the valuation of 6 properties under market capitalisation method are fair and reasonable.

For the remaining 5 properties which are currently under development, we are advised by the Valuer that they have taken into account the market value of the development sites as measured by the market approach and development costs expended as relevant to the stage of construction as at the valuation date. We have reviewed the Working Papers and noted that the market value of the development sites are derived from (i) average unit rate per square meter from the market comparables; (ii) costs expended to the relevant construction sites. Regarding the market comparables used to determine the average unit rate per square meter, we have reviewed the each of the comparables and noted that the usage of those comparables are the recent auctioned land by the relevant government bureau. Regarding the locations of those comparable properties, we have performed desktop search and noted that all of the comparables are located in in proximity to the relevant site areas. Regarding the costs expended to relevant construction sites, we have enquired with the Valuer and noted that such information are provided by the management of the Company. Based on the above, we considered that the basis and assumption adopted for the valuation of 5 properties under market approach are fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For our due diligence purpose, we have also reviewed and enquired into (i) the terms of engagement of the Valuer with the Company; (ii) the Valuer’s qualification and experience in relation to the preparation of the valuation report; and (iii) the steps and due diligence measures taken by the Valuer for conducting the Property Valuation. From the engagement letter and other relevant information provided by the Valuer and based on our interview with it, we are satisfied with the terms of engagement of the Valuer as well as its qualification and experience for preparation of the Valuation Report. The Valuer has also confirmed that it is independent to the Group, the Target Group and their respective associates. We also note that the Property Valuation is prepared in accordance with the requirements contained in Chapter 5 and Practice Note 12 to the Listing Rules and The HKIS Valuation Standards (2017 Edition) published by the Hong Kong Institute of Surveyors.

As set out above, we are satisfied that (i) the Valuer is independent from the Company and has sufficient experience, qualification and competence to perform the Property Valuation; (ii) the Valuer’s scope of work is appropriate for the relevant engagement; and (iii) the valuation assumptions and methodologies used by the Valuer are fair, reasonable and complete in relation to the Valuation Report. Based on the above, we are of the view that the Property Valuation as prepared by the Valuer is fair and reasonable.

Given that (i) the Consideration are determined based on the net asset values of the Target Group as at 31 December 2017 with adjustments; (ii) the adjustments made are fair and reasonable; (iii) the valuation assumptions and methodologies used by the Valuer and hence the Property Valuation are fair and reasonable; (iv) the Consideration represented a certain discount to the Adjusted NAV and (v) the potential benefits as discussed in the section headed “1.5 Reasons for and benefits of the Acquisition”, we consider that the Consideration under the Agreement is on normal commercial terms, and is fair and reasonable as far as the Independent Shareholders are concerned.

2.3 The Promissory Note

The Promissory Note shall be issued by the Company at Completion to settle part of the Consideration. The principal terms of the Promissory Note are as follows:

Issuer	:	The Company
Subscriber	:	Primary Partner (or its nominee(s))
Principal amount	:	HK$600 million
Maturity Date	:	The day falling the fifth anniversary of the date
		of issue of the Promissory Note, provided that
		if such date is not a Business Day, the Business
		Day immediately after such date

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Interest

: 3% per annum for the first and second years after the date of issuance, 4.5% per annum for the third and fourth years after the date of issuance and 6% per annum for the fifth year after the date of issuance, payable annually in arrears

Repayment

: The principal balance will be due and payable on the maturity date

Early redemption:

: The Company has the discretion to repay all or part of the principal balance at any time prior to the maturity date by giving 10 Business Day’s prior written notice to holder(s) of the Promissory Note
Transferability : Holder(s) of the Promissory Note may transfer the Promissory Note to any other persons

In assessing the fairness and reasonableness of the terms of the Promissory Note, we have compared its interest rate with (i) the interest rates on existing borrowings by the Company from banks and the interest rate on the coupon bonds issued by the Company to certain Independent Third Parties; and (ii) the current PRC benchmark lending rate of 4.75% per annum for a term of 5 years as set out in the website of The People’s Bank of China. Based on the information disclosed in the 2018 Annual Report, we noted that the interest rates of existing borrowings from banks ranged from 5.9% to 8.5%, where the duration ranging from 3 to 9 years; and the interest rate on the coupon bonds issued by the Company to certain Independent Third Parties was 7.0% (effective interest rate: 12.1%) where the duration was 4 years. The interest rates of range of 3% to 6% per annum of the Promissory Note of the Company is lower than those of existing borrowings and coupon bonds while the duration of the Promissory Note of 5 years falls within the range of the other borrowings from Independent Third Parties. Although the interest rate of 6% per annum for the fifth year is higher than the current PRC benchmark lending rate of 4.75% per annum, it is considered that the interest rates on existing borrowings from banks are more appropriate references as the PRC benchmark lending rate had already been taken into account when determining the interest rates on existing borrowings which was verily transacted. The Directors consider that it is commercially acceptable to obtain the fund raised with a slightly lower interest rate to further enhance the Group’s financial performance. Based on the above analysis and given that the Company has discretion to repay all or part of the principal balance at any time prior to the maturity date, we consider that the terms of the Promissory Note are on normal commercial terms and are fair and reasonable as far as the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.4 The Consideration Shares

The 485,436,893 Consideration Shares shall be allotted and issued pursuant to the Specific Mandate which represents: (i) approximately 10.9% of the existing share capital of the Company as at the Latest Practicable Date; and (ii) approximately 9.8% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares. The Consideration Shares will be issued at the issue price of HK$0.412 per Consideration Share representing:

(i) a discount of approximately 9.5% to the closing price of HK$0.455 per Share as quoted on the Stock Exchange on the date of the Agreement;
(ii) a discount of approximately 9.8% to the average of the closing prices of HK$0.457 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Date;
(iii) a discount of approximately 9.7% to the average of the closing prices of HK$0.4565 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Date; and
(iv) a discount of approximately 7.4% to the closing price of HK$0.445 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

As stated in the Letter from the Board, the issue price was determined after arm’s length negotiation between Primary Partner and the Group with reference to a discount of approximately 10% to 5-day average closing prices of the Shares as quoted on the Stock Exchange up to and including the date of the Agreement. To assess the fairness and reasonableness of the issue price, we have compared the issue price with reference to (a) historical Share prices; (b) historical trading volume of the Shares; and (c) the market comparables, as set out below:

(a) Historical Share prices

We have reviewed the Share price performance during a period of 12 months from 22 September 2017 to 21 September 2018, being the date of the Agreement (the “ Review Period ”). We consider that a period of 12 months is adequate to illustrate the Share price performance for conducting a reasonable comparison between the closing price of the Shares and the issue price of the Consideration Shares. The chart below illustrates the daily closing price (the “ Closing Price ”) per Share and the issue price for the Consideration Shares during the Review Period.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

==> picture [416 x 250] intentionally omitted <==

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

Closing prices of Shares during the Review Period
0.55
0.5
0.45
0.4
0.35
Issue price: HK$0.412
0.3
0.25
0.2
Date
(HKD)
Price
Closed
----- End of picture text -----

Source: HKEx website

During the Review Period, the closing Share price fluctuated between HK$0.30 per Share and HK$0.53 per Share, with an average closing Share price of approximately HK$0.42 per Share. The issue price of HK$0.412 represented (i) a premium of approximately 37.3% to the lowest closing price per Share during the Review Period; and (ii) a discount of approximately 1.9% to average closing price per Share during the Review Period.

We noted from the graph above that the share price maintained a general upward trend from 22 September 2017 to 16 January 2018. However, save for the positive profit alert announcement of the Company dated 16 November 2017, we are not aware of any reason for such increase based on our research on the Company’s announcements. The Share price then decreased to HK$0.37 per Share on 30 January 2018 and then maintained an increasing trend to HK$0.45 per Share on 14 May 2018. However, we are not aware of any reason for such increase based on our research on the Company’s announcements. The Share price then increased sharply to HK$0.53 per Share on 23 May 2018 and then decreased back to HK$0.43 per Share on 13 June 2018. Thereafter, the Share price maintained in a range of HK$0.45 per Share on 20 June 2018 to HK$0.46 per Share on 20 September 2018, being the day prior to the date of the Agreement. During that period, the fluctuation on the Share price is limited and the issue price of the Consideration Shares are within the range of the Share price during the Review Period.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Historical trading volume of the Shares

Set out in the table below are the monthly trading volumes of the Shares and the percentages of such monthly trading volumes to the issued share capital of the Company during the Review Period:

					Approximate
					percentage of
					average daily
					trading
					volume
		Maximum	Minimum		to total
		daily	daily	Average daily	number
		trading	trading	trading	of Shares in
	Total trading	volume	volume	volume	issue at the
	volume for the	for the	for the	for the	corresponding
	month/period	month/period	month/period	month/period	month
2017
September_(Note1)_	15,310,200	5,162,400	210,700	2,551,700	0.062%
October	74,982,700	13,720,700	26,200	3,749,135	0.090%
November	50,403,300	7,700,900	266,900	2,291,059	0.055%
December	20,771,200	4,076,500	18,500	1,093,221	0.025%
2018
January	67,433,100	16,168,600	587,900	3,065,141	0.069%
February	27,951,162	8,223,200	35,500	1,552,842	0.035%
March	79,774,800	5,909,500	401,200	3,798,800	0.085%
April	52,254,100	6,741,800	18,800	2,750,216	0.062%
May	22,191,550	3,071,200	17,000	1,056,740	0.024%
June	21,214,145	7,793,100	25,645	1,060,707	0.024%
July	16,230,900	3,732,400	–	772,900	0.017%
August	22,441,303	2,929,300	8,000	975,709	0.022%
September_(Note 2)_	23,771,400	4,012,000	42,000	1,584,760	0.036%

Notes:

1. The Review Period commenced on 22 September 2017

2. The Review Period ended on 21 September 2018

Source: HKEx website

– 65 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the table above, during the Review Period, the average monthly trading volume of the Shares ranged between 772,900 Shares and 3,798,800 Shares, with an average of approximately 2,023,302 Shares. In addition, the percentage of monthly trading volume of the Shares during the Review Period ranged from approximately 0.017% to approximately 0.090% of the total number of Shares in issue as at its corresponding month. Hence, we consider that the trading of Shares did not appear to be active during the Review Period. Given the low liquidity of the Shares during the Review Period, we consider that it may be difficult for the Group to obtain favourable terms on other ways of equity financing such as rights issue or open offer for the Acquisition.

(c) Market Comparable

In further assessing the fairness and reasonableness of the terms of the Consideration Shares, based on the information available from the Stock Exchange’s website, we have identified an exhaustive list of 15 transactions announced by companies listed on the Stock Exchange (excluding H-shares listed companies and companies suspended for trading) since 22 March 2018 and including the date of the Agreement (the “ CS Comparable(s) ”) for comparison purposes. For the purpose of our analysis, we selected transactions which are acquisitions involving issue of shares (partly or fully) under specific mandate in settlement of the relevant consideration. We consider that the selection of comparable companies within a 6-month period is sufficient and appropriate for our analysis as it has covered the prevailing market conditions and sentiments in the Hong Kong stock market at the time which the terms of the issue of the Consideration Shares were determined.

Taking into account that the terms of the CS Comparables are determined under similar market conditions and sentiments as the issue of the Consideration Shares, we consider that the CS Comparables may reflect the recent market trend of acquisitions involving issuance of shares as full or partial settlement of consideration. As such, we consider the CS Comparables are fair and representative samples in our analysis. It should be noted that all the companies involved in the CS Comparables may have different principal activities, market capitalisation, profitability, and financial position as compared with those of the Company. Circumstances leading the issue of consideration shares of the CS Comparables may differ from that of the Company. The analysis is meant to be used as a general reference to similar types of transactions in Hong Kong, and we consider them to be one of the appropriate basis to assess the fairness and reasonableness of the issue price of the Consideration Shares.

– 66 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

										Approximate
										premium/
										(discount) of
										conversion
										price over/
									Approximate	to the average
									premium/	closing price
									(discount) of	for the last 5
									conversion price	consecutive
									over/to the	trading days
									closing price of	prior to the
				No. of					the shares as at	release of the
				Consideration			Amount		the last trading	announcement
			Connected	Shares/No. of			settled by	Potentially	day prior to the	up to and
Date of	Company Name		Transaction	Existing issued	Market	Total	Consideration	trigger a change	release of the	including the
Announcement	(Stock code)	Principal Activities	(Y/N)	shares	Capitalisation	Consideration	Shares	in control	announcement	last trading day
				(%)	(approx. HK$)	(approx. HK$)	(approx. HK$)	(Y/N)	(%)	(%)
									(approx.)	(approx.)
9/16/2018	eFORCE Holdings	Manufacture and sale of healthcare	N	22.07%	1,537,098,141	596,980,656	298,490,328	N	–6.10%	–4.23%
	Limited (943)	and household products, coal mining
		business, production, sale of organic
		agricultural and fertiliser products and
		money lending business
8/28/2018	Birmingham Sports	Operation of a professional football club	Y	7.59%	1,053,510,881	127,200,000	78,800,000	N	–6.20%	–7.90%
	Holdings Limited	in the United Kingdom
	(2309)
8/28/2018	Tongda Group Holdings	Design and production of the casings	Y	2.90%	7,115,813,510	291,720,000	291,720,000	N	30.08%	22.89%
	Limited (698)	and components of handsets,
		electrical appliances, ironware parts,
		communication facilities and other
		products, and the provision of a wide
		range of casings made by high precision
		plastic, metal and composite materials
8/13/2018	China Literature	Online literature business, and is a	Y	16.98%	46,000,674,879	15,500,000,000	10,394,972,400	N	19.40%	19.49%
	Limited (772)	pioneer of China’s online literature
		market and operates the leading online
		literature platforms.
8/10/2018	Artgo Holdings Limited	Business of mining, processing, trading	N	8.72%	848,548,707	120,000,000	90,000,000	N	8.43%	11.39%
	(3313)	and sale of marble stones and trading
		of commodities.
8/7/2018	HKBN Ltd. (1310)	Provision of fibre high-speed broadband	N	30.42%	13,294,913,325	548,756,860	3,548,819,204	N	–5.38%	–5.48%
		service in Hong Kong, offering
		a diversified portfolio of premier
		telecom services to both residential
		and enterprise markets
7/30/2018	V1 Group Limited (82)	Development of the tele-media business	Y	26.30%	1,602,804,126	630,000,000	251,202,380	N	–40.42%	–40.42%
7/20/2018	Zhong An Real Estate	Property development, leasing and hotel	N	9.72%	1,908,366,720	409,410,819	409,410,819	N	122.52%	111.47%
	Limited/China New	operation in the PRC
	City Commercial
	Development Limited
	(672/1321)
7/5/2018	China Baoli Technology	Mobile technologies business, leisure-	Y	23.37%	1,809,448,329	471,660,000	471,660,000	N	–22.58%	–15.00%
	Holdings Limited	related business including tourism
	(164)	and hospitality, gamma ray irradiation
		service, and securities trading
		and investment.
6/25/2018	ENN Energy Holdings	Operation and management of gas	Y	3.55%	85,700,828,797	3,194,122,681	3,194,122,681	N	–1.23%	4.49%
	Limited (2688)	pipeline infrastructures, vehicle and ship
		refuelling stations and integrated energy
		projects, the sales and distribution of
		piped gas, liquefied natural gas and
		other multi-energy products, and energy
		trading business and provision of other
		services in relation to energy supply in
		the PRC.
6/19/2018	Kiu Hung international	(i) manufacturing and trading of toys	N	20.96%	210,869,921	200,000,000	170,000,000	N	170.27%	146.31%
	Holdings Limited	and gifts; (ii) exploration of natural
	(381)	resources; and (iii) investment in
		various potential businesses including
		fruit plantation, leisure and culture

– 67 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

										Approximate
										premium/
										(discount) of
										conversion
										price over/
									Approximate	to the average
									premium/	closing price
									(discount) of	for the last 5
									conversion price	consecutive
									over/to the	trading days
									closing price of	prior to the
				No. of					the shares as at	release of the
				Consideration			Amount		the last trading	announcement
			Connected	Shares/No. of			settled by	Potentially	day prior to the	up to and
Date of	Company Name		Transaction	Existing issued	Market	Total	Consideration	trigger a change	release of the	including the
Announcement	(Stock code)	Principal Activities	(Y/N)	shares	Capitalisation	Consideration	Shares	in control	announcement	last trading day
				(%)	(approx. HK$)	(approx. HK$)	(approx. HK$)	(Y/N)	(%)	(%)
									(approx.)	(approx.)
6/5/2018	Jiayuan International	(i) the development and sale of residential	Y	0.79%	37,769,909,860	693,628,828	227,451,552	N	–3.54%	–5.16%
	Group Limited	and commercial properties; (ii) the
	(2768)	provision of development services
		to government organisations for the
		development of resettlement properties
		and development or refurbishment of
		other types of properties, facilities
		or infrastructure; and (iii) the leasing
		of commercial properties owned or
		developed by the Group
5/24/2018	China Grand	Research and development, manufacturing	Y	6.04%	16,575,183,902	1,901,000,000	760,493,828	N	–33.75%	–32.81%
	Pharmaceutical	and sales of pharmaceutical
	Healthcare Holdings	preparations, pharmaceutical
	Limited (512)	intermediates, specialised pharmaceutical
		raw materials and healthcare products.
5/9/2018	Inspur International	Software Development and providing	Y	16.35%	4,020,390,180	951,988,532	370,471,059	N	–2.93%	–2.21%
	Limited (596)	outsourcing software services
4/26/2018	Madison Holdings	(i) the retail sales and wholesales of	N	4.98%	6,938,960,122	470,862,000	392,385,000	N	0.00%	2.00%
	Group Limited	wine products and other alcoholic
	(8057)	beverages; and (ii) the provision of
		financial services including corporate
		financial advisory services and asset
		management services
	The Consideration Shares								–9.50%	–9.80%
								Average	–4.94%	–4.07%
								Maximum	30.08%	22.89%
								Minimum	–40.42%	–40.42%

Note:

1. As the issue prices of Zhong An Real Estate Limited/China New City Commercial Development Limited and Kiu Hung international Holdings Limited had exceptional premium to its respective closing prices of the shares, we consider that they are an outlier and are hence excluded in our analysis.

– 68 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the above table of the CS Comparables, the issue prices of all of the CS Comparables to the relevant closing price as at the last trading day prior to the release of the announcement relevant issue price ranged from a premium of approximately 30.08% to a discount of approximately 40.42%, with an average discount of approximately 4.94%. We note that the issue price of HK$0.412 represents a discount of approximately 9.50% to the closing price of the Shares on the date of the Agreement, being the date of announcement of the issue price, and such discounts fall within the abovementioned range of the CS Comparables. Further, the issue prices of all of the CS Comparables to the relevant average closing price for the five trading days immediately prior to the day of announcement of the issue price or last trading day ranged a premium of approximately 22.89% to a discount of approximately 40.42%, with an average discount of approximately 4.07% and the issue price of HK$0.412 represents a discount of approximately 9.80% to the average of the last five consecutive trading days immediately prior to the date of signing of the Agreement and discount fall within the relevant range of the CS Comparables.

Despite the issue price represents a discount to the average closing price of the Shares during the Review Period and the discount of the issue price is deeper than that of the average of the CS Comparables, taking into consideration that (i) the issue price of the Consideration Shares are within the range of the Share price during the Review Period; (ii) the thin liquidity of the Shares during the Review Period; (iii) the discount of the issue price fall within the range of that of the CS Comparables; (iv) the profit making status of the Target Group for the three years ended 31 December 2017 as discussed in section “1.4 Background information of the Target Group”; (v) the significant level of inventory consisted in the assets of the Target Group; (vi) the Consideration is at a discount to the Adjusted NAV of the Target Group and is hence fair and reasonable as far as the Independent Shareholders are concerned as discussed in the above section “2.2 Fairness and reasonableness on the Consideration”; and (vii) the Acquisition is in the interests of the Company and the Shareholders as a whole as discussed in the above section “1.5 Reasons for and benefits of the Acquisition”, we consider that the terms of the Consideration Shares are on normal commercial terms and are fair and reasonable as far as the Independent Shareholders are concerned.

2.4 The Convertible Bonds

Set out below is the summarised key terms of the Convertible Bonds and please refer to the Letter from the Board for details:

Issuer:	The Company
Subscriber:	Primary Partner (or its nominee(s))
Principal amount:	HK$500 million

– 69 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Maturity date:
Interest rate:
Conversion Price:
Conversion Shares:
Redemption:

The day falling the fifth anniversary of the date of issue of the Convertible Bonds, provided that if such date is not a Business Day, the Business Day immediately after such date

1% per annum, payable annually in arrears
The Initial Conversion Price shall be HK$0.412 per Conversion Share, subject to adjustment arising from alteration of the nominal amount of the Shares caused by share consolidation, share subdivision, rights issue or any other reasons as provided in the terms and conditions of the Convertible Bonds.
Based on the Initial Conversion Price of HK$0.412 per Conversion Share, a maximum of 1,213,592,233 Conversion Shares will be allotted and issued upon exercise of the conversion rights attaching to the Convertible Bonds in full. The 1,213,592,233 Conversion Shares represent approximately 27.2% of the existing issued share capital of the Company as at the Latest Practicable Date and represent approximately 19.7% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares and the Conversion Shares in full.

The Company may voluntarily redeem all or any part of the Convertible Bonds at any time following the issue of the Convertible Bonds and prior to the maturity date by repaying the holder(s) of the Convertible Bonds all outstanding principal amount together with unpaid interest accrued thereon up to the date of voluntary redemption. Holder(s) of the Convertible Bonds has/have no right to require the Company to redeem the Convertible Bonds, whether on the maturity date or otherwise.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Initial Conversion Price was determined after arm’s length negotiation between Primary Partner and the Company with reference to a discount of 10% to 5-day average closing prices of the Shares as quoted on the Stock Exchange up to and including the date of the Agreement. The Directors consider that the Initial Conversion Price is fair and reasonable and in the interests of the Company and its Shareholders as a whole. The Initial Conversion Price of HK$0.412 per Conversion Share represents:

(i) a discount of approximately 9.5% to the closing price of HK$0.455 per Share as quoted on those Stock Exchange on the date of the Agreement;
(ii) a discount of approximately 9.8% to the average of the closing prices of HK$0.457 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Date; and
(iii) a discount of approximately 9.7% to the average of the closing prices of HK$0.4565 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Date.
(iv) a discount of approximately 7.4% to the closing price of HK$0.445 per Share as quoted the Stock Exchange on the Latest Practicable Date.

In assessing the fairness and reasonableness of the terms of the Convertible Bonds, based on the information available from the Stock Exchange’s website, we have identified an exhaustive list of 11 transactions announced by companies listed on the Stock Exchange (excluding H-shares listed companies and companies suspended for trading) since 22 March 2018 and including the date of the Agreement, being the date of announcement of the issue price (the “ CB Comparable(s) ”) for comparison purpose. For the purpose of our analysis, we selected transactions which are acquisitions involving issue of convertible bonds (partly or fully) under specific mandate in settlement of the relevant consideration. We consider that the selection of comparable companies within an approximate 6-month period is sufficient and appropriate for our analysis as it has covered the prevailing market conditions and sentiments in the Hong Kong stock market at the time which the terms of the issue of the Consideration Shares were determined.

Taking into account that the terms of the CB Comparables are determined under similar market conditions and sentiments as the issue of the Consideration Shares, we consider that the CB Comparables may reflect the recent market trend of transactions, which is also an acquisition involving issuance of convertible bond as full or partial settlement of consideration. As such, we consider the CB Comparables are fair and representative samples for comparison. It should be noted that all the companies involved in the CB Comparables may have different principal activities, market capitalisation, profitability, and financial position as compared with those of the Company. Circumstances leading to issue convertible bond of the CB Comparables may differ from that of the Company. The analysis is meant to be used as a general reference to similar types of transactions in Hong Kong, and we consider them to be one of the appropriate basis to assess the fairness and reasonableness of the terms of the Convertible Bonds.

– 71 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

												Approximate
											Approximate	premium/
											premium/	(discount) of
											(discount) of	conversion price
											conversion price	over/to the
											over/to the	average closing
											closing price of	price for the last
											the shares as at	5 consecutive
											the last trading	trading days
											day prior to the	prior to the
											release of the	release of the
											announcement up	announcement up
					Total issued			Amount Settled			to and including	to and including
Date of	Company Name (Stock		Connected		shares as at	Market	Consideration	by Convertible			the last trading	the last trading
Announcement	Code)	Principal Activities	Transaction		21/09/2018	Capitalisation	Amount	Security	Maturity Period	Interest Rate	day	day
			(Y/N)			(HK$)	(HK$)	(HK$)	(year)	(%)	(%)	(%)
										(approx.)	(approx.)	(approx.)
3/8/2018	Value Convergence	(i) Provision of financial services		N	1,119,874,675	907,098,487	160,000,000	160,000,000	3	2%	–44.68%	–45.52%
	Holdings Limited (821)	including securities, futures
		and options brokering and
		dealing, margin financing and
		money lending, and placing and
		underwriting services, corporate
		financial advisory services and
		asset management services; and
		(ii) proprietary trading including
		the trading of equity securities,
		debt securities and other financial
		products.
3/20/2018	LT Commercial Real	Securities investments and financing		N	687,877,084	4,601,897,692	4,500,000,000	4,500,000,000	perpetual	2%	–7.22%	–3.23%
	Estate Limited (112)	and property investment and
		development
5/29/2018	Hospital Corporation of	Hospital management business and		Y	138,194,000	2,349,298,000	773,879,717	773,879,717	5	0.00%	–0.50%	2.25%
	China Limited (3869)	general hospital business in China.
5/30/2018	GR Properties Limited	Property development and investments		Y	3,191,873,986	2,553,499,189	1,541,320,000	1,180,059,200	perpetual	1.00%	2.96%	–0.37%
	(108)	in the PRC, the United States of
		America and the United Kingdom,
		and the provision of property
		management services in Beijing, the
		PRC.
6/5/2018	Renhe Commercial	Business operations of seven		Y	57,155,930,569	14,288,982,642	6,506,024,217	6,506,024,217	10	0.00%	–2.98%	–2.51%
	holdings Company	agricultural produce markets in
	Limited (1387)	the PRC. The Markets engage in
		the wholesaling and distribution of
		primarily vegetables and also fruits,
		seafood, meat, grain and oil and
		other food produce
6/29/2018	Value Convergence	(i) Provision of financial services		N	1,119,874,675	907,098,487	257,200,000	257,200,000	3	2.00%	–71.72%1	–72.06%1
	Holdings Limited (821)	including securities, futures
		and options brokering and
		dealing, margin financing and
		money lending, and placing and
		underwriting services, corporate
		financial advisory services and
		asset management services; and
		(ii) proprietary trading including
		the trading of equity securities,
		debt securities and other financial
		products.
7/30/2018	V1 Group Limited (82)	Development of the tele-media		Y	3,339,175,262	741,296,908	630,000,000	172,355,040	4	0.00%	–35.00%	–35.00%
		business
7/31/2018	Xiezhong International	Design, production and sale of		Y	800,000,000	1,168,000,000	437,370,000	218,685,000	3	8.00%	–1.96%	0.81%
	holdings Limited	automotive HVAC systems and
	(3663)	a range of automotive HVAC
		components, and the provision of
		technical testing and related services
8/7/2018	HKBN Ltd (1310)	Provision of fibre high-speed		N	1,005,666,666	13,294,913,325	3,548,819,204	1,940,937,656	perpetual	0.00%	–5.38%	–5.34%
		broadband service in Hong Kong,
		offering a diversified portfolio of
		premier telecom services to both
		residential and enterprise markets

– 72 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

												Approximate
											Approximate	premium/
											premium/	(discount) of
											(discount) of	conversion price
											conversion price	over/to the
											over/to the	average closing
											closing price of	price for the last
											the shares as at	5 consecutive
											the last trading	trading days
											day prior to the	prior to the
											release of the	release of the
											announcement up	announcement up
					Total issued			Amount Settled			to and including	to and including
Date of	Company Name (Stock		Connected		shares as at	Market	Consideration	by Convertible			the last trading	the last trading
Announcement	Code)	Principal Activities	Transaction		21/09/2018	Capitalisation	Amount	Security	Maturity Period	Interest Rate	day	day
			(Y/N)			(HK$)	(HK$)	(HK$)	(year)	(%)	(%)	(%)
										(approx.)	(approx.)	(approx.)
9/11/2018	Hong Kong Finance	Property development and investment,		Y	4,000,000,000	4,280,000,000	2,200,000,000	2,050,000,000	3	0.00%	13.64%	11.86%
	Investment Holdings	trading of electronic products, oil
	Group Limited (7)	and gas exploration and production,
		mineral mining, and provision of
		financial services.
9/21/2018	HuaJun International	Provision of: (i) sale and		Y	60,669,220	1,331,689,379	205,200,000	205,200,000	5	1.50%	72.73%1	77.32%1
	Group Limited (377)	manufacturing of high quality
		multi-colour packaging products,
		carton boxes, books, brochures and
		other paper products; (ii) trading
		and logistics; (iii) provision of
		financial services; (iv) property
		development and investments; and
		(v) manufacturing and sales of
		photovoltaic products
	The Convertible Bonds								5	1.00%	–9.50%	–9.80%
								Average	5	1.44%	–9.01%	–8.56%
								Maximum	perpetual	8.00%	13.64%	11.86%
								Minimum	3	0.00%	–44.68%	–45.52%

Note:

1. As the conversion prices of Value Convergence Holdings Limited and HuaJun International Group Limited had exceptional premium/discount to its respective closing prices of the shares, we consider that they are an outlier and hence are excluded from the analysis.

– 73 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted from the above table that the conversion prices of the CB Comparables ranged from a premium of approximately 13.64% to a discount of approximately 44.68%, with an average discount of approximately 9.01%, to the respective closing prices of their shares as at the last trading day prior to the release of the announcement up to and including the last trading day, of the conversion price. As such, the Initial Conversion Price which is at a discount of approximately 9.50%, falls within the range. Further, the conversion prices of all of the CB Comparables to the relevant average closing price for the five trading days immediately prior to the day of announcement of the conversion price or last trading day ranged from a premium of 11.86% to a discount of approximately 45.52%, with an average discount of approximately 8.56% and the Initial Conversion Price of HK$0.412 represents a discount of approximately 9.80% to the average of the last five consecutive trading days immediately prior to the date of signing of the Agreement and discounts fall within the relevant range of the CB Comparables. Although the discount of the Initial Conversion Price to the closing prices of the Company is deeper than the average of CB Comparables, taking into account (i) the Acquisition is in the interests of the Company and the Shareholders as a whole as discussed in section “1.5 Reasons for and benefits of the Acquisition”; (ii) the profit making status of the Target Group for the three years ended 31 December 2017 as discussed in section “1.4 Background Information of the Target Group”; (iii) the significant level of inventory consisted in the assets of the Target Group; and (iv) the Consideration is at a discount to the Adjusted NAV of the Target Group, we are of the opinion that the Initial Conversion Price is in line with the recent market practice and is considered fair and reasonable. Further, we noted that the interest rates of the CB Comparables ranges from nil interest rate to 8.00% per annum while the maturity of the CB Comparables ranged from 3 years to perpetual with an average of 5 years. The interest rate of 1% per annum of the Convertible Bonds falls within the market range of the CB Comparables. We therefore consider that the interest rate of the Convertible Bonds is fair and reasonable; while the duration of the Convertible Bonds of 5 years is in line with the aforesaid CB Comparables, we consider the maturity of the Convertible Bonds to be fair and reasonable.

Given that (i) the Initial Conversion Price is the same of the Issue Price; (ii) the Initial Conversion Price falls is in line with the recent market practice as discussed above; (iii) other terms of the Convertible Bond such as interest rate and maturity are also in line with the recent market practice; we consider that the terms of the Convertible Bond are on normal commercial terms and are fair and reasonable as far as the Independent Shareholders are concerned.

– 74 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. POSSIBLE DILUTION EFFECT ON SHAREHOLDING INTEREST OF THE PUBLIC SHAREHOLDERS

As at the Latest Practicable Date, the Company has 4,458,901,088 Shares in issue. Set out below is the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after the issue of the Consideration Shares; and (iii) immediately after the issue of the Consideration Shares and full conversion of the Convertible Bonds (assuming no further Shares will be issued or repurchased from the Latest Practicable Date up to the date upon which the Convertible Bonds are fully converted):

Shareholders United Century_(Note) King Partner(Note)_ Primary Partner Mr. Guo and his concerted parties Public shareholders Total	As at the Latest Practicable Date No. of Shares Approx. % 2,581,054,801 57.9 320,414,201 7.2 – – 2,901,469,002 65.1 1,557,432,086 34.9 4,458,901,088 100.0	Immediately after the issue of the Consideration Shares No. of Shares Approx.% 2,581,054,801 52.2 320,414,201 6.5 485,436,893 9.8 3,386,905,895 68.5 1,557,432,086 31.5 4,944,337,981 100.0	Immediately after the issue of the Consideration Shares and full conversion of the Convertible Bonds No. of Shares Approx. % 2,581,054,801 41.9 320,414,201 5.2 1,699,029,126 27.6 4,600,498,128 74.7 1,557,432,086 25.3 6,157,930,214 100.0

From the table above, the shareholding interests of the public Shareholders would be diluted by approximately 9.6% after the issue of the Consideration Shares and the full conversion of the Convertible Bonds from approximately 34.9% to approximately 25.3%. In this regard, taking into account (i) the reasons for and benefits of the Acquisition; and (ii) the terms of the Agreement and the transactions contemplated thereunder being fair and reasonable, we are of the view that the said level of dilution to the shareholding interests of the public Shareholders after the issue of the Consideration Shares and the full conversion of the Convertible Bonds is acceptable.

– 75 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. POTENTIAL FINANCIAL EFFECTS AS A RESULT OF THE ACQUISITION

We were advised by the Directors that upon the Completion, the Target Group will become an indirect wholly-owned subsidiary of the Company and its financial results, assets and liabilities will be consolidated into the financial statements of the Group.

The unaudited pro forma financial information on the Enlarged Group as included in Appendix IV to the Circular (the “ Pro Forma Financial Information ”) has been prepared by the Directors for illustrative purposes only, based on their judgments, estimations and assumptions, and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group had the Acquisition been upon completion in any future periods or on any future dates.

Effect on revenue and earnings

As extracted from the 2018 Annual Report, the revenue of the Group amounted to approximately HK$707.7 million. If the Acquisition had taken place on 1 April 2017, it is expected that the revenue of the Enlarged Group will increase to approximately RMB1,193.1 million due to revenue contribution from the Target Group for the year ended 31 December 2017. For the gross profit, as extracted in the 2018 Annual Report, the Group recorded a gross profit of approximately HK$353.0 million for the year ended 31 March 2018. It is expected that the Enlarged Group would record an increase in gross profit to approximately RMB411.1 million as a result of the inclusion of gross profit of the Target Group for the year ended 31 December 2017. However, the profit of the Enlarged Group would decrease to approximately RMB55.0 million which was mainly due to (i) the elimination of results of subsidiaries from the Target Group of approximately RMB157.1 million; (ii) change in fair value of convertible bonds of approximately RMB34.5 million and recognition of interest on promissory notes of approximately RMB46.3 million.

Effect on financial positions

As extracted from the 2018 Interim Results, the audited consolidated total assets and total liabilities of the Group were approximately HK$7,556.5 million and HK$4,424.4 million as at 30 September 2018 respectively. According to the Pro Forma Financial Information, the unaudited consolidated total assets and total liabilities of the Enlarged Group would be approximately RMB15,782.9 million and RMB12,485.6 million respectively as if the Acquisition had taken place on 30 September 2018. The substantial increase in total assets is mainly due to the inventory of the properties including the Properties while the substantial increase in total liabilities is mainly due to (i) increase in contract liabilities of approximately RMB1,582.5 million; (ii) increase in amounts due to related parties of approximately RMB816.6 million and (iii) increase in bank and other borrowings of approximately RMB3,715.2 million. As a result of foregoing, the net assets of the Enlarged Group would increase by approximately 19.9% to approximately RMB3,297.3 million.

– 76 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Effect on liquidity and gearing ratio

As extracted from the 2018 Interim Results, the unaudited cash and cash equivalents of the Group amounted to approximately HK$257.1 million as at 30 September 2018. According to the Pro Forma Financial Information, the unaudited consolidated bank balances and cash of the Enlarged Group would be decreased to approximately RMB190.5 million as if the Acquisition had taken place on 30 September 2018 due to cash payment of approximately RMB175.7 million for the Acquisition. As at 30 September 2018, the gearing ratio of the Group (i.e. net debts, comprising bank borrowings, bonds and notes payable less cash and cash equivalent, divided by total equity) was approximately 23.7%. According to the Pro Forma Financial Information, the gearing ratio of the Enlarged Group would increase to approximately 159.3% as if the Acquisition had taken place on 30 September 2018 which was mainly due to significant increase in bank borrowings recorded by the Target Group and the issue of the Promissory Note and the Convertible Bonds.

As discussed above, the Enlarged Group would record an increase in revenue, gross profit and net assets. In contrast, the Enlarged Group would record a lower profit as well as liquidity and higher gearing ratio. Despite the aforesaid, after further taking into consideration in points as discussed in section “1.4 Background information on the Target Group” and “1.5 Reasons for and benefits for the Acquisition” above, we consider that the Acquisition is in the interest of the Company and the Shareholders as a whole.

5. CONNECTED TRANSACTIONS AFTER THE COMPLETION OF ACQUISITION

As at the Latest Practicable Date, certain members of the Target Group has provided corporate guarantees to various entities (the “ CP Group ”) that were indirectly wholly-owned or controlled by Mr. Guo or Ms. Shum, the sister-in-law of Mr. Guo, to guarantee the payment obligations of the bank loans (the “ Loans ”) obtained by the CP Group. As Mr. Guo is an executive Director, the chairman of the Board and a controlling Shareholder and Ms. Shum is a deemed connected person of the Company under Rule 14A.21 (1) (a), each of the entities of the CP Group is an associate of Mr. Guo or Ms. Shum and therefore a connected person of the Company. Upon Completion, members of the Target Group will become subsidiaries of the Enlarged Group. As such, any provision of corporate guarantee (the “ Corporate Guarantee ”) by the Enlarged Group to the CP Group after Completion will constitute connected transactions (the “ Connected Transactions ”) of the Company under Chapter 14A of the Listing Rules, and is subject to the approval of the Independent Shareholders at the SGM.

As at the Latest Practicable Date, the outstanding Loans which were guaranteed by members of the Target Group amounted to approximately RMB1,358.6 million. None of the Loans is overdue. Please refer to the Letter from the Board for the details of the corporate guarantees which were provided by members of the Target Group to the CP Group as at the Latest Practicable Date.

As advised by the Directors, an aggregate principal amount of RMB1,110 million (i.e. accounting for 78.7% of the Loans) guaranteed by the Enlarged Group are secured by first charge of the properties held by the CP Group (the “ Charged Properties ”). As at August 2018, the appraised value of the Charged Properties amounted to RMB1,815.3 million, which exceeds the principal amount of the respective Loans guaranteed by the Enlarged Group. On this basis, the Company is of the view that in the event of default of any of these Loans, the creditor(s) will enforce their security rights in respect of the Charged Properties and the risk for them to enforce their rights against other security provided by Mr. Guo or the Corporate Guarantee is low.

– 77 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE SUPPLEMENTAL DEED

The Corporate Guarantees will become contingent liability of the Enlarged Group upon Completion. In the event that any of the Corporate Guarantees is enforced and that the Enlarged Group shall settle any of the Loans on behalf of the CP Group.

(i) Any amount that shall be borne by the Enlarged Group under the Corporate Guarantees will be set off against (a) the equivalent sum of amount payable owed by the Enlarged Group to Mr. Guo and/or the CP Group and/or any companies under the control of Mr Guo and his associates; and (b) in the event that the Enlarged Group does not owe any balance to Mr. Guo and his controlled entities or such a balance is insufficient to cover the amount paid and any loss incurred by the Enlarged Group, Mr. Guo has undertaken to indemnify the Enlarged Group in full on the shortfall in cash on a dollar-to-dollar basis (the “ Indemnities ”);
(ii) Mr. Guo undertakes not to demand or in any manner require the Enlarged Group to repay any amount due by the Enlarged Group to Mr. Guo and/or the CP Group and/ or any companies under the control of Mr. Guo and his associates which amounted to approximately RMB686 million (the “ Amount Due to CP Group ”) as at the Latest Practicable Date;
(iii) the Promissory Note in the principal amount of HK$600 million (equivalent to approximately RMB527 million) and the Convertible Bonds in the principal amount of HK$500 million (equivalent to approximately RMB439 million) shall upon Completion be delivered to and held in escrow by an escrow agent to be jointly appointed by Mr. Guo (as the sole shareholder of Primary Partner) and the Company;
(iv) the Amount Due to CP Group, the Promissory Note and the Convertible Bonds in the aggregate amount of approximately RMB1,652 million will be charged as first charge in favour of the Company; and
(v) the Amount Due to CP Group, the outstanding principal amounts of the Promissory Note and/or the Convertible Bonds held in the escrow account shall at all times exceed the aggregate amount of the outstanding loan(s) of the CP Group being guaranteed by the Enlarged Group (the “ Minimum Escrow Balance ”). For avoidance of doubt, Mr. Guo is entitled to (a) demand a repayment of the Amount Due to CP Group or (b) withdraw the Promissory Note and/or the Convertible Bonds held in the escrow account, and/or release the charge thereon provided the Minimum Escrow Balance is maintained following such demand and withdrawal.

– 78 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As advised by the Directors, Grand Supreme, Mr. Guo and Primary Partner agreed that the Amount Due to CP Group, the Promissory Note and the Convertible Bonds in the aggregate amount of approximately RMB1,652 million will be charged as first charge in favour of the Company. As such, the Company’s legal advisor is in the opinion that as the Company will have priority over the charged assets, in the unlikely circumstance where the creditors try to freeze or monetize, this cannot be done.

Further, in order to safeguard the Enlarged Group from the potential liabilities arising from the Corporate Guarantees, the following internal control measures will be implemented: (i) the CP Group shall provide monthly updates to the Board on the status of the outstanding Loans; (ii) the Board can request the CP Group at any time to provide the Company with its latest financial information so as to allow the Company to assess and monitor the CP Group’s ability to repay the Loans; (iii) the parties to the Framework Agreement agreed that any amount paid and any loss incurred by the Enlarged Group in the event that the CP Group defaults in repayment of the Loans and the corporate guarantees are enforced shall first be set off against the equivalent sum of amount payable owed by the Enlarged Group to Mr. Guo and/or the CP Group and/or any companies under the control of Mr. Guo and his associates, and (iv) the Indemnities and the escrow arrangement as contemplated under the Supplemental Deed.

Taking into consideration that (i) the amount payable owed by the Enlarged Group to Mr. Guo and/or the CP Group and/or any companies under the control of Mr Guo and his associates; (ii) the Indemnities and the escrow arrangement as contemplated under the Supplemental Deed.; (iii) the appraised value of the Charged Properties exceeds the principal amount of the respective Loans guaranteed by the Enlarged Group; (iv) the Amount Due to CP Group, the Promissory Note and the Convertible Bonds in the aggregate amount of approximately RMB1,652 million will be charged as first charge in favour of the Company; and (v) the capability of Mr. Guo, as a controlling Shareholder of the Company with a market capitalisation of HK$2.03 billion as at the date of the Agreement, to indemnify the Enlarged Group for the shortfall, we concur with the view of the Directors that such internal control policies are sufficient to safeguard the Enlarged Group’s interest.

After taking into consideration that (i) the Corporate Guarantees is to observe the contractual obligations of the Loans and the Connected Transactions is to comply with the Listing Rules; (ii) the continuation of the Corporate Guarantees is part and parcel to the Acquisition as the lenders of the loans disagreed to amend the existing terms of the Loans; (iii) the points as discussed in section “1.5 Reasons for and benefits for the Acquisition” above and (iv) the internal control measures adopted by the Group is sufficient to safeguard the Enlarger Group’s interests, we concur with the view of the Directors that the Connected Transactions (together with the internal measures taken) are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 79 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having taken into account the above-mentioned principal factors and reasons, we are of the opinion that the Acquisition is in the ordinary and usual course of the business of the Group and in the interests of the Company and the Shareholders as a whole, and the terms of the Agreement (including the issue of the Promissory Note, the Convertible Bonds, the allotment and issue of the Consideration Shares and the Conversion Shares under the Specific Mandate and the Connected Transactions) are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to recommend the Independent Shareholders, to vote in favour of the resolutions to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder (including the Connected Transactions).

Yours faithfully, For and on behalf of Messis Capital Limited Vincent Cheung Managing Director

Mr. Vincent Cheung is a licensed person registered with the Securities and Futures Commission and regarded as a responsible officer of Messis Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has over 10 years of experience in corporate finance industry.

The English name is a translation of its Chinese name and is included for identification purposes only.

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL STATEMENTS OF THE GROUP

The financial information of the Group for the three financial years ended 31 March 2016, 31 March 2017 and 31 March 2018 respectively was set out in the annual reports of the Company which are available on the website of the Stock Exchange set out below:

Annual report of the Company for the year ended 31 March 2016 published on 20 July 2016 (pages 71 to 172)
(hyperlink: http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0720/ LTN20160720240.pdf)
Annual report of the Company for the year ended 31 March 2017 published on 24 July 2017 (pages 90 to 200)
(hyperlink: http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0724/ LTN20170724495.pdf)
Annual report of the Company for the year ended 31 March 2018 published on 23 July 2018 (pages 92 to 224)
(hyperlink: http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0723/ LTN20180723331.pdf)

The above annual reports are also available at the website of the Company at http://www. chinasandi.com.hk.

2. INDEBTEDNESS

Statement of indebtedness

As at 31 October, 2018, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Enlarged Group had outstanding indebtedness as summarised below.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		The Target	The Enlarged
	The Group	Group	Group
	31 October 2018	31 October 2018	31 October 2018
	RMB’000	RMB’000	RMB’000
Bank and other borrowings	705,000	3,448,000	4,153,000
Bonds payable	9,700	–	9,700
Total borrowings	714,700	3,448,000	4,162,700
Secured borrowings	705,000	3,448,000	4,153,000
Unsecured borrowings	9,700	–	9,700
	714,700	3,448,000	4,162,700
Guaranteed borrowings	623,000	3,185,000	3,808,000
Unguaranteed borrowings	91,700	263,000	354,700
	714,700	3,448,000	4,162,700

The securities provided by the Group of the above mentioned secured borrowings were certain investment properties and properties under development for sale. The guaranteed borrowings of the Group were guaranteed by the Company, Mr. Guo Jiadi and his spouse.

The securities provided by the Target Group of the above mentioned secured borrowings were pledged bank deposits, inventory of properties, investment properties, prepaid lease payments and property, plant and equipment of the Target Group. The guaranteed borrowings of the Target Group were guaranteed by the Target Group, Mr. Guo Jiadi, spouse of Mr. Guo Jiadi and/or related companies controlled by Mr. Guo Jiadi.

At 31 October 2018, the amounts due to non-controlling shareholders of subsidiaries, related parties and an associate of the Enlarged Group were RMB239 million, RMB1,150 million and RMB15 million, respectively. The amounts were unsecured and unguaranteed.

The Enlarged Group provided guarantees to banks in favour of their customers in respect of the mortgage loans with outstanding balance of RMB39 million provided by the banks to such customers for the purchase of their developed properties.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Enlarged Group provided guarantees (including guarantees of approximately RMB1,000 million to connected persons of the Company) to banks or financial institutions in connection with the loan facilities granted to the related companies with outstanding balance of RMB1,132 million controlled by Mr. Guo Jiadi.

Save as disclosed above and apart from intra-group liabilities, the Group and the Target Group did not, as of the close of business on 31 October 2018, have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits or hire purchase commitments, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

3. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGERD GROUP

The Group

The Company is an investment holding company. The Group is principally engaged in property development and holding of property for investment and rental purpose as well as money lending business. Currently, the Group owns a shopping mall in Fuzhou as an investment property.

The Group is also engaged in property development in Fujian Province and Shaanxi Province, the PRC. The Group currently own i) a commercial and hotel property development project named Fuzhou Sandi Chuangfu Plaza（福州三迪創富廣場）in Fuzhou City, Fujian Province; ii) a residential and commercial property development project named Wuyishan Sandi New Times Square（武夷山三迪新時代廣場）in Wuyishan City, Fujian Province; and iii) a residential and commercial property development project named Qujiang Xiangsong Fengdan • Xian Sandi（西安三迪•曲江香頌楓丹）in Xian City, Shaanxi Province.

For the year ended 31 March 2018, the Group recorded revenue of approximately HK$707.7 million (2017: HK$297.6 million). The Group’s revenue is primarily generated from property development, property leasing and property management services, which contributed approximately HK$594.2 million and HK$113.4 million of the revenue for the year ended 31 March 2018 respectively.

For the six months ended 30 September 2018, the Group recorded revenue of approximately HK$90.7 million (2017: HK$473.8 million). The Group’s revenue is primarily generated from property development, property leasing and property management services, which contributed approximately HK$20.3 million and HK$70.4 million of the revenue for the period ended 30 September 2018 respectively.

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Target Group

The Target Group is engaged in property development, holding of property for investment, sale and rental purpose mainly in the Shanghai, Fujian Province, Shaanxi Province and Jilin Province. Upon completion of the Acquisition, the Target Company will become an indirect wholly-owned subsidiary of the Company and the subsequent financial result of the Target Group will be consolidated into the Group’s consolidated financial statements.

The Target Group is confident in the long term prospects of the property sector in the PRC. The Target Group intends to continue to focus on development projects in and around Shanghai, Fujian Province, Shaanxi Province and Jilin Province and continue to look for opportunities to replenish its land bank should the right opportunities arise. In light of the growth of the Mainland China property market, the Target Group endeavours to strengthen its property development platform with an aim to enrich its portfolio and broaden its income stream.

4. SUFFICIENCY OF WORKING CAPITAL

The Directors are of the opinion that, after taking into account the Acquisition and the financial resources available to the Enlarged Group (including but not limited to internally generated funds, cash and cash equivalents and facilities available), the Enlarged Group has sufficient working capital for its present requirement, that is for at least the next 12 months from the date of this circular.

5. MATERIAL ADVERSE CHANGE

The Directors confirm that save for the disclosures made in the profit warning announcement dated 16 November 2018 and the interim results announcement dated 29 November 2018 for the six months ended 30 September 2018, there had been no material change in the financial or trading position of the Group since 31 March 2018, being the date to which the latest published audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date.

– I-4 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

(A) MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

This section summaries the management discussion and analysis of the Group.

Set out below is the management discussion and analysis of the business and results of operations of the Groups for the year ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018 (the “Track Record Period”).

MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP

Business and Financial Results of the Group

Revenue

For the years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, respectively, the Group recorded revenue from of approximately HK$109.8 million, HK$297.6 million (restated), HK$707.7 million and HK$90.7 million, respectively, which mainly comprised of rental and property management income derived from Sandi Plaza and sales of properties located in Xi’an and Fuzhou. The increase in revenue for the year ended 31 March 2018 was mainly due to the increase in gross floor area (GFA) sold and delivered to the buyers and increase in rental income as a result of the increase in occupancy rate of Sandi Plaza.

Change in fair value of investment properties

For the years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, respectively, the Group recognised net fair value gain of HK$96.7million, net fair value losses of HK$81.1 million, net fair value gain of HK$2.8 million and net fair value loss of HK$1.2 million, respectively. Such change of fair value mainly attributable from the Group’s investment properties located in Fuzhou.

Other net gains/(losses)

Other net gains/(losses) amounted to approximately net gain of HK$75.5 million, net losses of HK$52.4 million, net gains of HK$21.7 million and HK$Nil for years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, respectively. The net gains/(losses) mainly represented the fair value gains/(losses) on investments held for trading.

– II-1 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

Other operating expenses

For the year ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, the Group recorded other operating expenses in the amount of approximately HK$50.5 million, HK$85.2 million (restated), HK$91.3 million and HK$94.4 million, respectively. The other operating expenses mainly included various administrative and selling expenses. The reason for the increase in 2016 and 2017 was mainly due to the increase in selling and marketing costs which mainly attributable from the increase in sales of properties of the Group.

Finance costs

The finance costs of the Group mainly comprise of interests on notes payable, bonds payables and bank borrowings. For years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, the Group recorded finance costs amounted to approximately HK$64.4 million, HK$94.1 million (restated) and HK$54.2 million and HK$50.9 million, respectively. For the year ended 31 March 2017, the finance costs was mainly due to the increase in the amount of borrowings. While for the year ended 31 March 2018, the decrease in finance costs mainly due to the decrease in interest on notes payable as the notes payable were early redeemed in January 2017.

Income tax (expense)/credit

Income tax expense mainly comprises the PRC enterprise income tax and land appreciation. For years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, the Group recorded tax expenses of HK$35.7 million, tax credit of HK$10.3 million, tax expenses of HK$91.0 million respectively and tax expenses of HK$4.7 million. The substantial increase was represented by the provision of PRC enterprise income tax and land appreciation tax which was mainly attributable to the sales of properties recognised during the year.

Profit/(loss) for the year

The net profit or loss for the years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, amounted to profit of HK$160.6 million, loss of HK$176.0 million (restated), profit of HK$160.8 million and loss of HK$83.4 million, respectively.

Financial position and other financial information of Group

As at 31 March 2016, 31 March 2017, 31 March 2018 and 30 September 2018, the Group had:

(i) investment properties of approximately HK$3,860.9 million, HK$3,551.7 million, HK$3,953.0 million and HK$3,604.2 million respectively, which mainly represents the Group’s investment properties located in Fuzhou –Sandi Plaza;

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APPENDIX II MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

(ii) property, plant and equipment of approximately HK$8.1 million, HK$6.4 million (restated), HK$5.3 million (restated) and HK$5.0 million, respectively, which mainly consisted of buildings, furniture and fixtures, leasehold improvement, office equipment and motor vehicles;
(iii) property under development of approximately HK$250.5 million, HK$305.7 million (restated), HK$358.2 million (restated) and HK$327.8 million, respectively, The balances primarily consists of Zone B of Fuzhou Sandi Chuangfu Plaza;
(iv) property under development for sale sand held for sales of approximately HK$769.7 million, HK$1,045.0 million (restated), HK$1,249.2 million (restated) and HK$2,238.3 million, respectively. The balances primarily consists of Phase 1 & 2 of Qujiang Xiangsong Fengdan • Xian Sandi;
(v) other receivables, deposits paid and prepayments of approximately HK$28.5 million, HK$88.2 million(restated), HK$1,072.6 million (restated) and HK$472.6 million respectively which mainly represents x) prepayment for construction costs and y) deposits for acquisition of land for properties development for sales;
(vi) investments held for trading of approximately HK$216.5 million, HK$164.1 million, HK$125.7 million and HK$Nil respectively, represented equity and debt securities which have been acquired principally for the purpose of selling in the near term;
(vii) cash and cash equivalents of approximately HK$427.3 million, HK$40.8 million (restated), HK$201.6 million (restated) and HK$257.1 million respectively;
(viii) current liabilities of approximately HK$1,057.2 million, HK$1,165.1 million (restated), HK$1,987.1million (restated) and HK$2,936.1 million, respectively, which mainly consist of accounts and other payables, advances received from pre-sales of properties, income tax payable, amounts due to related companies, notes payable and bank borrowings due within one year; and
(ix) non-current liabilities of approximately HK$1,593.6 million, HK$1,771.9 million (restated), HK$1,813.1million (restated) and HK$1,488.3 million, which mainly consist of bank borrowings due after one year and deferred tax liabilities arising from fair value changes of the investment properties.

Capital structure

The capital structure of the Group consists of debt and equity of the Company, comprising of share capital and reserves.

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

The Group utilises mainly equity and debt financing to finance its operating activities. Equity fund raising included rights issue and issuance of warrant shares. Debt financing mainly including bank borrowings, bonds and notes payable. As at 31 March 2016, 31 March 2017, 31 March 2018 and 30 September 2018, bank borrowings, bonds and notes payable in the sum of approximately HK$1,340.6 million, HK$1,409.9 million (restated) and HK$1,240.4 million (restated) and HK$999.1 million.

Gearing Ratio

As at 31 March 2016, 31 March 2017, 31 March 2018 and 30 September 2018, the gearing ratio of Group was 20.9% (restated), 39.7% (restated) and 26.6%, 21.3% respectively, which was calculated based on net debts, comprising bank borrowings, bonds payable and note payables less cash and cash equivalent and investments held for trading, divided by total equity.

Contingent liabilities

As at 31 March 2016, 31 March 2017, 31 March 2018 and 30 September 2018, the Group did not have any material contingent liabilities.

Pledge of assets

As at 31 March 2016, 31 March 2017, 31 March 2018 and 30 September 2018, the Group had pledged a total value of approximately HK$5,108.2 million (restated), HK$4,902.4 million (restated), HK$5,560.4 million and HK$3,604.2 million respectively of its investment properties, properties under development, properties under development for sale and properties held for sale in order to secure the Group’s bank borrowings.

Foreign exchange exposure

During the financial years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, the Group has transactional currency exposures. Such exposures arise from the business operations in the PRC and Hong Kong denominated in RMB and HK$ respectively. The functional currency of the Company and certain of its subsidiaries which operate in Hong Kong as investment holding companies or companies providing corporate services to other group entities is HK$. The functional currency of the Company’s principal operating subsidiaries in the PRC is RMB.

The Group does not have a foreign currency hedging policy in respect of its foreign currency assets and liabilities. The Group will closely monitor its foreign currency exposure and will consider using hedging instruments in respect of significant foreign currency exposure as and when appropriate.

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

Employees

As at 31 March 2016, 31 March 2017, 31 March 2018 and 30 September 2018, the Group employed a total of 21, 88, 84 and 119 employees respectively. In addition to competitive remuneration package offered to the employees, other benefits included contributions to mandatory provident fund, as well as group medical and accident insurance. Ongoing training sessions were also conducted to enhance the competitiveness of the Group’s human assets. The Company also maintains a share option scheme, pursuant to which share options may be granted to the Directors, executives and employees of the Company to provide them with incentives in the growth of the Group.

Hedging

During the financial years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, the Group did not hold any financial instruments for hedging purposes.

Significant investments held

The Target Group held investment properties to earn rental income, which are valued by external property valuer. As at 31 March 2016, 31 March 2017, 31 March 2018 and 30 September 2018, the Group had investment properties of approximately HK$3,860.9 million, HK$3,551.7 million, HK$3,953.0 million and HK$3,604.2 million. All investment properties are situated in the PRC.

Material acquisitions and disposals of subsidiaries and associated companies

During the financial years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months ended 30 September 2018, the Group had the following material acquisitions and disposals of subsidiaries and associated companies:

On 15 December 2016, Fujian Sinco Industrial Co., Ltd (the “Fujian Sinco”), an indirect wholly-owned subsidiary of the Group, entered into an agreement with Fuzhou Gaojia Real Estate Development Co., Ltd (the “Fuzhou Gaojia”), a company under the control of a substantial shareholder of the Group. Pursuant to which Fujian Sinco agreed to acquire and the Fuzhou Gaojia agreed to sell 95% of the equity interests of Fujian Jingdu Land Co., Ltd, the (the “Fujian Company”) at an aggregate consideration of RMB455,816,462 (the “Fujian Acquisition”).

Concurrent with the Fujian Acquisition, Fujian Sinco and Fuzhou Gaojia entered into another agreement pursuant to which the Purchaser agreed to acquire and the Vendor agreed to sell 95% of the equity interests of Xian Sandi Real Estate Development Co., Ltd (the “Xian Company”) at an aggregate consideration of RMB202,437,651 (the “Xian Acquisition”).

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

Further details are set out in the Company’s announcements dated 15 December 2016, 19 June 2017, and the Company’s circular dated 16 March 2017. The above transactions constituted major and connected transactions to the Company and have been approved by the Company’s independent shareholders at the Company’s extraordinary general meeting held on 7 April 2017. The Fujian Acquisition and Xian Acquisition were completed in May 2017 and June 2017 respectively.

On 9 August 2018, Fujian Sinco and Grand International Development Limited (“the Grand International”), both being wholly-owned subsidiaries of the Company entered the into a cooperation agreement (the “Cooperation Agreement”) with Xi’an Chongfeng Real Estate Company Limited, an independent third party of the Group, whereby, among other things, (i) Fujian Sinco and Grand International shall make capital contribution of RMB6,200,000 and US$30,000,000 (equivalent to RMB201,000,000) to the Xi’an Zhichengda Real Estate Company Limited (the “Xi’an Zhichengda” or “Target Company”) in cash; (ii) Fujian Sinco and Grand International shall provide the shareholder’s loan of RMB360,900,000 to the Target Company; and (iii) Fujian Sinco shall provide the advance of RMB50,000,000 to the representatives, which hold 26% equity interests (the “Representatives”) in the through the Target Company. On the same date, Fujian Sinco and Grand International entered into the Memorandum with Zhongnan Jiafeng, Chongfeng Real Estate and the Representatives in relation to certain matters regarding the cooperation for the Land Parcels. Upon completion of the Capital Contribution, the Group will be interested in the Target Company of 37%.

The principal assets of the Target Company are three parcels of land located at the south of Zhenghe Jiu Road, the west of Tai’an Road, the east of Taiping Road and the north of Zhenghe Lu Road, Fengdong New Town, Xixian District, Xi’an with a total site area of approximately 182,646 square metres for residential and commercial uses and the total construction GFA would be approximately 625,630 square metres (the “Land Parcels).The portion of the Land Parcels for residential purpose has a land use rights of 70 years while the portion of the Land Parcels for commercial purpose has a land use rights of 40 years.

On 28 September 2018, the Group paid up the registered capital in the aggregate amount of RMB207,200,000 in full and, the Group is interested in the Xi’an Zhichengda as to 37%. The interests in Xi’an Zhichengda is accounted for as an associate in the financial statements of the Group.

Further details are set out in the announcement of the Company dated 9 August 2018.

Saved as disclosed above, there was no other material acquisitions and disposals of subsidiaries and associated companies by the Group during the financial years ended 31 March 2016, 31 March 2017, 31 March 2018 and six months period ended 30 September 2018.

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

Segmental information

Details of the segment reporting of the Group for the financial years ended 31 March 2016, 31 March 2017, 31 March 2018 are set out in note 9 of the consolidated financial statements for year ended 31 March 2016, note 9 of the consolidated financial statements for year ended 31 March 2017, note 10 of the consolidated financial statements for year ended 31 March 2018 respectively.

Future plans for material investments

Saved for the Acquisition, as at 31 March 2018, the Group did not have any future plans for material investments or acquisitions of capital assets.

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Business and Financial Results of the Target Group

All Excel is a company incorporated in the BVI and is principally engaged in investment holding.

All Excel holds the entire equity interest in Guoshi Properties which in turn owns the entire equity interest in Guoshi Sandi. Guoshi Sandi, through its direct wholly-owned subsidiary, Guoshi Investment, holds the entire equity interests in Fuzhou Gaojia. All Excel, Guoshi Properties, Guoshi Sandi, Guoshi Investment and Fuzhou Gaojia are principally engaged in the businesses of investment holding. Fuzhou Gaojia, through its subsidiaries incorporated in the PRC, is engaged in property development, holding of property for investment, sale and rental purpose mainly in the Shanghai, Fujian Province, Shaanxi Province and Jilin Province.

For the financial years ended 31 December 2015, 31 December 2016 and 31 December 2017 and six months period ended 30 June 2018 respectively, the Target Group recorded:

(i) revenue of approximately RMB404.5 million, RMB2,144.2 million, RMB863.9 million, and RMB76.8 million respectively, which mainly comprised of sale of completed properties and rental income derived from investment properties;

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APPENDIX II MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

(ii) gross profit of approximately RMB104.7 million, RMB636.5 million, RMB133.6 million and RMB34.9 million respectively, and gross profit margin of 25.9%, 29.7%, 15.5% and 45.5%, respectively. The general increases in gross profit margins in 2016 was driven primarily by the completion and delivery of Phase 1 of Sandi Manhattan located in Shanghai, which generally commanded higher selling prices and result in higher gross profits margin. The decrease in our gross profit margin in 2017 as compared to that in 2016 was primarily due to the fact that the increases in both construction costs per sq.m. and land acquisition costs per sq.m. were larger than the increase in the average selling price per sq.m. of the properties the Target Group delivered. And there is an increase in gross profit margin in 2018, which mainly attributable from increase in selling prices per sq.m. in Shaanxi region;
(iii) with respect to other income and other gain, primarily comprise bank interest income, exchange gain, fair value gain on investment properties and gains on disposal of subsidiaries. Fair value on investment properties mainly contributed from Shaanxi Province and Fujian Province. In 2017, a gain on disposal of subsidiaries of RMB172.3 million was recognised, such gain arising from disposal of two subsidiaries, namely Xian Sandi Real Estate Development Co., Ltd and Fujian Jingdu Land Co., Ltd respectively;
(iv) selling and distribution expenses of approximately RMB69.6 million, RMB66.3 million, RMB48.7 million and RMB21.8million, which comprise primarily sales commissions paid to independent third-party sales agents and staff costs in relation to our selling and marketing staff. Selling and distribution expenses also include expenses for advertisements and promotion offers made directly to our customers;
(v) administrative expenses of approximately RMB36.5 million, RMB66.3 million and RMB48.7 million and RMB29.2 million respectively, which mainly comprise of utility charges, administrative staff costs, transportation and entertainment expenses, rental expenses, general office expenses, legal and professional expenses, other taxes, depreciation;

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APPENDIX II MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

(vi) finance costs of approximately RMB19.8 million, RMB30.4 million, RMB9.1 million and RMB45.0 million, respectively, Finance costs comprise primarily interest costs on bank loans and other borrowings net of capitalized borrowing costs relating to properties under development to the extent that such costs are directly attributable to the acquisition and construction of a project or project phase. The capitalization of borrowing costs relating to property under development commences when the construction of a property starts and ceases when the construction work is completed;
(vii) income tax expense of approximately RMB149.4 million, RMB242.9 million, RMB63.3 and RMB25.5 million respectively, which primarily comprise of PRC corporate income tax expense and LAT expense of our PRC subsidiaries.
(viii) a profit after tax of RMB284.9 million, a profit after tax of RMB377.9 million, a profit after tax of RMB177.0 million and a loss after tax of RMB20.8 million respectively. The profit after taxation was mainly contributed from x) sales of properties and y) fair value gain from change in fair value of investment properties/upon transfer from inventories to investment properties.

Financial position and other financial information of Target Group

As at 31 December 2015, 31 December 2016, 31 December 2017 and 30 June 2018, the Target Group had:

(i) property, plant and equipment of approximately RMB106.5 million, RMB98.7 million RMB86.1 million and RMB145.4 million, respectively, which mainly consisted of buildings, furniture and fixtures, leasehold improvement, office equipment and motor vehicles;
(ii) investment properties of approximately RMB1,184.7 million, RMB1,390.1 million, RMB1,458.5 million and RMB1,523.1 million, respectively, which represents the office and shopping complex, kindergarten and certain carpark area held for lease;
(iii) inventories of properties of approximately RMB3,013.1 million, RMB4,034.4 million, RMB4,196.7 million and RMB5,012.3 million respectively, which represents x) properties held for sales and y) properties under development for sales. The balances primarily consists of Phase IIA & IIB, Sandi Manhattan andPhase II of Sandi Century Property New City.

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APPENDIX II MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

(iv) trade receivables, other receivables and prepayments of approximately RMB674.4 million, RMB900.0 million, RMB747.1 million and RMB716.7 million respectively, which mainly represents x) prepayment for construction costs and y) deposits for acquisition of land for properties development for sales;
(v) restricted bank deposits of approximately RMB45.2 million, RMB69.4 million RMB27.2 million and RMB21.8 million, respectively, which are placed to certain banks as securities of the bank borrowings obtained by the Target Group;
(vi) bank balances and cash of approximately RMB246.7million, RMB133.3 million, RMB113.8 million and RMB150.1 million, respectively;
(vii) current liabilities of approximately RMB4.4 billion, RMB4.8 billion, RMB4.4 billion and RMB5.1 billion, respectively, which mainly consist of trade and other payables, deposits received from sales of properties, income tax payable, amounts due to related companies and bank and other borrowings due within one year; and
(viii) non-current liabilities of approximately RMB1.3 billion, RMB2.6 billion, RMB2.8 billion and RMB2.7 billion, respectively, which mainly consist of bank and other borrowings due after one year and deferred tax liabilities arising from fair value changes of the investment properties.

Capital structure

The capital structure of the Target Group consists of debt and equity. The Target Group utilises debt financing and internal generated cash to finance its operating activities, mainly bank and other borrowings. The borrowings of approximately RMB1.8 billion, RMB3.3 billion, RMB3.8 billion and RMB3.7 billion respectively as at 31 December 2015, 31 December 2016, 31 December 2017 and 30 June 2018 respectively, were denominated in RMB and bore interest rates ranging from 5.2% to 14% per annum.

Gearing Ratio

As at 31 December 2015, 31 December 2016, 31 December 2017 and 30 June 2018, the gearing ratio of Target Group was 26.9%, 37.1%, 42.7% and 39.8%, respectively, which was calculated based on Target Group’s total interest bearing borrowings of approximately RMB1.8 billion, RMB3.3 billion, RMB3.8 billion and RMB3.7 billion respectively, to total assets of approximately RMB6.7 billion, RMB8.9 billion, RMB8.9 billion and RMB9.3 billion respectively.

– II-10 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

Contingent liabilities

As at 31 December 2015, 31 December 2016, 31 December 2017 and 30 June 2018, the contingent liabilities of Target Group amounted to approximately RMB2.3 billion, RMB2.7 billion, RMB 2.4 billion and RMB2.7 billion respectively, relating to x) mortgage facilities granted to purchasers of the Target Group’s properties; y) financial guarantees given by the Target Group to financial institutions in favour of its related parties controlled by the ultimate-controlling shareholder.

Pledge of assets

As at 31 December 2015, 31 December 2016, 31 December 2017, and 31 December 2018, the Target Group had pledged a total value of approximately RMB3.0 billion, RMB5.4 billion, RMB5.0 billion and RMB5.7 billion respectively of its inventory of properties, investment properties, prepaid lease payments and property, plant and equipment, in order to secure bank and other borrowings for the Target Group and related companies controlled by the ultimate controlling shareholder.

Foreign exchange exposure

During the financial years ended 31 December 2015, 31 December 2016, 31 December 2017 and six months period ended 30 June 2018, almost all the business transactions, assets and liabilities of the Target Group were denominated in RMB. The functional currency of the Company and its principal operating subsidiaries are RMB. Director of the Company considers that the Target Group’s currency exchange risk is within acceptable range. Therefore, no hedging devices or other alternative have been implemented.

Employees

As at 31 December 2015, 31 December 2016, 31 December 2017 and 30 June 2018, the Target Group employed a total of 299, 275, 241 and 250 employees, respectively. Staff recruitment and promotion of Target Group are primarily based on the employee’s experience, potential and performance. The remuneration and staff benefit policies are also performancebased and are determined with reference to the competitive market salary levels.

Hedging

During the financial years ended 31 December 2015, 31 December 2016, 31 December 2017 and 30 June 2018, the Target Group did not hold any financial instruments for hedging purposes.

– II-11 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

Significant investments held

The Target Group held investment properties to earn rental income, which are valued by external property valuer. As at 31 December 2015, 31 December 2016, 31 December 2017, and 30 June 2018, the Target Group had investment properties of approximately RMB1.2 billion, RMB1.4 billion, RMB1.5 billion and RMB1.5 billion. All investment property are situated in the PRC.

Material acquisitions and disposals of subsidiaries and associated companies

During the financial years ended 31 December 2015, 31 December 2016 and 31 December 2017, and 30 June 2018, the Target Group had the following material acquisitions and disposals of subsidiaries and associated companies:

(i) On 25 May 2016, the Baoji Sandi Property Development Co. Ltd., which the Target Company had 91.7% indirect equity interest, entered into a sale and purchase agreement with an independent third party to dispose of its 100% equity interest in Baoji Dongxiang Industry Co., Ltd for a cash consideration of RMB5,000,000. The disposal was completed in June 2016;
(ii) On 30 June 2017, the Baoji Sandi Property Development Co., Ltd., which the Target Company had 91.7% indirect equity interest, entered into a sale and purchase agreement with an independent third party to dispose of its 100% equity interests in Baoji Sandi Cinema Management Co., Ltd for a consideration of RMB26,000,000 The disposal was completed in December 2017.
(iii) On 15 December 2016, the Fuzhou Gaojia, which the Target Company had 91.7% indirect equity interest, entered into agreements with the Company pursuant to which each of the 95% equity interest of Fujian Jingdu Land Co., Ltd. (the “Fujian Jingdu “) and 95% equity interest of Xian Sandi Real Estate Development Co., Ltd (the “Xian Sandi). held by Fuzhou Gaojia were disposed to China Sandi Holdings Limited at a consideration of RMB196,000,000 and RMB95,000,000 respectively. The disposal of Fujian Jingdu and Xian Sandi were completed in May 2017 and June 2017 respectively.

Segmental information

The Target Group is principally engaged in property development, property investment and hotel operation, and has identified its operating segments to three core segments: property development, property investment and hotel operation.

– II-12 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP AND THE TARGET GROUP

APPENDIX II

The following table sets forth the amount of revenues generated from the sales of our of properties, property leasing and property management services, and hotel operation and the amount of such revenues as a percentage of our total revenue for the periods indicated:

Revenue Sales of Properties Rental of investment properties Hotel Operation Others Total	For the year ended 31 December 2015 2016 2017 RMB’000 % of revenue RMB’000 % of revenue RMB’000 % of revenue 382,077 94.5% 2,100,269 98.0% 818,698 94.8% 13,547 3.3% 18,073 0.8% 18,300 2.1% 8,391 2.1% 11,156 0.5% 11,767 1.4% 504 0.1% 14,686 0.7% 15,116 1.7% 404,519 100% 2,144,184 100% 863,881 100%	For the six months ended 30 June 2018 RMB’000 % of revenue 52,996 69.0% 12,161 15.8% 6,332 8.3% 5,286 6.9% 76,775 100%	For the six months ended 30 June 2018 RMB’000 % of revenue 52,996 69.0% 12,161 15.8% 6,332 8.3% 5,286 6.9% 76,775 100%
			100%

Property development

The revenue from property development was mainly generated from sales of properties from various property projects, namely Phase 1 of Sandi Manhattan, Phase I Sandi Century New City and Shouchuang International Plaza.

Property investment

The revenue from property investment was mainly generated from rental of investment properties and relevant management services from office and shopping complex, kindergarten and certain carpark area held for lease.

Hotel Operation

The Target Group mainly carry out its hotel operation through its subsidiaries in Baoji city, Shaanxi Province.

Future plans for material investments

As at 30 June 2018, the Target Group did not have any future plans for material investments or acquisitions of capital assets.

– II-13 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The following is the text of a report set out on pages I-1 to I-138, received from the Target Company’s reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this investment circular.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF CHINA SANDI HOLDINGS LIMITED

Introduction

We report on the historical financial information of All Excel Industries Limited (the “Target Company”) and its subsidiaries (together, the “Consolidated Group”) set out on pages III-4 to III138, which comprises the consolidated statements of financial position of the Consolidated Group as at 31 December 2015, 2016, 2017 and 30 June 2018, the statements of financial position of the Target Company as at 31 December 2017 and 30 June 2018, and the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Consolidated Group for each of the three years ended 31 December 2017 and the six months ended 30 June 2018 (the “Track Record Period”) and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages III4 to III-138 forms an integral part of this report, which has been prepared for inclusion in the investment circular of China Sandi Holdings Limited (the “Company”) dated 26 December 2018 (the “Circular”) in connection with the proposed very substantial acquisition of the entire issued capital of the Target Company.

Sole Director’s responsibility for the Historical Financial Information

The sole director of the Target Company is responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information, and for such internal control as the director of the Target Company determines is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

The directors of the Company are responsible for the contents of this Circular in which the Historical Financial Information of the Consolidated Group is included, and such information is prepared based on accounting policies materially consistent with those of the Company.

Reporting accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 “Accountants’ Reports on Historical Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

– III-1 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the director, as well as evaluating the overall presentation of the Historical 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 the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the Consolidated Group’s financial position as at 31 December 2015, 2016, 2017 and 30 June 2018 and of the Target Company’s financial position at 31 December 2017 and 30 June 2018 and of the Consolidated Group’s financial performance and cash flows for the Track Record Period in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the Consolidated Group which comprises the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the six months ended 30 June 2017 and other explanatory information (the “Stub Period Comparative Financial Information”). The director of the Target Company is responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review 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 of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purpose of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

– III-2 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Report on matters under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page I-4 have been made.

Dividends

We refer to note 12 to the Historical Financial Information which states that no dividends have been paid or declared by the Target Company and the group entities in respect of the Track Record Period.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 26 December 2018

– III-3 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

HISTORICAL FINANCIAL INFORMATION OF THE CONSOLIDATED GROUP

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The consolidated financial statements of the Consolidated Group for the Track Record Period, on which the Historical Financial Information is based, have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards issued by the HKICPA and were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA (“Underlying Financial Statements”).

The Historical Financial Information is presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand (“RMB’000”) except when otherwise indicated.

– III-4 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

HISTORICAL FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

NOTES Revenue Goods and services 5 Rental of investment properties Total revenue Cost of sales and services Gross profit Other income 7 Gain on disposal of subsidiaries 31 Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Selling and distribution expenses Administrative expenses Finance costs 8 Share of results of associates 17 Profit before taxation Income tax expenses 9 Profit (loss) for the year/period 10 Profit (loss) for the year/period attributable to: Owners of the Target Company Non-controlling interests	2015 RMB’000 614,026 16,444 630,470 (453,239) 177,231 5,344 – 4,440 455,624 (84,269) (88,102) (55,087) 2,391 417,572 (169,194) 248,378 234,912 13,466 248,378	Year ended 31 December Six months ended 30 June 2016 2017 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 2,319,703 1,201,677 710,969 147,043 20,503 21,528 12,506 14,525 2,340,206 1,223,205 723,475 161,568 (1,635,744) (1,020,677) (633,225) (97,051) 704,462 202,528 90,250 64,517 4,863 4,346 3,655 4,159 11 172,265 159,413 – 48,510 52,846 1,016 65,220 93,709 18,142 18,142 – (78,664) (62,266) (24,514) (28,393) (93,356) (96,085) (47,783) (45,891) (63,913) (38,810) (15,659) (56,802) 1,637 (565) (189) – 617,259 252,401 184,331 2,810 (253,966) (78,556) (46,365) (29,212) 363,293 173,845 137,966 (26,402) 336,372 176,112 133,511 (16,775) 26,921 (2,267) 4,455 (9,627) 363,293 173,845 137,966 (26,402)

– III-5 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

NOTES Other comprehensive expense: Items that will not be classified to profit or loss – Fair value loss on investments in equity instruments at fair value through other comprehensive income – Income tax relating to items that will not be reclassified to profit or loss Other comprehensive expense for the year/period, net of income tax Total comprehensive income (expense) for the year/period Total comprehensive income (expense) attributable to: Owners of the Target Company Non-controlling interests	2015 RMB’000 – – – 248,378 234,912 13,466 248,378	Year ended 31 December Six months ended 30 June 2016 2017 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) – – – (2,914) – – – 729 – – – (2,185) 363,293 173,845 137,966 (28,587) 336,372 176,112 133,511 (18,960) 26,921 (2,267) 4,455 (9,627) 363,293 173,845 137,966 (28,587)

– III-6 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

NOTES NON-CURRENT ASSETS Property, plant and equipment 15 Investment properties 16 Interests in associates 17 Available-for-sale financial assets 18 Equity instruments at fair value through other comprehensive income (“FVTOCI”) 18 Prepaid lease payments 19 Deferred tax assets 29 CURRENT ASSETS Inventory of properties 20 Other inventories Prepaid lease payments 19 Trade receivables, other receivables and prepayments 21 Financial assets at fair value through profit and loss (“FVTPL”) 22 Prepaid income tax Amounts due from associates 38 (b) Amounts due from non- controlling shareholders of subsidiaries 38 (b) Amounts due from related parties 38 (b) Restricted bank deposits 23 Bank balances and cash 23	As at 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 486,705 457,492 421,237 1,263,040 1,476,890 1,564,870 115,971 117,608 117,043 49,000 49,000 64,316 – – – 129,214 704,451 684,420 26,322 15,737 11,985 2,070,252 2,821,178 2,863,871 3,557,832 4,569,151 4,489,022 892 990 1,820 4,800 20,031 20,031 1,354,836 1,277,996 1,031,641 3,000 – – 62,863 74,394 97,861 50 50 1,210 301,302 439,558 312,789 291,979 557,612 784,925 72,134 77,888 36,274 275,019 168,769 139,599 5,924,707 7,186,439 6,915,172	As at 30 June 2018 RMB’000 470,577 1,630,090 117,043 – 63,902 674,404 18,993 2,975,009 5,273,194 1,969 20,031 1,181,955 – 118,618 1,666 23,001 384,191 22,913 186,577 7,214,115

– III-7 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

NOTES CURRENT LIABILITIES Trade and other payables and accruals 24 Deposits received for sale of properties Contract liabilities 25 Income tax payable Amounts due to associates 38 (b) Amounts due to non- controlling shareholders of subsidiaries 38 (b) Amounts due to related parties 38 (b) Bank and other borrowings – due within one year 26 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES CAPITAL AND RESERVES Share capital 27 Reserves Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY	As at 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 1,478,833 1,772,227 1,428,551 1,383,699 1,033,669 728,237 – – – 163,240 326,169 232,515 106,000 99,640 99,640 84,771 85,016 85,261 1,225,501 1,251,145 1,075,598 778,200 893,294 1,261,553 5,220,244 5,461,160 4,911,355 704,463 1,725,279 2,003,817 2,774,715 4,546,457 4,867,688 – – – 913,732 1,250,104 1,426,216 913,732 1,250,104 1,426,216 280,890 307,811 334,944 1,194,622 1,557,915 1,761,160	As at 30 June 2018 RMB’000 1,347,464 – 1,672,670 158,136 99,645 119,761 935,601 1,286,563 5,619,840 1,594,275 4,569,284 – 1,511,353 1,511,353 101,753 1,613,106

– III-8 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

NOTES NON-CURRENT LIABILITIES Bank and other borrowings – due after one year 26 Deferred tax liabilities 29	As at 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 1,449,005 2,843,656 2,950,894 131,088 144,886 155,634 1,580,093 2,988,542 3,106,528 2,774,715 4,546,457 4,867,688	As at 30 June 2018 RMB’000 2,779,933 176,245 2,956,178 4,569,284

– III-9 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

STATEMENTS OF FINANCIAL POSITION OF THE TARGET COMPANY

Notes NON-CURRENT ASSET Investment in a subsidiary 30 CURRENT LIABILITY Amount due to a related party NET CURRENT LIABILITY TOTAL ASSET LESS CURRENT LIABILITY CAPITAL Share capital 27	As at 31 December 2017 RMB’000 – – – – –	As at 30 June 2018 RMB’000 – – – – –

All the above figures were less than 1,000.

– III-10 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

		Attributable to ow	ners of the Target Company	ners of the Target Company	ners of the Target Company	Total equity RMB’000 946,244
Share capital RMB’000 – – – – – – – – – – – –	Capital reserve RMB’000 (note i) 95,000 – – 95,000 – – 95,000 – – – 95,000 –	Deemed Statutory capital reserve contribution RMB’000 RMB’000 (note v) 69,892 – – – 36,774 – 106,666 – – – 43,947 – 150,613 – – – – – 12,766 – 163,379 – – –	Other reserve RMB’000 – – – – – – – – – – – –	FVTOCI reserve RMB’000 – – – – – – – – – – – –	Retained profits RMB’000 513,928 234,912 (36,774) 712,066 336,372 (43,947) 1,004,491 176,112 – (12,766) 1,167,837 (28,017)
						248,378 –
						1,194,622
						363,293 –
						1,557,915
						173,845 29,400 –
						1,761,160
						(30,557)

– III-11 –

APPENDIX III

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

		Attributable to ow	ners of the Target Company	ners of the Target Company	ners of the Target Company	Total equity RMB’000 1,730,603 (26,402) (2,185)
Share capital RMB’000 – – – – – – – – – – – – – –	Capital reserve RMB’000 (note i) 95,000 – – – 5,000 – – – 100,000 (100,000) 100,000 95,000 – 95,000	Deemed Statutory capital reserve contribution RMB’000 RMB’000 (note v) 163,379 – – – – – – – 14,117 – – 7,471 – – – – – – – – 177,496 7,471 150,613 – – – 150,613 –	Other reserve RMB’000 – – – – 91,989 – – – – – 91,989 – – –	FVTOCI reserve RMB’000 – – (2,185) (2,185) – – – – – – (2,185) – – –	Retained profits RMB’000 1,139,820 (16,775) – (16,775) 13,537 – – – – – 1,136,582 1,004,491 133,511 1,138,002
						(28,587) (52,381) 7,471 (53,800) 9,800 100,000 (100,000)
						1,613,106

						1,557,915
						137,966
						1,695,881

Notes:

(i) Prior to the group reorganisation (“Reorganisation”), 福州高佳房地產開發有限公司 (“Fuzhou Gaojia”), a PRC limited company, was 96.51% owned by 郭氏投資集團有限公司 (“Guoshi Investment”), a PRC limited company, which was 95% owned by Guo Jiadi (the “Ultimate Controlling Shareholder”) and 5% owned by 福建艾建商貿有限公司. 福建艾建商貿有限公司 is 100% owned by an independent investor. The remaining 3.49% equity interest in Fuzhou Gaojia was held by 福建艾建商貿有限公司. The capital reserve at 1 January 2015 represented the 95% registered capital of Guoshi Investment held by the Ultimate Controlling Shareholder.

– III-12 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

(ii) On 12 April 2018, Mr. Guo Jiadi acquired 5% equity interest in Guoshi Investment from 福建艾建商貿有限公司 at a consideration of RMB5,000,000 and Guoshi Investment acquired 3.49% equity interest in Fuzhou Gaojia from 福建艾建商貿有限公司 at a cash consideration of RMB47,381,400.
(iii) In May 2018, as part of the Reorganisation, 郭氏三迪（福建）置業有限公司 (“Guoshi Sandi”), an indirect wholly-owned PRC subsidiary of the Target Company, contributed RMB100,000,000 registered capital to Guoshi Investment. After the capital injection, Guoshi Investment was 50% held by Mr. Guo Jiadi and 50% held by Guoshi Sandi.
(iv) In June 2018, as part of the Reorganisation, Guoshi Investment undergone a capital reduction through the return of RMB100,000,000 registered capital to Mr. Guo Jiadi. Thereafter, Guoshi Investment becomes a wholly-owned subsidiary of Guoshi Sandi.
(v) In accordance with the Articles of Association of all subsidiaries established in PRC, those subsidiaries are required to transfer 10% of the profit after taxation to the statutory reserve until the reserve reaches 50% of the respective registered capital. Transfer to this reserve must be made before distributing dividends to equity holders. The statutory reserve can be used to make up for previous years’ losses, expand the existing operation or convert into additional capital of the subsidiaries.

– III-13 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year	ended 31 December	ended 31 December	Six months ended	30 June
	2015	2016	2017	2017	2018
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
OPERATING ACTIVITIES
Profit before tax	417,572	617,259	252,401	184,331	2,810
Adjustments for:
Depreciation of property, plant
and equipment	28,276	34,807	35,565	17,407	18,612
Release of prepaid lease
payments	4,913	18,762	20,031	9,703	10,016
Finance costs	55,087	63,913	38,810	15,659	56,802
Interest income	(443)	(1,387)	(981)	(384)	(249)
Investment income from
available-for-sale financial
assets/equity instruments at
FVTOCI	(3,875)	(2,556)	(2,974)	(2,974)	(2,806)
Impairment loss, net of reversal
inventory of properties	18,137	2,188	1,551	1,551	–
Share of results of associates	(2,391)	(1,637)	565	189	–
Change in fair value of
investment properties	(4,440)	(48,510)	(52,846)	(1,016)	(65,220)
Change in fair value upon transfer
from inventory of properties to
investment properties	(455,624)	(93,709)	(18,142)	(18,142)	–
Gain on disposal of subsidiaries	–	(11)	(172,265)	(159,413)	–

– III-14 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Operating cash flows before movements in working capital (Increase) decrease in inventory of properties Increase in other inventories Decrease (increase) in trade and other receivables and prepayments Increase (decrease) in trade and other payables and accruals Increase (decrease) in deposits received for sale of properties Increase in contract liabilities Cash generated from (used in) operations Income tax paid NET CASH FROM (USED IN) OPERATING ACTIVITIES	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 57,212 589,119 101,715 (597,354) (894,437) (644,867) (179) (98) (889) 81,161 26,032 119,941 25,552 124,788 588,102 861,145 (350,030) (305,432) – – – 427,537 (504,626) (141,430) (47,716) (78,185) (199,464) 379,821 (582,811) (340,894)	Six months ended 30 June 2017 2018 RMB’000 RMB’000 46,911 19,965 152,080 (593,118) (490) (149) (79,476) (527,751) 613,706 (11,543) (327,281) – – 862,771 405,450 (249,825) (141,284) (99,831) 264,166 (349,656)

– III-15 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

NOTE INVESTING ACTIVITIES Purchase of property, plant and equipment Additions of prepaid lease payments Proceeds on disposal of property, plant and equipment Advances to related parties Repayment from related parties Advances to non-controlling shareholders of subsidiaries Repayment from non-controlling shareholders of subsidiaries Advances to associates Repayment from associates Advances to third parties Repayment from third parties Receipt of deferred consideration Proceeds on disposal of subsidiaries 31 Redemption of financial assets at FVTPL Placement of restricted bank deposits Withdrawal of restricted bank deposits Investment income received from available-for-sale financial assets/equity instruments at FVTOCI Bank interest received Purchase of equity investments at FVTOCI NET CASH (USED IN) FROM INVESTING ACTIVITIES	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 (53,258) (5,792) (13,513) – (609,230) – – 198 16 (248,402) (327,477) (2,120,087) 116,985 61,844 1,949,506 (301,177) (309,248) (249,779) 66,570 170,992 376,548 – – (1,269) – – 109 (323,214) (82,456) (430,194) 309,037 133,284 345,059 – – – – (9) 252,365 6,000 3,000 – (63,210) (45,519) (42,139) 15,681 39,765 83,753 3,875 2,556 2,974 443 1,387 981 – – – (470,670) (966,705) 154,330	Six months ended 30 June 2017 2018 RMB’000 RMB’000 (989) (67,955) – – 9 3 (619,532) (1,164,191) 546,232 1,753,226 (141,979) (63,604) 169,159 353,392 (737) (456) 109 – (316,488) (132,891) 266,135 253,903 – 2,600 229,074 (7,755) – – (2,249) (7,579) 78,542 20,940 2,974 2,806 384 249 – (2,500) 210,644 940,188

– III-16 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

FINANCING ACTIVITIES Additions of bank and other borrowings Repayment of bank and other borrowings Interest paid Advances from non-controlling shareholders of subsidiaries Advances from associates Repayment to associates Advances from related parties Repayment to related parties Advances from third parties Repayment to third parties Acqusition of additional non- controlling interest from non- controlling shareholders Capital contributions from non- controlling shareholders of subsidiaries NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CAHS AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR/ PERIOD CAHS AND CASH EQUIVALENTS AT THE END OF YEAR/ PERIOD, represented by bank balances and cash	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 2,167,899 3,442,250 2,469,761 (1,352,893) (1,932,505) (1,464,564) (238,775) (254,614) (284,328) 14,459 245 245 44,920 21,200 – (23,720) (27,560) – 1,231,850 2,528,559 2,884,607 (1,537,118) (2,502,915) (3,154,726) 9,700 630,071 10,469,779 (60,055) (461,465) (10,792,780) – – – – – 29,400 256,267 1,443,266 157,394 165,418 (106,250) (29,170) 109,601 275,019 168,769 275,019 168,769 139,599	Six months ended 30 June 2017 2018 RMB’000 RMB’000 760,192 158,001 (893,542) (303,952) (139,046) (208,640) 245 34,500 – 100,005 – (100,000) 584,565 1,072,853 (584,956) (1,213,165) 4,045,885 74,969 (4,320,980) (115,544) – (52,381) – 9,800 (547,637) (543,554) (72,827) 46,978 168,769 139,599 95,942 186,577

– III-17 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

NOTES TO HISTORICAL FINANCIAL INFORMATION

1. GENERAL, BASIS OF PREPARATION AND PRESENTATION OF HISTORICAL FINANCIAL INFORMATION

The Target Company was a limited liability company incorporated in the British Virgin Islands (“BVI”) on 22 October 2017. It is wholly-owned by Primary Partner International Limited (the “Vendor”), a limited company incorporated in the BVI and is wholly-owned by Mr. Guo Jiadi, who is also the sole director of the Target Company. The Target Company acts as an investment holding company and principal activities of the subsidiaries and associates are set out in note 39 and note 17, respectively.

Prior to the group Reorganisation, Guoshi Investment was 95% owned by Mr. Guo Jiadi and 5% owned by 福建艾建商貿有限公司 which was wholly-owned by an independent investor, Fuzhou Gaojia was 96.51% owned by Guoshi Investment and 3.49% owned by 福建艾建商貿有限公司. The principal activities of Fuzhou Gaojia and its major subsidiaries are mainly engaged in the property development and investment and hotel operations in the PRC.

The below are the major steps for the Reorganisation:

On 9 November 2017, Guoshi Properties Limited (“Guoshi Properties”), a Hong Kong limited company was incorporated by the Target Company.
On 6 December 2017, Guoshi Sandi was established and wholly-owned by Guoshi Properties.
On 12 April 2018, Mr. Guo Jiadi acquired 5% equity interest in Guoshi Investment from 福建艾建商貿有限公司 at a consideration of RMB5,000,000.
On 12 April 2018, Guoshi Investment acquired 3.49% equity interest in Fuzhou Gaojia from 福建艾建商貿有限公司 at a consideration of RMB52,381,400.
On 12 April 2018, Guoshi Sandi injected capital of RMB100,000,000 to Guoshi Investment and obtained 50% shareholding in Guoshi Investment.
On 7 June 2018, Guoshi Investment undergone a capital reduction through the return of RMB100,000,000 registered capital to Mr. Guo Jiadi and the registered capital of Guoshi Investment was reduced from RMB200,000,000 to RMB100,000,000 accordingly. By then, Guoshi Investment becomes a wholly-owned subsidiary of Guoshi Sandi.
During the period from July 2018 to December 2018, Fuzhou Gaojia and 福建三迪投資有限公司 entered into certain sale and purchase agreements pursuant to which a number of subsidiaries of Fuzhou Gaojia were disposed to 福建三迪投資有限公司 at a total consideration of RMB755,321,000. Details of the disposed subsidiaries were set out in note 39.

– III-18 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Pursuant to the Reorganisation detailed in section “History and Background of the Consolidated Group-Reorganisation” in the Investment Circular, the Target Company became the holding company of all the companies now comprising the Consolidated Group on 7 June 2018. All the companies now comprising the Consolidated Group during the Track Record Period or since their respective dates of incorporation/ establishment were under common control of the Ultimate Controlling Shareholder before and after the Reorganisation and that control is not transitory. Hence, the Consolidated Group resulting from the Reorganisation as set out above is regarded as a continuing entity. The Historical Financial Information of the Consolidated Group has been prepared on the basis as if the Target Company had always been the holding company of the Consolidated Group using the principles of merger accounting in accordance with Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the HKICPA.

The consolidated statements of profit or loss and other comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of the Consolidated Group for the three years ended 31 December 2017 include the results, changes in equity and cash flows of the companies now comprising the Consolidated Group have been prepared as if the current group structure had been in existence throughout the Track Record Period, or since their respective dates of incorporation or establishment, where this is a shorter period.

The consolidated statements of financial position of the Consolidated Group as at 31 December 2015, 2016 and 2017 have been prepared to present the assets and liabilities of the companies now comprising the Consolidated Group as if the current group structure upon completion of the Reorganisation had been in existence as at those dates, taking into account the respective dates of incorporation/establishment where applicable.

The Historical Financial Information is presented in Renminbi (“RMB”), which is the same as the functional currency of the Target Company.

The Historical Financial Information has been prepared in accordance with the accounting policies set out in note 3 which conform with Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the Historical Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance (Cap.622).

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the Historical Financial Information for the Track Record Period, the Consolidated Group has consistently applied Hong Kong Accounting Standards (“HKAS”), Hong Kong Financial Reporting Standards, amendments and interpretations (collectively “HKFRSs”) which are effective for its accounting period beginning on 1 January 2018 throughout the Track Record Period except that the Consolidated Group adopted HKFRS 9 “Financial Instruments” and HKFRS 15 “Revenue from Contracts with Customers and the related Amendments” on 1 January 2018. The accounting policy for financial instruments under HKFRS 9 and revenue recognition under HKFRS 15 are set out in note 3 below.

– III-19 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

2.1 Impacts and changes in accounting policies of application on HKFRS 15

2.1.1 Summary of effects arising from initial application of HKFRS 15

The Consolidated Group has applied HKFRS 15 for the first time for the six months ended 30 June 2018. HKFRS 15 superseded HKAS 18 “Revenue”, HKAS 11 “Construction Contracts” and the related interpretations.

The Consolidated Group has applied HKFRS 15 retrospectively with the cumulative effect of initially applying this standard recognised at the date of initial application, 1 January 2018. Any difference at the date of initial application is recognised in the opening accumulated profits (or other components of equity, as appropriate) and comparative information has not been restated. Furthermore, in accordance with the transition provisions in HKFRS 15, the Consolidated Group has elected to apply HKFRS 15 retrospectively only to contracts that are not completed at 1 January 2018. Accordingly, certain comparative information may not be comparable as comparative information was prepared under HKAS 18 “Revenue” and the related interpretations.

Details of the accounting policies resulting from application of HKFRS 15 are set out in note 3.

The Consolidated Group recognises revenue under HKFRS 15 from the following major sources:

Development and sale of properties;
Provision of hotel accommodation services; and
Provision of catering services.

For sales of developed properties, the Consolidated Group sells the properties under construction and receives deposits from customers. Revenue is recognised at a point in time when the customer obtains the control of the completed property and the Consolidated Group has present right to payment and the collection of the consideration is probable. The deposit received for sale of properties are presented as contract liabilities on the consolidated statements of financial position.

For provision of hotel accommodation services, the Consolidated Group agrees the fixed rate for services with the customers upfront. As the customer simultaneously receives and consumes the benefits provided by the Consolidated Group’s performance, the revenue is recognised over time when the performance obligations are satisfied. Payment of the transaction is due immediately when performance obligations are satisfied.

For provision of catering services, the revenue is recognised at a point in time when the performance obligations are satisfied. Payment of the transaction is due immediately when performance obligations are satisfied.

– III-20 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The following table summarises the impact of transition to HKFRS 15 on retained profits at 1 January 2018.

		Impact of
		adopting
		HKFRS 15
		at 1 January 2018
	Notes	RMB’000
Retained profits
Recognition of significant financing component	(b)	40,742
Tax effects	(b)	(10,185)
Impact relating to non-controlling interests	(b)	(2,540)
Impact at 1 January 2018		28,017

The following adjustments were made to the amounts recognised in the consolidated statement of financial position at 1 January 2018. Line items that were not affected by the changes have not been included.

NOTES CURRENT LIABILITIES Deposits received for sale of properties (a) Contract liabilities (a)/(b) NON-CURRENT LIABILITIES Deferred tax liabilities (b) CAPITAL AND RESERVES Reserves (b) Non-controlling interests (b)	Carrying amounts previously reported at 31 December 2017 Reclassification Remeasurement RMB’000 RMB’000 RMB’000 728,237 (728,237) – – 728,237 40,742 155,634 (10,185) 1,426,116 – (28,017) 334,944 – (2,540)	Carrying amounts under HKFRS 15 at 1 January 2018* RMB’000 – 768,979
		145,449 1,398,099 332,404

– III-21 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The amounts are before the adjustments from the application of HKFRS 9.

Notes:

(a) At the date of initial application of HKFRS 15, deposits received for sale of properties of RMB728,237,000 and the significant financing component effect of RMB40,742,000 as set out in note (a) above, were reclassified or recognised to contract liabilities, as appropriate.
(b) Certain property sales contracts of the Consolidated Group contain significant financing component after taking into account the difference between the amount of promised consideration and the cash selling price of the property; and the combined effect of the expected length of time between the Consolidated Group transferring the property to the customer and the customer paying for the property and the prevailing interest rates in the relevant market. The Consolidated Group recognised the interest expense only to the extent that a contract liability (deposits received for sale of properties) is recognised in accounting for the contract with the customers and adjusted the promised amount of consideration by using a discount rate that would be reflected in a separate financing transaction between the Consolidated Group and the customer reflecting the credit characteristics of the Consolidated Group as well as any collateral or security provided. At the date of initial application, finance costs not eligible for capitalisation (net of deferred tax) of RMB28,017,000 and RMB2,540,000 have been debited to the retained profits and the non-controlling interests, respectively, with corresponding adjustment of RMB40,742,000 credited to contract liabilities. The corresponding tax effect has been recognised as deferred tax liabilities.

The following table summarise the impacts of applying HKFRS 15 on the Consolidated Group’s consolidated statement of financial position as at 30 June 2018 and its consolidated statement of profit or loss and other comprehensive income for the six months ended 30 June 2018 for each of the line items affected. Line items that were not affected by the changes have not been included.

Impact on the consolidated statement of financial position at 30 June 2018

CURRENT LIABILITIES Deposits received for sale of properties Contract liabilities NON-CURRENT LIABILITIES Deferred tax liabilities CAPITAL AND RESERVES Reserves	As reported RMB’000 – 1,672,670 176,245 1,511,353	Amounts without application of Reclassification Remeasurement HKFRS 15 RMB’000 RMB’000 RMB’000 1,591,008 – 1,591,008 (1,591,008) (81,662) – 20,415 196,660 – 61,247 1,572,600	Amounts without application of Reclassification Remeasurement HKFRS 15 RMB’000 RMB’000 RMB’000 1,591,008 – 1,591,008 (1,591,008) (81,662) – 20,415 196,660 – 61,247 1,572,600
			196,660 1,572,600

– III-22 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Impact on the consolidated statement of profit or loss and other comprehensive income for the six months ended 30 June 2018

Total revenue Cost of sales and services Gross profit Other income Change in fair value of investment properties Selling and distribution expenses Administrative expenses Finance costs Profit before taxation Income tax expenses (Loss) profit for the period Total comprehensive (expense) income for the period	As reported RMB’000 161,568 (97,051) 64,517 4,159 65,220 (28,393) (45,891) (56,802) 2,810 (29,212) (26,402) (28,587)	Amounts without application of Reclassification Remeasurement HKFRS 15 RMB’000 RMB’000 RMB’000 – – 161,568 – – (97,051) – – 64,517 – – 4,159 – – 65,220 – – (28,393) – – (45,891) – 40,920 (15,882) – 40,920 43,730 – (10,230) (39,442) – 30,690 4,288 – 30,690 2,103	Amounts without application of Reclassification Remeasurement HKFRS 15 RMB’000 RMB’000 RMB’000 – – 161,568 – – (97,051) – – 64,517 – – 4,159 – – 65,220 – – (28,393) – – (45,891) – 40,920 (15,882) – 40,920 43,730 – (10,230) (39,442) – 30,690 4,288 – 30,690 2,103
			64,517 4,159 65,220 (28,393) (45,891) (15,882)
			43,730 (39,442)
			4,288
			2,103

– III-23 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Impact on the consolidated statement of cash flows for the six months ended 30 June 2018

OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation of property, plant and
equipment
Release of prepaid lease payments
Finance costs
Interest income
Share of results of associates
Change in fair value of investment
properties
Operating cash flows before movements in
working capital
Increase in inventory of properties
Increase in other inventories
Increase in trade and other receivables and
prepayments
Decrease in trade and other payables and
accruals
Increase in deposits received for sale
properties
Increase in contract liabilities
Cash used in operations
Income tax paid
NET CASH USED IN OPERATING
ACTIVITIES

Amounts without
application of
As reported
Adjustments
HKFRS 15
RMB’000
RMB’000
RMB’000
2,810
40,920
43,730
18,612
18,612
10,016
10,016
56,802
(40,920)
15,882
(249)
(249)
–
–
(65,220)
(65,220)
22,771
22,771
(593,118)
(593,118)
(149)
(149)
(527,751)
(527,751)
(11,543)
(11,543)
–
862,771
862,771
862,771
(862,771)
–
(247,019)
(247,019)
(99,831)
(99,831)
(346,850)
(346,850)

The explanations of the above changes affected for the six months ended 30 June 2018 by the application of HFKRS 15 as compared to HKAS 18 are set out in notes (a) to (b) above for describing the adjustments made to the consolidated statement of financial position at 1 January 2018 upon the adoption of HKFRS 15.

2.2 Impact and changes in accounting policies of application on HKFRS 9

For the six months ended 30 June 2018, the Consolidated Group has applied HKFRS 9 and the related consequential amendments to other HKFRSs. HKFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) expected credit losses (“ECL”) for financial assets and other items (for example, contract assets and lease receivables) and 3) general hedge accounting.

– III-24 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The Consolidated Group has applied HKFRS 9 in accordance with the transition provisions set out in HKFRS 9. i.e. applied the classification and measurement requirements (including impairment) retrospectively to instruments that have not been derecognised as at 1 January 2018 (date of initial application) and has not applied the requirements to instruments that have already been derecognised as at 1 January 2018. The difference between carrying amounts as at 31 December 2017 and the carrying amounts as at 1 January 2018 are recognised in the opening retained profits, without restating comparative information.

Accordingly, certain comparative information may not be comparable as comparative information was prepared under HKAS 39 “Financial Instruments: Recognition and Measurement”.

Details of accounting policies resulting from application of HKFRS 9 are set out in note 3.

2.2.1 Summary of effects arising from initial application of HKFRS 9

The table below illustrates the classification and measurement of financial assets and financial liabilities under HKFRS 9 and HKAS 39 at the date of initial application, 1 January 2018.

			Original		Additional	New
			carrying	Fair value	loss allowance	carrying
			amount	remeasurement	recognised	amount
	Original measurement	New measurement	under	under	under	under
	category under HKAS 39	category under HKFRS 9	HKAS 39	HKFRS 9	HKFRS 9	HKFRS 9
			RMB’000	RMB’000	RMB’000	RMB’000
Available-for-sale financial assets	AFS	–	64,316	–	–	–
Equity instrument at FVTOCI	–	FVTOCI	–	64,316	–	64,316
Trade and other receivables	Loans and receivables at	Financial assets at	655,860	–	–	655,860
	amortised cost	amortised cost
Amounts due from associates	Loans and receivables at	Financial assets at	1,210	–	–	1,210
	amortised cost	amortised cost
Amounts due from non-controlling	Loans and receivables at	Financial assets at	312,789	–	–	312,789
shareholders of subsidiaries	amortised cost	amortised cost
Amounts due from related parties	Loans and receivables at	Financial assets at	784,925	–	–	784,925
	amortised cost	amortised cost
Restricted bank deposits	Loans and receivables at	Financial assets at	36,274	–	–	36,274
	amortised cost	amortised cost
Bank balances and cash	Loans and receivables at	Financial assets at	139,599	–	–	139,599
	amortised cost	amortised cost
Trade and other payables	Financial liabilities at	Financial liabilities at	1,249,371	–	–	1,249,371
	amortised cost	amortised cost
Amounts due to associates	Financial liabilities at	Financial liabilities at	99,640	–	–	99,640
	amortised cost	amortised cost
Amounts due to non-controlling	Financial liabilities at	Financial liabilities at	85,261	–	–	85,261
shareholders of subsidiaries	amortised cost	amortised cost
Amounts due to related parties	Financial liabilities at	Financial liabilities at	1,075,598	–	–	1,075,598
	amortised cost	amortised cost
Bank and other borrowings	Financial liabilities at	Financial liabilities at	4,212,447	–	–	4,212,447
	amortised cost	amortised cost

Note: The amount of the additional impairment loss allowance upon the initial application of HKFRS 9 was insignificant to the Historical Financial Information of the Consolidated Group.

– III-25 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

There were no financial liabilities which the Consolidated Group had previously measured at amortised cost under HKAS 39 that were subject to reclassification, or which the Consolidated Group has elected to reclassify upon the application of HKFRS 9.

Available-for-sale financial assets which the Consolidated Group had previously measured at fair value with changes accounted for in other comprehensive income under HKAS 39 has been classified as equity instruments at FVTOCI at the date of initial application of HKFRS 9. The loss allowance is included in the FVTOCI reserve.

The table below show information relating to financial assets that are classified differently (other than due to change in impairment calculation) as a result of transition to HKFRS 9:

	(i)	(ii)	(iii)	(iv)= (i)+ (ii)+ (iii)	(v)= (iii)
	Carrying			Carrying	Retained
	amount			amount	earnings
	under HKAS 39			under HKFRS 9	effect on
	1 January 2018	Reclassifications	Remeasurements	1 January 2018	1 January 2018
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Financial assets
FVTOCI
Additions:
From available-for-sale
financial Assets (HKAS
39)	–	64,316	–	64,316	–

– III-26 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

2.3 Impacts on opening consolidated statement of financial position arising from application of all new standards

As a result of the changes in the Consolidated Group’s accounting policies above, the opening consolidated statement of financial position had to be adjusted. The following table shows the adjustments recognised for each individual line item.

31 December 2017 RMB’000 NON-CURRENT ASSETS Property, plant and equipment 421,237 Investment properties 1,564,870 Interests in associates 117,043 Available-for-sale financial assets 64,316 Equity investments at FVTOCI – Prepaid lease payments 684,420 Deferred tax assets 11,985 2,863,871 CURRENT ASSETS Inventory of properties 4,489,022 Other inventories 1,820 Prepaid lease payments 20,031 Trade receivables, other receivables and prepayments 1,031,641 Prepaid income tax 97,861 Amounts due from associates 1,210 Amounts due from non-controlling shareholders of subsidiaries 312,789 Amounts due from related parties 784,925 Restricted bank deposits 36,274 Bank balances and cash 139,599 6,915,172	HKFRS 15 RMB’000 – – – – – – – – – – – – – – – – – – –	HKFRS 9 RMB’000 – – – (64,316) 64,316 – – – – – – – – – – – – – –	1 January 2018 RMB’000 421,237 1,564,870 117,043 – 64,316 684,420 11,985
			2,863,871
			4,489,022 1,820 20,031 1,031,641 97,861 1,210 312,789 784,925 36,274 139,599
			6,915,172

– III-27 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

31 December 2017 RMB’000 CURRENT LIABILITIES Trade and other payables and accruals 1,428,551 Deposits received for sale of properties 728,237 Contract liabilities – Income tax payable 232,515 Amounts due to associates 99,640 Amounts due to non-controlling shareholders of subsidiaries 85,261 Amounts due to related parties 1,075,598 Bank and other borrowings – due within one year 1,261,553 4,911,355 NET CURRENT ASSETS 2,003,817 TOTAL ASSETS LESS CURRENT LIABILITIES 4,867,688 CAPITAL AND RESERVES Share capital – Reserves 1,426,216 Equity attributable to owners of the Company 1,426,216 Non-controlling interests 334,944 TOTAL EQUITY 1,761,160 NON-CURRENT LIABILITIES Bank and other borrowings – due after one year 2,950,894 Deferred tax liabilities 155,634 3,106,528 4,867,688	HKFRS 15 RMB’000 – (728,237) 768,979 – – – – – 40,742 (40,742) (40,742) – (28,017) (28,017) (2,540) (30,557) – (10,185) (10,185) (40,742)	HKFRS 9 RMB’000 – – – – – – – – – – – – – – – – – – – –	1 January 2018 RMB’000 1,428,551 – 768,979 232,515 99,640 85,261 1,075,598 1,261,553
			4,952,097
			1,963,075
			4,826,946

			– 1,398,199
			1,398,199 332,404
			1,730,603
			2,950,894 145,449
			3,096,343
			4,826,946

– III-28 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

At the date of this report, the Consolidated Group has not early applied the following new and amendments to HKFRSs and the new interpretation that have been issued but are not yet effective:

HKFRS 16 Leases[1] HKFRS 17 Insurance Contracts[2] HK (IFRIC) – Int 23 Uncertainty over Income Tax Treatments[1] Amendments to HKFRS 9 Prepayment Features with Negative Compensation[1] Amendments to HKFRS 10 Sale or Contribution of Assets between an Investor and its and HKAS 28 Associate or Joint Venture[3] Amendments to HKAS 19 Plan Amendment, Curtailment or Settlement[1] Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures[1] Amendments to HKFRSs Annual Improvements to HKFRSs 2015 – 2017 Cycle[1]

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

2 Effective for annual periods beginning on or after 1 January 2021

3 Effective for annual periods beginning on or after a date to be determined

Except as described below, the director of the Target Company anticipates that the application of other new and amendments to HKFRSs and the new interpretation will have no material impact on the consolidated financial statements of the Consolidated Group in the foreseeable future.

HKFRS 16 “Leases”

HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 “Leases” and the related interpretations when it becomes effective.

HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases 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, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the Consolidated Group currently presented upfront prepaid lease payments as investing cash flows in relation to leasehold lands for own use and those classified as investment properties while other operating lease payments are presented as operating cash flows. Upon application of HKFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing cash flows by the Consolidated Group.

Under HKAS 17, the Consolidated Group has already recognised prepaid lease payments for leasehold lands where the Consolidated Group is a lessee. The application of HKFRS 16 may result in potential changes in classification of these assets depending on whether the Consolidated Group presents right-of-use assets separately or within the same line item at which the corresponding underlying assets would be presented if they were owned.

– III-29 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

In contrast to lessee accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by HKFRS 16 and the application of new requirements may result changes in measurement, presentation and disclosures as indicated above.

As the Consolidated Group had only contracted with tenants as lessor during the Track Record Period as disclosed in note 33, the director of the Target Company anticipates that the application of HKFRS 16 would have no material impact on the consolidated financial statements of the Consolidated Group in the foreseeable future.

3. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information has been prepared in accordance with the accounting policies set out below which conform with HKFRSs issued by the HKICPA. In addition, the Historical Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance (Cap.622).

The Historical Financial Information has been prepared on the historical cost basis except for investment properties and certain financial instruments that are measured at the end of each report period as explained in the accounting policies set out below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Consolidated Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the Historical Financial Information is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 “Share-based payment”, leasing transactions that are within the scope of HKAS 17 “Leases”, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 “Inventories” or value in use in HKAS 36 “Impairment of Assets”.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the assets 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.

– III-30 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follow:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

Basis of consolidation

The Historical Financial Information incorporates the financial statements of the Target Company and entities controlled by the Target Company and its subsidiaries. Control is achieved where the Target Company:

has the power over the investee;
is exposed, or has right, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.

The Target Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Target Company obtains control over the subsidiary and ceases when the Target Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statements of profit or loss and other comprehensive income from the date the Target Company gains control until the date when the Target Company ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Target Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Target Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Consolidated Group’s accounting policies.

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

Merger accounting for business combinations involving business under common control

The Historical Financial Information incorporates the financial statements items of the combining businesses in which the common control combination occurs as if they had been combined from the date when the combining businesses first came under the control of the controlling party.

– III-31 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The net assets of the combining businesses are combined using the existing book values from the controlling party’s perspective. No amount is recognised in respect of goodwill or bargain purchase gain at the time of common control combination.

The consolidated statements of profit or loss and other comprehensive income include the results of each of the combining businesses from the earliest date presented or since the date when the combining businesses first came under the common control, where this is a shorter period.

The comparative amounts in the Historical Financial Information are presented as if the businesses had been combined at the end of previous reporting period or when they first came under common control, whichever is shorter.

Changes in the Consolidated Group’s ownership interests in existing subsidiaries

Changes in the Consolidated Group’s interests in subsidiaries that do not result in the Consolidated Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Consolidated Group’s relevant components of equity and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries, including re-attribution of relevant reserves between the Consolidated Group and the non-controlling interests according to the Consolidated Group’s and the non-controlling interests’ proportionate interests.

Any difference between the amount by which the non-controlling interests are adjusted, and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Consolidated Group loses control of a subsidiary, the assets and liabilities of that subsidiary and non-controlling interests (if any) are derecognised. A gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the carrying amount of the assets (including goodwill), and liabilities of the subsidiary attributable to the owners of the Company. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Consolidated Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/ permitted by applicable HKFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKFRS 9/HKAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

Revenue recognition (under HKAS 18 “Revenue” for the three years ended 31 December 2017)

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related tax.

Revenue is recognised when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the Consolidated Group and when specific criteria have been met for each of the Consolidated Group’s activities, as described below.

– III-32 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Revenue from sale of properties in the ordinary course of business is recognised upon delivery of the properties to the buyers, at which time all of the following criteria are satisfied:

the Consolidated Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
the Consolidated Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Consolidated Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Deposit received from purchasers prior to meeting the above criteria for revenue recognition are included in the consolidated statement of financial position under current liabilities.

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

Hotel operation income and other service income are recognised at a point of time, being at the point that when services are rendered.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Consolidated Group and the amount of income can be measured reliably. Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Investment income from available-for-sale financial assets/equity instruments at FVTOCI is recognised when the rights to receive payment have been established.

Revenue recognition (under HKFRS 15 for the six months period ended 30 June 2018)

Revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Consolidated Group expects to be entitled in exchange for those goods or services. Specifically, the Consolidated Group uses a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

– III-33 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The Consolidated Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to customers.

A performance obligation represents a good and service (or a bundle of goods and services) that is distinct or a service of distinct goods or services that are substantially the same.

Control of the asset may be transferred over time or at a point in time. Control of the asset is transferred over time if:

the customer simultaneously receives and consumes the benefits provided by the Consolidated Group’s performance as the Consolidated Group performs;
the Consolidated Group’s performance creates and enhances an asset that the customer controls as the Consolidated Group performs; or
the Consolidated Group’s performance does not create an asset with an alternative use to the Consolidated Group and the Consolidated Group has an enforceable right to payment for performance completed to date.

If control of the asset transfers over time, revenue is recognised over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognised at a point in time when the customer obtains control of the asset.

For sales of properties, revenue is recognised when the customer obtains the control of the completed property and the Consolidated Group has present right to payment and the collection of the consideration is probable. The deposit received for sale of properties are presented as contract liabilities on the consolidated statements of financial position.

– III-34 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Existence of significant financing component

In determining the transaction price, the Consolidated Group adjusts the promised amount of consideration for the effects of the time value of money if the timing of payments agreed (either explicitly or implicitly) provides the customer or the Consolidated Group with a significant benefit of financing the transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties to the contract.

For contracts where the period between payment and transfer of the associated goods or services is less than one year, the Consolidated Group applies the practical expedient of not adjusting the transaction price for any significant financing component.

For advance payments received from customers before the transfer of the associated goods or services in which the Consolidated Group adjusts for the promised amount of consideration for a significant financing component, the Consolidated Group applies a discount rate that would be reflected in a separate financing transaction between the Consolidated Group and the customer at contract inception. The relevant interest expenses during the period between the advance payments were received and the transfer of the associated goods and services are accounted for on the same basis as other borrowing costs.

Incremental costs of obtaining a contract

Incremental costs of obtaining a contract are those costs that the Consolidated Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained.

The Consolidated Group recognises such costs (sales commissions and stamp duty paid/payable) as an asset if it expects to recover these costs. The asset so recognised is subsequently amortised to profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. The asset is subject to impairment review.

The Consolidated Group applies the practical expedient of expensing all incremental costs to obtain a contract if these costs would otherwise have been fully amortised to profit or loss within one year.

Contract assets and contract liabilities

A contract asset represents the Consolidated Group’s right to consideration in exchange for goods or services that the Consolidated Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with HKFRS 9. In contrast, a receivable represents the Consolidated Group’s unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due.

– III-35 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

A contract liability represents the Consolidated Group’s obligation to transfer goods or services to a customer for which the Consolidated Group has received consideration (or an amount of consideration is due) from the customer. Deposit and prepayments are typically received from purchasers in advance of revenue recognition and they are presented as contract liabilities under current liabilities.

Property, plant and equipment

Property, plant and equipment held for use in the production or supply of goods or services, or for administration purposes, are stated at cost less any subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of assets (other than buildings under development) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Buildings under development for future owner-occupied purpose

When buildings are in the course of development for production or for administrative purposes, the release of prepaid land lease payments during the construction period is included as part of costs of buildings under construction. Buildings under construction are carried at cost, less any identified impairment losses. Depreciation of buildings commences when they are available for use (i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by management).

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair values. All of the Consolidated Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are classified and accounted for as investment properties and are measured using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

– III-36 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss in the year/ period in which the item is derecognised.

Investment in a subsidiary

Investment in a subsidiary is stated at cost less any identified impairment losses on the statements of financial position of the Target Company. The results of the subsidiary are accounted for by the Target Company on the basis of dividends received or receivable during the year/period.

Investments in associates

An associate is an entity over which the Consolidated Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of the associate are incorporated in these consolidated financial statements using the equity method of accounting. The financial statements of an associate used for equity accounting purposes is prepared using uniform accounting policies as those of the Consolidated Group for like transactions and events in similar circumstances. Under the equity method, an investment in an associate is initially recognised in the consolidated statements of financial position at cost and adjusted thereafter to recognise the Consolidated Group’s share of the profit or loss and other comprehensive income of the associate. Changes in net assets of the associate other than profit or loss and other comprehensive income are not accounted for unless such changes resulted in changes in ownership interest held by the Consolidated Group. When the Consolidated Group’s share of losses of an associate exceeds the Consolidated Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Consolidated Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Consolidated Group has incurred legal or constructive obligations or made payments on behalf of the associate.

An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Consolidated Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Consolidated Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The Group assesses whether there is an objective evidence that interest in an associate or a joint venture may be impaired. When any objective evidence exists, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets (“HKAS 36”) as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

– III-37 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

When the Consolidated Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in the investee with a resulting gain or loss being recognised in profit or loss. The Consolidated Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale. When the Consolidated Group retains an interest in the former associate and the retained interest is a financial asset within the scope of HKAS 39 or HKFRS 9, the Consolidated Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition. The difference between the carrying amount of the associate and the fair value of any retained interest and any proceeds from disposing the relevant interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Consolidated Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Consolidated Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) upon disposal or partial disposal of the relevant associate.

When a group entity transacts with an associate of the Consolidated Group, profits and losses resulting from the transactions with the associate are recognised in the Historical Financial Statements only to the extent of interests in the associate that are not related to the Consolidated Group.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Consolidated Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

In the event that lease incentives, including rent free periods, are given to enter into operating leases, such incentives are recognised as deferred rent receivables. The aggregate benefit of incentives is recognised as a reduction of rental income on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

– III-38 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Leasehold land and building

When the Consolidated Group makes payments for a property interest which includes both leasehold land and building elements, the Consolidated Group assesses the classification of each element separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Consolidated Group, unless it is clear that both elements are operating leases in which case the entire property is accounted for as an operating lease. Specifically, the entire consideration (including any lump-sum upfront payments) are allocated between the leasehold land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element at initial recognition.

To the extent the allocation of the relevant payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as “prepaid lease payments” in the consolidated statements of financial position and is amortised over the lease term on a straight-line basis. When the lease payments cannot be allocated reliably between the leasehold land and building elements, the entire property is generally classified as if the leasehold land is under finance lease.

Inventory of properties

Properties under development for sale and completed properties held for sale are stated at the lower of cost and net realisable value. Net realisable value takes into account the price ultimately expected to be realised, less anticipated selling expenses and costs to completion, if applicable.

The cost of properties under development for sale comprises land costs, construction costs, borrowing costs capitalised according to the Consolidated Group’s accounting policy and directly attributable expenses incurred during the development period. On completion, the properties are transferred to completed properties held for sale.

Financial instruments (before the adoption of HKFRS 9 as at 1 January 2018)

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, other than those classified as fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Consolidated Group’s and the Target Company’s financial assets are classified as availablefor-sale (“AFS”) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases on sale of financial assets are recognised and derecognised on a trade date basis. Regularly way purchases or sale of financial assets that require delivery of assets that require delivery of assets within the time frame established by regulation or convention in the market place.

– III-39 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Effective interest method

The effective interest method is a method of calculating the amortised cost of debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when financial asset is (i) held for trading or (ii) it is designated as at FVTPL.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling in the near term; or
on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial assets and is included in other income.

AFS financial assets

AFS financial assets are non-derivatives that are either designated as available-for-sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at FVTPL.

– III-40 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Equity instruments held by the Consolidated Group that are classified as AFS financial assets are measured at fair value at the end of each reporting period except for unquoted equity investments whose fair value cannot be reliably measured. Dividends on AFS equity instruments are recognised in profit or loss when the Consolidated Group’s right to receive the dividends is established. Other changes in the carrying amount of AFS financial assets are recognised in other comprehensive income and accumulated under the heading of FVTOCI reserve.

AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, amounts due from associates, non-controlling shareholders of subsidiaries and related parties, restricted bank deposits and bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment.

Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio and observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

– III-41 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity Instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Target Company are recognised at the proceeds received, net of direct issue costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Financial liabilities at amortised cost

Financial liabilities (including trade and other payables, amounts due to associates, noncontrolling shareholders of subsidiaries and related parties and bank and other borrowings) are subsequently measured at amortised cost, using the effective interest method.

– III-42 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

Financial guarantee contracts issued by the Consolidated Group are initially measured at their fair value and, if not designated at FVTPL, are subsequently measured at the higher of: (i) the amount of obligation under the contract, as determined in accordance with HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised over the guarantee period.

Derecognition

The Consolidated Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

The Consolidated Group derecognises financial liabilities when, and only when, the Consolidated Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Financial instruments (under HKFRS 9)

Financial assets and financial liabilities are recognised in the Consolidated Group’s consolidated statements of financial position when the group entity becomes a party to the contractual provisions of the instrument.

Recognised financial assets and financial liabilities are initially measured at fair value except for trade receivable arising from contracts with customers which are initially measured in accordance with HKFRS 15 since 1 January 2018. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised in profit or loss.

Financial assets

All recognised financial assets that are within the scope of HKFRS 9 are required to be subsequently measured at amortised cost or fair value on the basis of the Consolidated Group’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.

– III-43 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Specifically

(a) debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding (“SPPI”), are subsequently measured at amortised cost;
(b) debt instruments that are held within a business model whose objective is both to collect the contractual cash flows and to sell the debt instruments, and that have contractual cash flows that are SPPI, are subsequently measured at FVTOCI; and
(c) all other debt instruments and equity investments are subsequently measured at FVTPL.

However, the Consolidated Group may make the following irrevocable election/designation at initial recognition of a financial asset on instrument-by instrument:

The Consolidated Group may irrevocably elect to present subsequent changes in fair value of an equity investment that is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 applies, in other comprehensive income (“OCI”); and
the Consolidated Group may irrevocably designate a debt instrument that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch (referred to as the fair value option).

Amortised cost and effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

For financial instruments other than purchased or originated credit-impaired financial assets, the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses (“ECLs”), through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

– III-44 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost. For financial instruments other than purchased or originated credit impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If, in subsequent reporting periods, the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit impaired.

Interest income is recognised in profit or loss and is included in the “Other income” line item.

Debt instruments that are subsequently measured at amortised cost are subject to impairment.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognised in OCI and accumulated in the FVTOCI reserve; and are not subject to impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, and will be transferred to retained profits/will continue to be held in the FVTOCI reserve.

Dividends from these investments in equity instruments are recognised in profit or loss when the Consolidated Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment. Dividends are included in the other income line item in profit or loss.

Impairment of financial assets

The Consolidated Group recognises loss allowances for expected credit losses (“ECLs”) on the following financial instruments that are neither measured at FVTPL nor equity instruments designated at FVTOCI which are subject to impairment under HKFRS 9:

(a) trade and other receivables;
(b) amounts due from associates, non-controlling shareholders of subsidiaries and related parties; and
(c) restricted bank deposits and bank balances and cash.

– III-45 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

ECLs are required to be measured through a loss allowance at an amount equal to:

(a) 12-month ECL, i.e. lifetime ECL that result from those default events on the financial instrument that are possible within 12 months after the reporting date (referred to as Stage l); or
(b) Lifetime ECL, i.e. lifetime ECL that result from all possible default events over the life of the financial instrument (referred to as Stage 2 and Stage 3).

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL (“12m ECL”) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessment are done based on the Consolidated Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.

The Consolidated Group always recognises lifetime ECL for trade receivables. The ECL on these assets are assessed individually for debtors with significant balances.

For all other instruments, the Consolidated Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Consolidated Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition.

ECLs are a probability-weighted estimate of the present value of credit losses. These are measured as the present value of the difference between the cash flows due to the Consolidated Group under the contract and the cash flows that the Consolidated Group expects to receive arising from the weighting of multiple future economic scenarios, discounted at the asset’s effective interest rate.

The Consolidated Group measures ECL on an individual basis, or on a collective basis for portfolios of financial instruments that share similar economic risk characteristics. The measurement of loss allowance is based on the present value of the asset’s expected cash flows using the asset’s original effective interest rate, regardless of whether it is measured on an individual basis or a collective basis.

Significant increase in credit risk

In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Consolidated Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instruments as at the date of initial recognition. In making this assessment, the Consolidated Group considers both quantitative and quantitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

– III-46 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

In particular, the following information taken into account when assessing whether credit risk has increased significantly since initial recognition:

an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;
significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor, or the length of time or the extent to which the fair value of a financial asset has been less than its amortised cost
existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations;
an actual or expected significant deterioration in the operating results of the debtor; significant increases in credit risk on other financial instruments of the same debtor;
an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations.

Irrespective of the outcome of the above assessment, the Consolidated Group presumes that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Consolidated Group has reasonable and supportable information that demonstrates otherwise.

Despite the foregoing, the Consolidated Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk if i) the financial instrument has a low risk of default, ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Consolidated Group considers a financial asset to have low credit risk when it has an internal or external credit rating of ‘investment grade’ as per globally understood definition.

For financial guarantee contracts, the date that the Consolidated Group becomes a party to the irrevocable commitments is considered to be the date of initial recognition for the purposes of assessing the financial instrument for impairment. In assessing whether there has been a significant increase in the credit risk since initial recognition of financial guarantee contracts, the Consolidated Group considers the changes in the risk that the specified debtor will default on the contract.

The Consolidated Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

– III-47 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Definition of default

The Consolidated Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that receivables that meet either of the following criteria are generally not recoverable.

when there is a breach of financial covenants by the counterparty; or
information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Consolidated Group, in full (without taking into account any collaterals held by the Consolidated Group).

Irrespective of the above analysis, the Consolidated Group considers that default has occurred when a financial asset is more than 90 days past due unless the Consolidated Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Credit-impaired financial assets

A financial asset is “credit-impaired” when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence of credit-impairment includes observable data about the following events:

(a) significant financial difficulty of the borrower or issuer;
(b) a breach of contract such as a default or past due event;
(c) the lender of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider;
(d) the disappearance of an active market for a security because of financial difficulties; or
(e) the purchase of a financial asset at a deep discount that reflects the incurred credit losses.

Write-off policy

The Consolidated Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Consolidated Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.

– III-48 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Measurement and recognition of ECLs

The measurement of ECLs is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date; for financial guarantee contracts, the exposure includes the amount drawn down as at the reporting date, together with any additional amounts expected to be drawn down in the future by default date determined based on historical trend, the Consolidated Group’s understanding of the specific future financing needs of the debtors, and other relevant forward-looking information.

For financial assets, the ECL is estimated as the difference between all contractual cash flows that are due to the Consolidated Group in accordance with the contract and all the cash flows that the Consolidated Group expects to receive, discounted at the original effective interest rate.

For a financial guarantee contract, as the Consolidated Group is required to make payments only in the event of a default by the debtor in accordance with the terms of the instrument that is guaranteed, the expected loss allowance is the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that the Consolidated Group expects to receive from the holder, the debtor or any other party.

Where lifetime ECL is measured on a collective basis to cater for cases where evidence of significant increases in credit risk at the individual instrument level may not yet be available, the financial instruments are grouped on the following basis:

Nature of financial instruments (i.e. the Consolidated Group’s trade and other receivables are each assessed as a separate group);
Past-due status;
Nature, size and industry of debtors;
Nature of collaterals for finance lease receivables; and
External credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each separate group continues to share similar credit risk characteristics.

If the Consolidated Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Consolidated Group measures the loss allowance at an amount equal to 12m ECL at the current reporting date.

For ECL on financial guarantee contracts for which the effective interest rate cannot be determined, the Consolidated Group will apply a discount rate that reflects the current market assessment of the time value of money and the risks that are specific to the cash flows but only if, and to the extent that, the risk are taken into account by adjusting the cash shortfalls being discounted.

– III-49 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For financial guarantee contracts, the loss allowances are recognised at the higher of the amount of the loss allowance determined in accordance with HKFRS 9 and the amount initially recognised less, where appropriate, cumulative amount of income recognised over the guarantee period.

The Consolidated Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount with the exception of trade receivables where the corresponding adjustment is recognised through a loss allowance account.

Presentation of allowance for ECL in the consolidated statements of financial position

Loss allowances for ECL are presented in the consolidated statements of financial position as follows:

(a) for financial assets measured at amortised cost; loss allowances for ECL are presented in the consolidated statements of financial position as a deduction from the gross carrying amount of the assets;
(b) for equity instruments measured at FVTOCI, no loss allowance is recognised in the consolidated statements of financial position as the carrying amount is at fair value. However, the loss allowance is included as part of the revaluation amount in the FVTOCI reserve.

Derecognition of financial assets

The Consolidated Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire or when the financial asset and substantially all the risks and rewards of ownership of the asset are transferred to another entity.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity

Debt and equity instruments that are issued are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Financial liabilities

Financial liabilities, including trade and other payables, amounts due to associates, noncontrolling shareholders of subsidiaries, related parties and bank and other borrowings are subsequently measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Consolidated Group’s obligations are discharged, canceled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

– III-50 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Consolidated Group are recognised at the proceeds received, net of direct issue costs.

Impairment losses on tangible assets

At the end of the reporting period, the Consolidated Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Consolidated Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. 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 (or a cash-generating unit) for which the estimates of future cash flow have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cashgenerating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing at that date. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the re-translation of monetary items, are recognised in profit or loss in the period in which they arise.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

– III-51 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from the “profit before taxation” as reported in the consolidated statements of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Consolidated Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in Historical Financial Information and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries except where the Consolidated Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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 profits will be available to allow all or part of the asset to be recovered.

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

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Consolidated Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax is recognised in profit or loss.

For the purposes of measuring deferred taxation liabilities and deferred taxation assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.

– III-52 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Current and deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Retirement benefit costs

Payments to the state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

Short-term and other long-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Consolidated Group’s accounting policies, which are described in note 3, the director of the Target Company is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the report period, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next twelve months.

Development costs directly attributable to property development activities

The Consolidated Group allocates portions of land and development costs to completed properties for sale and properties under development for sale. As certain of the Consolidated Group’s property development projects are developed and completed by phases, the budgeted development costs of the whole project are dependent on the estimate on the outcome of total development. Based on the experience and the nature of the development undertaken, the management makes estimates and assumptions, concerning the future events that are believed to be reasonable under the circumstances. Given the uncertainties involved in the property development activities, the related actual results may be higher or lower than the amount estimated at the end of the reporting period. Any change in estimates and assumptions would affect the Consolidated Group’s operating performance in future years.

– III-53 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Determination of net realisable value of inventory of properties

Inventory of properties are stated at the lower of the cost and net realisable value with carrying amount of approximately RMB3,557,832,000, RMB4,569,151,000, RMB4,489,022,000 and RMB5,273,194,000 at 31 December 2015, 2016, 2017 and 30 June 2018, respectively (net of impairment loss of RMB18,137,000, RMB20,325,000, RMB21,876,000 and RMB21,876,000 at 31 December 2015, 2016, and 2017 and 30 June, 2018, respectively). The net realisable value is the estimated selling price less estimated selling expenses and estimated cost of completion (if any), which are determined based on prevailing market conditions. Where there is any increase in costs to completion or decrease in the estimated selling price arising from any changes to the property market conditions in the PRC, there may be further impairment loss in respect of the properties under development for sale and completed properties for sale.

Estimation of fair value of investment properties

At the end of each reporting period, investment properties are stated at fair value based on the valuation performed by an independent professional valuer. In determining the fair value, the valuer has based on a method of valuation which involves certain estimates. In relying on the valuation report, management has exercised judgement and is satisfied that the methodologies that the valuer used and assumptions used in valuation have reflected the current market conditions.

The carrying amounts of investment properties at 31 December 2015, 2016, 2017 and 30 June 2018 were RMB1,263,040,000, RMB1,476,890,000, RMB1,564,870,000 and RMB1,630,090,000, respectively. Notwithstanding that the management employs independent professionally qualified valuers to perform fair value assessments based on these assumptions, the fair value of these investment properties may be higher or lower depending on the future market conditions.

Land appreciation tax (“LAT”)

The Consolidated Group is subject to land appreciation tax in the PRC. However, the implementation and settlement of the tax varies amongst different tax jurisdictions in various cities of the PRC and certain projects of the Consolidated Group have not finalised their land appreciation tax calculations and payments with the local tax authorities in the PRC. Accordingly, significant estimate is required in determining the amount of land appreciation and its related income tax provisions. The Consolidated Group recognised the land appreciation tax based on management’s best estimates. The final tax outcome could be different from the amounts that were initially recorded, and these differences will impact the income tax expense and the related income tax provisions in the periods in which such tax is finalised with local tax authorities.

Deferred taxation

Deferred tax assets are recognised for all unused tax losses and temporary differences to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management estimation is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. As at 31 December 2015, 2016 and 2017 and 30 September 2018, deferred tax assets of approximately RMB26,322,000, RMB15,737,000, RMB11,985,000 and RMB18,993,000 have been recognised in the Consolidated Group’s consolidated statements of financial position, respectively.

– III-54 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

5. REVENUE FROM GOODS AND SERVICES

Disaggregation of revenue

Segments Types of goods or service Sales of properties Hotel accommodation Catering service Total Geographical market Mainland China Timing of revenue recognition A point in time Over time Total	Property development RMB’000 98,507 – – 98,507 98,507 98,507 – 98,507	For the six months ended 30 June 2018 Hotel Other operation operations RMB’000 RMB’000 – – 40,749 – – 7,787 40,749 7,787 40,749 7,787 – 7,787 40,749 – 40,749 7,787	Total RMB’000 98,507 40,749 7,787
			147,043

			147,043

			106,294 40,749
			147,043

Set out below is the reconciliation of the revenue from contracts with customers with the amounts disclosed in the segment information:

Property Segments development RMB’000 Revenue disclosed in segment information External customers 98,507 Inter-segment – 98,507 Elimination – Adjustment for lease income – Revenue from contracts with customers 98,507	For the six months ended 30 June 2018 Property Hotel Other investment operation operations RMB’000 RMB’000 RMB’000 14,525 40,749 7,787 1,119 – – 15,644 40,749 7,787 (1,119) – – (14,525) – – – 40,749 7,787	Total RMB’000 161,568 1,119
		162,687 (1,119) (14,525)
		147,043

– III-55 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The sales of properties is recognised at point in time when the completed property were delivered to the customers pursuant to the sale and purchase agreements. The Consolidated Group may not change or substitute the property units or redirect the property units for another use due to the contractual restrictions with the customers and thus the property units do not have an alternative use to the Consolidated Group. In the opinion of the director of the Target Company, the Consolidated Group has no enforceable right to payment for performance completed to date.

For certain customer contracts, properties were only completed and delivered to the customers over one year from the date the sales deposits received from the customers, the director of the Target Company considers that the customer contracts contain significant financing component which is determined based on the deposits received from sale of properties and the borrowing rate available to the relevant entity. For contracts where the period between payment and transfer of the associated goods or services is less than one year, the Consolidated Group applies the practical expedient of not adjusting the transaction price for any significant financing component.

6. SEGMENT INFORMATION

Information regularly reported to the Group’s chief executive officer (the chief operating decision maker (“CODM”)) for the purposes of resource allocation and assessment of performance focuses on the type of operation. The Group’s reportable and operating segments under HKFRS 8 are as follows:

Property development – development and sale of properties Property investment – lease of investment properties Hotel operation – provision hotel accommodation services Other operations – provision of catering services and cinema operation (disposed in 2017)

– III-56 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The following is an analysis of the Group’s revenue and results by reportable and operating segments:

Segment revenue and results

The following is an analysis of the Consolidated Group’s revenue and results by reportable segment.

Property development RMB’000 For the year ended 31 December 2015 Segment revenue External revenue 546,152 Inter-segment revenue – 546,152 Segment (loss) profit (8,944) For the year ended 31 December 2016 External revenue 2,232,928 Inter-segment revenue – 2,232,928 Segment profit (loss) 517,379 For the year ended 31 December 2017 External revenue 1,099,982 Inter-segment revenue – 1,099,982 Segment profit (loss) 20,935	Property investment RMB’000 16,444 2,298 18,742 473,327 20,503 2,268 22,771 155,397 21,528 2,722 24,250 86,250	Hotel operation RMB’000 66,750 – 66,750 2,338 72,089 – 72,089 7,808 79,811 – 79,811 14,144	Other operations Eliminations RMB’000 RMB’000 1,124 – – (2,298) 1,124 (2,298) (1,688) – 14,686 – – (2,268) 14,686 (2,268) (5,779) – 21,884 – – (2,722) 21,884 (2,722) (5,994) –	Total RMB’000 630,470 –
				630,470

				465,033

				2,340,206 –
				2,340,206

				674,805

				1,223,205 –
				1,223,205

				115,335

– III-57 –

APPENDIX III

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

Property development RMB’000 Six months ended 30 June 2017 (unaudited) External revenue 657,715 Inter-segment revenue – 657,715 Segment profit (loss) 4,240 Six months ended 30 June 2018 External revenue 98,507 Inter-segment revenue – 98,507 Segment (loss) profit (20,370)	Property investment RMB’000 12,506 630 13,136 33,577 14,525 1,119 15,644 78,230	Hotel operation RMB’000 41,575 – 41,575 8,329 40,749 – 40,749 6,856	Other operations Eliminations RMB’000 RMB’000 11,679 – – (630) 11,679 (630) (8,897) – 7,787 – – (1,119) 7,787 (1,119) (9,219) –	Total RMB’000 723,475 –
				723,475

				37,249

				161,568 –
				161,568

				55,497

– III-58 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The accounting policies of the operating and reportable segments are the same as the Consolidated Group’s accounting policies described in note 3. Segment result represents the profit or loss incurred by each segment without allocation of central administration costs and director’s salaries, other income, finance costs, share of results of associates, gain on disposal of subsidiaries and income tax expenses. This is a measure reported to the CODM for the purposes of resources allocation and assessment of segment performance.

For the purposes of monitoring segment performance and allocating resources between segments:

all assets are allocated to operating segments other than deferred tax assets, available-forsale financial assets, equity instruments at FVTOCI, interests in associates, amounts due from associates, non-controlling shareholders of subsidiaries and related parties, financial assets at FVTPL, prepaid income tax, restricted bank deposits, bank balances and cash and other unallocated corporate assets; and
all liabilities are allocated to operating segments other than amounts due to associates, non-controlling shareholders of subsidiaries and related parties and bank and other borrowings, income tax payable, deferred tax liabilities and other unallocated corporate liabilities.

Segment assets and liabilities

The following is an analysis of the Consolidated Group’s assets and liabilities by reportable segment.

As at 31 December 2015 Segment assets Segment liabilities As at 31 December 2016 Segment assets Segment liabilities As at 31 December 2017 Segment assets Segment liabilities As at 30 June 2018 Segment assets Segment liabilities	– III-59 – Property Property development investment RMB’000 RMB’000 5,275,224 1,263,040 2,419,021 1,273 6,745,270 1,476,890 2,168,205 1,009 6,258,178 1,564,870 1,870,102 892 7,370,073 1,630,090 2,585,886 892	Hotel operation RMB’000 17,650 16,215 16,326 18,063 13,861 13,482 22,714 13,118	Other operations RMB’000 36,533 6,030 36,213 6,789 40,703 4,059 7,176 4,008	Total RMB’000 6,592,447

				2,442,539

				8,274,699

				2,194,066

				7,877,612

				1,888,535

				9,030,053

				2,603,904

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Reconciliation of reportable segment profit, assets and liabilities

Total segment profit
Unallocated amounts
Other income
Gain on disposal of
subsidiaries
Finance costs
Share of results of associates
Other corporate expenses
Consolidated profit before tax
Assets
Total segment assets
Other unallocated amounts
Other receivables and
prepayments
Available-for-sale financial
assets
Equity instruments at
FVTOCI
Deferred tax assets
Interests in associates
Amounts due from
associates
Amounts due from non-
controlling shareholders
of subsidiaries
Amounts due from related
parties
Financial assets at FVTPL
Prepaid income tax
Restricted bank deposits
Bank balances and cash
Consolidated total assets

Year ended 31 December
Six months ended 30 June
2015
2016
2017
2017
2018
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
465,033
674,805
115,335
37,249
55,497
5,344
4,863
4,346
3,655
4,159
–
11
172,265
159,413
–
(55,087)
(63,913)
(38,810)
(15,659)
(56,802)
2,391
1,637
(565)
(189)
–
(109)
(144)
(170)
(138)
(44)
417,572
617,259
252,401
184,331
2,810
As at 31 December
As at
30 June
2015
2016
2017
2018
RMB’000
RMB’000
RMB’000
RMB’000
6,592,447
8,274,699
7,877,612
9,030,053
204,872
232,302
335,429
222,167
49,000
49,000
64,316
–
–
–
–
63,902
26,322
15,737
11,985
18,993
115,971
117,608
117,043
117,043
50
50
1,210
1,666
301,302
439,558
312,789
23,001
291,979
557,612
784,925
384,191
3,000
–
–
–
62,863
74,394
97,861
118,618
72,134
77,888
36,274
22,913
275,019
168,769
139,599
186,577
7,994,959
10,007,617
9,779,043
10,189,124

– III-60 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Liabilities Total segment liabilities Other unallocated amounts Other payables and accruals Income tax payable Amounts due to associates Amounts due to non- controlling shareholders of subsidiaries Amounts due to related parties Bank and other borrowings Deferred tax liabilities Consolidated total liabilities Other segment information For the year ended 31 December 2015 Amounts included in the measure of segment profit or loss or segment assets: Additions to non-current assets Change in fair value of investment properties Change in fair value upon transfer from inventories to investment properties Depreciation of property, plant and equipment Impairment loss-inventory of properties Release of prepaid lease payments	As at 31 December As at 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 2,442,539 2,194,066 1,888,535 2,603,904 419,993 611,830 268,253 416,230 163,240 326,169 232,515 158,136 106,000 99,640 99,640 99,645 84,771 85,016 85,261 119,761 1,225,501 1,251,145 1,075,598 935,601 2,227,205 3,736,950 4,212,447 4,066,496 131,088 144,886 155,634 176,245 6,800,337 8,449,702 8,017,883 8,576,018 Property Property Hotel Others development investment operation operations Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 2,435 1,028,430 23,510 27,313 1,081,688 – 4,440 – – 4,440 – 455,624 – – 455,624 10,070 – 18,006 200 28,276 18,137 – – – 18,137 4,913 – – – 4,913	As at 30 June 2018 RMB’000 2,603,904 416,230 158,136 99,645 119,761 935,601 4,066,496 176,245
		8,576,018

– III-61 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2016 Amounts included in the measure of segment profit or loss or segment assets: Additions to non-current assets Change in fair value of investment properties Change in fair value upon transfer from inventories to investment properties Depreciation of property, plant and equipment Impairment loss-inventory of properties Release of prepaid lease payments For the year ended 31 December 2017 Amounts included in the measure of segment profit or loss or segment assets: Additions to non-current assets Change in fair value of investment properties Change in fair value upon transfer from inventories to investment properties Depreciation of property, plant and equipment Impairment loss-inventory of properties Release of prepaid lease payments	Property development RMB’000 2,462 – – 10,340 2,188 18,762 13,369 – – 10,711 1,551 20,031	Property investment RMB’000 165,340 48,510 93,709 – – – 35,134 52,846 18,142 – – –	Hotel operation RMB’000 2,001 – – 20,752 – – 144 – – 20,739 – –	Others operations RMB’000 1,329 – – 3,715 – – – – – 4,115 – –	Total RMB’000 171,132 48,510 93,709 34,807 2,188 18,762

					48,647 52,846 18,142 35,565 1,551 20,031

– III-62 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Six months ended 30 June 2017 (unaudited) Amounts included in the measure of segment profit or loss or segment assets: Additions to non-current assets Change in fair value of investment properties Changes in fair value upon transfer from inventories to investment properties Depreciation of property, plant and equipment Impairment loss-inventory of properties Release of prepaid lease payments Six months ended 30 June 2018 Amounts included in the measure of segment profit or loss or segment assets: Additions to non-current assets Change in fair value of investment properties Depreciation of property, plant and equipment Release of prepaid lease payments	Property development RMB’000 4,989 – – 5,344 1,551 9,703 67,955 – 3,992 10,016	Property investment RMB’000 – 1,016 18,142 – – – – 65,220 – –	Hotel operation RMB’000 – – – 10,145 – – – – 13,313 –	Others operations RMB’000 – – – 1,918 – – – – 1,307 –	Total RMB’000 4,989 1,016 18,142 17,407 1,551 9,703

					67,995 65,220 18,612 10,016

All the Consolidated Group’s operations are located in mainland China. The revenue of the Consolidated Group was all generated in the PRC during the Track Record Period. All the non-current assets excluding financial instruments and deferred tax assets were all located in the PRC.

There was no individual customer contributing more than 10% of the revenue of the Consolidated Group in the corresponding year/period during the Track Record Period.

– III-63 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

7. OTHER INCOME

Other income
Interest income on bank deposits
Investment income from
available-for-sale financial
assets/equity instruments at
FVTOCI
Others
FINANCE COSTS
Interests on bank and other
borrowings
Interests on contract liabilities
Less: Amount capitalised in
properties under development for
sale
INCOME TAX EXPENSE
Current tax:
Enterprise income tax (“EIT”) in
the PRC
LAT
Deferred tax_(Note 29)_

Year ended 31 December
Six months ended 30 June
2015
2016
2017
2017
2018
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
443
1,387
981
384
249
3,875
2,556
2,974
2,974
2,806
1,026
920
391
297
1,104
5,344
4,863
4,346
3,655
4,159
Year ended 31 December
Six months ended 30 June
2015
2016
2017
2017
2018
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
238,775
254,614
284,328
139,046
208,640
–
–
–
–
40,920
(183,688)
(190,701)
(245,518)
(123,387)
(192,758)
55,087
63,913
38,810
15,659
56,802
Year ended 31 December
Six months ended 30 June
2015
2016
2017
2017
2018
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
19,971
118,146
34,787
32,081
2,554
42,461
111,437
29,269
15,057
2,141
62,432
229,583
64,056
47,138
4,695
106,762
24,383
14,500
(773)
24,517
169,194
253,966
78,556
46,365
29,212

8. FINANCE COSTS

9. INCOME TAX EXPENSE

– III-64 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

No provision for Hong Kong Profits Tax has been made in the Historical Financial Information as the income of the Consolidated Group neither arises in nor is derived from Hong Kong.

Under the Law of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25%.

The provision of LAT is estimated according to the requirement set forth in the relevant PRC tax law and regulations. LAT has been provided at ranges of progressive rate of the appreciation value, with certain allowable exemptions and deductions.

The income tax expenses for the Track Record Period can be reconciled to the profit before taxation per the consolidated statements of profit or loss and other comprehensive income as follows:

Profit before taxation
Tax at the applicable rate of 25%
LAT
Tax effect of LAT
Tax effect of expenses not
deductible for tax purposes
Tax effect of income not taxable
for tax purposes
Tax effect of tax losses not
recognised
Tax effect of deductible temporary
differences not recognised
Tax effect of share of result of
associates
Others
Income tax expense for the year/
period

Year ended 31 December
Six months ended 30 June
2015
2016
2017
2017
2018
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
417,572
617,259
252,401
184,331
2,810
104,393
154,315
63,100
46,083
703
42,461
111,437
29,269
15,057
2,141
(10,615)
(27,859)
(7,317)
(3,764)
(535)
4,939
2,820
783
325
427
–
(3)
(17,816)
(14,603)
–
17,173
8,445
6,577
1,128
20,614
4,534
547
388
388
–
(598)
(409)
141
47
–
6,907
4,673
3,431
1,704
5,862
169,194
253,966
78,556
46,365
29,212

– III-65 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

10. PROFIT AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR/PERIOD

Profit and total comprehensive
income for the year/period has
been arrived at after charging
(crediting):
Cost of inventories recognised as
expense
Depreciation of property, plant and
equipment
Impairment on property under
development (included in cost of
sales and services)
Release of prepaid lease payments
Director’s emoluments_(note 11)_
Other staff costs
Staff salaries and allowances
Retirement benefit contributions
Total staff costs
Less: Amount capitalised to
properties under development
for sale
Gross rental income from
investment properties
Less: direct operating expenses
incurred for investment
properties that generated
rental income

Year ended 31 December
Six months ended 30 June
2015
2016
2017
2017
2018
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Unaudited)
402,731
1,628,385
1,014,034
605,375
96,650
28,276
34,807
35,565
17,407
18,612
18,137
2,188
1,551
1,551
–
4,913
18,762
20,031
9,703
10,016
–
–
–
–
–
32,797
35,806
36,927
17,237
16,762
1,662
1,688
1,850
959
1,112
34,459
37,494
38,777
18,196
17,874
(7,311)
(6,648)
(5,777)
(2,904)
(1,570)
27,148
30,846
33,000
15,292
16,304
16,444
20,503
21,528
12,506
14,525
(1,485)
(1,451)
(1,829)
(984)
(970)
14,959
19,052
19,699
11,522
13,555

– III-66 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

11. DIRECTOR’S, EMPLOYEES’ AND CHIEF EXECUTIVE’S EMOLUMENTS

Guo Jiadi is the sole director of the Target Company since the date of incorporation. No director’s emoluments were paid by the Consolidated Group during the Track Record Period.

The five individuals with the highest emoluments in the Consolidated Group did not include any director during the Track Record Period. The emoluments of the five highest paid individuals are as follows:

Salaries and allowances Retirement benefit contributions	Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 1,898 1,682 1,682 840 840 43 47 44 23 23 1,941 1,729 1,726 863 863

Their emoluments individually were all below HK$1,000,000.

During the Track Record Period, no emoluments had been paid by the Consolidated Group to the director of the Target Company or the five highest paid individuals as inducement to join the Consolidated Group or as compensation for loss of office.

12. DIVIDENDS

No dividends have been paid or declared by the Target Company and the group entities during the Track Record Period.

13. EARNINGS PER SHARE

No earnings per share for the Track Record Period is presented as its inclusion is considered not meaningful for the purpose of this report.

14. RETIREMENT BENEFIT SCHEME

The employees of the Consolidated Group’s subsidiaries in the PRC are members of a state-managed retirement benefit scheme operated by the government of the PRC. The subsidiaries are required to contribute range from 2% to 15% of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Consolidated Group with respect to the retirement benefit scheme is to make the specified contributions.

The total expense recognised in profit or loss of RMB1,662,000, RMB1,688,000, RMB1,850,000, RMB959,000 (unaudited) and RMB1,112,000 represents the contributions payable to these plans by the Consolidated Group at rates specified in the rules of the plans by the Consolidated Group for the years ended 31 December 2015, 2016 and 2017 and the six months ended 30 June 2017 and 2018, respectively.

– III-67 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

15. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2015 Additions At 31 December 2015 Additions Disposals At 31 December 2016 Additions Disposals Disposal of subsidiaries_(note 31) At 31 December 2017 Additions Disposals At 30 June 2018 DEPRECIATION AND IMPAIRMENT At 1 January 2015 Depreciation provided during the year At 31 December 2015 Depreciation provided during the year Disposals At 31 December 2016 Depreciation provided during the year Disposals Disposal of subsidiaries(note 31)_ At 31 December 2017 Depreciation provided during the period Disposals At 30 June 2018	Hotel Buildings under development RMB’000 RMB’000 397,242 – 19,725 – 416,967 – 217 – – – 417,184 – – – (20) – – – 417,164 – – 64,873 – – 417,164 64,873 15,585 – 10,294 – 25,879 – 12,311 – – – 38,190 – 12,280 – – – – – 50,470 – 10,923 – – – 61,393 –	Buildings Leasehold improvements RMB’000 RMB’000 29,825 10,723 – 18,517 29,825 29,240 – 1,060 – – 29,825 30,300 6,582 3,321 – – – (8,712) 36,407 24,909 – 2,292 – – 36,407 27,201 4,329 – 4,722 1,705 9,051 1,705 4,722 4,379 – – 13,773 6,084 4,722 5,073 – – – (558) 18,495 10,599 2,361 1,722 – – 20,856 12,321	Motor vehicles RMB’000 9,048 70 9,118 262 – 9,380 – (561) – 8,819 47 – 8,866 6,406 640 7,046 609 – 7,655 746 (566) – 7,835 139 – 7,974	Furniture and equipment Other hotel operation assets RMB’000 RMB’000 14,761 46,152 11,161 3,785 25,922 49,937 2,469 1,784 (317) – 28,074 51,721 3,466 144 (8) – (8,416) – 23,116 51,865 743 – (11) – 23,848 51,865 6,534 13,174 3,203 7,712 9,737 20,886 4,345 8,441 (119) – 13,963 29,327 4,285 8,459 (7) – (2,383) – 15,858 37,786 1,077 2,390 (8) – 16,927 40,176	Total RMB’000 507,751 53,258
					561,009 5,792 (317)
					566,484 13,513 (589) (17,128)
					562,280 67,955 (11)
					630,224
					46,028 28,276
					74,304 34,807 (119)
					108,992 35,565 (573) (2,941)
					141,043 18,612 (8)
					159,647

– III-68 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

CARRYING VALUES At 31 December 2015 At 31 December 2016 At 31 December 2017 At 30 June 2018	Hotel Buildings under development RMB’000 RMB’000 391,088 – 378,994 – 366,694 – 355,771 64,873	Buildings Leasehold improvements RMB’000 RMB’000 20,774 27,535 16,052 24,216 17,912 14,310 15,551 14,880	Motor vehicles RMB’000 2,072 1,725 984 892	Furniture and equipment Other hotel operation assets RMB’000 RMB’000 16,185 29,051 14,111 22,394 7,258 14,079 6,921 11,689	Total RMB’000 486,705

					457,492

					421,237

					470,577

The above items of property, plant and equipment except buildings under development are depreciated on a straight-line basis over the following estimated useful lives:

Buildings and Hotel	Over the shorter of the relevant lease term or
	3% – 5% per annum
Leasehold improvements	Over the shorter of relevant lease term or 3 to 5 years
Motor vehicles	3 to 5 years
Furniture and equipment	3 to 5 years
Other hotel operation assets	5 to 15 years

The Consolidated Group has pledged its hotel and buildings with a net book value of RMB324,765,000, RMB493,680,000, RMB484,392,000 and RMB479,903,000 as at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively, to secure the bank and other loan facilities granted to the Consolidated Group and the related companies.

– III-69 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

16. INVESTMENT PROPERTIES

At 1 January 2015 Transfer from inventory of properties at fair value Unrealised gain from change in fair value recognised in profit or loss At 31 December 2015 Transfer from inventory of properties at fair value Unrealised gain from change in fair value recognised in profit or loss At 31 December 2016 Transfer from inventory of properties at fair value Unrealised gain from change in fair value recognised in profit or loss At 31 December 2017 Unrealised gain from change in fair value recognised in profit or loss At 30 June 2018	Completed investment properties RMB’000 230,170 1,028,430 4,440
	1,263,040 165,340 48,510
	1,476,890 35,134 52,846
	1,564,870 65,220
	1,630,090

All of the Consolidated Group’s property interests held under operating leases to earn rentals are classified and accounted for as investment properties and are measured using the fair value model.

As at 31 December 2015, 2016 and 2017 and 30 June 2018, the fair value of the Consolidated Group’s completed investment properties of RMB1,263,040,000, RMB1,476,890,000, RMB1,564,870,000 and RMB1,630,090,000, respectively were arrived at on the basis of a valuation carried out by Asset Appraisal Limited, an independent qualified professional valuers not connected with the Consolidated Group, which has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations.

The valuations of completed investment properties as at 31 December 2015, 2016, 2017 and 30 June 2018 and at the date of transfer from inventory of properties are determined based on market approach with consideration of price information of similar properties available on the market (level 3).

In estimating the fair value of the properties, highest and best use of the properties is their current use.

The Consolidated Group has pledged its investment properties with carrying amount of RMB136,000,000, RMB168,000,000, RMB212,000,000 and RMB215,000,000 at 31 December 2015, 2016, 2017 and 30 June 2018, respectively to secure the bank and other loan facilities granted to the Consolidated Group.

– III-70 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The following table gives information about how the fair values of these investment properties as at 31 December 2015, 2016 and 2017 and 30 June 2018 are determined (in particular, the valuation techniques and inputs used), as well as the fair value hierarchy into which the fair value measurements are categorised (Levels 1 to 3) based on the degree to which the inputs to the fair value measurements is observable.

Investment
properties
held by the
Consolidated
Group
Commercial
units
Residential
units
Carparks

Fair value
as at 31
December
2015
Location
Fair value
hierarchy
Valuation
techniques
and key inputs
Significant
unobservable inputs
Range
Sensitivity
RMB’000
1,143,580
Fujian/
Baoji/
Shanghai
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB9,994 to
RMB34,624
per square metre
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
107,000
Fujian
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB27,096
to RMB31,500
per square metre
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
12,460
Fujian/
Shanghai
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB170,708 to
RMB273,132
per carpark
unit
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
1,263,040

– III-71 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Investment
properties
held by the
Consolidated
Group
Commercial
units
Residential
units
Carparks

Fair value
as at 31
December
2016 Location
Fair value
hierarchy
Valuation
techniques
and key inputs
Significant
unobservable inputs
Range
Sensitivity
RMB’000
1,325,760 Fujian/
Shanghai
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB10,183 to
RMB35,280
per square metre
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
136,000 Fujian/
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB27,610 to
RMB32,097
per square metre
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
15,130 Fujian/
Shanghai
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB173,944 to
RMB278,310
per carpark
unit
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
1,476,890

– III-72 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Investment
properties	Fair value
held by the	as at 31			Valuation
Consolidated	December		Fair value	techniques	Significant
Group	2017	Location	hierarchy	and key inputs	unobservable inputs	Range	Sensitivity
	RMB’000
Commercial	1,373,070	Fujian/	Level 3	Direct comparison	Unit sale rate, taking	Unit sale rate	An increase in the
units		Baoji/		method key input is	into account the time	ranged from	unit sale rate used
		Shanghai		unit sale rate	value, location and	RMB10,321 to	would result in an
		province			individual factors,	RMB35,758	increase in the fair
					such as frontage size,	per square metre	value measurement
					between the market		of the investment
					comparable and the		properties by the
					property		same percentage
							increase, and vice
							versa
Residential	174,000	Fujian/	Level 3	Direct comparison	Unit sale rate, taking	Unit sale rate	An increase in the
units		province		method key input is	into account the time	ranged from	unit sale rate used
				unit sale rate	value, location and	RMB27,984 to	would result in an
					individual factors,	RMB32,532	increase in the fair
					such as frontage size,	per square metre	value measurement
					between the market		of the investment
					comparable and the		properties by the
					property		same percentage
							increase, and vice
							versa
Carparks	17,800	Fujian/	Level 3	Direct comparison	Unit sale rate, taking	Unit sale rate	An increase in the
		Shanghai		method key input is	into account the time	ranged from	unit sale rate used
		province		unit sale rate	value, location and	RMB176,301 to	would result in an
					individual factors,	RMB282,081	increase in the fair
					such as frontage size,	per carpark	value measurement
					between the market	unit	of the investment
					comparable and the		properties by the
					property		same percentage
							increase, and vice
							versa

1,564,870

– III-73 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Investment
properties
held by the
Consolidated
Group
Commercial
units
Residential
units
Carparks

Fair value
as at 31
December
2018 Location
Fair value
hierarchy
Valuation
techniques
and key inputs
Significant
unobservable inputs
Range
Sensitivity
RMB’000
1,437,290 Fujian/
Baoji/
Shanghai
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB10,538 to
RMB36,508
per square metre
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
175,000 Fujian/
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB28,571 to
RMB33,214
per square metre
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
17,800 Fujian/
Shanghai
province
Level 3
Direct comparison
method key input is
unit sale rate
Unit sale rate, taking
into account the time
value, location and
individual factors,
such as frontage size,
between the market
comparable and the
property
Unit sale rate
ranged from
RMB180,000 to
RMB288,000
per carpark
unit
An increase in the
unit sale rate used
would result in an
increase in the fair
value measurement
of the investment
properties by the
same percentage
increase, and vice
versa
1,630,090

There is no transfer into or out of Level 3 during the Track Record Period.

– III-74 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

17. INTERESTS IN ASSOCIATES

Unlisted cost of investments Share of post-acquisition profits and other comprehensive income, net of dividend received	As at 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 113,440 113,440 113,440 2,531 4,168 3,603 115,971 117,608 117,043	As at 30 June 2018 RMB’000 113,440 3,603
		117,043

Details of the Consolidated Group’s associates as at the end of each reporting period are as follows:

	Place of							Proportion of	Proportion of
	establishment/	Attributable interest indirectly						voting	rights
Name of entity	operation	held by the Consolidated Group				held	by	the Consolidated Group			Principal activity
					At 30					At 30
			At 30 June		June		At 31 December			June
		2015	2016	2017	2018	2015		2016	2017	2018
上海三迪投資有限公司	PRC	20%	20%	20%	20%	20%		20%	20%	20%	Property
											development
											and investment
福建眾望達投資發展有限公司	PRC	15.54%	15.54%	15.54%	15.54%	15.54%	15.54%		15.54%	15.54%	Investment holding
福建佳科實業有限公司(“Fujian Jia Ke”)	PRC	49.07%	49.07%	49.07%	49.07%	49.07%	49.07%		49.07%	49.07%	Property
											development
											and investment

The summarised financial information in respect of the Consolidated Group’s material interest in an associate are set out below. The summarised financial information below represents amount shown in the associates’ financial statements prepared in accordance with HKFRSs. The associate is accounted for using the equity method in these consolidated financial statements.

– III-75 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Fujian Jia Ke Current assets Current liabilities Revenue Profit (loss) and total comprehensive income (expense) for the year/ period	As at 31 December As at 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 222,327 226,019 224,891 224,781 59 257 169 3 Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) – – – – – 2,467 1,713 (510) (154) –	As at 30 June 2018 RMB’000 224,781

		3

Reconciliation of the above summarised financial information to the carrying amount of the interest in the associate recognised in the consolidated financial statements:

Net assets of Fujian Jia Ke Proportion of the Group’s ownership interest in Fujian Jia Ke Carrying amount of the Group’s interest in Fujian Jia Ke	2015 RMB’000 222,268 49.07% 109,067	As at 31 December 2016 2017 RMB’000 RMB’000 225,762 224,722 49.07% 49.07% 110,781 110,271	As at 30 June 2018 RMB’000 224,778 49.07%
			110,299

– III-76 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Aggregate information of associates that are not individually material

The Consolidated Group’s share of profit (loss) and total comprehensive income (expense) Aggregate carrying amount of the Consolidated Group’s interests in these associates	Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 76 (76) (55) (34) – As at 31 December As at 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 6,904 6,827 6,772 6,744	Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 76 (76) (55) (34) – As at 31 December As at 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 6,904 6,827 6,772 6,744

		at 30 June 2018 RMB’000 6,744

18. AVAILABLE-FOR-SALE FINANCIAL ASSETS/EQUITY INSTRUMENTS AT FVTOCI

Unlisted equity investments Equity instruments at FVTOCI	2015 RMB’000 49,000 –	As at 31 December 2016 2017 RMB’000 RMB’000 49,000 64,316 – –	As at 30 June 2018 RMB’000 –

			63,902

The balance at 31 December 2015 and 2016 represented the 3.6% equity investment in 福建莆田農村商業股份有限公司 (“Fujian Putian”), which engaged in financial service in the PRC. The Consolidated Group does not have any board seat in this entity.

In 2017, as detailed in note 31, 95% equity interests in Xi’an Sandi Real Estate Development Co., Ltd. 西安三迪房地產開發有限公司 (“Xian Sandi”) and Fujian Jingdu Land Co., Ltd. 福建京都置業有限公司 (“Fujian Jingdu”) were disposed to Sandi Holdings Limited, which is controlled by Mr. Guo Jia Di and the remaining 5% equity interests in these entities were classified as available-for-sale financial assets. The Consolidated Group does not have any board seat in these two entities.

During the six months ended 30 June 2018, the Consolidated Group acquired 5% equity interest in 南平三迪香頌房地產開發公司 at a cash consideration of RMB2,500,000. The Consolidated Group does not have any board seat in this entity.

– III-77 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The unlisted equity investments at 31 December 2015, 2016 and 2017 were designated as availablefor-sale financial assets and were stated at cost less impairment because the investments did not have quoted market price in an active market. The Consolidated Group does not intend to dispose them in the near future. As at 1 January 2018, the Consolidated Group designated these investments as equity instruments measured at FVOCI.

19. PREPAID LEASE PAYMENTS

Current assets Non-current assets	2015 RMB’000 4,800 129,214 134,014	As at 31 December 2016 2017 RMB’000 RMB’000 20,031 20,031 704,451 684,420 724,482 704,451	As at 30 June 2018 RMB’000 20,031 674,404
			694,435

All the leasehold land are situated in the PRC with the terms ranged from 24 to 32 years.

The Consolidated Group has pledged its prepaid lease payments with a net book value of nil, RMB431,026,000, RMB420,251,000 and RMB420,251,000 as at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively to secure the bank and other loan facilities granted to the Consolidated Group and the related companies.

20. INVENTORY OF PROPERTIES

Completed properties for sale Properties under development for sale	2015 RMB’000 475,374 3,082,458 3,557,832	As at 31 December 2016 2017 RMB’000 RMB’000 917,429 590,700 3,651,722 3,898,322 4,569,151 4,489,022	As at 30 June 2018 RMB’000 532,809 4,740,385
			5,273,194

Included in the amount are properties under development for sale of RMB1,143,706,000, RMB2,582,320,000, RMB3,277,821,000 and RMB3,999,865,000 as at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively, which are expected to be completed in more than twelve months from the end of the respective reporting period.

The Consolidated Group has pledged its inventory of properties with a net book value of RMB2,542,000,000, RMB4,331,372,000, RMB3,883,281,000 and RMB4,601,739,000 as at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively, to secure the banking facilities granted to the Consolidated Group.

– III-78 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

21. TRADE RECEIVABLES, OTHER RECEIVABLES AND PREPAYMENTS

Trade receivables Other receivables Prepayment to suppliers Deposits for acquisition of land for property development Prepaid other taxes Deferred consideration Other refundable deposits	2015 RMB’000 4,948 552,407 177,613 401,880 115,002 – 102,986 1,354,836	As at 31 December 2016 2017 RMB’000 RMB’000 11,741 9,004 521,497 593,916 314,325 79,212 220,000 225,000 85,736 71,569 5,000 7,600 119,697 45,340 1,277,996 1,031,641	As at 30 June 2018 RMB’000 14,615 526,967 458,633 5,000 119,071 5,000 52,669
			1,181,955

Trade receivables mainly arise from sales of properties. Consideration in respect of properties sold is paid in accordance with the terms of the related sales and purchase agreements, normally within 90 days from the date of agreement. The following is an aged analysis of the Consolidated Group’s trade receivables based on the delivery date of the properties to the customers at the end of each of the reporting period:

0 to 90 days 91 to 180 days 181 to 365 days Over 1 year	2015 RMB’000 4,610 107 170 61 4,948	As at 31 December 2016 2017 RMB’000 RMB’000 11,385 8,883 292 56 1 2 63 63 11,741 9,004	As at 30 June 2018 RMB’000 13,835 421 359 –
			14,615

The above trade receivables which were all past due but not impaired related to a large number of diversified customers for which there was no recent history of default and with satisfactory subsequent settlements. The director of the Target Company is of the opinion that the balances are considered fully recoverable.

No allowance for doubtful debts was recognised during the Track Record Period.

The Consolidated Group applies the simplified approach to providing for expected credit losses prescribed by HKFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. Based on evaluation on expected loss rate and gross carrying amount, the director of the Target Company is of the opinion that the ECL in respect of these balances is considered immaterial and therefore there has not been a loss allowance provision.

– III-79 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The gross carrying amount of trade receivables was RMB23,416,000 as at 30 June 2018.

Other receivables included advances to third parties of RMB420,867,000, RMB370,039,000, RMB455,174,000 and RMB334,162,000 at 31 December 2015, 2016, 2017 and 30 June 2018, respectively. The amounts were unsecured, interest-free and expected to be repaid within one year from the end of the reporting period.

22. FINANCIAL ASSETS AT FVTPL

		As at 31 December		As at 30 June
	2015	2016	2017	2018
	RMB’000	RMB’000	RMB’000	RMB’000
Unlisted fund investment,
at fair value	3,000	–	–	–

The above unlisted fund investment is denominated in RMB. The fund investment was redeemed at RMB3,059,000 in 2016.

23. RESTRICTED BANK DEPOSITS/BANK BALANCES AND CASH

Restricted bank deposits

		As at 31 December		As at 30 June
	2015	2016	2017	2018
	RMB’000	RMB’000	RMB’000	RMB’000
Restricted bank deposits from
pre-sale of properties_(note)_	72,134	77,888	36,274	22,913

Note: The bank balances represented the proceeds received from pre-sale of properties which are deposited in designated bank accounts and restricted to be used for the settlement of project related costs.

The Consolidated Group’s restricted bank deposits carry interest at prevailing market rates of 0.3%, 0.3%, 0.3% and 0.3% per annum at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively.

– III-80 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Bank balances and cash

The Consolidated Group’s bank balances carry interest at prevailing market rates range from 0.3% to 1.95%, 0.3% to 1.95%, 0.3% to 1.95% and 0.3% to 1.95% per annum at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively.

24. TRADE AND OTHER PAYABLES AND ACCRUALS

Trade payables Other payables Other tax payables Accrued construction costs Other accruals	2015 RMB’000 750,776 531,709 77,409 100,741 18,198 1,478,833	As at 31 December 2016 2017 RMB’000 RMB’000 772,963 864,430 769,105 384,941 146,290 71,124 79,293 102,605 4,576 5,451 1,772,227 1,428,551	As at 30 June 2018 RMB’000 507,016 442,514 58,259 335,544 4,131
			1,347,464

Trade payables mainly represent the payables to suppliers for construction work. The average credit period for construction supplier ranged from 0 to 30 days.

Other payables included advances from third parties of RMB454,375,000, RMB622,981,000, RMB299,980,000 and RMB330,339,000 at 31 December 2015, 2016, 2017 and 30 June 2018, respectively. The amounts were unsecured, interest-free and repayable on demand.

The following is an aged analysis of the Consolidated Group’s trade payables presented based on invoice date at the end of each of the reporting period:

0 to 90 days 91 to 180 days 181 to 365 days Over 1 year	2015 RMB’000 529,233 75,483 40,310 105,750 750,776	As at 31 December 2016 2017 RMB’000 RMB’000 349,524 368,834 216,870 144,545 72,853 163,274 133,716 187,777 772,963 864,430	As at 30 June 2018 RMB’000 190,288 60,357 74,474 181,897
			507,016

– III-81 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

25. CONTRACT LIABILITIES

The contract liabilities represent the deposits received from pre-sale of properties.

The Consolidated Group receive payments from customers based on billing schedule as established in property sales contracts. Payments are usually received in advance of the performance under the contracts from sales of properties.

Included in revenue recognised for the six months ended 30 June 2018, approximately RMB67,981,000 was included in the contract liabilities at 1 January 2018.

The unsatisfied contracts related to sales of properties at 30 June 2018 are as follow:

Unsatisfied contracted sales expected to be recognised as revenue in – within one year – after one year Total transaction price allocated to the unsatisfied contracts at the end of the reporting period	As at 30 June 2018 RMB’000 823,021 1,150,995
	1,974,016

26. BANK AND OTHER BORROWINGS

Secured bank loans Secured other loans_(note)_ Carrying amount repayable Within one year More than one year but not exceeding two years More than two years but not exceeding five years Over five years Less: Amounts due within one year shown under current liabilities Amounts shown under non-current liabilities	2015 RMB’000 778,200 1,449,005 2,227,205 778,200 789,505 200,000 459,500 2,227,205 (778,200) 1,449,005	As at 31 December 2016 2017 RMB’000 RMB’000 893,294 1,261,553 2,843,656 2,950,894 3,736,950 4,212,447 893,294 1,261,553 1,897,453 2,530,503 756,872 296,231 189,331 124,160 3,736,950 4,212,447 (893,294) (1,261,553) 2,843,656 2,950,894	As at 30 June 2018 RMB’000 1,286,563 2,779,933
			4,066,496
			1,286,563 2,363,277 314,403 102,253
			4,066,496 (1,286,563)
			2,779,933

– III-82 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Note: The other loans were provided by trust companies and micro-lending companies in the PRC and were secured by inventory of properties and investment properties and equity interest in a subsidiary.

On 20 September 2016, Fuzhou Gaojia entered into loan financing arrangement with 中原信托有限公司 (the “Lender”), a trust loan company independent of the Consolidated Group, pursuant to which the Lender provided loan financing to 上海高佳房地產開發有限公司 (“Shanghai Gaojia”), a wholly-owned subsidiary of Fuzhou Gaojia, to finance its property project. Under the loan financing arrangement, 45.45% equity interest in Shanghai Gaojia held by Fuzhou Gaojia was transferred to the Lender to secure the borrowing. Fuzhou Gaojia will repurchase the 45.45% equity interest in Shanghai Gaojia at a pre-determined amount after two years from the date that the loan financing was obtained (i.e. 9 October 2016). Fuzhou Gaojia maintained the control over Shanghai Gaojia and it is considered as a wholly-owned subsidiary of Fuzhou Gaojia throughout the Track Record Period.

All the Consolidated Group’s borrowings are denominated in RMB.

Fixed rate borrowings Variable rate borrowings	2015 RMB’000 1,747,205 480,000 2,227,205	As at 31 December 2016 2017 RMB’000 RMB’000 3,542,250 4,077,447 194,700 135,000 3,736,950 4,212,447	As at 30 June 2018 RMB’000 3,791,496 275,000
			4,066,496

The range of effective interests rates of the borrowings at the end of each reporting period was as follows:

Fixed rate borrowings Variable rate borrowings	2015 8.5% to 14% per annum 6.5% to 9%	As at 31 December 2016 2017 4.4% to 13.5% 4.4% to 9.5% per annum per annum 5.2% to 7.38% 5.2% to 10.3%	As at 30 June 2018 4.75% to 9.5% per annum

			5.2% to 8.9%

Details of pledge of the Consolidated Group’s assets are set out in note 32.

– III-83 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

27. SHARE CAPITAL

The Target Company

Notes Ordinary shares of US$1 each Authorised: On date of incorporation and at 31 December 2017 and 30 June 2018 (a) Issued: 1 share allotted and issued on the date of incorporation and at 31 December 2017 and 30 June 2018 (b) Shown in the statements of financial position Notes:	Number of shares 50,000 1	Number of shares 50,000 1	Share capital US$ 50,000

			1

			RMB’000 –

(a) The Target Company was incorporated in the BVI on 22 October 2017 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each.
(b) On 22 October 2017, 1 share of US$1 each was issued to the shareholder at par to provide the initial capital to Target Company.

– III-84 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The table below details changes in the Consolidated Group’s liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or the future cash flows will be, classified in the Consolidated Group’s
consolidated cash flows from financing activities.

Unaudited
Financing
Finance
cash flows
costs
Disposal of
1.1.2017
(note)
incurred
subsidiaries
30.6.2017
RMB’000
RMB’000
RMB
RMB’000
RMB’000
99,640
–
–
–
99,640
85,016
245
–
–
85,261
1,251,145
(391)
–
94,572
1,345,326
622,981
(275,095)
–
–
347,886
3,736,950
(272,396)
139,046
(529,700)
3,073,900
5,795,732
(547,637)
139,046
(435,128)
4,952,013

30.6.2018
99,645
119,761
935,601
259,405
4,066,496
5,480,908

– III-85 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

29. DEFERRED TAX

The following are the major deferred tax assets (liabilities) recognised and movements during the Track Record Period:

At 1 January 2015 Credit (charge) to profit or loss for the year At 31 December 2015 Credit (charge) to profit or loss for the year At 31 December 2016 (Charge) credit to profit or loss for the year At 31 December 2017 Adjustments from HKFRS 15 (note 2) At 1 January 2018 (restated) (Charge) credit to profit or loss for the period Charge to other comprehensive income for the period At 30 June 2018	Temporary difference on provision of LAT RMB’000 13,503 3,137 16,640 17,428 34,068 (6,096) 27,972 – 27,972 (22,042) – 5,930	Tax losses RMB’000 11,448 5,117 16,565 (6,256) 10,309 9,343 19,652 – 19,652 3,600 – 23,252	Temporary difference on contract liabilities RMB’000 – – – – – – – 10,185 10,185 10,230 – 20,415	Fair value change of equity instruments at FVTOCI RMB’000 – – – – – – – – – – 729 729	Fair value change of investment properties RMB’000 (22,955) (115,016) (137,971) (35,555) (173,526) (17,747) (191,273) – (191,273) (16,305) – (207,578)	Total RMB’000 1,996 (106,762)
						(104,766) (24,383)
						(129,149) (14,500)
						(143,649) 10,185
						(133,464) (24,517) 729
						(157,252)

– III-86 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

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

Deferred tax assets Deferred tax liabilities	2015 RMB’000 26,322 (131,088) (104,766)	At 31 December 2016 2017 RMB’000 RMB’000 15,737 11,985 (144,886) (155,634) (129,149) (143,649)	At 30 June 2018 RMB’000 18,993 (176,245)
			(157,252)

Under the EIT Law of PRC, withholding tax is imposed on dividends declared in respect of profits earned by PRC subsidiaries from 1 January 2008 onwards. Deferred tax has not been provided for in the consolidated financial statements in respect of temporary differences attributable to accumulated profits of the PRC subsidiaries amounting to approximately RMB717,673,000, RMB1,071,540,000, RMB1,105,626,000 and RMB1,112,705,000 at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively as the Consolidated Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

The Consolidated Group had unused tax losses of RMB163,964,000, RMB172,717,000, RMB186,109,000 and RMB274,117,000 as at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively available to offset against future profits. Deferred tax assets have been recognised in respect of tax losses of RMB66,259,000, RMB41,234,000, RMB78,606,000 and RMB93,007,000 as at year ended 31 December 2015, 2016 and 2017 and 30 June 2018, respectively. No deferred tax asset has been recognised for the remaining tax losses due to the unpredictability of future profit streams. The unrecognised tax losses will expire in the following years:

2017 2018 2019 2020 2021 2022 2023	2015 RMB’000 55 1,893 27,065 68,692 – – – 97,705	As at 31 December 2016 2017 RMB’000 RMB’000 55 – 1,893 1,893 27,040 20,148 68,692 42,941 33,803 16,095 – 26,426 – – 131,483 107,503	As at 30 June 2018 RMB’000 – 1,893 13,817 42,429 15,526 24,787 82,658
			181,110

At the end of the reporting period the Consolidated Group has deductible temporary differences of RMB18,137,000, RMB20,325,000, RMB21,876,000 and 21,876,000 at 31 December 2015, 2016 and 2017 and 2018, respectively. No deferred tax asset has been recognised in relation to such deductible temporary differences as it is not probable that taxable profits will be available against which the deductible temporary differences can be utilised.

– III-87 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

30. INVESTMENT IN A SUBSIDIARY

At 31 December 2017 and 30 June 2018 RMB’000

The Target Company – Investment cost in Guoshi Properties, unlisted

In November 2017, the Target Company contributed HK$100 to Guoshi Properties to subscribe 100 shares of Guoshi Properties.

31. DISPOSAL OF SUBSIDIARIES

For the year ended 31 December 2016

On 25 May 2016, the Baoji Sandi Property Development Co. Ltd., which was 91.7% held by the Target Company, entered into a sale and purchase agreement with an independent third party to dispose of its 100% equity interest in Baoji Dongxiang Industry Co., Ltd (“Baoji Dongxiang”) for a cash consideration of RMB5,000,000. The disposal was completed in June 2016.

The above transaction was accounted for as disposal of a subsidiary. Details of the net assets disposed of were summarised below:

Consideration satisfied by: Cash - deferred consideration Analysis of assets and liabilities over which control was lost: Trade and other receivables Bank balances and cash Net assets disposed of Gain on disposal of a subsidiary: Deferred consideration Net assets disposed of Net cash outflow arising on disposal: Bank balances and cash disposed of	Baoji Dongxiang RMB’000 5,000 4,980 9 4,989 5,000 (4,989) 11 (9)

– III-88 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2017

(i) On 30 June 2017, the Baoji Sandi Property Development Co., Ltd., which was 91.7% effectively held by the Target Company, entered into a sale and purchase agreement with an independent third party to dispose of its 100% equity interests in Baoji Sandi Cinema Management Co., Ltd (“Baoji Sandi Cinema”) for a consideration of RMB26,000,000 The disposal was completed in December 2017.
(ii) On 15 December 2016, the Fuzhou Gaojia, which was 91.7% effectively held by the Target Company, entered into agreements with China Sandi Holdings Limited, a listed company controlled by Mr. Guo Jiadi, pursuant to which 95% equity interest of Fujian Jingdu and 95% equity interest of Xian Sandi held by Fuzhou Gaojia were disposed to China Sandi Holdings Limited at a consideration of RMB196,000,000 and RMB95,000,000 respectively. The disposal of Fujian Jingdu and Xian Sandi were completed in May 2017 and June 2017 respectively.

The above transactions were accounted for as disposal of subsidiaries. Details of the net assets disposed of were summarised below:

Analysis of assets and liabilities over which control was lost: Property, plant and equipment Inventory of properties Other inventories Prepaid income tax Trade receivables, other receivables and prepayments Amount due from Consolidated Group Amounts due from related parties Bank balances and cash Trade and other payables and accruals Amount due to Consolidated Group Amounts due to related companies Bank and other borrowings Net assets disposed of	Baoji Sandi Cinema RMB’000 13,129 – 59 – 697 – – 109 (634) (5) (207) – 13,148	Fujian Jingdu RMB’000 425 464,909 – 12,849 75,422 – – 8,804 (305,215) (9,446) – (159,700) 88,048	Xian Sandi RMB’000 633 487,062 – 5,438 138,030 94,572 364 53,122 (302,928) – (47,438) (370,000) 58,855	Total RMB’000 14,187 951,971 59 18,287 214,149 94,572 364 62,035 (608,777) (9,451) (47,645) (529,700) 160,051

– III-89 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Gain on disposal of subsidiaries: Cash consideration Deferred consideration Fair value of the remaining equity interest held by the Group Net assets disposed of Net cash outflow arising on disposal: Cash consideration Bank balance and cash disposed of	Baoji Sandi Cinema RMB’000 23,400 2,600 – (13,148) 12,852 23,400 (109) 23,291	Fujian Jingdu RMB’000 196,000 – 10,316 (88,048) 118,268 196,000 (8,804) 187,196	Xian Sandi RMB’000 95,000 – 5,000 (58,855) 41,145 95,000 (53,122) 41,878	Total RMB’000 314,400 2,600 15,316 (160,051) 172,265 314,400 (62,035) 252,365

Details of statement of profit or loss and other comprehensive income for the period starting from 1 January 2017 to date of disposal date were summarised below:

Revenue Cost of sales Gross profit Other income Selling and distribution expenses Administrative expenses Finance costs (Loss) profit before taxation Income tax expenses (Loss) profit for the period	Fujian Jingdu RMB’000 – – – – (2,215) (835) (36) (3,086) – (3,086)	Xian Sandi RMB’000 267,208 (247,161) 20,047 85 (6,125) (3,072) (24) 10,911 (941) 9,970	Total RMB’000 267,208 (247,161) 20,047 85 (8,340) (3,907) (60) 7,825 (941) 6,884

– III-90 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Details of statements of cash flows for the period starting from 1 January 2017 to date of disposal date were summarised below:

OPERATING ACTIVITIES (Loss) profit before tax Adjustments for: Depreciation of property, plant and equipment Interest income Operating cash flows before movements in working capital (Increase) decrease in inventory of properties Increase in trade and other receivables and prepayments Increase (decrease) in trade and other payables and accruals Increase (decrease) in deposits received for sale properties Cash generated from operations Income tax paid NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant and equipment Advances to related parties Repayment from related parties Advances to non-controlling shareholders of subsidiaries Repayment from non-controlling shareholders of subsidiaries Advances to Consolidated Group Repayment from Consolidated Group Bank interest received NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Repayment of bank and other borrowings Interest paid Repayment to related parties Advances from related parties NET CASH (USED IN) FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS AT THE END OF PERIOD, represented by bank balances and cash	Fujian Jingdu RMB’000 (3,086) 56 – (3,030) (8,806) (26,893) 23,032 101,930 86,233 – 86,233 (34) – – (54,300) 248,600 (256,600) 21,000 – (41,334) (35,000) (2,635) – – (37,635) 7,264 1,540 8,804	Xian Sandi RMB’000 10,911 90 (14) 10,987 180,199 (85,219) (3,761) (6,290) 95,916 (2,710) 93,206 (228) (350) 100 – – (198,438) 101,000 14 (97,902) – (8,788) (60,000) 107,438 38,650 33,954 19,168 53,122	Total RMB’000 7,825 146 (14) 7,957 171,393 (112,112) 19,271 95,640 182,149 (2,710) 179,439 (262) (350) 100 (54,300) 248,600 (455,038) 122,000 14 (139,236) (35,000) (11,423) (60,000) 107,438 1,015 41,218 20,708 61,926

– III-91 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the six months ended 30 June 2018

(i) On 28 December 2017, Guoshi properties, which was 95% effectively held by the Target Company, entered into a sale and purchase agreement with Fujian Sandi Investment Co., Ltd, a company controlled by Mr. Guo Jiadi to dispose of its 100% equity interests in Fuzhou Jingdou Advertising Co., Ltd (“Fuzhou Jingdou”) for a consideration of RMB10,000,000. The disposal was completed in January 2018.
(ii) On 9 January 2018, Guoshi properties, which was 95% effectively held by the Target Company, entered into a sale and purchase agreement with Fujian Sandi Investment Co., Ltd, a company controlled by Mr. Guo Jiadi to dispose of its 80% equity interests in Shanghai Hongyun Mining Investment Co., Ltd ((“Shanghai Hongyun”), together with its subsidiary Zhashui Dibao Mining Co. Ltd, collectively known as the “Shanghai Hongyun Group”) for a consideration of RMB40,000,000, resulting a gain on disposal of subsidiary of RMB2,905,000 recognised as deemed contribution from Ultimate Controlling Shareholder. The disposal was completed in February 2018.
(iii) On 24 January 2018, Guoshi properties, which was 95% effectively held by the Target Company, entered into a sale and purchase agreement with Fujian Sandi Investment Co., Ltd, a company controlled by Mr. Guo Jiadi to dispose of its 70% equity interests in Shanghai Guangshi Industrial Co., Ltd (“Shanghai Guangshi”) for nil consideration, resulting a loss on disposal of subsidiary of RMB164,000. The disposal was completed in January 2018.
(iv) On 6 March 2018, Fuzhou Guojia, which was 91.7% effectively held by the Target Company, entered into a sale and purchase agreement with Fujian Sandi Investment Co., Ltd, a company controlled by Mr. Guo Jiadi to dispose of its 51% equity interests in Putian Shouchuang Real estate Co., Ltd (“Putian Shouchuang”) for a consideration of RMB51,000,000, resulting a gain on disposal of subsidiary of RMB4,730,000 recognised as deemed contribution from Ultimate Controlling Shareholder. The disposal was completed in March 2018.

Analysis of assets and liabilities over which control was lost: Inventory of properties Trade receivables, other receivables and prepayments Amount due from Consolidated Group Amounts due from related companies Bank balances and cash Trade and other payables and accruals Amount due to Consolidated Group Amounts due to related companies Net assets disposed of Gain on disposal of subsidiaries: Settled through current account with a related company Net assets disposal of Non-controlling interests Deemed contribution by ultimate controlling shareholder recognised in capital reserve Net cash outflow arising on disposal: Bank balance and cash disposed of	Fuzhou Jingdou RMB’000 – – – 10,000 – – – – 10,000 10,000 (10,000) – – –	Shanghai Hongyun Group RMB’000 – 2,035 – 54,128 65 (41) (8,818) (1,000) 46,369 40,000 (46,369) 9,274 2,905 (65)	Shanghai Guangshi RMB’000 1,704 26,449 315 – 93 (28,326) – – 235 – (235) 71 (164) (93)	Putian Shouchuang RMB’000 – 225,341 – 50,000 7,597 (602) (189,975) (1,636) 90,725 51,000 (90,725) 44,455 4,730 (7,597)	Total RMB’000 1,704 253,825 315 114,128 7,755 (28,969) (198,793) (2,636)
					147,329

					101,000 (147,329) 53,800
					7,471

					(7,755)

– III-92 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

32. PLEDGE OF ASSETS

The following assets were pledged to secure certain bank and other borrowings granted to the Consolidated Group and the related companies controlled by the Ultimate Controlling Shareholder at the end of each reporting period, as appropriate. The aggregated principal amounts of bank and other loans borrowed by the Consolidated Group were RMB2,227,205,000, RMB3,736,950,000, RMB4,212,447,000 and RMB4,066,496,000 at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively.

The aggregated carrying amounts of bank and other loans borrowed by companies controlled by Mr. Guo Jiadi were RMB294,100,000, RMB302,000,000, RMB181,500,000 and RMB156,900,000 at 31 December 2015, 2016 and 2017 and 30 June 2018, respectively.

Inventory of properties Investment properties Prepaid lease payments Property, plant and equipment Net assets of subsidiaries	2015 RMB’000 2,542,000 136,000 – 324,765 3,002,765 N/A	As at 31 December 2016 2017 RMB’000 RMB’000 4,331,372 3,883,281 168,000 212,000 431,026 420,251 493,680 484,392 5,424,078 4,999,924 163,665 95,415	As at 30 June 2018 RMB’000 4,601,739 215,000 420,251 479,903
			5,716,893

			89,147

33. OPERATING LEASE ARRANGEMENTS

The Consolidated Group as lessor

As at 31 December 2015, 2016 and 2017 and 30 June 2018, the Consolidated Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to the fifth year inclusive More than five years	2015 RMB’000 15,790 55,649 73,088 144,527	As at 31 December 2016 2017 RMB’000 RMB’000 18,630 20,030 51,064 45,368 63,032 53,998 132,726 119,396	As at 30 June 2018 RMB’000 24,564 60,126 84,481
			169,171

Leases are negotiated for an average term of one to fifteen years with fixed rentals.

– III-93 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

34. OTHER COMMITMENTS

Commitments contracted for but not provided in the Historical Financial Information – for inventory of properties – for property, plant and equipment CONTINGENT LIABILITIES Guarantees given in favour of banks for: Mortgage facilities granted to purchasers of the Consolidated Group’s properties_(note a) Guarantees given to banks in connection with loan facilities granted to related parties controlled by the Ultimate- Controlling Shareholder(note b)_	2015 RMB’000 2,392,188 – 2,392,188 2015 RMB’000 688,737 1,581,700 2,270,437	As at 31 December 2016 2017 RMB’000 RMB’000 4,551,232 1,860,417 – – 4,551,232 1,860,417 As at 31 December 2016 2017 RMB’000 RMB’000 959,208 708,279 1,735,200 1,728,970 2,694,408 2,437,249	As at 30 June 2018 RMB’000 2,178,965 206,799
			2,385,764

			As at 30 June 2018 RMB’000 657,655 1,757,950
			2,415,605

35. CONTINGENT LIABILITIES

Notes:

(a) The Consolidated Group had provided guarantees in respect of mortgage facilities granted by certain banks in connection with the mortgage loans entered into by purchasers of the Consolidated Group’s properties. Pursuant to the terms of the guarantees, if a purchaser defaults on the payment of its mortgage during the term of guarantee, the bank holding the mortgage may demand the Consolidated Group to repay the outstanding amount of the loan and any accrued interest thereon. Under such circumstances, the Consolidated Group is able to retain the customer’s sales deposit and sell the property to recover any amounts paid by the Consolidated Group to the bank. The guarantee period commences from the dates of grant of the relevant mortgage loans and ends after the buyer obtained the individual property ownership certificate. In the opinion of the director of the Target Company, no provision for the guarantee contracts is recognised as the default risk is low and the fair value of the financial guarantee contracts is insignificant.
(b) In the opinion of the director, the fair value of the financial guarantees given to banks in connection with loan facilities granted to the related parties was insignificant at the date of inception and at the end of each reporting period.

– III-94 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

36. CAPITAL RISK MANAGEMENT

The Consolidated Group manages its capital to ensure that entities in the Consolidated Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Consolidated Group consists of debt, which includes bank and other borrowings as disclosed in notes 26 and advances from associates, non-controlling shareholders of subsidiaries and related parties and equity attributable to owners of the Target Company, comprising capital and reserves.

The management of the Consolidated Group reviews the capital structure periodically. As a part of this review, the management reviews the planned construction projects proposed by engineering department and prepares the annual budget taking into account of the provision of funding. The management of the Consolidated Group then assess the annual budget and consider the cost of capital and the risks associated with each class of capital. The management of Consolidated Group also balance its overall capital structure through issue of new debt or the redemption of existing debt.

37. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

The Consolidated Group

Financial assets Loan and receivables (including cash and cash equivalents) Financial assets at amortised cost Available-for-sale financial assets Equity instruments at FVTOCI Financial assets at FVTPL Financial liabilities Amortised cost	2015 RMB’000 1,600,825 – 49,000 – 3,000 1,652,825 4,925,962	As at 31 December As at 30 June 2016 2017 2018 RMB’000 RMB’000 RMB’000 1,896,812 1,930,657 – – – 1,217,599 49,000 64,316 – – – 63,902 – – – 1,945,812 1,994,973 1,281,501 6,174,819 6,722,317 6,171,033	As at 31 December As at 30 June 2016 2017 2018 RMB’000 RMB’000 RMB’000 1,896,812 1,930,657 – – – 1,217,599 49,000 64,316 – – – 63,902 – – – 1,945,812 1,994,973 1,281,501 6,174,819 6,722,317 6,171,033
			1,281,501

			6,171,033

Foreign currency risk management

The Consolidated Group’s transactions are mainly conducted in Renminbi, and the monetary assets and liabilities of the Consolidated Group which are denominated in currency other than the functional currency of the respective entities are insignificant. Hence, the Consolidated Group does not have a foreign currency hedging policy as the exposure to foreign currency risk is minimal.

– III-95 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate bank borrowings (see note 26 for details of these borrowings). The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank borrowings (see note 26 for details). The Group aims at keeping borrowings at variable rates. The Group manages its interest rate exposures by assessing the potential impact arising from any interest rate movements based on interest rate level and outlook. The management will review the proportion of borrowings in fixed and floating rates and ensure they are within reasonable range.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to cash flow interest rate risk for its variable-rate bank borrowings at the end of the reporting periods. The restricted bank deposits and bank balances are not included in the sensitivity analysis as the management of the Consolidated Group considers that the interest rate fluctuation is minimal. The analysis is prepared assuming the variable-rate bank borrowings outstanding at the end of the reporting periods were outstanding for the whole year/period. A 50 basis points increase or decrease is used when reporting cash flow interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rate.

If interest rates had been 50 basis points higher/lower with all other variables were held constant, the Consolidated Group’s post-tax profit(loss) would decrease/increase (increase/ decrease) by RMB2,400,000, RMB974,000, RMB675,000 and RMB1,375,000 for the years ended 31 December 2015, 2016, 2017 and for the six months ended 30 June 2018, respectively.

Credit risk management

Overview of the Consolidated Group’s exposure to credit risk before adoption of HKFRS 9 as at 1 January 2018

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Group. As at 31 December 2015, 2016 and 2017, the Consolidated Group’s maximum exposure to credit risk which would cause a financial loss to the Consolidated Group due to failure to discharge an obligation by the counterparties is arising from:

the carrying amount of the respective recognised financial assets as stated in the consolidated statements of financial position; and
the amount of contingent liabilities in relation to financial guarantees issued by the Consolidated Group as disclosed in note 35.

In order to minimise the credit risk, the Consolidated Group has policies in place for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Consolidated Group reviews the recoverable amount of each individual trade debt at the end of each relevant reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the director of Target Company considers that the Consolidated Group’s credit risk is significantly reduced.

– III-96 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The Consolidated Group has no significant concentration of credit risk on trade receivables, with exposure spread over a number of counterparties and customers at the end of each relevant reporting period.

The Consolidated Group’s credit risk on liquid funds is limited because the counterparties are banks with high credit ratings and good reputation established in the PRC.

For properties which have been pre-sold, or for the completed properties that sold but the building ownership certificate not yet issued, the Consolidated Group typically provides guarantees to banks in connection with the customers’ borrowing of mortgage loans to finance their purchase of the properties for an amount up to 70% of the total purchase price of the property. If a purchaser defaults on the payment of its mortgage during the term of guarantee, the bank holding the mortgage may demand the Consolidated Group to repay the outstanding amount of the loan and any accrued interest thereon. Under such circumstances, the Consolidated Group is able to retain the customer’s sales deposit and sell the property to recover any amounts paid by the Consolidated Group to the bank. In this regard, the director of Target Company considers that the Consolidated Group’s credit risk is significantly reduced.

The credit risk of other receivables and amounts due from associates, non-controlling shareholders of subsidiaries and related parties is managed through an internal process. The credit quality of each counterparty is investigated before an advance is made. The Consolidated Group also actively monitors the outstanding amounts owed by each debtor and identifies any credit risks in a timely manner in order to reduce the risk of a credit related loss. The Consolidated Group reviews the recoverable amount of these receivables at the end of each relevant reporting period to ensure adequate impairment losses are made for unrecoverable amounts.

Apart from the amounts due from related parties, the Consolidated Group does not have significant credit risk exposure to any single counterparty at 31 December 2015, 2016 and 2017.

The Target Company has no significant credit risk.

Overview of the Consolidated Group’s exposure to credit risk after adoption of HKFRS 9 as at 1 January 2018

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Group. At 30 June, 2018, the Consolidated Group’s maximum exposure to credit risk which will cause a financial loss to the Consolidated Group due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Consolidated Group arises from the carrying amount of the respective recognised financial assets as stated in the consolidated statements of financial position and the maximum amount the entity would have to pay if the financial guarantee is called upon, irrespective of the likelihood of the guarantee being exercised.

In order to minimise the credit risk, the Consolidated Group has policies in place for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Consolidated Group reviews the recoverable amount of each individual trade debt at the end of reporting period. In this regard, the director of Target Company considers that the Consolidated Group’s credit risk is significantly reduced.

– III-97 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For trade receivables, the Consolidated Group has applied the simplified approach in HKFRS 9 to measure the loss allowance at lifetime ECL. The Consolidated Group determines the ECL on trade receivables on an individual basis.

The Consolidated Group’s credit risk on liquid funds is limited because the counterparties are banks with high credit ratings and good reputation established in the PRC.

The credit risk of other receivables and amounts due from related parties is managed through an internal process. The credit quality of each counterparty is investigated before an advance is made. The Consolidated Group also actively monitors the outstanding amounts owed by each debtor and identifies any credit risks in a timely manner in order to reduce the risk of a credit related loss. The Consolidated Group reviews the recoverable amount of these receivables at 30 June 2018.

For the financial guarantee contracts provided by the Consolidated Group to banks in connection with the customers’ borrowing of mortgage loans to finance their purchase of properties and loan facilities granted to related parties controlled by the Ultimate Controlling Shareholder, the Consolidated Group measured the loss allowance on financial guarantee contracts by reference to the historical default rate of the purchasers, the loss on default based on the current property value and the pre-sale deposits already received and the forward looking information. The director of the Target Company considered that the loss allowances on financial guarantee contracts at 1 January 2018 and 30 June 2018 were insignificant to the Consolidated Group.

For other receivables, the Consolidated Group has applied 12-month ECL in HKFRS 9 to measure the loss allowance unless there is significant increase in credit risk since initial recognition. The Consolidated Group uses past due information to assess whether credit risk has increased significantly since initial recognition.

The Target Company has no significant credit risk.

Liquidity risk management

In the management of the liquidity risk, the Consolidated Group monitors its cash position resulting from its operations and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Consolidated Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of borrowings and ensures compliance with loan covenants.

The Consolidated Group relies on bank and other borrowings and advances from associates, non-controlling shareholders of subsidiaries and related parties as significant sources of liquidity.

The contractual maturity of the financial liabilities of the Target Company at the end of each reporting period is all repayable on demand.

– III-98 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

The following table details the Consolidated Group’s contractual maturity for its financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Consolidated Group can be required to pay. The table includes both interest and principal cash flows.

Liquidity table

Weighted average On demand effective or less than interest rate 3 months % RMB’000 At 31 December 2015 Non-derivative financial liabilities Trade and other payables 1,282,485 Amounts due to associates – 106,000 Amounts due to non-controlling shareholders of subsidiaries 84,771 Amounts due to related parties 1,225,501 Bank and other borrowings – fixed rate 11.94 69,769 – variable rate 7.75 9,323 Financial guarantee contracts – 2,270,437 5,048,286 At 31 December 2016 Non-derivative financial liabilities Trade and other payables – 1,542,068 Amounts due to associates 99,640 Amount due to non-controlling shareholders of subsidiaries 85,016 Amounts due to related parties 1,251,145 Bank and other borrowings – fixed rate 8.28 93,668 – variable rate 5.70 2,774 Financial guarantee contracts – 2,694,408 5,768,719	3 months to 1 year RMB’000 – – – – 873,287 48,055 – 921,342 – – – – 1,044,736 8,323 – 1,053,059	1 – 2 years RMB’000 – – – – 878,139 35,750 – 913,889 – – – – 2,138,310 11,098 – 2,149,408	2 – 5 years RMB’000 – – – – 213,353 107,250 – 320,603 – – – – 668,364 217,605 – 885,969	Total Over undiscounted 5 years cash flows RMB’000 RMB’000 – 1,282,485 – 106,000 – 84,771 – 1,225,501 – 2,034,548 561,284 761,662 – 2,270,437 561,284 7,765,404 – 1,542,068 – 99,640 – 85,016 – 1,251,145 242,020 4,187,098 – 239,800 – 2,694,408 242,020 10,099,175	Carrying amount RMB’000 1,282,485 106,000 84,771 1,225,501 1,747,205 480,000 –
					4,925,962

					1,542,068 99,640 85,016 1,251,145 3,542,250 194,700 –
					6,174,819

– III-99 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Weighted average On demand effective or less than interest rate 3 months % RMB’000 As at 31 Dec 2017 Non-derivative financial liabilities Trade and other payables 1,249,371 Amount due to associates 99,640 Amounts due to non-controlling shareholders 85,261 Amount due to related parties 1,075,598 Bank and other borrowing and interests – fixed rate 8.02 101,582 – variable rate 5.69 19,787 Financial guarantee contracts 2,437,249 5,068,488 As at 30 Jun 2018 Non-derivative financial liabilities Trade and other payables 949,530 Amounts due to associates 99,645 Amounts due to non-controlling shareholders of subsidiaries 119,761 Amounts due to related parties 935,601 Bank and other borrowing – fixed rate 8.06 77,278 – variable rate 5.49 3,912 Financial guarantee contracts 2,415,605 4,601,332	3 months to 1 year RMB’000 – – – – 1,454,905 5,051 – 1,459,956 – – – – 1,347,580 11,736 – 1,359,316	1 – 2 years RMB’000 – – – – 2,691,259 23,097 – 2,714,356 – – – – 2,391,392 168,537 – 2,559,929	2 – 5 years RMB’000 – – – – 267,775 105,051 – 372,826 – – – – 261,973 127,408 – 389,381	Total Over undiscounted 5 years cash flows RMB’000 RMB’000 – 1,249,371 – 99,640 – 85,261 – 1,075,598 148,566 4,664,087 – 152,986 – 2,437,249 148,566 9,764,192 – 949,530 – 99,645 – 119,761 – 935,601 113,978 4,192,201 – 311,593 – 2,415,605 113,978 9,023,936	Carrying amount RMB’000 1,249,371 99,640 85,261 1,075,598 4,077,447 135,000 –
					6,722,317

					949,530 99,645 119,761 935,601 3,791,496 275,000 –
					6,171,033

The amounts included above for financial guarantee contracts are the maximum amounts the Consolidated Group could be required to settle in cash or other financial assets under the arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantee. Based on expectations at the end of the reporting period, the Consolidated Group considers that it is more likely than not that no amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses.

– III-100 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

(c) Fair value measurements

Financial assets that are measured at fair value on a recurring basis

Certain financial assets of the Consolidated Group are measured at fair value at 31 December 2015 and 30 June 2018. The following table gives information about how the fair values of these financial assets are determined (in particular, the valuation technique and inputs used).

Fair value at Fair value at 31 December 30 June Fair value Valuation technique Financial assets 2015 2018 hierarchy and inputs used RMB’000 RMB’000 Financial assets at 3,000 – Level 3 Income approach - discounted cash FVTPL flow method was used to capture the present value of the expected investment returns to be derived from the investment, based on an appropriate discount rate. Equity instruments at – 63,902 Level 3 Income approach - the discounted FVTOCI cash flow method was used to capture the present value of expected future economic benefits to be derived from the ownership of the investee, based on an appropriate discount rate.

Financial assets and financial liabilities not measured at fair value on a recurring basis

The fair values of financial assets and financial liabilities of the Consolidated Group are determined as follows:

the fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis; and
the fair value of financial guarantee contracts at initial recognition is determined to be insignificant, using option pricing models where the main assumptions are the probability of default by the specified counterparty extrapolated from marketbased credit information and the amount of loss, given the default.

– III-101 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

38. RELATED PARTY BALANCES AND TRANSACTIONS

(a) During the Track Record Period, the following parties are identified as related parties to the Consolidated Group and the respective relationships are set out below:

Name of related parties	Relationship
Sandi Business Consulting and Management	The controlling owner of the company is an
Company Limited	associate of Mr. Guo Jiadi
China Sandi Holding Limited	Mr. Guo Jiadi is the substantial shareholder,
	chairman and executive director of the
	company
Wealth Way Industry Limited	The controlling owner of the company is Mr.
	Guo Jiadi
莆田華商貿易有限公司	The controlling owner of the company is Mr.
	Guo Jiadi
福建三迪房地產有限公司	The controlling owner of the company is Mr.
	Guo Jiadi
郭氏（福建）鞋業有限公司	The controlling owner of the company is Mr.
	Guo Jiadi
寶雞建邦物資有限公司	The controlling owner of the company is an
	associate of Mr. Guo Jiadi

– III-102 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

(b) The Consolidated Group had the following balances with related parties at the end of each reporting period:

At 1 January 2015 RMB’000 The Consolidated Group Non-trade nature_(note (i)) Amounts due from related parties (note (ii)) 160,562 Amounts due from non-controlling shareholders of subsidiaries 66,695 Amounts due from associates 50 227,307 Amounts due to related parties (note (ii))_ 1,530,769 Amounts due to non-controlling shareholders of subsidiaries 70,311 Amounts due to associates 84,800 1,685,880	2015 RMB’000 291,979 301,302 50 593,331 1,225,501 84,771 106,000 1,416,272	At 31 December 2016 2017 RMB’000 RMB’000 557,612 784,925 439,558 312,789 50 1,210 997,220 1,098,924 1,251,145 1,075,598 85,016 85,261 99,640 99,640 1,435,801 1,260,499	At 30 June 2018 RMB’000 384,191 23,001 1,666 408,858 935,601 119,761 99,645 1,155,007	Maximum amount during the year/period ended 31 December 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 291,979 557,612 784,925 784,925 301,302 439,558 439,558 312,789 50 50 1,210 1,666 593,331 997,220 1,225,693 1,099,380 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A	Maximum amount during the year/period ended 31 December 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 291,979 557,612 784,925 784,925 301,302 439,558 439,558 312,789 50 50 1,210 1,666 593,331 997,220 1,225,693 1,099,380 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
					1,099,380
					N/A N/A N/A
					N/A

Notes:

(i) The above balances are of non-trade in nature, unsecured, interest-free, repayable on demand.
(ii) The relationship with the related parties are detailed in note 38(a). The controlling shareholder of the companies is Mr. Guo Jiadi.
(c) The Consolidated Group entered into the following transactions with its related parties during the Track Record Period:

Name of related party Nature of transaction 艾思斯(上海)化工有限公司 Construction services fee paid 寶雞三迪商業管理有限公司 Rental income received	Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) – – 453 453 – – 2,646 4,407 2,204 2,646 – 2,646 4,860 2,657 2,646	Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) – – 453 453 – – 2,646 4,407 2,204 2,646 – 2,646 4,860 2,657 2,646
		2,646

– III-103 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

(d) The Consolidated Group and Mr. Guo Jiadi jointly provided guarantees to banks in connection with loan facilities granted to the related parties controlled by the Ultimate Controlling Shareholder and details of the guarantees were set out in note 35. Certain assets of the Consolidated Group were pledged against the loan facilities borrowed by the companies controlled by Mr. Guo Jiadi and the details of the pledge were set out in note 32. Certain bank and other borrowings were guaranteed by Mr. Guo Jiadi or jointly guaranteed by the Consolidated Group and Mr. Guo Jiadi, his close relatives or related companies controlled by Mr. Guo Jiadi. Such bank and other borrowings utilised by the Consolidated Group at 31 December 2015, 2016 and 2017 and 30 June 2018 were RMB2,051,205,000, RMB3,439,950,000, RMB3,783,178,000 and RMB3,694,146,000, respectively.
(e) Remuneration of director and other members of key management during the Track Record Period was as follows:

Salaries and allowances Retirement benefit contributions	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 1,898 1,682 1,682 43 47 44 1,941 1,729 1,726	Six months ended 30 June 2017 2018 RMB’000 RMB’000 (Unaudited) 840 840 23 23 863 863	Six months ended 30 June 2017 2018 RMB’000 RMB’000 (Unaudited) 840 840 23 23 863 863
			863

39. INTERESTS IN SUBSIDIARIES

(a) At the date of this report, the Target Company has the following subsidiaries and their particulars are as follows:

		Paid up
	Place and date	registered
	of establishment	capital/issued	Effective equity interest attributable					Date of
Name of subsidiary	/incorporation	and fully paid	to	the Consolidated Group				this report	Principal activities
		share capital		At 31 December		At	30 June
			2015	2016		2017	2018
Target Group
Guoshi Properties	Hong Kong	HK$150	–	–	100%		100%	100%	Investment holding
	9 November 2017
Guoshi Sandi	PRC		–	–		–	100%	100%	Investment holding
	6 December 2017
Guoshi Investment	PRC	RMB100,000,000	95%	95%		95%	100%	100%	Investment holding
	12 July 2003
Fuzhou Gaojia	PRC	RMB1,500,900,000	91.7%	91.7%	91.7%		100%	100%	Property development and
	9 July 1999								property investment
Shanghai Gaojia	PRC	RMB55,000,000	91.7%	91.7%	91.7%		100%	100%	Property development
	11 March 2014
Shanghai Sandi Real Estate Development Co. Ltd	PRC	RMB196,000,000	91.7%	91.7%	91.7%		100%	100%	Property development and
上海三迪房地產開發有限公司	29 November 2012								property investment
Jilin First Real Estate Development Co. Ltd	PRC	RMB100,000,000	46.8%	46.8%	46.8%		51%	51%	Property development
吉林首創房地產開發有限公司	13 September 2012
Baoji Sandi Real Estate Development Co. Ltd	PRC	RMB150,000,000	91.7%	91.7%	91.7%		100%	100%	Property development and
寶雞三迪房地產開發有限公司	23 September 2005								property investment

– III-104 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

		Paid up
	Place and date	registered
	of establishment	capital/issued	Effective equity interest attributable					Date of
Name of subsidiary	/incorporation	and fully paid	to	the Consolidated Group				this report	Principal activities
		share capital		At 31 December		At	30 June
			2015	2016		2017	2018
Yongtai Sandi Real Estate Development Co. Ltd	PRC	RMB100,000,000	91.7%	91.7%	91.7%		100%	100%	Property development
永泰三迪房地產開發有限公司	6 March 2012
Fuzhou Jingdou_(note i)_	PRC	RMB10,000,000	95%	95%		95%	–	–	Inactive
	7 March 2013
Nanping Sandi Real Estate Development Co. Ltd	PRC	RMB50,000,000	–	–	46.8%		51%	51%	Property development
南平三迪房地產開發有限公司	19 July 2017
Baoji Sandi Ecological Catering Management Co. Ltd	PRC	RMB10,000,000	91.7%	91.7%	91.7%		100%	100%	Catering services
寶雞三迪生態餐飲管理有限公司	5 August 2015
Baoji Sandi Pace Boutique hotel Co. Ltd	PRC	RMB1,000,000	91.7%	91.7%	91.7%		100%	100%	Hotel operation
寶雞三迪佩斯精品酒店有限公司	3 April 2013
Baoji Sandi Hotel Co. Ltd	PRC	RMB1,000,000	91.7%	91.7%	91.7%		100%	100%	Hotel operation
寶雞三迪酒店有限公司	13 October 2009
Baoji Dongxiang_(note i)_	PRC	RMB5,000,000	91.7%	–		–	–	–	Inactive
	12 March 2012
Fujian Jingdu_(notes i & ii)_	PRC	RMB100,000,000	91.7%	91.7%		5%	5%	5%	Property development
	6 December 2013
Xian Sandi_(notes i & ii)_	PRC	RMB100,000,000	91.7%	91.7%		5%	5%	5%	Property development
	25 March 2013
Putian Shouchuang_(note i)_	PRC	RMB100,000,000	46.8%	46.8%	46.8%		–	–	Property development
	15 August 2012
Shanghai Guangshi_(note i)_	PRC	RMB30,000,000	–	95%		67%	–	–	Inactive
	21 October 2016
Shanghai Hongyun_(note i)_	PRC	RMB50,000,000	73.3%	73.3%	73.3%		–	–	Inactive
	18 September 2007
Zhashui Dibao Mining Co. Ltd_(note i)_	PRC	RMB8,000,000	73.3%	73.3%	73.3%		–	–	Inactive
柞水縣地寶礦業有限公司	28 August 2009
Baoji Sandi Cinema_(note i)_	PRC	RMB20,000,000	91.7%	91.7%		–	–	–	Cinema operation
	9 July 2015
Wuyishan Gaojia Real Estate Development	PRC	RMB20,000,000	–	–		–	51%	51%	Property development
Co. Ltd	13 April 2018
武夷山高佳房地產開發有限公司
Baoji Sandi Ramada Hotel Co. Ltd	PRC	RMB20,000,000	–	–	91.7%		100%	100%	Hotel operation
寶雞三迪華美達酒店有限公司	27 November 2017
Disposal Group
Putian Gaojia Real Estate Development Co. Ltd	PRC	RMB100,000,000	91.7%	91.7%	91.7%		100%	–	Property development and
(note iii)	11 April 2005								property investment
莆田高佳房地產開發有限公司
Fujian Four Seasons Property Co. Ltd_(note iii)_	PRC	RMB80,000,000	90.5%	90.5%	90.5%		98.8%	–	Property development
福建四季置業有限公司	13 June 2011

– III-105 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

		Paid up
	Place and date	registered
	of establishment	capital/issued	Effective equity interest attributable					Date of
Name of subsidiary	/incorporation	and fully paid	to	the Consolidated Group				this report	Principal activities
		share capital		At 31 December		At	30 June
			2015	2016		2017	2018
Putian Sandi Real Estate Development Co. Ltd	PRC	RMB100,320,000	91.7%	91.7%	91.7%		100%	–	Property development and
(note iii)	30 May 2003								property investment
莆田市三迪房地產開發有限公司
Putian Aijian Real Estate Development Co. Ltd	PRC	RMB114,000,000	91.7%	91.7%	91.7%		100%	–	Property development
(note iii)	30 April 2005
莆田艾建房地產開發有限公司
Putian Guantao catering management Co. Ltd	PRC	RMB500,000	91.7%	91.7%	91.7%		100%	–	Catering services
(note iii)	31 March 2014
莆田觀濤餐飲管理有限公司
Putian Xiangsong Real Estate Development	PRC	RMB10,000,000	-	-	91.7%		100%	–	Property development
Co. Ltd_(note iii)_	26 April 2017
莆田香頌房地產開發有限公司
Fujian Zhenao Nucleic Acid Co. Ltd_(note iii)_	PRC	RMB100,000,000	91.7%	91.7%	91.7%		100%	–	Inactive
福建珍奧核酸有限公司	11 August 2000
Shanxi Chunlin Construction And Development	PRC	RMB108,000,000	46.8%	46.8%	46.8%		51%	–	Property development
Co. Ltd_(note iii)_	4 August 2004
陝西春臨建設發展有限公司
Shanxi Dexin Property Development Co. Ltd	PRC	RMB20,000,000	46.8%	46.8%	46.8%		51%	–	Property development
(note iii)	9 December 2009
陜西德鑫置業發展有限責任公司
Shanxi Huatian Property Co. Ltd_(note iii)_	PRC	RMB67,500,000	100%	100%	100%		100%	–	Property development
陝西回天置業有限責任公司	21 August 2012
Wuyishan Sandi Property Co. Ltd_(note iii)_	PRC	RMB50,000,000	–	–		–	100%	–	Property development
武夷山三迪置業有限公司	8 February 2018
Shanghai Xiangsong Real Estate Development	PRC	RMB30,000,000	–	–	91.7%		100%	–	Property development
Co. Ltd_(note iii)_	28 August 2017
上海茂頌房地產開發有限公司
Shanghai Xiangsong Real Estate Development Co.	PRC	RMB30,000,000	91.7%	91.7%	91.7%		100%	–	Property development
Ltd_(note iii)_	11 March 2014
上海香頌房地產開發有限公司
Shanghai Sansheng Real Estate Co. LTD_(note iii)_	PRC	RMB30,000,000	91.7%	91.7%	91.7%		100%	–	Property development
上海三升置業有限公司	10 December 2015
Shanghai Aijian Real Estate Co. LTD_(note iii)_	PRC	RMB8,000,000	–	–	91.7%		100%	–	Property development
上海艾建置業有限公司	22 June 2017
Xian Yunsong Real Estate Development Co. Ltd	PRC	RMB10,000,000	–	–	91.7%		100%	–	Property development
(note iii)	22 August 2017
西安雲頌房地產開發有限公司

– III-106 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

==> picture [380 x 178] intentionally omitted <==

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

Paid up
Place and date registered
of establishment capital/issued Effective equity interest attributable Date of
Name of subsidiary /incorporation and fully paid to the Consolidated Group this report Principal activities
share capital At 31 December At 30 June
2015 2016 2017 2018
Xian Fengdan Real Estate Development Co. Ltd PRC RMB100,000,000 – – 91.7% 100% – Property development
(note iii) 11 August 2017
西安楓丹房地產開發有限公司
Xian Shoudi Real Estate Development Co. Ltd PRC RMB10,000,000 46.8% 46.8% 46.8% 51% – Property development
(note iii) 18 September 2017
西安邁騰房地產開發有限公司
Xian Shoudi Real Estate Development Co. Ltd PRC RMB10,000,000 – – 91.7% 100% – Property development
(note iii) 22 August 2017
西安首迪房地產開發有限公司
----- End of picture text -----

Notes:

(i) The companies were disposed during the Track Record Period.
(ii) The 5% remaining interests in the companies were recognised as available-for-sale financial assets and equity instruments at FVTOCI as at 31 December 2017 and 30 June 2018, respectively.
(iii) The companies were disposed subsequent to Track Record Period.

As at the date of this report, no statutory financial statements have been prepared for the PRC subsidiaries of the Target Company as they are not required to do so in their respective regions in the PRC and the statutory financial statements of Guoshi Properties have not yet prepared.

– III-107 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:

Name of subsidiary Place of establishment and principal place of business Proportion of ownership interests voting rights held by non-controlling interests At 31 December At 30 June 2015 2016 2017 2018 吉林首創房地產開發有限公司 PRC 53.2% 53.2% 53.2% 49% 陝西春臨建設發展有限公司 PRC 53.2% 53.2% 53.2% 49%	Loss allocated to non-controlling interests At 31 December At 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 (4,149) (3,927) (7,973) (927) – – – – (4,149) (3,927) (7,973) (927)	Accumulated non-controlling interests At 31 December At 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 40,627 36,698 28,719 29,480 53,169 53,169 53,169 53,149 93,796 89,867 81,888 82,629	Accumulated non-controlling interests At 31 December At 30 June 2015 2016 2017 2018 RMB’000 RMB’000 RMB’000 RMB’000 40,627 36,698 28,719 29,480 53,169 53,169 53,169 53,149 93,796 89,867 81,888 82,629
			82,629

(c) Details of non-wholly owned subsidiaries that have material non-controlling interests

Summarised financial information in respect of Jilin First Property Development Co. Ltd 吉林首創房地產開發有限公司, and Shanxi Chunlin Construction And Development Co. Ltd 陝西春臨建設發展有限公司 that have material non-controlling interests are set out below. The summarised financial information/consolidated financial information below represents amounts before intergroup eliminations.

– III-108 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

吉林首創房地產開發有限公司

At 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 Non-current assets 396 166 130 Current assets 281,808 312,527 219,508 Current liabilities 197,929 235,799 157,730 Non-current liabilities – – – Total equity 84,275 76,894 61,908 For the year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 Revenue – – 217,835 Expenses 7,798 7,381 232,821 Loss and total comprehensive expense for the year/period (7,798) (7,381) (14,986) Dividend distributions – – – Net cash (outflow) inflow from operating activities (9,159) 9,346 723 Net cash (outflow) inflow from investing activities (1,971) (2,568) 875 Net cash inflow (outflow) from financing activities 12,055 (570) (7,186) Net cash inflow (outflow) 925 6,208 (5,588)		At 30 June 2018 RMB’000 67

		250,042

		189,946

		–

		60,163

		For the six months ended 30 June 2018 RMB’000 10,818

		12,561

		(1,743)

		–

		84,493
		(66,848)
		(7)

		17,638

– III-109 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

陝西春臨建設發展有限公司

At 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 Non-current assets 94 94 94 Current assets 159,358 159,358 159,358 Current liabilities 50,984 50,984 50,984 Non-current liabilities – – – Total equity 108,468 108,468 108,468 For the year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 Revenue – – – Expenses – – – Profit and total comprehensive income for the year/period – – – Dividend distributions – – – Net cash (outflow) inflow from operating activities – – – Net cash (outflow) inflow from investing activities – – – Net cash (outflow) inflow from financing activities – – – Net cash (outflow) inflow – – –	At 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 Non-current assets 94 94 94 Current assets 159,358 159,358 159,358 Current liabilities 50,984 50,984 50,984 Non-current liabilities – – – Total equity 108,468 108,468 108,468 For the year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 Revenue – – – Expenses – – – Profit and total comprehensive income for the year/period – – – Dividend distributions – – – Net cash (outflow) inflow from operating activities – – – Net cash (outflow) inflow from investing activities – – – Net cash (outflow) inflow from financing activities – – – Net cash (outflow) inflow – – –		At 30 June 2018 RMB’000 94
			159,358
			50,984
			–
			108,468

			For the six months ended 30 June 2018 RMB’000 –

	–		–

	–		–
	–		–

	–		–
	–		–
	–		–

	–		–

– III-110 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

40. EVENTS AFTER THE END OF THE REPORTING PERIOD

(a) Proposed disposal of subsidiaries

Pursuant to a sale and purchase agreement dated 21 September 2018 (the “Agreement”), the Vendor proposed to dispose and Grand Supreme Limited (the “Grand Supreme”), a limited company incorporated in the BVI and wholly-owned by China Sandi Holding Limited, will acquire the entire interest in the Target Company at a consideration of HK$1,500,000,000 (approximately RMB1,317,292,000) (“the Acquisition”). As one of the conditions precedent being stipulated in the Agreement, the Reorganisation of the Target Group shall be completed before the completion of Acquisition. Accordingly, the Target Group is being defined as the Target Company and its subsidiaries which shall be acquired according to the Agreement. The disposal group, on the other hand, collectively refer as those subsidiaries not being acquired by Grand Supreme under the Agreement (the “Disposal Group”).

The Historical Financial Information comprises the financial positions, results and cash flows of the Consolidated Group throughout the Track Record Period. The financial information of the Disposal Group has been included in the Historical Financial Information throughout the Track Record Period as they formed an integral part of the businesses of the Consolidated Group prior to the transfer of these companies to its immediate holding company by way of disposal of equity interests before the Acquisition. The financial information of the Target Group and the Disposal Group disclosed below was prepared by the director of the Target Company as additional information and was prepared on a combined basis before elimination of transactions and balances between the Target Group and the Disposal Group.

The details of the financial information of the Target Group and the Disposal Group are as follows:

– III-111 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Financial performance

For the year ended 31 December 2015

Revenue Cost of sales and services Gross profit Other income Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Selling and distribution expenses Administrative expenses Finance costs Share of results of associates Profit (loss) before taxation Income tax expenses Profit (loss) for the year Profit (loss) for the year attributable to: Owners of the Target Company Non-controlling interests Other information Revenue Sales of properties Property rental Hotel accommodation Catering service Other income Interest income on bank deposits Investment income Others	Target Group RMB’000 404,519 (299,833) 104,686 976 2,111 449,949 (69,638) (36,463) (19,799) 2,391 434,213 (149,355) 284,858 261,101 23,757 284,858 382,077 13,547 8,391 504 404,519 315 2 659 976	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 225,951 – 630,470 (153,406) – (453,239) 72,545 – 177,231 4,368 – 5,344 2,329 – 4,440 5,675 – 455,624 (14,631) – (84,269) (51,639) – (88,102) (35,288) – (55,087) – – 2,391 (16,641) – 417,572 (19,839) – (169,194) (36,480) – 248,378 (26,189) – 234,912 (10,291) – 13,446 (36,480) – 248,378 164,075 – 546,152 2,897 – 16,444 58,359 – 66,750 620 – 1,124 225,951 – 630,470 128 – 443 3,873 – 3,875 367 – 1,026 4,368 – 5,344

– III-112 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2016

Revenue Cost of sales and services Gross profit Other income Gain on disposal of subsidiaries Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Selling and distribution expenses Administrative expenses Finance costs Share of results of associates Profit (loss) before taxation Income tax expenses Profit (loss) for the year Profit (loss) for the year attributable to: Owners of the company Non-controlling interests Other information Revenue Sales of properties Property rental Hotel accommodation Catering service Other income Interest income on bank deposits Investment income Others	Target Group RMB’000 2,144,184 (1,507,669) 636,515 1,107 11 48,689 88,691 (66,303) (59,130) (30,378) 1,637 620,839 (242,897) 377,942 347,404 30,538 377,942 2,100,269 18,073 11,156 14,686 2,144,184 720 4 383 1,107	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 196,022 – 2,340,206 (128,075) – (1,635,744) 67,947 – 704,462 3,756 – 4,863 – – 11 (179) – 48,510 5,018 – 93,709 (12,361) – (78,664) (34,226) – (93,356) (33,535) – (63,913) – – 1,637 (3,580) – 617,259 (11,069) – (253,966) (14,649) – 363,293 (11,032) – 336,372 (3,617) – 26,921 (14,649) – 363,293 132,659 – 2,232,928 2,430 – 20,503 60,933 – 72,089 – – 14,686 196,022 – 2,340,206 667 – 1,387 2,552 – 2,556 537 – 920 3,756 – 4,863

– III-113 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2017

Revenue Cost of sales and services Gross profit Other income Gain on disposal of subsidiaries Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Selling and distribution expenses Administrative expenses Finance costs Share of results of associates Profit before taxation Income tax expenses Profit (loss) for the year Profit (loss) for the year attributable to: Owners of the company Non-controlling interests Other information Revenue Sales of properties Property rental Hotel accommodation Catering service Other income Interest income on bank deposits Investment income Others	Target Group RMB’000 863,881 (730,260) 133,621 719 172,265 45,910 11,867 (48,689) (65,698) (9,120) (565) 240,310 (63,308) 177,002 176,745 257 177,002 818,698 18,300 11,767 15,116 863,881 522 1 196 719	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 359,324 – 1,223,205 (290,417) – (1,020,677) 68,907 – 202,528 3,627 – 4,346 – – 172,265 6,936 – 52,846 6,275 – 18,142 (13,577) – (62,266) (30,387) – (96,085) (29,690) – (38,810) – – (565) 12,091 – 252,401 (15,248) – (78,556) (3,157) – 173,845 (633) – 176,112 (2,524) – (2,267) (3,157) – 173,845 281,284 – 1,099,982 3,228 – 21,528 68,044 – 79,811 6,768 – 21,884 359,324 – 1,223,205 459 – 981 2,973 – 2,974 195 – 391 3,627 – 4,346

– III-114 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the six months ended 30 June 2018

Revenue Cost of sales and services Gross profit Other income Change in fair value of investment properties Selling and distribution expenses Administrative expenses Finance costs Profit (loss) before taxation Income tax expenses Loss for the period Loss for the period attributable to: Owners of the company Non-controlling interests Other information Revenue Sales of properties Property rental Hotel accommodation Catering service Other income Interest income on bank deposits Investment income Others	Target Group RMB’000 76,775 (41,882) 34,893 1,181 64,590 (21,815) (29,223) (44,973) 4,653 (25,497) (20,844) (12,883) (7,961) (20,844) 52,996 12,161 6,332 5,286 76,775 197 – 984 1,181	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 84,793 – 161,568 (55,169) – (97,051) 29,624 – 64,517 2,978 – 4,159 630 – 65,220 (6,578) – (28,393) (16,668) – (45,891) (11,829) – (56,802) (1,843) – 2,810 (3,715) – (29,212) (5,558) – (26,402) (6,077) – (18,960) (1,666) – (9,627) (7,743) – (28,587) 45,511 – 98,507 2,364 – 14,525 34,417 – 40,749 2,501 – 7,787 84,793 – 161,568 52 – 249 2,806 – 2,806 120 – 1,104 2,978 – 4,159

– III-115 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the six months ended 30 June 2017 (unaudited)

Revenue Cost of sales and services Gross profit Other income Gain on disposal of subsidiaries Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Selling and distribution expenses Administrative expenses Finance costs Share of results of associates Profit before taxation Income tax expenses Profit for the period Profit for the period attributable to: Owners of the company Non-controlling interests Other information Revenue Sales of properties Property rental Hotel accommodation Catering service Other income Interest income on bank deposits Investment income Others	Target Group RMB’000 495,333 (438,469) 56,864 396 159,413 (3,940) 11,867 (18,361) (32,744) (3,414) (189) 169,892 (37,375) 132,517 128,432 4,085 132,517 471,445 9,639 5,336 8,913 495,333 269 – 127 396	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 228,142 – 723,475 (194,756) – (633,225) 33,386 – 90,250 3,259 – 3,655 – – 159,413 4,956 – 1,016 6,275 – 18,142 (6,153) – (24,514) (15,039) – (47,783) (12,245) – (15,659) – – (189) 14,439 – 184,331 (8,990) – (46,365) 5,449 – 137,966 5,079 – 133,511 370 – 4,455 5,449 – 137,966 188,985 – 660,430 2,867 – 12,506 36,239 – 41,575 51 – 8,964 228,142 – 723,475 115 – 384 2,974 – 2,974 170 – 297 3,259 – 3,655

– III-116 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Financial position

As at 31 December 2015

NON-CURRENT ASSETS Property, plant and equipment Investment properties Interests in subsidiaries Interests in associates Available-for-sale financial assets Prepaid lease payments Deferred tax assets CURRENT ASSETS Inventory of properties Other inventories Prepaid lease payments Trade receivables, other receivables and prepayments Financial assets at FVTPL Prepaid income tax Amounts due from associates Amounts due from non-controlling shareholders of subsidiaries Amounts due from related parties Amounts due from Disposal Group Restricted bank deposits Bank balances and cash	Target Group RMB’000 106,489 1,184,700 552,601 115,971 – – 24,297 1,984,058 3,013,131 516 – 674,370 3,000 62,107 50 268,850 289,096 131,095 45,245 246,653 4,734,113	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 380,216 – 486,705 78,340 – 1,263,040 9,000 (561,601) – – – 115,971 49,000 – 49,000 129,214 – 129,214 2,025 – 26,322 647,795 (561,601) 2,070,252 544,701 – 3,557,832 376 – 892 4,800 – 4,800 680,466 – 1,354,836 – – 3,000 756 – 62,863 – – 50 32,452 – 301,302 87,980 (85,097) 291,979 – (131,095) – 26,889 – 72,134 28,366 – 275,019 1,406,786 (216,192) 5,924,707	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 380,216 – 486,705 78,340 – 1,263,040 9,000 (561,601) – – – 115,971 49,000 – 49,000 129,214 – 129,214 2,025 – 26,322 647,795 (561,601) 2,070,252 544,701 – 3,557,832 376 – 892 4,800 – 4,800 680,466 – 1,354,836 – – 3,000 756 – 62,863 – – 50 32,452 – 301,302 87,980 (85,097) 291,979 – (131,095) – 26,889 – 72,134 28,366 – 275,019 1,406,786 (216,192) 5,924,707
			2,070,252
			3,557,832 892 4,800 1,354,836 3,000 62,863 50 301,302 291,979 – 72,134 275,019
			5,924,707

– III-117 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

As at 31 December 2015

CURRENT LIABILITIES Trade and other payables and accruals Deposits received for sale of properties Income tax payable Amounts due to associates Amounts due to non-controlling shareholders of subsidiaries Amounts due to related parties Amounts due to Target Group Bank and other borrowings - due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank and other borrowings - due after one year Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Capital reserve Statutory reserve Retained profits Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY	Target Group RMB’000 1,191,563 1,280,094 88,562 106,000 – 1,066,368 – 638,500 4,371,087 363,026 2,347,084 1,139,005 121,539 1,260,544 1,086,540 95,000 105,895 661,235 862,130 224,410 1,086,540	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 287,270 – 1,478,833 103,605 – 1,383,699 74,678 – 163,240 – – 106,000 84,771 – 84,771 244,230 (85,097) 1,225,501 131,095 (131,095) – 139,700 – 778,200 1,065,349 (216,192) 5,220,244 341,437 – 704,463 989,232 (561,601) 2,774,715 310,000 – 1,449,005 9,549 – 131,088 319,549 – 1,580,093 669,683 (561,601) 1,194,622 594,055 (594,055) 95,000 771 – 106,666 46,700 4,131 712,066 641,526 (589,924) 913,732 28,157 28,323 280,890 669,683 (561,601) 1,194,622	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 287,270 – 1,478,833 103,605 – 1,383,699 74,678 – 163,240 – – 106,000 84,771 – 84,771 244,230 (85,097) 1,225,501 131,095 (131,095) – 139,700 – 778,200 1,065,349 (216,192) 5,220,244 341,437 – 704,463 989,232 (561,601) 2,774,715 310,000 – 1,449,005 9,549 – 131,088 319,549 – 1,580,093 669,683 (561,601) 1,194,622 594,055 (594,055) 95,000 771 – 106,666 46,700 4,131 712,066 641,526 (589,924) 913,732 28,157 28,323 280,890 669,683 (561,601) 1,194,622
			5,220,244
			704,463
			2,774,715
			1,449,005 131,088
			1,580,093
			1,194,622

			95,000 106,666 712,066
			913,732 280,890
			1,194,622

– III-118 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

As at 31 December 2016

NON-CURRENT ASSETS Property, plant and equipment Investment properties Interests in subsidiaries Interests in associates Available-for-sale financial assets Prepaid lease payments Deferred tax assets CURRENT ASSETS Inventory of properties Other inventories Prepaid lease payments Trade receivables, other receivables and prepayments Prepaid income tax Amounts due from associates Amounts due from non-controlling shareholders of subsidiaries Amounts due from related parties Amounts due from Disposal Group Restricted bank deposits Bank balances and cash	Target Group RMB’000 98,760 1,390,090 552,601 117,608 – 580,037 10,701 2,749,797 4,034,402 600 15,231 900,003 65,632 50 306,388 548,924 78,139 69,353 133,313 6,152,035	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 358,732 – 457,492 86,800 – 1,476,890 9,000 (561,601) – – – 117,608 49,000 – 49,000 124,414 – 704,451 5,036 – 15,737 632,982 (561,601) 2,821,178 534,749 – 4,569,151 390 – 990 4,800 – 20,031 377,993 – 1,277,996 8,762 – 74,394 – – 50 133,170 – 439,558 185,457 (176,769) 557,612 – (78,139) – 8,535 – 77,888 35,456 – 168,769 1,289,312 (254,908) 7,186,439	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 358,732 – 457,492 86,800 – 1,476,890 9,000 (561,601) – – – 117,608 49,000 – 49,000 124,414 – 704,451 5,036 – 15,737 632,982 (561,601) 2,821,178 534,749 – 4,569,151 390 – 990 4,800 – 20,031 377,993 – 1,277,996 8,762 – 74,394 – – 50 133,170 – 439,558 185,457 (176,769) 557,612 – (78,139) – 8,535 – 77,888 35,456 – 168,769 1,289,312 (254,908) 7,186,439
			2,821,178
			4,569,151 990 20,031 1,277,996 74,394 50 439,558 557,612 – 77,888 168,769
			7,186,439

– III-119 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

As at 31 December 2016

CURRENT LIABILITIES Trade and other payables and accruals Deposits received for sale of properties Income tax payable Amounts due to associates Amounts due to non-controlling shareholders of subsidiaries Amounts due to related parties Amounts due to Target Group Bank and other borrowings - due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank and other borrowings - due after one year Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Capital reserve Statutory reserve Retained profits Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY	Target Group RMB’000 1,546,146 869,778 251,873 99,640 – 1,248,335 – 813,125 4,828,897 1,323,138 4,072,935 2,474,325 134,127 2,608,452 1,464,483 95,000 146,626 967,909 1,209,535 254,948 1,464,483	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 226,081 – 1,772,227 163,891 – 1,033,669 74,296 – 326,169 – – 99,640 85,016 – 85,016 179,579 (176,769) 1,251,145 78,139 (78,139) – 80,169 – 893,294 887,171 (254,908) 5,461,160 402,141 – 1,725,279 1,035,123 (561,601) 4,546,457 369,331 – 2,843,656 10,759 – 144,886 380,090 – 2,988,542 655,033 (561,601) 1,557,915 594,055 (594,055) 95,000 3,987 – 150,613 32,375 4,207 1,004,491 630,417 (589,848) 1,250,104 24,616 28,247 307,811 655,033 (561,601) 1,557,915	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 226,081 – 1,772,227 163,891 – 1,033,669 74,296 – 326,169 – – 99,640 85,016 – 85,016 179,579 (176,769) 1,251,145 78,139 (78,139) – 80,169 – 893,294 887,171 (254,908) 5,461,160 402,141 – 1,725,279 1,035,123 (561,601) 4,546,457 369,331 – 2,843,656 10,759 – 144,886 380,090 – 2,988,542 655,033 (561,601) 1,557,915 594,055 (594,055) 95,000 3,987 – 150,613 32,375 4,207 1,004,491 630,417 (589,848) 1,250,104 24,616 28,247 307,811 655,033 (561,601) 1,557,915
			5,461,160
			1,725,279
			4,546,457
			2,843,656 144,886
			2,988,542
			1,557,915
			95,000 150,613 1,004,491
			1,250,104 307,811
			1,557,915

– III-120 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

As at 31 December 2017

NON-CURRENT ASSETS Property, plant and equipment Investment properties Interests in subsidiaries Interests in associates Available-for-sale financial assets Prepaid lease payments Deferred tax assets CURRENT ASSETS Inventory of properties Other inventories Prepaid lease payments Trade receivables, other receivables and prepayments Prepaid income tax Amounts due from associates Amounts due from non-controlling shareholders of subsidiaries Amounts due from related parties Amounts due from Target Group Restricted bank deposits Bank balances and cash	Target Group RMB’000 86,105 1,458,540 677,701 117,043 15,316 564,807 7,083 2,926,595 4,196,730 1,499 15,231 747,097 87,065 1,210 204,392 594,742 – 27,200 113,767 5,988,933	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 335,132 – 421,237 106,330 – 1,564,870 9,000 (686,701) – – – 117,043 49,000 – 64,316 119,613 – 684,420 4,902 – 11,985 623,977 (686,701) 2,863,871 292,292 – 4,489,022 321 – 1,820 4,800 – 20,031 284,544 – 1,031,641 10,796 – 97,861 – – 1,210 108,397 – 312,789 249,562 (59,379) 784,925 12,478 (12,478) – 9,074 – 36,274 25,832 – 139,599 998,096 (71,857) 6,915,172	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 335,132 – 421,237 106,330 – 1,564,870 9,000 (686,701) – – – 117,043 49,000 – 64,316 119,613 – 684,420 4,902 – 11,985 623,977 (686,701) 2,863,871 292,292 – 4,489,022 321 – 1,820 4,800 – 20,031 284,544 – 1,031,641 10,796 – 97,861 – – 1,210 108,397 – 312,789 249,562 (59,379) 784,925 12,478 (12,478) – 9,074 – 36,274 25,832 – 139,599 998,096 (71,857) 6,915,172
			2,863,871
			4,489,022 1,820 20,031 1,031,641 97,861 1,210 312,789 784,925 – 36,274 139,599
			6,915,172

– III-121 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

As at 31 December 2017

CURRENT LIABILITIES Trade and other payables and accruals Deposits received for sale of properties Income tax payable Amounts due to associates Amounts due to non-controlling shareholders of subsidiaries Amounts due to related parties Amounts due to Disposal Group Bank and other borrowings - due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank and other borrowings - due after one year Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Capital reserve Statutory reserve Retained profits Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY	Target Group RMB’000 1,329,476 681,741 167,579 99,640 – 978,333 12,478 1,135,343 4,404,590 1,584,343 4,510,938 2,703,378 141,572 2,844,950 1,665,988 95,000 155,804 1,135,358 1,386,162 279,826 1,665,988	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 99,075 – 1,428,551 46,496 – 728,237 64,936 – 232,515 – – 99,640 85,261 – 85,261 156,644 (59,379) 1,075,598 – (12,478) – 126,210 – 1,261,553 578,622 (71,857) 4,911,355 419,474 – 2,003,817 1,043,451 (686,701) 4,867,688 247,516 – 2,950,894 14,062 – 155,634 261,578 – 3,106,528 781,873 (686,701) 1,761,160 717,555 (717,555) 95,000 7,575 – 163,379 28,150 4,329 1,167,837 753,280 (713,226) 1,426,216 28,593 26,525 334,944 781,873 (686,701) 1,761,160	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 99,075 – 1,428,551 46,496 – 728,237 64,936 – 232,515 – – 99,640 85,261 – 85,261 156,644 (59,379) 1,075,598 – (12,478) – 126,210 – 1,261,553 578,622 (71,857) 4,911,355 419,474 – 2,003,817 1,043,451 (686,701) 4,867,688 247,516 – 2,950,894 14,062 – 155,634 261,578 – 3,106,528 781,873 (686,701) 1,761,160 717,555 (717,555) 95,000 7,575 – 163,379 28,150 4,329 1,167,837 753,280 (713,226) 1,426,216 28,593 26,525 334,944 781,873 (686,701) 1,761,160
			4,911,355
			2,003,817
			4,867,688
			2,950,894 155,634
			3,106,528
			1,761,160

			95,000 163,379 1,167,837
			1,426,216 334,944
			1,761,160

– III-122 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

As at 30 June 2018

NON-CURRENT ASSETS Property, plant and equipment Investment properties Interests in subsidiaries Interests in associates Equity instruments at FVTOCI Prepaid lease payments Deferred tax assets CURRENT ASSETS Inventory of properties Other inventories Prepaid lease payments Trade receivables, other receivables and prepayments Prepaid income tax Amounts due from associates Amounts due from non-controlling shareholders of subsidiaries Amounts due from related parties Amounts due from Target Group Restricted bank deposits Bank balances and cash	Target Group RMB’000 145,356 1,523,130 677,701 117,043 17,816 557,191 13,762 3,051,999 5,012,321 629 15,231 716,695 103,011 1,666 1,863 214,629 – 21,805 150,859 6,238,709	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 325,221 – 470,577 106,960 – 1,630,090 9,000 (686,701) – – – 117,043 46,086 – 63,902 117,213 – 674,404 5,231 – 18,993 609,711 (686,701) 2,975,009 260,873 – 5,273,194 1,340 – 1,969 4,800 – 20,031 465,260 – 1,181,955 15,607 – 118,618 – – 1,666 21,138 – 23,001 169,562 – 384,191 151,357 (151,357) – 1,108 – 22,913 35,718 – 186,577 1,126,763 (151,357) 7,214,115	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 325,221 – 470,577 106,960 – 1,630,090 9,000 (686,701) – – – 117,043 46,086 – 63,902 117,213 – 674,404 5,231 – 18,993 609,711 (686,701) 2,975,009 260,873 – 5,273,194 1,340 – 1,969 4,800 – 20,031 465,260 – 1,181,955 15,607 – 118,618 – – 1,666 21,138 – 23,001 169,562 – 384,191 151,357 (151,357) – 1,108 – 22,913 35,718 – 186,577 1,126,763 (151,357) 7,214,115
			2,975,009
			5,273,194 1,969 20,031 1,181,955 118,618 1,666 23,001 384,191 – 22,913 186,577
			7,214,115

– III-123 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

As at 30 June 2018

CURRENT LIABILITIES Trade and other payables and accruals Contract liabilities Income tax payable Amounts due to associates Amounts due to non-controlling shareholders of subsidiaries Amounts due to related parties Amounts due to Disposal Group Bank and other borrowings - due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank and other borrowings - due after one year Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Capital reserve Statutory reserve FVTOCI reserve Other reserve Deemed capital contribution Retained profits Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY	Target Group RMB’000 1,108,466 1,582,525 96,394 99,645 34,500 816,559 151,357 1,167,273 5,056,719 1,181,990 4,233,989 2,547,886 162,026 2,709,912 1,524,077 100,000 166,927 – 91,989 7,471 1,109,256 1,475,643 48,434 1,524,077	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 238,998 – 1,347,464 90,145 – 1,672,670 61,742 – 158,136 – – 99,645 85,261 – 119,761 119,042 – 935,601 – (151,357) – 119,290 – 1,286,563 714,478 (151,357) 5,619,840 412,285 – 1,594,275 1,021,996 (686,701) 4,569,284 232,047 – 2,779,933 14,219 – 176,245 246,266 – 2,956,178 775,730 (686,701) 1,613,106 755,321 (755,321) 100,000 7,576 2,993 177,496 (2,185) – (2,185) – – 91,989 – – 7,471 25,822 1,504 1,136,582 786,534 (750,824) 1,511,353 (10,804) 64,123 101,753 775,730 (686,701) 1,613,106

– III-124 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

Cash flows

For the year ended 31 December 2015

OPERATING ACTIVITIES Profit (loss) before tax Adjustments for: Depreciation of property, plant and equipment Release of prepaid lease payments Finance costs Interest income Investment income from available-for- sale financial assets Impairment loss, net of reversal – inventory of properties Share of results of associates Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Operating cash flows before movements in working capital Increase in inventory of properties (Increase) decrease in other inventories Decrease in trade and other receivables and prepayments Increase (decrease) in trade and other payables and accruals Increase in deposits received for sale of properties Cash generated from (used in) operations Income tax paid NET CASH FROM (USED IN) OPERATING ACTIVITIES	Target Group RMB’000 434,213 11,108 – 19,799 (315) – 18,137 (2,391) (2,111) (449,949) 28,491 (547,950) (472) 65,604 216,353 845,767 607,793 (29,023) 578,770	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 (16,641) – 417,572 17,168 – 28,276 4,913 – 4,913 35,288 – 55,087 (128) – (443) (3,875) – (3,875) – – 18,137 – – (2,391) (2,329) – (4,440) (5,675) – (455,624) 28,721 – 57,212 (49,404) – (597,354) 293 – (179) 15,557 – 81,161 (190,801) – 25,552 15,378 – 861,145 (180,256) – 427,537 (18,693) – (47,716) (198,949) – 379,821

– III-125 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2015

INVESTING ACTIVITIES Purchase of property, plant and equipment Advances to related parties Repayment from related parties Advances to non-controlling shareholders of subsidiaries Repayment from non-controlling shareholders of subsidiaries Advances to Disposal Group Repayment from Disposal Group Advances to third parties Repayment from third parties Redemption of financial assets at FVTPL Placement of restricted bank deposits Withdrawal of restricted bank deposits Investment income received from available- for-sale financial assets Bank interest received NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Additions of bank and other borrowings Repayment of bank and other borrowings Interest paid Advances from non-controlling shareholders of subsidiaries Advances from associates Repayment to associates Advances from related parties Repayment to related parties Advances from third parties Repayment to third parties Advances from Target Group Repayment to Target Group NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT THE END OF YEAR, represented by bank balances and cash	Target Group RMB’000 (52,808) (195,539) 60,764 (265,550) – (238,808) 34,200 (320,130) 308,590 – (49,403) 15,681 – 315 (702,688) 1,778,000 (1,018,895) (187,535) – 44,920 (23,720) 824,272 (1,031,715) 9,700 (60,055) – – 334,972 211,054 35,599 246,653	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 (450) – (53,258) (52,863) – (248,402) 56,221 – 116,985 (35,627) – (301,177) 66,570 – 66,570 – 238,808 – – (34,200) – (3,084) – (323,214) 447 – 309,037 6,000 – 6,000 (13,807) – (63,210) – – 15,681 3,875 – 3,875 128 – 443 27,410 204,608 (470,670) 389,899 – 2,167,899 (333,998) – (1,352,893) (51,240) – (238,775) 14,459 – 14,459 – – 44,920 – – (23,720) 407,578 – 1,231,850 (505,403) – (1,537,118) – – 9,700 – – (60,055) 238,808 (238,808) – (34,200) 34,200 – 125,903 (204,608) 256,267 (45,636) – 165,418 74,002 – 109,601 28,366 – 275,019

– III-126 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2016

OPERATING ACTIVITIES Profit (loss) before tax Adjustments for: Depreciation of property, plant and equipment Release of prepaid lease payments Finance costs Interest income Investment income from available-for-sale financial assets Impairment loss, net of reversal – inventory of properties Share of results of associates Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Gain on disposal of subsidiaries Operating cash flows before movements in working capital (Increase) decrease in inventory of properties Increase in other inventories (Increase) decrease in trade and other receivables and prepayments Increase (decrease) in trade and other payables and accruals (Decrease) increase in deposits received for sale of properties Cash (used in) generated from operations Income tax paid NET CASH (USED IN) FROM OPERATING ACTIVITIES	Target Group RMB’000 620,839 9,688 13,962 30,378 (720) – 2,188 (1,637) (48,689) (88,691) (11) 537,307 (904,828) (84) (279,551) 185,977 (410,316) (871,495) (56,927) (928,422)	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 (3,580) – 617,259 25,119 – 34,807 4,800 – 18,762 33,535 – 63,913 (667) – (1,387) (2,556) – (2,556) – – 2,188 – – (1,637) 179 – (48,510) (5,018) – (93,709) – – (11) 51,812 – 589,119 10,391 – (894,437) (14) – (98) 305,583 – 26,032 (61,189) – 124,788 60,286 – (350,030) 366,869 – (504,626) (21,258) – (78,185) 345,611 – (582,811)

– III-127 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2016

INVESTING ACTIVITIES Purchase of property, plant and equipment Additions of prepaid lease payments Proceeds on disposal of property, plant and equipment Advances to related parties Repayment from related parties Advances to non-controlling shareholders of subsidiaries Repayment from non-controlling shareholders of subsidiaries Advances to Disposal Group Repayment from Disposal Group Advances to third parties Repayment from third parties Net cash outflow from disposal of subsidiary Redemption of financial assets at FVTPL Placement of restricted bank deposits Withdrawal of restricted bank deposits Investment income received from available- for-sale financial assets Bank interest received NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Additions of bank and other borrowings Repayment of bank and other borrowings Interest paid Advances from non-controlling shareholders of subsidiaries Advances from associates Repayment to associates Advances from related parties Repayment to related parties Advances from third parties Repayment to third parties Advances from Target Group Repayment to Target Group	Target Group RMB’000 (2,157) (609,230) 198 (321,672) 61,844 (189,070) 151,532 (35,300) 88,256 (79,345) 133,284 (9) 3,000 (43,450) 19,342 – 720 (822,057) 2,992,750 (1,482,805) (217,019) – 21,200 (27,560) 1,728,116 (1,546,149) 630,071 (461,465) – –	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 (3,635) – (5,792) – – (609,230) – – 198 (5,805) – (327,477) – – 61,844 (120,178) – (309,248) 19,460 – 170,992 – 35,300 – – (88,256) – (3,111) – (82,456) – – 133,284 – – (9) – – 3,000 (2,069) – (45,519) 20,423 – 39,765 2,566 – 2,566 667 – 1,387 (91,692) (52,956) (966,705) 449,500 – 3,442,250 (449,700) – (1,932,505) (37,595) – (254,614) 245 – 245 – – 21,200 – – (27,560) 800,443 – 2,528,559 (956,766) – (2,502,915) – – 630,071 – – (461,465) 35,300 (35,300) – (88,256) 88,256 –

– III-128 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

NET CASH FROM (USED IN) FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT THE END OF YEAR, represented by bank balances and cash	Target Group RMB’000 1,637,139 (113,340) 246,653 133,313	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 (246,829) 52,956 1,443,266 7,090 – (106,250) 28,366 – 275,019 35,456 – 168,769

– III-129 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2017

OPERATING ACTIVITIES Profit before tax Adjustments for: Depreciation of property, plant and equipment Release of prepaid lease payments Finance costs Interest income Investment income from available-for- sale financial assets Impairment loss, net of reversal – inventory of properties Share of results of associates Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Gain on disposal of subsidiaries Operating cash flows before movements in working capital (Increase) decrease in inventory of properties (Increase) decrease in other inventories Decrease in trade and other receivables and prepayments Increase in trade and other payables and accruals Increase (decrease) in deposits received for sale of properties Cash (used in) generated from operations Income tax paid NET CASH (USED IN) FROM OPERATING ACTIVITIES	Target Group RMB’000 240,310 11,981 15,230 9,120 (506) – 1,551 565 (45,910) (11,867) (172,265) 48,209 (881,005) (958) 20,337 240,428 286,643 (286,346) (176,259) (462,605)	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 12,091 – 252,401 23,584 – 35,565 4,801 – 20,031 29,690 – 38,810 (475) – (981) (2,974) – (2,974) – – 1,551 – – 565 (6,936) – (52,846) (6,275) – (18,142) – – (172,265) 53,506 – 101,715 236,138 – (644,867) 69 – (889) 99,604 – 119,941 347,674 – 588,102 (592,075) – (305,432) 144,916 – (141,430) (23,205) – (199,464) 121,711 – (340,894)

– III-130 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the year ended 31 December 2017

INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Capital contributions to subsidiaries Advances to associates Repayment from associates Advances to related parties Repayment from related parties Advances to non-controlling shareholders of subsidiaries Repayment from non-controlling shareholders of subsidiaries Proceeds on disposal of subsidiaries Advances to Disposal Group Repayment from Disposal Group Advances to third parties Repayment from third parties Placement of restricted bank deposits Withdrawal of restricted bank deposits Investment income received from available- for-sale financial assets Bank interest received NET CASH FROM (USED IN) INVESTING ACTIVITIES	Target Group RMB’000 (13,513) – (125,100) (1,269) 109 (1,528,085) 1,538,999 (244,084) 346,080 252,365 (328,549) 419,166 (422,231) 343,251 (9,623) 51,776 – 506 279,798	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 – – (13,513) 16 – 16 – 125,100 – – – (1,269) – – 109 (592,002) – (2,120,087) 410,507 – 1,949,506 (5,695) – (249,779) 30,468 – 376,548 – – 252,365 – 328,549 – – (419,166) – (7,963) – (430,194) 1,808 – 345,059 (32,516) – (42,139) 31,977 – 83,753 2,974 – 2,974 475 – 981 (159,951) 34,483 154,330

– III-131 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

FINANCING ACTIVITIES Additions of bank and other borrowings Repayment of bank and other borrowings Interest paid Advances from non-controlling shareholders of subsidiaries Advances from related parties Repayment to related parties Advances from third parties Advances to third parties Advances from Target Group Repayment to Target Group Capital contributions from Target Group Capital contributions from non-controlling shareholders of subsidiaries NET CASH FROM USED IN FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT THE END OF YEAR, represented by bank balances and cash	Target Group RMB’000 2,440,096 (1,359,125) (254,638) – 2,757,107 (3,121,678) 10,469,779 (10,792,780) – – – 24,500 163,261 (19,546) 133,313 113,767	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 29,665 – 2,469,761 (105,439) – (1,464,564) (29,690) – (284,328) 245 – 245 127,500 – 2,884,607 (33,048) – (3,154,726) – 10,469,779 – (10,792,780) 328,549 (328,549) – (419,166) 419,166 – 125,100 (125,100) – 4,900 – 29,400 28,616 (34,483) 157,394 (9,624) – (29,170) 35,456 – 168,769 25,832 – 139,599

– III-132 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the six months ended 30 June 2018

OPERATING ACTIVITIES Profit (loss) before tax Adjustments for: Depreciation of property, plant and equipment Release of prepaid lease payments Investment income from equity instruments at FVTOCI Finance costs Interest income Change in fair value of investment properties Operating cash flows before movements in working capital (Increase) decrease in inventory of properties (Increase) decrease in other inventories Increase in trade and other receivables and prepayments (Decrease) increase in trade and other payables and accruals Increase in contract liabilities Cash (used in) generated from operations Income tax paid NET CASH (USED IN) FROM OPERATING ACTIVITIES	Target Group RMB'000 4,653 – 8,704 7,616 – 44,973 (197) (64,590) 1,159 (622,833) (834) (360,290) (150,098) 829,307 (303,589) (98,853) (402,442)	Disposal Intergroup Consolidated Group Elimination Group RMB'000 RMB'000 RMB'000 (1,843) – 2,810 – – – 9,908 – 18,612 2,400 – 10,016 (2,806) – (2,806) 11,829 – 56,802 (52) – (249) (630) – (65,220) 18,806 – 19,965 29,715 – (593,118) 685 – (149) (167,461) – (527,751) 138,555 – (11,543) 33,464 – 862,771 53,764 – (249,825) (978) – (99,831) 52,786 – (349,656)

– III-133 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Advances to associates Advances to related parties Repayment from related parties Advances to non-controlling shareholders of subsidiaries Repayment from non-controlling shareholders of subsidiaries Repayment from Disposal Group Advances to third parties Repayment from third parties Net cash outflow from disposal of subsidiaries Settlement of deferred consideration Placement of restricted bank deposits Withdrawal of restricted bank deposits Investment income received from equity instruments at FVTOCI Bank interest received Purchase of equity investment at FVTOCI NET CASH FROM (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Additions of bank and other borrowings Repayment of bank and other borrowings Interest paid Advances from non-controlling shareholders of subsidiaries Advances from associates Repayment to associates Advances from related parties Repayment to related parties Advances from third parties Advances to third parties Repayment to Target Group Acquisition of additional interest from non-controlling shareholders Capital contributions from non-controlling shareholders of subsidiaries NET CASH (USED IN) FROM FINANCING ACTIVITIES	Target Group RMB'000 (67,955) – (456) (842,301) 1,410,715 (29,263) 231,792 138,879 (115,425) 249,692 (7,755) 2,600 (7,577) 12,972 – 197 (2,500) 973,615 158,001 (281,563) (196,811) 34,500 100,005 (100,000) 1,051,076 (1,213,165) 44,844 (88,387) – (52,381) 9,800 (534,081)	Disposal Intergroup Consolidated Group Elimination Group RMB'000 RMB'000 RMB'000 – – (67,955) 3 – 3 – – (456) (321,890) – (1,164,191) 342,511 – 1,753,226 (34,341) – (63,604) 121,600 – 353,392 – (138,879) – (17,466) – (132,891) 4,211 – 253,903 – – (7,755) – – 2,600 (2) – (7,579) 7,968 – 20,940 2,806 – 2,806 52 – 249 – – (2500) 105,452 (138,879) 940,188 – – – – 158,001 (22,389) – (303,952) (11,829) – (208,640) – – 34,500 – – 100,005 – – (100,000) 21,777 – 1,072,853 – – (1,213,165) 30,125 – 74,969 (27,157) – (115,544) (138,879) 138,879 – – (52,381) – – 9,800 (148,352) 138,879 (543,554)

– III-134 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

NET INCREAS IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS AT THE END OF PERIOD, represented by bank balances and cash	Target Group RMB'000 37,092 113,767 150,859	Disposal Intergroup Consolidated Group Elimination Group RMB'000 RMB'000 RMB'000 9,886 – 46,978 25,832 – 139,599 35,718 – 186,577	Disposal Intergroup Consolidated Group Elimination Group RMB'000 RMB'000 RMB'000 9,886 – 46,978 25,832 – 139,599 35,718 – 186,577
			186,577

– III-135 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

For the six months ended 30 June 2017 (unaudited)

OPERATING ACTIVITIES Profit before tax Adjustments for: Depreciation of property, plant and equipment Release of prepaid lease payments Finance costs Interest income Investment income from available-for- sale financial assets Impairment loss, net of reversal – inventory of properties Share of results of associates Change in fair value of investment properties Change in fair value upon transfer from inventory of properties to investment properties Gain on disposal of subsidiaries Operating cash flows before movements in working capital (Increase) decrease in inventory of properties Decrease (increase) in other inventories (Increase) decrease in trade and other receivables and prepayments Increase in trade and other payables and accruals Increase (decrease) in deposits received for sale of properties Cash generated from operations Income tax paid NET CASH FROM OPERATING ACTIVITIES	Target Group RMB’000 169,892 7,412 7,615 3,414 (255) – 1,551 189 3,940 (11,867) (159,413) 22,478 (6,987) 37 (178,054) (47,333) 242,716 127,523 (126,029) 1,494	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 14,439 – 184,331 9,995 – 17,407 2,088 – 9,703 12,245 – 15,659 (129) – (384) (2,974) – (2,974) – – 1,551 – – 189 (4,956) – (1,016) (6,275) – (18,142) – – (159,413) 24,433 – 46,911 159,067 – 152,080 (527) – (490) 98,578 – (79,476) 566,373 – 613,706 (569,997) – (327,281) 277,927 – 405,450 (15,255) – (141,284) 262,672 – 264,166

– III-136 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Advances to associates Repayment from associates Advances to related parties Repayment from related parties Advances to non-controlling shareholders of subsidiaries Repayment from non-controlling shareholders of subsidiaries Repayment from Disposal Group Advances to Disposal Group Advances to third parties Repayment from third parties Proceeds on disposal of subsidiaries Placement of restricted bank deposits Withdrawal of restricted bank deposits Investment income received from available- for-sale financial assets Bank interest received NET CASH FROM (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Additions of bank and other borrowings Repayment of bank and other borrowings Interest paid Advances from non-controlling shareholders of subsidiaries Advances from related parties Repayment to related parties Advances from third parties Repayments to third parties Advances from Target Group Repayment to Target Group NET CASH (USED IN) FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS AT THE END OF PERIOD, represented by bank balances and cash	Target Group RMB’000 (989) – (737) 109 (543,046) 469,212 (137,552) 131,948 306,082 (55,646) (314,103) 264,115 229,074 (2,249) 71,602 – 255 418,075 333,340 (459,125) (126,801) – 491,879 (463,313) 4,045,885 (4,320,980) – – (499,115) (79,546) 133,313 53,767	Disposal Intergroup Consolidated Group Elimination Group RMB’000 RMB’000 RMB’000 – – (989) 9 – 9 – – (737) – – 109 (76,486) – (619,532) 77,020 – 546,232 (4,427) – (141,979) 37,211 – 169,159 – (306,082) – – 55,646 – (2,385) – (316,488) 2,020 – 266,135 – – 229,074 – – (2,249) 6,940 – 78,542 2,974 – 2,974 129 – 384 43,005 (250,436) 210,644 426,852 – 760,192 (434,417) – (893,542) (12,245) – (139,046) 245 – 245 92,686 – 584,565 (121,643) – (584,956) – – 4,045,885 – – (4,320,980) 55,646 (55,646) – (306,082) 306,082 – (298,958) 250,436 (547,637) 6,719 – (72,827) 35,456 – 168,769 42,175 – 95,942

– III-137 –

ACCOUNTANT’S REPORT ON THE CONSOLIDATED GROUP

APPENDIX III

41. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Consolidated Group, the Target Company or any of its subsidiaries have been prepared in respect of any period subsequent to 30 June 2018.

– III-138 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

The information set out in this Appendix does not form part of the Accountants’ Reports on the Consolidated Group issued by Deloitte Touche Tohmatsu, the Company’s reporting accountants, as set out in “Appendix III – Financial Information of the Consolidated Group” and is included herein for information only. The unaudited pro forma financial information should be read in conjunction with “Financial Information of the Group” set out in Appendix I and “Management Discussion and Analysis on the Group and the Target Group” set out in Appendix II.

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(I) Basis of Preparation of the Unaudited Pro Forma Consolidated Financial Information of the Enlarged Group

On 16 February 2012, the Group has acquired 70% equity interests in Fujian Sinco Industrial Co., Ltd. (“Fujian Sinco”) from Top Trendy Holdings Limited (“Top Trendy”) in consideration of cash and the issue of convertible preference shares and convertible notes. The controlling shareholder of Top Trendy is Mr. Guo Jiadi. On the same day, the Group acquired the remaining 30% equity interests in Fujian Sinco from Good Fellow Resources Holdings Limited (“Good Fellow”), an independent third party of the Group and Mr. Guo Jiadi, in consideration of cash and the issue of convertible preference shares and convertible notes. Upon completion of these acquisitions, Mr. Guo Jiadi obtained 42.56% voting power of the Company, including the potential voting rights of the convertible preference shares and convertible notes. Details of these transactions were detailed in the circular of the Company dated 10 January 2012. On 15 October 2012, Mr. Guo Jiadi further acquired 18.47% of the shares of the Company from Good Fellow and is considered to have obtained control over the Company by then.

On 21 September 2018, the Group entered into an agreement (“Agreement”) with Primary Partner Limited, (the “Vendor”) and Mr. Guo Jiadi, the ultimate controlling shareholder of the Company and the Vendor, pursuant to which the Group has conditionally agreed to acquire the entire share capital of the Target Company at a total consideration of HK$1,500,000,000 (the “Transaction”).

The unaudited pro forma financial information is prepared to provide information on the Enlarged Group as a result of the completion of the Transaction on the basis of notes set out below for illustrating the effect of the Transaction, as if the Transaction had taken place on 30 September 2018 for the preparation of the unaudited pro forma consolidated statement of financial position. For the preparation of the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated statement of cash flows, it is assumed that the Transaction had taken place on 1 April 2017.

The information is prepared for illustrative purposes only and because of its hypothetical nature, it does not purport to represent what the results and cash flows, or financial position of the Enlarged Group would have been upon completion of the Transaction in any future periods or on any future dates.

– IV-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

The unaudited pro forma consolidated statement of financial position as at 30 September 2018 is prepared based on (i) the unaudited condensed consolidated statement of financial position of the Group as at 30 September 2018 as extracted from the unaudited condensed consolidated financial statements set out in the published interim result announcement of the Group for the six months ended 30 September 2018 and (ii) the audited consolidated statement of financial position of the Target Group as at 30 June 2018 as extracted from the Accountants’ Report on the Consolidated Group set out in Appendix III to this Circular, after making pro forma adjustments to the Transaction, as if the Transaction had completed on 30 September 2018. The unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Enlarged Group for the year ended 31 March 2018 are prepared based on (i) the audited consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows of the Group for the year ended 31 March 2018 as extracted from the consolidated financial statements set out in the published annual report of the Group for the year ended 31 March 2018 and (ii) the audited consolidated statement of profit or loss and other comprehensive income and the audited consolidated statement of cash flows of the Target Group for the year ended 31 December 2017 as extracted from the Accountants’ Report on the Consolidated Group set out in Appendix III to this Circular, after making pro forma adjustments to the Transaction, as if the Transaction had taken place on 1 April 2017.

(II) Unaudited Pro Forma Consolidated Statement of Financial Position of the Enlarged Group

					Pro-forma	adjustments
					Elimination	Elimination of
					of equity	intercompany
					instruments	balance
	The Group	The Group		Acquisition	at FVTOCI	between the	Transaction	Unaudited
	as at 30	as at 30	The Target	of the Target	and gain on	Target Group	costs related	pro forma for
	September	September	Group as at	Group by the	disposal of	and the	to the	the Enlarged
	2018	2018	30 June 2018	Group	subsidiaries	Group	Transaction	Group
	HK$’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Note 1)	(Note 1)	(Note 2)	(Note 3)	(Note 4)	(Note 5)	(Note 8)
NON-CURRENT ASSETS
Property, plant and equipment	5,005	4,396	145,356					149,752
Investment properties	3,604,176	3,165,723	1,523,130					4,688,853
Interests in subsidiaries	–	–	677,701	(677,701)				–
Interests in associates	234,823	206,256	117,043					323,299
Equity instrument at fair
value through other
comprehensive income	–	–	17,816		(17,816)			–
Prepaid lease payments	–	–	557,191					557,191

– IV-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Deposits for properties under development Properties under development Deferred tax assets CURRENT ASSETS Inventories of properties Other inventories Prepaid lease payments Trade receivables, other receivables and prepayments Financial assets at fair value through profit or loss Prepaid income tax Amounts due from associates Amounts due from non-controlling shareholders of subsidiaries Amounts due from related parties Restricted bank deposits Bank balances and cash	The Group as at 30 September 2018 HK$’000 (Note 1) 15,066 327,815 18,413 4,205,298 2,238,252 – – 472,559 234,078 18,341 – – 130,309 575 257,109 3,351,223	Pro-forma adjustments The Group as at 30 September 2018 The Target Group as at 30 June 2018 Acquisition of the Target Group by the Group Elimination of equity instruments at FVTOCI and gain on disposal of subsidiaries Elimination of intercompany balance between the Target Group and the Group Transaction costs related to the Transaction Unaudited pro forma for the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) (Note 8) 13,233 – 13,233 287,936 – 287,936 16,173 13,762 29,935 3,693,717 3,051,999 6,050,199 1,965,966 5,012,321 6,978,287 – 629 629 – 15,231 15,231 415,072 716,695 1,131,767 205,602 – 205,602 16,110 103,011 119,121 – 1,666 1,666 – 1,863 1,863 114,457 214,629 755,321 (18,621) 1,065,786 505 21,805 22,310 225,831 150,859 (175,670) (10,540) 190,480 2,943,543 6,238,709 9,732,742	Pro-forma adjustments The Group as at 30 September 2018 The Target Group as at 30 June 2018 Acquisition of the Target Group by the Group Elimination of equity instruments at FVTOCI and gain on disposal of subsidiaries Elimination of intercompany balance between the Target Group and the Group Transaction costs related to the Transaction Unaudited pro forma for the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) (Note 8) 13,233 – 13,233 287,936 – 287,936 16,173 13,762 29,935 3,693,717 3,051,999 6,050,199 1,965,966 5,012,321 6,978,287 – 629 629 – 15,231 15,231 415,072 716,695 1,131,767 205,602 – 205,602 16,110 103,011 119,121 – 1,666 1,666 – 1,863 1,863 114,457 214,629 755,321 (18,621) 1,065,786 505 21,805 22,310 225,831 150,859 (175,670) (10,540) 190,480 2,943,543 6,238,709 9,732,742
			6,050,199
			6,978,287 629 15,231 1,131,767 205,602 119,121 1,666 1,863 1,065,786 22,310 190,480
			9,732,742

– IV-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

CURRENT LIABILITIES Trade and other payables and accruals Contract liabilities Income tax payable Amounts due to associates Amounts due to non-controlling shareholders of subsidiaries Amounts due to related parties Amounts due to Disposal Group Bonds payable Bank and other borrowings – due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES CAPITAL AND RESERVES Share capital Share premium Capital reserve Share-based compensation reserve Merger reserve	The Group as at 30 September 2018 HK$’000 (Note 1) 222,878 2,049,041 52,096 – 121,670 292,489 – 10,579 187,338 2,936,091 415,132 4,620,430 44,589 605,147 8,837 11,519 (94,154)	Pro-forma adjustments The Group as at 30 September 2018 The Target Group as at 30 June 2018 Acquisition of the Target Group by the Group Elimination of equity instruments at FVTOCI and gain on disposal of subsidiaries Elimination of intercompany balance between the Target Group and the Group Transaction costs related to the Transaction Unaudited pro forma for the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) (Note 8) 195,765 1,108,466 1,304,231 1,799,773 1,582,525 3,382,298 45,758 96,394 142,152 – 99,645 99,645 106,869 34,500 (18,621) 122,748 256,907 816,559 1,073,466 – 151,357 151,357 9,292 – 9,292 164,548 1,167,273 1,331,821 2,578,912 5,056,719 7,617,010 364,631 1,181,990 2,115,732 4,058,348 4,233,989 8,165,931 39,165 – 4,264 43,429 531,530 – 191,872 723,402 7,762 100,000 107,762 10,118 – 10,118 (82,700) – (1,223,227) 150,829 (1,077,478) 77,620	Pro-forma adjustments The Group as at 30 September 2018 The Target Group as at 30 June 2018 Acquisition of the Target Group by the Group Elimination of equity instruments at FVTOCI and gain on disposal of subsidiaries Elimination of intercompany balance between the Target Group and the Group Transaction costs related to the Transaction Unaudited pro forma for the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) (Note 8) 195,765 1,108,466 1,304,231 1,799,773 1,582,525 3,382,298 45,758 96,394 142,152 – 99,645 99,645 106,869 34,500 (18,621) 122,748 256,907 816,559 1,073,466 – 151,357 151,357 9,292 – 9,292 164,548 1,167,273 1,331,821 2,578,912 5,056,719 7,617,010 364,631 1,181,990 2,115,732 4,058,348 4,233,989 8,165,931 39,165 – 4,264 43,429 531,530 – 191,872 723,402 7,762 100,000 107,762 10,118 – 10,118 (82,700) – (1,223,227) 150,829 (1,077,478) 77,620
			7,617,010
			2,115,732
			8,165,931

			43,429 723,402 107,762 10,118 (1,077,478)

– IV-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Statutory reserve Other reserve Deemed capital contribution Exchange reserve Retained profits Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY NON-CURRENT LIABILITIES Bank and other borrowings – due after one year Convertible bonds Promissory note Deferred tax liabilities	The Group as at 30 September 2018 HK$’000 (Note 1) – 1,462,051 – (228,988) 1,260,046 3,069,047 63,071 3,132,118 801,194 – – 687,118 1,488,312 4,620,430	Pro-forma adjustments The Group as at 30 September 2018 The Target Group as at 30 June 2018 Acquisition of the Target Group by the Group Elimination of equity instruments at FVTOCI and gain on disposal of subsidiaries Elimination of intercompany balance between the Target Group and the Group Transaction costs related to the Transaction Unaudited pro forma for the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) (Note 8) – 166,927 166,927 1,284,191 91,989 1,376,180 – 7,471 7,471 (201,131) – (201,131) 1,106,758 1,109,256 (159,413) (10,540) 2,046,061 2,695,693 1,475,643 3,202,741 55,398 48,434 (9,232) 94,600 2,751,091 1,524,077 3,297,341 703,728 2,547,886 3,251,614 – – 480,256 480,256 – – 371,165 371,165 603,529 162,026 765,555 1,307,257 2,709,912 4,868,590 4,058,348 4,233,989 8,165,931	Pro-forma adjustments The Group as at 30 September 2018 The Target Group as at 30 June 2018 Acquisition of the Target Group by the Group Elimination of equity instruments at FVTOCI and gain on disposal of subsidiaries Elimination of intercompany balance between the Target Group and the Group Transaction costs related to the Transaction Unaudited pro forma for the Enlarged Group RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) (Note 8) – 166,927 166,927 1,284,191 91,989 1,376,180 – 7,471 7,471 (201,131) – (201,131) 1,106,758 1,109,256 (159,413) (10,540) 2,046,061 2,695,693 1,475,643 3,202,741 55,398 48,434 (9,232) 94,600 2,751,091 1,524,077 3,297,341 703,728 2,547,886 3,251,614 – – 480,256 480,256 – – 371,165 371,165 603,529 162,026 765,555 1,307,257 2,709,912 4,868,590 4,058,348 4,233,989 8,165,931
			3,202,741 94,600
			3,297,341
			3,251,614 480,256 371,165 765,555
			4,868,590
			8,165,931

– IV-5 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(III) Unaudited Pro Forma Consolidated Statement of Profit or Loss and Other Comprehensive Income of the Enlarged Group

Pro forma adjustments

	Pro forma adjustments
The Group for the year ended 31 March 2018 The Group for the year ended 31 March 2018 HK$’000 RMB’000 (Note 1) (Note 1) Revenue 707,694 596,455 Cost of sales and services (354,734) (298,975) Gross profit 352,960 297,480 Other income 59,709 50,324 Other gains 21,658 18,254 Gain on disposal of subsidiaries – – Fair value loss on financial assets at FVTPL (8,920) (7,518) Change in fair value of investment properties 2,796 2,357 Change in fair value upon transfer from inventories of properties to investment properties – – Change in fair value of convertible bonds – – Impairment loss on properties held for sale (11,608) (9,783) Staff costs (17,123) (14,432) Depreciation of property, plant and equipment (2,145) (1,808) Selling and distribution expenses – – Administrative expenses – – Other expenses – –	The Target Group for the year ended 31 December 2017 Elimination of results of subsidiaries transferred from the Target Group to the Group for the year ended 31 March 2018 Recognition of interest on promissory note Change in fair value of convertible bonds Transaction costs related to the Transaction RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 2) (Note 4) (Note 6) (Note 7) (Note 8) 863,881 (267,208) (730,260) 247,161 133,621 719 (85) – 172,265 (159,413) – 45,910 11,867 – (34,454) – – – (48,689) 8,340 (65,698) 3,907 – (10,540)	Unaudited pro forma for the Enlarged Group RMB’000 1,193,128 (782,074)
		411,054 50,958 18,254 12,852 (7,518) 48,267 11,867 (34,454) (9,783) (14,432) (1,808) (40,349) (61,791) (10,540)

– IV-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Pro forma adjustments

The Group for the year ended 31 March 2018 The Group for the year ended 31 March 2018 HK$’000 RMB’000 (Note 1) (Note 1) Other operating expenses (91,277) (76,930) Finance costs (54,217) (45,695) Share of results of associates – – Profit before taxation 251,833 212,249 Income tax expenses (91,013) (76,707) Profit for the year 160,820 135,542 Attributable to: Owners of the Company 156,326 131,754 Non-controlling interests 4,494 3,788 160,820 135,542	The Target Group for the year ended 31 December 2017 Elimination of results of subsidiaries transferred from the Target Group to the Group for the year ended 31 March 2018 Recognition of interest on promissory note Change in fair value of convertible bonds Transaction costs related to the Transaction RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 2) (Note 4) (Note 6) (Note 7) (Note 8) – (9,120) 60 (46,293) (565) 240,310 (63,308) 941 177,002 176,745 (157,122) (46,293) (34,454) (10,540) 257 (9,175) 177,002	Unaudited pro forma for the Enlarged Group RMB’000 (76,930) (101,048) (565)
		194,034 (139,074)
		54,960

		60,090 (5,130)
		54,960

– IV-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

(IV) Unaudited Pro Forma Consolidated Statement of Cash Flows of the Enlarged Group

						Pro forma	adjustments
					Elimination
					of cash
					flows of
					subsidiaries
					transferred
					from the
			The Target		Target	Elimination		Change in
			Group for		Group to	of gain on	Recognition	fair value		Unaudited
	The Group	The Group	the year		the Group	disposal of	of interest	and interest	Transaction	pro forma
	for the year	for the year	ended 31	Acquisition	for the year	subsidiaries	on	payment of	costs related	for the
	ended 31	ended 31	December	of Target	ended 31	of Target	promissory	convertible	to the	Enlarged
	March 2018	March 2018	2017	Group	March 2018	Group	note	bonds	Transaction	Group
	HK$’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Note 1)	(Note 1)	(Note 2)	(Note 3)	(Note 4)	(Note 4)	(Note 6)	(Note 7)	(Note 8)
OPERATING ACTIVITIES
Profit before taxation	251,833	212,249	240,310		(7,825)	(159,413)	(46,293)	(34,454)	(10,540)	194,034
Adjustments for:
Depreciation of property, plant
and equipment	2,145	1,808	11,981		(146)					13,643
Release of prepaid lease payments	–	–	15,230							15,230
Finance costs	54,217	45,695	9,120				46,293			101,108
Bank Interest income	(695)	(586)	(506)		14					(1,078)
Dividend income from listed investments	(816)	(688)	–							(688)
Gain on disposal of property, plant
and equipment	(100)	(84)	–							(84)
Impairment loss on properties held for sale	11,608	9,783	1,551							11,334
Interest income from debt securities	(1,529)	(1,289)	–							(1,289)
Interest income from loan receivables	(4,460)	(3,759)	–							(3,759)
Interest income from financial assets at fair
value through profit or loss	(26,660)	(22,469)	–							(22,469)
Fair value gain on investments held
for trading	(21,013)	(17,710)	–							(17,710)
Fair value gain on financial assets at fair
value through profit or loss	8,920	7,518	–							7,518
Change in fair value of convertible bonds	–	–	–					34,454		34,454
Net realised gain on disposal of investments
held for trading	(645)	(544)	–							(544)
Share of results of associates	–	–	565							565

– IV-8 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Pro forma adjustments The Group for the year ended 31 March 2018 The Group for the year ended 31 March 2018 The Target Group for the year ended 31 December 2017 Acquisition of Target Group Elimination of cash flows of subsidiaries transferred from the Target Group to the Group for the year ended 31 March 2018 Elimination of gain on disposal of subsidiaries of Target Group Recognition of interest on promissory note Change in fair value and interest payment of convertible bonds Transaction costs related to the Transaction HK$’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 1) (Note 1) (Note 2) (Note 3) (Note 4) (Note 4) (Note 6) (Note 7) (Note 8) Change in fair value of investment properties (2,796) (2,357) (45,910) Change in fair value upon transfer from inventory of properties to investment properties – – (11,867) Gain on disposal of subsidiaries – – (172,265) 159,413 Share based payment 760 641 – Effect of foreign exchange difference (6,541) (5,513) – Operating cash flows before movements in working capital 264,228 222,695 48,209 (7,957) – (10,540) Increase in inventories of properties (89,189) (75,170) (881,005) (171,393) Increase in other inventories – – (958) (Increase) decrease in trade and other receivables and prepayments (966,956) (814,965) 20,337 112,112 (Decrease) increase in trade and other payables and accruals (61,348) (51,705) 240,428 (19,271) Increase in deposits received for sale of properties 881,964 743,332 286,643 (95,640) Cash generated from (used in) operations 28,699 24,187 (286,346) (182,149) – (10,540) Income tax paid (27,671) (23,321) (176,259) 2,710 NET CASH FROM (USED IN) OPERATING ACTIVITIES 1,028 866 (462,605) (179,439) – – – (10,540)	Unaudited pro forma for the Enlarged Group RMB’000 (48,267) (11,867) (12,852) 641 (5,513)
	252,407 (1,127,568) (958) (682,516) 169,452 934,335
	(454,848) (196,870)
	(651,718)

– IV-9 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

						Pro forma	adjustments
					Elimination
					of cash
					flows of
					subsidiaries
					transferred
					from the
			The Target		Target	Elimination		Change in
			Group for		Group to	of gain on	Recognition	fair value		Unaudited
	The Group	The Group	the year		the Group	disposal of	of interest	and interest	Transaction	pro forma
	for the year	for the year	ended 31	Acquisition	for the year	subsidiaries	on	payment of	costs related	for the
	ended 31	ended 31	December	of Target	ended 31	of Target	promissory	convertible	to the	Enlarged
	March 2018	March 2018	2017	Group	March 2018	Group	note	bonds	Transaction	Group
	HK$’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Note 1)	(Note 1)	(Note 2)	(Note 3)	(Note 4)	(Note 4)	(Note 6)	(Note 7)	(Note 8)
INVESTING ACTIVITIES
Purchase of property, plant and equipment	(684)	(576)	(13,513)		262					(13,827)
Payments to construction of properties
under development	(16,285)	(13,725)	–							(13,725)
Payments to construction of
investment properties	(12)	(10)	–							(10)
Proceeds on disposal of property, plant
and equipment	156	131	–							131
Proceeds on disposal of investments held
for trading	60,000	50,569	–							50,569
Capital contributions to subsidiaries of
Disposal Group in subsidiaries	–	–	(125,100)							(125,100)
Advances to related parties	–	–	(1,528,085)		350					(1,527,735)
Repayment from related parties	271,138	228,519	1,538,999		(100)					1,767,418
Advances to non-controlling shareholders
of subsidiaries	–	–	(244,084)		54,300					(189,784)
Repayment from non-controlling shareholders
of subsidiaries	–	–	346,080		(248,600)					97,480
Advances to associates	–	–	(1,269)							(1,269)
Repayment from associates	–	–	109							109
Advances to third parties	–	–	(422,231)							(422,231)
Repayment from third parties	–	–	343,251							343,251
Proceeds on disposal of subsidiaries	–	–	252,365							252,365
Advances to Disposal Group	–	–	(328,549)							(328,549)
Repayment from Disposal Group	–	–	419,166							419,166
Advances to Consolidated Group	–	–	–		455,038					455,038
Repayment from Consolidated Group	–	–	–		(122,000)					(122,000)
Placement of restricted bank deposits	–	–	(9,623)							(9,623)

– IV-10 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

						Pro forma	adjustments
					Elimination
					of cash
					flows of
					subsidiaries
					transferred
					from the
			The Target		Target	Elimination		Change in
			Group for		Group to	of gain on	Recognition	fair value		Unaudited
	The Group	The Group	the year		the Group	disposal of	of interest	and interest	Transaction	pro forma
	for the year	for the year	ended 31	Acquisition	for the year	subsidiaries	on	payment of	costs related	for the
	ended 31	ended 31	December	of Target	ended 31	of Target	promissory	convertible	to the	Enlarged
	March 2018	March 2018	2017	Group	March 2018	Group	note	bonds	Transaction	Group
	HK$’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(Note 1)	(Note 1)	(Note 2)	(Note 3)	(Note 4)	(Note 4)	(Note 6)	(Note 7)	(Note 8)
Withdrawal of restricted bank deposits	–	–	51,776							51,776
Dividend income received from
listed investment	816	688	–							688
Interest income received from debt securities	1,529	1,289	–							1,289
Interest income from loan receivables	9,696	8,172	–							8,172
Interest income from financial assets at fair
value through profit or loss	24,324	20,501	–							20,501
Interest received	695	586	506		(14)					1,078
NET CASH FROM INVESTING ACTIVITIES	351,373	296,144	279,798	–	139,236	–	–	–	–	715,178
FINANCING ACTIVITIES
Additions of bank and other bororwings	271,192	228,565	2,440,096							2,668,661
Repayment of bank and other borrowings	(572,863)	(482,818)	(1,359,125)		35,000					(1,806,943)
Interest paid	(80,080)	(67,493)	(254,638)		11,423		(14,403)	(4,001)		(329,112)
Payment for the acquisition of entities under
common control	(111,440)	(93,923)	–	(64,559)						(158,482)
Proceeds from exercise of warrants	75,000	63,211	–							63,211
Advances from related parties	90,942	76,647	2,757,107		60,000					2,893,754
Repayment to related parties			(3,121,678)		(107,438)					(3,229,116)
Advances from third parties	–	–	10,469,779							10,469,779
Repayment to third parties	–	–	(10,792,780)							(10,792,780)
Capital contributions from non-controlling
shareholders of subsidiaries	145,253	122,421	24,500							146,921

– IV-11 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Pro forma adjustments
The Group
for the year
ended 31
March 2018
The Group
for the year
ended 31
March 2018
The Target
Group for
the year
ended 31
December
2017
Acquisition
of Target
Group
Elimination
of cash
flows of
subsidiaries
transferred
from the
Target
Group to
the Group
for the year
ended 31
March 2018
Elimination
of gain on
disposal of
subsidiaries
of Target
Group
Recognition
of interest
on
promissory
note
Change in
fair value
and interest
payment of
convertible
bonds
Transaction
costs related
to the
Transaction
HK$’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(Note 1)
(Note 1)
(Note 2)
(Note 3)
(Note 4)
(Note 4)
(Note 6)
(Note 7)
(Note 8)
NET CASH (USED IN) FROM
FINANCING ACTIVITIES
(181,996)
(153,390)
163,261
(64,559)
(1,015)
–
(14,403)
(4,001)
–
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
170,405
143,620
(19,546)
(64,559)
(41,218)
–
(14,403)
(4,001)
(10,540)
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE YEAR
40,824
34,407
133,313
(112,605)
(20,708)
EFFECT OF FOREIGN EXCHANGE
RATE CHANGES
(9,607)
(8,097)
–
CASH AND CASH EQUIVALENTS AT THE
END OF THE YEAR, represented by bank
balances and cash
201,622
169,930
113,767
(177,164)
(61,926)
–
(14,403)
(4,001)
(10,540)

Unaudited
pro forma
for the
Enlarged
Group
RMB’000
(74,107)

(10,647)
34,407
(8,097)

15,663

Notes:

For the preparation of unaudited pro forma consolidated statement of financial position of the Enlarged Group, the amounts are extracted from the latest published unaudited condensed consolidated statement of financial position of the Group as at 30 September 2018 on which no audit or review report has been published, whereas for the preparation of unaudited pro forma consolidated statement of profit or loss and other comprehensive income, and unaudited pro forma consolidated statement of cash flows, the amounts are extracted from the latest published audited consolidated financial statements of the Group for the year ended 31 March 2018. The Group has applied HKFRS 15 “Revenue from Contracts with Customers” and HKFRS 9 “Financial Instruments” for the preparation of the unaudited condensed consolidated financial statement of the Group for the six months ended 30 September 2018 whereas the Group has applied HKAS 18 “Revenue” and HKAS 39 “Financial Instruments: Recognition and Measurement” for the preparation of the audited consolidated financial statements of the Group for the year ended 31 March 2018.

– IV-12 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

For the purpose of preparation of the unaudited pro forma financial information, the presentation currency of the Group is changed from Hong Kong dollars (“HK$”) to Renminbi (“RMB”). The results and cash flows of the Group presented in HK$ are translated into RMB at the average exchange rate of RMB1 to HK$1.1865 for the year ended 31 March 2018. Items of the consolidated statement of financial position are translated into RMB at the exchange rate ruling at 30 September 2018 of RMB1 to HK$1.1385, at 31 March 2018 of RMB1 to HK$1.2497 and at 31 March 2017 of RMB1 to HK$1.1289.

The amounts are extracted from the note 40 to the Historical Financial Information in the Accountants’ Report on the Consolidated Group as set out in Appendix III to this Circular. The Target Group has applied HKFRS 15 and HKFRS 9 for the preparation of the audited consolidated financial statements of the Target Group for the six months ended 30 June 2018 whereas the Target Group has applied HKAS 18 and HKAS 39 for the preparation of the audited consolidated financial statements of the Target Group for the year ended 31 December 2017. For the preparation of unaudited pro forma consolidated statement of financial position, the carrying amounts of the assets and liabilities of the Target Group as at 30 September 2018 is assumed to be the same as the amounts as reported by the Target Group on 30 June 2018, whereas for the preparation of unaudited pro forma consolidated statement of profit or loss and other comprehensive income, and unaudited pro forma consolidated statement of cash flows, the amounts of the Target Group for the year ended 31 March 2018 is assumed to be the same as the amounts as reported by the Target Group for the year ended 31 December 2017.
On 21 September 2018, the Group entered into the Agreement with the Vendor and Mr. Guo Jiadi, the ultimate controlling shareholder of the Company, pursuant to which the Group has conditionally agreed to acquire the entire share capital of the Target Company at a consideration of HK$1,500,000,000, which is satisfied by:
(i) cash of HK$200,000,000;
(ii) interest bearing promissory note with principal amount of HK$600,000,000 with the maturity date of 5 years from the date of issue;
(iii) issue of 485,436,893 ordinary shares of the Company (“Consideration Shares”) to the Vendor at HK$0.412 per Consideration Share (equivalent to HK$200,000,000; and
(iv) issue of convertible bonds in the principal amount of HK$500,000,000 and is convertible into shares at conversion price of HK$0.412 per conversion share. The maturity date of the convertible bonds is 5 years from the date of issue.

As both the Company and the Target Company are under common control by Mr. Guo Jiadi and the control is not transitionary, the Company has applied merger accounting under Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the Hong Kong Institute of Certified Public Accountants to account for the Transaction.

Assuming the Transaction was completed on 30 September 2018, the consideration receivable by the Target Group for the disposal of the Disposal Group to Ultimate Controlling Shareholder, being a precondition to the Transaction, amounting to RMB755,321,000 is recognised as amounts due from related parties and the difference between the consideration receivable and the interests in subsidiaries of the Disposal Group amounting to RMB77,620,000 would be credited to merger reserve of equity.

Assuming the Transaction was completed on 30 September 2018, the fair value of the total consideration of the Transaction would be HK$1,392,644,000 (approximately RMB1,223,227,000) and the difference between the share capital of the Target Company of US$1 and the fair value of the total consideration of the Transaction amounting to RMB1,223,227,000 is recognised in merger reserve of equity. The fair value of the Consideration Shares of the Company at 30 September 2018 was determined to be HK$223,301,000 (approximately RMB196,136,000, based on the closing share price of the Company of HK$0.46 as at 28 September 2018. HK$4,854,000 (approximately RMB4,264,000) was credited to the share capital at par value of HK$0.01 per share of the Company and remaining HK$218,447,000 (approximately RMB191,872,000) was credited to the share premium of the Company.

– IV-13 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

The directors of the Company determined the fair values of the promissory note and convertible bonds by reference to the valuation prepared by an independent professional valuer and their fair values at 30 September 2018 were HK$422,571,000 (approximately RMB371,165,000) and HK$546,772,000 (approximately RMB480,256,000), respectively. The fair values of the Consideration Shares, promissory note and convertible bonds at 30 September 2018 may be different from the date of completion of the Transaction.

The audited consolidated statement of cash flows of the Target Group for the year ended 31 December 2017 is extracted from the note 40 to the Historical Financial Information in the Accountants’ Report on the Consolidated Group set out in Appendix III to this Circular, as if the Transaction had taken place on 1 April 2017, and accordingly cash and cash equivalents of the Target Group excluding opening cash balances of Fujian Jingdu Land Co., Ltd. (“Fujian Jingdu”) and Xian Sandi Real Estate Development Co., Ltd. (“Xian Sandi”) at beginning of the year amounting to RMB112,605,000 is eliminated. The net cash outflow on acquisition of the Target Group is as follows:

Cash consideration paid (based on the exchange rate of RMB1 to HK$1.1289 at 1 April 2017) Less: cash and cash equivalent balances of the Target Group at 1 January 2017 Add: opening cash balances of Fujian Jingdu and Xian Sandi at 1 January 2017	RMB’000 177,164 (133,313) 20,708 64,559

The adjustment is not expected to have continuing effect on the Enlarged Group but will be reflected in the consolidated statement of financial position and consolidated statement of cash flow of the Group in the year when the Transaction actually takes place.

During the year ended 31 March 2018, the Group has acquired 95% equity interest in Fujian Jingdu and Xian Sandi from the Consolidated Group and the results and cash flows of Fujian Jingdu and Xian Sandi for the year ended 31 March 2018 had been consolidated to the Group under merger accounting. The results and cash flows of Fujian Jingdu and Xian Sandi for the period from 1 January 2018 up to the date of their disposal by the Consolidated Group, which had been included in the consolidated results and cash flows of the Target Group for the year ended 31 December 2017, would be eliminated. The remaining 5% equity interest in Fujian Jingdu and Xian Sandi amounting to RMB17,816,000, which were accounted for as equity instruments at fair value through other comprehensive income, would be eliminated against the non-controlling interests of HK$10,511,000 (approximately RMB9,232,000) recognised by the Group and the difference of RMB8,584,000 was adjusted to the merger reserve.

The gain on disposal of Fujian Jingdu and Xian Sandi recognised by the Target Group for the year ended 31 December 2017 amounting to RMB159,413,000 would be eliminated and is adjusted to the merger reserve.

The details of the results and cash flows of Fujian Jingdu and Xian Sandi disposed by the Consolidated Group were set out in note 31 to the Historical Financial Information in the Accountants’ Report on the Consolidated Group.

The adjustment represents the elimination of the intercompany balance between the Target Group and the Group at 30 September 2018 upon the completion of the Transaction.

– IV-14 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Assuming the date of Transaction completed on 1 April 2017, the fair value of the promissory note at 1 April 2017 were determined by the directors of the Company to be HK$419,765,000 (approximately RMB371,835,000). The interest expense on promissory note amounting to RMB46,293,000 for the year ended 31 March 2018 was calculated based on effective interest rate of 12.45% on the outstanding balance at 1 April 2017.

The promissory note interest payment based on 3% coupon rate in the first year was determined to be RMB14,403,000.

Assuming the date of Transaction completed on 1 April 2017, the fair value of the convertible bonds at 1 April 2017 and 31 March 2018 were determined by the directors of the Company to be HK$428,732,000 (approximately RMB379,779,000) and HK$512,667,000 (approximately RMB410,232,000), respectively. The convertible bond interest payment based on 1% coupon rate was determined to be RMB4,001,000. The loss on fair value change of the convertible bonds amounting to RMB34,454,000 for the year ended 31 March 2018 was recognised in profit or loss.
The adjustment represents expenditures incurred directly in connection with the Transaction including financial advisor fees, legal fees, printing costs, accountants’ fees, and other related expenses to be borne by the Group of approximately HK$12,000,000 (approximately RMB10,540,000). The adjustment has no continuing effect to the Enlarged Group but will be reflected in the consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows of the Group in the year these expenses are actually incurred.
Apart from the above, no adjustments have been made to the unaudited pro forma consolidated statement of financial position of the Enlarged Group, to reflect any trading results or other transactions of the Enlarged Group entered into subsequent to 30 September 2018 for the Group and the Consolidated Group where applicable and unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated statement of cash flows of the Enlarged Group to reflect any trading results or other transactions of the Enlarged Group entered into subsequent to 31 March 2018 for the Group and the Consolidated Group where applicable.

In particular, on 9 August 2018, two wholly-owned subsidiaries of the Company has entered into a cooperation agreement with an independent third party, pursuant to which the subsidiaries will provide (i) a capital contribution of approximately RMB207,200,000; (ii) a shareholder’s loan of RMB360,900,000 to a joint venture company holding three parcels of land which will be developed into a mixed property development project in Xi’an the PRC, and (iii) an advance of RMB50,000,000 to representatives of the joint venture company. The effect is not adjusted in the unaudited pro forma financial information.

– IV-15 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(B) INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

To the Directors of China Sandi Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of China Sandi Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 30 September 2018, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income for the year ended 31 March 2018, the unaudited pro forma consolidated statement of cash flows for the year ended 31 March 2018 and related notes as set out on pages IV-1 to IV-15 of the circular issued by the Company dated 26 December 2018 (the “Circular”). The applicable criteria on the basis of which the Directors have compiled the unaudited pro forma financial information are described on pages IV-1 to IV-2 of the Circular.

The unaudited pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed very substantial acquisition of the 100% equity interest in All Excel Industries Limited on the Group’s financial position as at 30 September 2018 and its financial performance and cash flows for the year ended 31 March 2018 as if the transaction had taken place at 30 September 2018 and 1 April 2017, respectively. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s unaudited condensed consolidated financial statements for the six months ended 30 September 2018, on which no audit or review report has been published and the Group’s financial performance and cash flows has been extracted by the Directors from the Group’s financial statements for the year ended 31 March 2018, on which an audit report has been published.

Directors’ Responsibilities for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the unaudited 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” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

– IV-16 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the “Code of Ethics for Professional Accountants” issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 “Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements” issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29 (7) of the Listing Rules, on the unaudited 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 unaudited 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 accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the unaudited pro forma financial information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 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 unaudited 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 unaudited pro forma financial information.

The purpose of unaudited pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 30 September 2018 or 1 April 2017 would have been as presented.

– IV-17 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

A reasonable assurance engagement to report on whether the unaudited 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 unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

the related pro forma adjustments give appropriate effect to those criteria; and
the unaudited 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 event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited 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 unaudited 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 purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29 (1) of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 26 December 2018

– IV-18 –

VALUATION REPORT OF THE PROPERTIES

APPENDIX V

The following is the text of a letter and valuation certificate, prepared for the purpose of incorporation in this circular received from Asset Appraisal Limited, an independent valuer, in connection with its valuation as at 30 September 2018 of the properties held by the Target Group.

��

Rm 901, 9/F., On Hong Commercial Building 145 Hennessy Road, Wanchai, Hong Kong ��145� ��9��901� Tel : (852) 2529 9448 Fax : (852) 3521 9591

Date: 26 December 2018

The Board of Directors

China Sandi Holdings Limited

Unit 3309, 33/F, West Tower Shun Tak Centre Nos. 168-200 Connaught Road Central Hong Kong

Dear Sirs,

Re: Valuation of the properties held by All Excel Industries Limited and its subsidiaries (the “Target Group”) situated in the People’s Republic of China (the “PRC”)

In accordance with the instructions from China Sandi Holdings Limited (the “ Company ”) to value the properties (the “ Properties ”) held by the Target Group in the PRC, we confirm that we have inspected the Properties, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the Properties as at 30 September 2018 (the “ valuation date ”).

BASIS OF VALUATION

The valuation is our opinion of the market value which we would define as intended to mean “the estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion”.

– V-1 –

VALUATION REPORT OF THE PROPERTIES

APPENDIX V

TITLESHIP

We have been provided with copies of legal documents regarding title to the Properties. However, we have not verified ownership of the Properties and to ascertain any amendment which may not appear on the copies handed to us.

In the course of our valuation, we have relied on the information given to us by the Company and the PRC Legal Opinion prepared by its PRC legal advisers, namely Jingtian & Gongcheng 競天公誠律師事務所 (the “PRC Legal Opinion”), on the title and other legal matters in relation to the Properties.

VALUATION METHODOLOGY

In valuing the Properties, we have adopted the Comparison Method of the Market Approach where comparison based on price information of comparable properties is made. Comparable properties of similar size, character and location are analysed and carefully weighted against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of market values.

For those properties subject to existing tenancies, they have been valued by the Market Capitalization Method by which market value of a property is deduced by the summation of its term interest value and its reversionary value. Term interest value is measured by capitalization of actual rental incomes over the unexpired term of the existing tenancy and reversionary value reflects the present value of the market value on vacant possession basis as measured by the market approach.

For those properties under development or held for future development, we have valued them on the basis that they shall be or are being developed in accordance with the land grant conditions and/or approved development proposals as provided to us. It is also revealed from the PRC legal opinion that the owners of those properties have completed all necessary application process and obtained all relevant permits and approvals from the Government or shall have no legal and administrative impediment to complete such process for undertaking property developments on those properties. For properties of which construction work has commenced, we have taken into account the market value of the development sites as measured by the market approach and development costs expended as relevant to the stage of construction as at the valuation date. The completed values of the properties under development represent the market value of the properties as if it were fully completed as at the valuation date as measured by the market approach.

– V-2 –

VALUATION REPORT OF THE PROPERTIES

APPENDIX V

ASSUMPTIONS

Our valuation has been made on the assumption that the owners sell the Properties on the market in their existing states without the benefit of deferred terms contracts, leaseback, joint ventures, management agreements or any similar arrangement which would serve to affect the values of the Properties.

As the Properties are held by the owner by means of long term Land Use Rights granted by the Government, we have assumed that the owners or their successors-in-title have good legal title to the Properties and have free and uninterrupted rights to occupy, use, transfer, lease or assign the Properties for the whole of the unexpired terms of the land use rights of the Properties.

Other special assumptions for our valuation (if any) would be stated out in the footnotes of the valuation certificate attached herewith.

LIMITING CONDITIONS

No allowance has been made in our report for any charges, mortgages or amounts owing on the Properties nor for any expenses or taxation which may be incurred in holding them. Unless otherwise stated, it is assumed that the Properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

We have relied to a very considerable extent on the information given by the Company and have accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements, particulars of occupancy, completion date of buildings, tenancy summaries, development schemes, total budgeted construction costs, construction costs expended, site and floor areas, and all other relevant matters.

We have not carried out detailed site measurements to verify the correctness of the site areas and floor areas in respect of the Properties but have assumed that the floor areas shown on the title deeds handed to us are correct. All documents of the Properties have been used as reference only and all dimensions, measurements and areas are approximations.

The Properties were lasted inspected by Tse Wai Leung, who is a registered professional surveyor in Hong Kong and Zhou Tong, who is a registered PRC Real Estate Appraiser, on between 4 September 2018 and 5 October 2018. However, we have not carried out investigations on site to determine the suitability of the ground conditions and the services, etc for any future development. This valuation has been prepared on the assumption that these aspects are satisfactory. Moreover, no structural survey has been made, but in the course of our site inspection, we did not note any serious defects. We are not, however, able to report that the buildings and structures of the Properties are free from rot, infestation or any other structural defects, nor were any tests carried out to any of their building services.

– V-3 –

VALUATION REPORT OF THE PROPERTIES

APPENDIX V

The market value estimate contained within this report specifically excludes the impact of environmental contamination resulting from earthquakes or other causes. It is recommended that the reader of this report consult a qualified environmental auditor for the evaluation of possible environmental defects, the existence of which could have a material impact on market value.

No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface minerals use rights or conditions investigated.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also sought confirmation from the Company that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

In valuing the Properties, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; the HKIS Valuation Standards (2017 Edition) published by The Hong Kong Institute of Surveyors.

Unless otherwise stated, all monetary sums stated in this report are in Renminbi (RMB).

Our summary of valuation and valuation certificate are attached herewith.

Yours faithfully, for and on behalf of

Asset Appraisal Limited

Tse Wai Leung

MFin BSc MRICS MHKIS RPS (GP)

Director

Tse Wai Leung is a member of the Royal Institution of Chartered Surveyors, a member of The Hong Kong Institute of Surveyors, a Registered Professional Surveyor in General Practice and a qualified real estate appraiser in the PRC. He is on the list of Property Valuers for Undertaking Valuations for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers of the Hong Kong Institute of Surveyors, Registered Business Valuer under the Hong Kong Business Forum and has over 10 years’ experience in valuation of properties, ports and logistics facilities in the PRC.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

SUMMARY OF VALUATION

Market Value in
Existing State as at
Property 30 September 2018 (RMB)
Group I - Properties Held by the Target Group for Sale 1. Various shop units on Level 1 of Block No. 157, 165, 166, 53,830,000.173, 180, 181 and 183 No. 8 Bao Guo Road Jintai District, Baoji City Shaanxi Province the PRC
1. Block No. 55 (Business Service Centre) No. 8 Bao Guo 50,050,000.Road Jintai District, Baoji City Shaanxi Province the PRC
1. Block No. 54 (Food & Beverage Centre) No. 8 Bao Guo 51,190,000.Road Jintai District, Baoji City Shaanxi Province the PRC
1. 286 Apartment Units within Block No. 186B No. 8 Bao Guo 81,000,000.Road Jintai District, Baoji City Shaanxi Province the PRC
1. Various shop units and office units within Sandi Finance 110,970,000.Centre (Block 2) No. 8 Bao Guo Road Jintai District, Baoji City Shaanxi Province the PRC
1. PESHT Boutique Hotel Block No. 25 No. 8 Bao Guo Road 87,890,000.Jintai District, Baoji City Shaanxi Province the PRC
1. Jinjiang Inn Block No. 18 No. 8 Bao Guo Road Jintai 44,900,000.District, Baoji City Shaanxi Province the PRC
1. Baoji Ramada Hotel Block No. 184 No. 8 Bao Guo Road 118,240,000.Jintai District, Baoji City Shaanxi Province the PRC
1. Unit Nos. 3505, 3506, 3601 and 3602 in Block 2 and 49,430,000.carparking spaces within Sandi Kaixuan Fengdan No. 202 Minjiang Avenue Jinshan Street Cangshan District, Fuzhou City, Fujian Province the PRC
1. Various retail units and residential units within Shou Chuang 28,400,000.International Plaza Hunchun Zhong Road Chang Yi District, Jilin City, Jilin Province the PRC Total Market Value of Group I Properties 675,900,000.--

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

Market Value in
Existing State as at
Property 30 September 2018 (RMB)
Group II - Properties Held by the Target Group for Investment 11. Various commercial/office units within Block Nos. 1, 6, 7, 8, 134,100,000.9, 10 and 12 Sandi Manhattan Lane 600 Guang Fu Lin Road Congjiang District Shanghai City the PRC
1. Certain commercial units on Basement Level 1, Level 1 to 6 540,000,000.Red Star Macalline Block 196 No. 8 Bao Guo Road Jin Tai District, Bao Ji City Shaanxi Province the PRC.
1. Certain commercial units on Basement Level 1, Level 1 to 6 551,000,000.Sandi Plaza Block 186 No. 8 Bao Guo Road Jin Tai District, Bao Ji City Shaanxi Province the PRC
1. Office units on Level 12 to 14 Sandi Finance Centre Block 24,540,000.2 No. 8 Bao Guo Road Jin Tai District, Bao Ji City Shaanxi Province the PRC
1. Portion of Commercial Unit 1 on Level 1 Block 18 No. 8 10,670,000.Bao Guo Road Jin Tai District Bao Ji City Shaanxi Province the PRC
1. Commercial Unit 2 on Level 1 Block 18 No. 8 Bao Guo 17,480,000.Road Jin Tai District, Bao Ji City Shaanxi Province the PRC
1. Kindergarten Block Gao Jia Yuan (Phase 2) No. 185 Xiu 12,540,000.Feng Road Xin Dian Zhen Jin An District, Fuzhou City Fujian Province the PRC
1. Various residential units in Block Nos. 1, 2 and 4 and the 232,800,000.whole of Block No. 6 Sandi Kaixuan Fengdan No. 202 Minjiang Avenue Cangshan District, Fuzhou City Fujian Province the PRC Total Market Value of Group II Properties 1,523,130,000.-

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

Property

Market Value in Existing State as at 30 September 2018 (RMB)

Group III – Properties Held by the Target Group Under Development

Lot N5 and N11 Zhongshan Street Neigbourhood 11 2,310,000,000.Congjiang District Shanghai City the PRC
Development land parcels of Golden Mile Central Jintai 798,000,000.District, Baoji City Shaanxi Province the PRC
Development land parcels of Golden Mile Platinum Bay 182,000,000.Jintai District, Baoji City Shaanxi Province the PRC
Development site (Western Zone Ecology City Lot C-09) of 695,000,000.Sandi Xicheng Fengdan at the junction of Cheng Tan Shan Avenue and You Zou Road Jian Yang District, Nanping City Fujian Province the PRC
Development site of Shou Chuang Zhen Yuan Hunchun 82,000,000.Zhong Road Chang Yi District, Jilin City Jilin Province the PRC Total Market Value of Group III Properties 4,067,000,000.-

Total Market Value of Group III Properties

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

Property

Market Value in Existing State as at 30 September 2018 (RMB)

Group IV – Properties Held by the Target Group for Future Development

Lot N6 Zhongshan Street Neigbourhood 11 Congjiang 780,000,000.District Shanghai City the PRC
Development site (Lot A-02 and A-03) of Jiangshan 215,800,000.Waterfront at the southern bank of Da Zhang River Stream, Xinan Village Geling Town Yong Tai Xuan, Fuzhou City Fujian Province the PRC
Development site (Lot 2018-20 and 2018-21) Jiao Ting 123,300,000.Village Du Bei Road Wu Yi Shan City Fujian Province the PRC Total Market Value of Group IV Properties 1,119,100,000.Grand Total 7,385,130,000.-

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Market Value of the Properties in Particulars of existing state as at Description and Tenure occupancy 30 September 2018

Various shop units on The property comprises a total Level 1 of Block No. of 35 shop units within a 2-level 157, 165, 166, 173, commercial podium being surmounted 180, 181 and 183 by various high-rise residential No. 8 Bao Guo Road buildings. The development was Jintai District completed in approximately 2011. Baoji City The total gross floor area of the

Shaanxi Province property is 5,126.56 square metres.

the PRC

The total gross floor area of the property is 5,126.56 square metres.

The land use rights of the property have been granted for a term of 40 years expiring on 15 July 2046.

寶雞市金台區寶虢路8號院加州陽光店面

The property was RMB53,830,000 vacant as at the valuation date.

Notes:

(1) As revealed from 34 sets of Real Estate Title Certificate (Ref Shaan(2018)Bao Ji Shi Bu Dong Chan Quan 寶雞市不動產權 Nos. 0051322, 0051329, 0051330, 0051333 to 0051336, 0051338, 0051345, 0051353, 0051355, 0051360, 0051364, 0060062 to 0060064, 0060068 to 0060074 to 0060078, 0060080 to 0060086) and 1 set of Building Ownership Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zi 寶雞市房權證金台區字 No. 00062624), the property is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for a land use right term expiring on 15 July 2046 for commercial use.
(2) The property consists of the following 39 shop units: Unit Nos. 1 and 3 on Level 1 of Block 157; Unit Nos. 1, 3 and 5 on Level 1 of Block 165; Unit Nos. 1, 3, 4 and 5 on Level 1 of Block 166; Unit Nos. 1, 3 to 9 on Level 1 of Block 173; Unit Nos. 3, 6, 9 and 12 on Level 1 of Block 180; Unit Nos. 1, 3, 6 and 8 on Level 1 of Block 181; Unit Nos. 1, 5, 8, 9 and 14 on Level 1 of Block 182; and Unit Nos. 1, 5, 7 and 10 on Level 1 of Block 183.
(3) Opinion of the PRC Lawyer on the Property is summarized as follows:
3.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate Title Certificates and mortgagees’ contractual rights.
3.2 Save for Unit Nos. 1 and 3 of Block 157 and Unit No. 3 of Block 165, the property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Block No. 55 (Business Service Centre) No. 8 Bao Guo Road Jintai District Baoji City Shaanxi Province the PRC
The property comprises a 3-storey commercial building completed in about 2013.

The total gross floor area of the property is 4,577.36 square metres.

The land use rights of the property have been granted for a term of 40 years expiring on 30 August 2045.

The property was RMB50,050,000 owner-occupied as at the valuation date.

寶雞市金台區寶虢路8號院55幢商務中心

Notes:

(1) As revealed from 3 sets of Building Ownership Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zi 寶雞市房權證金台區字 Nos. 00095866, 00095869 and 00095870), the property is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for commercial use.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Building Ownership Certificates and mortgagees’ contractual rights.
2.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Description and Tenure

Particulars of occupancy

Market Value of the Properties in existing state as at 30 September 2018

Block No. 54 (Food & Beverage Centre) No. 8 Bao Guo Road Jintai District Baoji City Shaanxi Province t he PRC

寶雞市金台區寶虢路8號院54幢餐飲中心

The property comprises a 5-storey The property is RMB51,190,000 commercial building completed in subject to a tenancy about 2013. for a term of 10 years from 11 April The total gross floor area of the 2012 to 10 April property is 5,733.81 square metres. 2022 at an annual The land use rights of the property rental set out in have been granted for a term of 40 note 2 below. years expiring on 30 August 2045.

Notes:

(1) As revealed from the Building Ownership Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zi 寶雞市房權證金台區字 No. 00147519), the property is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for commercial use.
(2) Annual rental of the property exclusive of management fees, which is settled by the tenant on semi-annual basis, of each year during the lease term is set out as follows: Year 1: RMB1,500,000
Year 2: RMB1,575,000 Year 3: RMB1,653,750 Year 4: RMB1,736,438 Year 5: RMB1,823,260 Year 6: RMB1,969,121 Year 7: RMB2,126,651 Year 8: RMB2,296,783 Year 9: RMB2,480,526 Year 10: RMB2,678,968
(3) Opinion of the PRC Lawyer on the Property is summarized as follows:
3.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Building Ownership Certificates and mortgagees’ contractual rights.
3.2 The property is not subject to any bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

286 Apartment Units The property comprises a total of The property was RMB81,000,000 within 286 apartment units with a 21-storey vacant as at the Block No. 186B apartment tower surmounting a valuation date. No. 8 Bao Guo Road, commercial podium completed in Jintai District about 2017. Baoji City The total gross floor area of the

Shaanxi Province property is 15,918.94 square metres.

the PRC

The land use rights of the property 寶雞市金台區 have been granted for a term of 70 寶虢路8號院 years expiring on 17 July 2076. 186幢B座公寓

Notes:

(1) As revealed from 286 sets of Real Estate Title Certificate, the property is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for residential use.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate Title Certificates.
2.2 The property is not subject to any bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Description and Tenure

Particulars of occupancy

Market Value of the Properties in existing state as at 30 September 2018

Various shop units The property comprises certain The property was RMB110,970,000 and office units shop units and office units within vacant as at the within Sandi Finance an 18-storey commercial building valuation date. Centre (Block 2) surmounting a 2-level basement No. 8 Bao Guo Road, carpark. The development was Jintai District completed in about 2016. Baoji City The total gross floor area of the

Shaanxi Province shop units and the office units of

the PRC

The total gross floor area of the shop units and the office units of the property are 2,959.44 square metres and 10,567.53 square metres respectively.

寶雞市金台區寶虢路8號院2幢三迪金融中心商業部分及辦公部分

The land use rights of the property have been granted for a term of 40 years expiring on 23 July 2045.

Notes:

(1) As revealed from the Land Use Right Certificate (Ref Bao Shi Guo Yong 寶市國用(2005)No. 243), and the Real Estate Title Investigation Form (Ref Bao Shi Quan Tiao 寶市權調 (2017) No. 118), the land use rights of the land parcel with an area of 80,450 square metres (on which the subject building is erected) are held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for residential, commercial, education composite uses for a term of 70 years (for residential use), 40 for commercial use or 50 years for other uses.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Land Use Right Certificate and mortgagees’ contractual rights.
2.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

PESHT Boutique Hotel Block No. 25 No. 8 Bao Guo Road, Jintai District, Baoji City Shaanxi Province the PRC

寶雞市金台區寶虢路8號院25幢佩斯酒店

The property comprises a 7-storey The property is RMB87,890,000 commercial building surmounting a currently being 2-level basement carpark completed operated as a hotel. in about 2008.

The total gross floor area of the property is 7,800.95 square metres plus basement area of 5,719.31 square metres. A total of 220 carparking spaces are provided in the basement carpark.

The land use rights of the property have been granted for a term of 40 years expiring on 23 July 2045.

Notes:

(1) As revealed from 14 sets of Real Estate Title Certificate (Ref Shaan(2018)Bao Ji Shi Bu Dong Chan Quan 陝(2018)寶雞市不動產權 Nos. 0060219 to 0060225 and 0079149 to 0079155), the property is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for commercial use.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate Title Certificates and mortgagees’ contractual rights.
2.2 Level 2, 3, 4, 6 and 7 of the property with a total gross floor area of 5,181.40 square metres have been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Jinjiang Inn The property comprises a 5-storey The property is RMB44,900,000 Block No. 18 commercial building surmounting currently being No. 8 Bao Guo Road, a single-level basement carpark operated as a hotel. Jintai District completed in about 2008. Baoji City The total gross floor area of the

Shaanxi Province property is 5,944.06 square metres

the PRC

The total gross floor area of the property is 5,944.06 square metres plus basement area of 1,149.92 square metres.

寶雞市金台區寶虢路8號院18幢錦江之星酒店

The land use rights of the property have been granted for a term of 40 years expiring on 23 July 2045.

Notes:

(1) As revealed from 9 sets of Real Estate Title Certificate (Ref Shaan(2017)Bao Ji Shi Bu Dong Chan Quan 陝(2018)寶雞市不動產權 Nos. 0041038, 0041042 to 0041044 and 0051294 to 0051298), the property is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for commercial use.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate Title Certificates and mortgagees’ contractual rights.
2.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Baoji Ramada Hotel The property comprises a 13-storey Block No. 184 commercial building completed in No. 8 Bao Guo Road, about 2016. Jintai District The total gross floor area of the

Baoji City property is 15,181.05 square metres.

Shaanxi Province the PRC The land use rights of the property

The total gross floor area of the property is 15,181.05 square metres.

The land use rights of the property have been granted for a term of 40 years expiring on 17 July 2046.

寶雞市金台區寶虢路8號院184幢華美達酒店

The property is RMB118,240,000 currently being operated as a hotel.

Notes:

(1) As revealed from 21 sets of Real Estate Title Certificate (Ref Shaan(2017)Bao Ji Shi Bu Dong Chan Quan 陝(2018)寶雞市不動產權 Nos. 0019414, 0019416 to 0019421 and 0019423 to 0019436), the property is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for commercial use.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate Title Certificates and mortgagees’ contractual rights.
2.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property Description and Tenure
1. Unit Nos. 3505, Sandi Kaixuan Fengdan comprises 3506, 3601 and of 4 blocks of 5 to 37-storey 3602 in Block 2 and residential tower, a 4-storey carparking spaces commercial building and a 4-storey within kindergarten building completed in Sandi Kaixuan about 2011. Fengdan The property comprises a total of 4
No. 202 Minjiang residential units with a total gross
Avenue floor area of 863.52 square metres
Jinshan Street and 117 carparking spaces with a
Cangshan District total floor area of 3,771.59 square
Fuzhou City metres within the development.
Fujian Province the PRC The land use rights of the property

the PRC The land use rights of the property have been granted for a term of 福州倉山區 70 years expiring on 15 December 金山街道 2074. 閩江大道202號三迪凱旋楓丹未售住宅及車位

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

The property is RMB49,430,000 currently vacant.

Notes:

(1) As revealed from 4 sets of Building Ownership Certificate (Ref Rong Fang Quan Zhen R Zhi 榕房權證 R 字 Nos. 1423198, 1423313, 1438543 and 1438548), the 4 residential units of the property are held by Fuzhou Gaojia Real Estate Development Company Limited （福州高佳房地產開發有限公司）for residential use.
(2) As confirmed by Fuzhou Gaojia Real Estate Development Company Limited （福州高佳房地產開發有限公司）, it shall have no legal and administrative impediment in obtaining title certificate for the 118 carparking spaces of the property free from any substantial payment.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Fuzhou Gaojia Real Estate Development Company Limited（福州高佳房地產開發有限公司）has legal and valid title to the 4 residential units of the property and has the rights to possess, use, charge or otherwise dispose of them during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Building Ownership Certificates and mortgagees’ contractual rights.
2.2 The 4 residential units of the property have been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group I – Properties Held by the Target Group for Sale

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Various retail units Shou Chuang International Plaza The property is RMB28,400,000 and residential units comprises of 6 blocks of 18-story currently vacant. within Shou Chuang residential building, 2 blocks of International Plaza 2-storey retail building and one Hunchun Zhong Road basement carpark level completed in Chang Yi District Jilin 2016. City Jilin Province the The property comprises various

PRC residential units with a total gross floor area of 822.22 square metres

吉林市昌邑區琿春中 and certain shop units with a total

街首創國際廣場未售 gross floor area of 3,320.26 square

商業住宅 metres within the development

The land use rights of the property have been granted for a term of 70 years expiring on 27 September 2083 for residential use and 40 years expiring on 27 September 2053 for commercial use.

Notes:

(1) As revealed from 7 sets of Land Use Right Certificate (Ref Ji Shi Guo Yong 吉市國用 (2014) Nos. 220202003415 to 220202003421), the land use rights of the land parcels with a total land area of 67,362.30 square metres on which the subject development has been built have been granted to Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司）for a land use right term expiring on 27 September 2083. A portion of the subject site with a land area of 32,879.31 square metres is permitted for residential use and the remaining portion of the subject site is permitted for commercial uses. The property constitutes the unsold portions of the subject development.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司 has legally legal and valid title to the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Land Use Right Certificates and mortgagees’ contractual rights.
2.2 The property is not subject to any bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group for Investment

Market Value of the Properties in Particulars of existing state as at Property Description and Tenure occupancy 30 September 2018 11. Various commercial/ The property comprises 2 commercial A total of 22 office RMB134,100,000 office units within units and 57 office units within units with a total Block Nos. 1, 6, 7, 8, 7 blocks of high-rise commercial gross floor area of 9, 10 and 12 Phase 1 buildings completed in between 1,135.04 square Sandi Manhattan 2016 and 2018. metres are subject a Lane 600 Guang Fu tenancy for a term The total gross floor area of the Lin Road Congjiang of 8 years expiring property is 4,687.62 of which District Shanghai City on 31 March 2026 195.31 square metres is attributable the PRC at an annual rent to the commercial units and 4,492.31 of RMB233,355 square metres is attributable to 上海市松江區 for the 1[st] year, office units. 廣富林路600 R M B 4 6 6 , 7 1 0 弄三迪曼克頓 The property is held for a term of for the 2[nd] year, 若干商辦單位 50 years expiring on 12 February RMB493,100 for the 2064. 3[rd] year and 4[th] year, RMB526,374 for the 5[th] and 6 year and RMB567,510 for the 7[th] and 8[th] year. Another office unit with a gross floor a r e a o f 9 8 . 7 4 square metres is subject to a tenancy at an annual rental of RMB63,752.

The remaining units are either vacant and being occupied by the Group.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

Notes:

(1) As revealed from 5 sets of Real Estate Ownership Certificate (Ref Hu (2018) Cong Zhi Bu Dong Chan Quan 滬(2017)松字不動產權 Nos. 033294 and 033430 all dated 19 September 2018,Ref Hu (2017) Cong Zhi Bu Dong Chan Quan 滬(2017)松字不動產權 No. 011021 dated 22 March 2017, Hu (2016) Cong Zhi Bu Dong Chan Quan 滬(2016)松字不動產權 Nos. 011101 and 011104 all dated 13 December 2016), the subject development (including the property) is held by Shanghai Sandi Real Estate Development Company Limited（上海三迪房地產開發有限公司）for a term of 50 years expiring on 12 February 2064 for commercial/office uses.
(2) The property comprises the following units of Phase 1 of the subject development: Commercial Units 113 and 114 of Block 8;

Office Units 101, 201, 202, 318 to 323, 326, 512, 820, 821, 827, 1722, 1915, 1916, 1918 to 1921, 2009 and 2022 of Block 1, Office Units 1606 and 1607 of Block 6, Office Units 1001 to 1014 of Block 7, Office Units 245 to 249 of Block 8, Office Unit 302 of Block 9, Office Units 201 to 209 of Block 10 and Office Units 207, 209 and 413 of Block 12.

(3) Opinion of the PRC Lawyer on the Property is summarized as follows:
3.1 Shanghai Sandi Real Estate Development Company Limited（上海三迪房地產開發有限公司） has legal and valid title to the property (which, as confirmed by Shanghai Sandi Real Estate Development Company Limited, constitutes the unsold portion of the subject development) and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate Ownership Certificates and mortgagees’ contractual rights.
3.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group for Investment

Property

Description and Tenure

Particulars of occupancy

Market Value of the Properties in existing state as at 30 September 2018

Certain commercial The property comprises certain The property is RMB540,000,000 units on Basement commercial units in Basement subject to various Level 1, Level 1 to 6 Level 1, on Level 1 to 6 within the tenancies at a total Red Star Macalline commercial podium of a 28-storey current annual rent Block 196 No. 8 Bao commercial development completed of RMB40,322,434. Guo Road Jin Tai in about 2015. District Bao Ji City The total gross floor area of the

Shaanxi Province the property is 63,642.83 square metres.

PRC

陝西省寶雞市金台區寶虢路8號院196幢紅星美凱龍地下一層及地上一至六層若干商業單位

The property is held for a term of 40 years expiring on 17 July 2046.

Notes:

(1) As revealed from a Building Ownership Right Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zhi 寶雞市房權證金台區字 No. 00160306), Unit 04 in Basement Level 1 of the property with a gross floor area of 7,220.46 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(2) As revealed from a Building Ownership Right Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zhi 寶雞市房權證金台區字 No. 00160327), Unit 29 on Level 1 of the property with a gross floor area of 5,358.17 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(3) As revealed from a Building Ownership Right Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zhi 寶雞市房權證金台區字 No. 00160328), Unit 01 on Level 2 of the property with a gross floor area of 8,544.35 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.

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APPENDIX V

(4) As revealed from a Building Ownership Right Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zhi 寶雞市房權證金台區字 No. 00160329), Unit 01 on Level 3 of the property with a gross floor area of 8,545.23 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(5) As revealed from a Building Ownership Right Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zhi 寶雞市房權證金台區字 No. 00160330), Unit 01 on Level 4 of the property with a gross floor area of 8,545.23 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(6) As revealed from a Building Ownership Right Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zhi 寶雞市房權證金台區字 No. 00160331), Unit 01 on Level 5 of the property with a gross floor area of 8,545.23 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(7) As revealed from a Building Ownership Right Certificate (Ref Bao Ji Shi Fang Quan Zheng Jin Tai Qu Zhi 寶雞市房權證金台區字 No. 00160332), Unit 01 on Level 6 of the property with a gross floor area of 16,884.16 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(8) Opinion of the PRC Lawyer on the Property is summarized as follows:
8.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Building Ownership Certificates and mortgagees’ contractual rights.
8.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group for Investment

Property

Description and Tenure

Particulars of occupancy

Market Value of the Properties in existing state as at 30 September 2018

Certain commercial units on Basement Level 1, Level 1 to 6 Sandi Plaza Block 186 No. 8 Bao Guo Road Jin Tai District Bao Ji City Shaanxi Province the PRC

陝西省寶雞市金台區寶虢路8號院186幢三迪廣場地下一層及地上一至六層若干商業單位

The property comprises certain commercial units in Basement Level 1, on Level 1 to 6 within the commercial podium of a 28-storey commercial development completed in about 2015.

The total gross floor area of the property is 63,124.95 square metres.

The property is held for a term of 40 years expiring on 17 July 2046.

The property is RMB551,000,000 subject to a tenancy for a term expiring in 2025 at a current a n n u a l r e n t o f RMB45,449,964.

Notes:

(1) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0023348), Unit 01, Basement Level 1 of the property with a gross floor area of 7,617.85 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(2) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0023378), Unit 25, Level 1 of the property with a gross floor area of 6,670.50 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(3) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0023379), Unit 01, Level 2 of the property with a gross floor area of 8,547.78 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(4) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0023380), Unit 01, Level 3 of the property with a gross floor area of 8,547.78 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.

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APPENDIX V

(5) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0023381), Unit 01, Level 4 of the property with a gross floor area of 8,547.78 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(6) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0023382), Unit 01, Level 5 of the property with a gross floor area of 8,547.78 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(7) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0023383), Unit 01, Level 6 of the property with a gross floor area of 14,645.48 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(8) Opinion of the PRC Lawyer on the Property is summarized as follows:
8.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate Ownership Certificates and mortgagees’ contractual rights.
8.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group for Investment

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Office units on Level 12 to 14 Sandi Finance Centre Block 2 No. 8 Bao Guo Road Jin Tai District Bao Ji City Shaanxi Province the PRC

陝西省寶雞市金台區寶虢路8號三迪金融中心12至14層

The property comprises all office The property is RMB24,540,000 units on Level 12 to 14 within an subject to a tenancy 18-storey commercial development for a term expiring completed in about 2016. on 5 June 2019 at a monthly rent of
The total gross floor area of the RMB93,402.
property is 3,891.77 square metres.

The property is held for a term of 40 years expiring on 23 July 2045.

Notes:

(1) As revealed from the Land Use Right Certificate (Ref Bao Shi Guo Yong 寶市國用(2005)No. 243), and the Real Estate Title Investigation Form (Ref Bao Shi Quan Tiao 寶市權調(2017) No. 118), the land use rights of the land parcel with an area of 80,450 square metres (on which the subject building is erected) are held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for residential, commercial, education composite uses for a term of 70 years (for residential use), 40 for commercial use or 50 years for other uses.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Land Use Right Certificate and mortgagees’ contractual rights.
2.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group for Investment

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Portion of Commercial The property comprises a shop unit The property is RMB10,670,000 Unit 1 on Level 1 on Level 1 within a 5-storey (plus subject a tenancy Block 18 No. 8 Bao one basement level) commercial at an annual rent Guo Road Jin Tai building completed in about 2008. of RMB488,232. District Bao Ji City Basement Level and Level 1 of Shaanxi Province the the building are designated for PRC commercial use.
The gross floor area of the property is 380 square metres.

陝西省寶雞市金台區 is 380 square metres. 寶虢路8號18幢一層一號單位部份 The property is held for a term of 40 years expiring on 23 July 2045 for commercial use.

Notes:

(1) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0041038), Shop No. 1 on Level 1 of the subject building (including the property) with a gross floor area of 573.69 (of which 380 square metres is attributable to the property) square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Land Use Right Certificate and mortgagees’ contractual rights.
2.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group for Investment

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Unit 2 on Level 1 The property comprises a shop unit The property is RMB17,480,000 Block 18 No. 8 Bao on Level 1 within a 5-storey (plus subject a tenancy at Guo Road Jin Tai one basement level) commercial an annual rent of District Bao Ji City building completed in about 2008. RMB1,185,921. Shaanxi Province the Basement Level and Level 1 of PRC the building are designated for commercial use.

陝西省寶雞市金台區寶虢路8號18幢一層二號單位

The gross floor area of the property is 624.45 square metres.

The property is held for a term of 40 years expiring on 23 July 2045 for commercial use.

Notes:

(1) As revealed from a Real Estate Ownership Right Certificate (Ref Shaan (2017) Bao Ji Shi Bu Dong Chan Quan 陝(2017)寶雞市不動產權 No. 0051296), Unit No. 2 on Level 1 of the subject building (including the property) with a gross floor area of 624.45 square metres is held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）. has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Land Use Right Certificate and mortgagees’ contractual rights.
2.2 The property has been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group for Investment

Particulars of Property Description and Tenure occupancy

Market Value of the Properties in existing state as at 30 September 2018

Kindergarten Block Gao Jia Yuan (Phase 2) No. 185 Xiu Feng Road Xin Dian Zhen Jin An District Fuzhou City Fujian Province the PRC

福建省福州市晉安區新店鎮秀峰路185號高佳苑二期幼稚園整座

The property comprises a 3-storey A portion of the RMB12,540,000 building completed in 2008. The property with a gross building is designated for kindergarten floor area of 2,955 purpose. square metres is subject to a tenancy The total gross area of the property for a term expiring is approximately 3,655.44 square on 30 July 2019 at a metres. current annual rent of The property is held for a land use RMB360,000. right term of 70 years expiring on 2 T h e r e m a i n i n g August 2070 for residential use.

T h e r e m a i n i n g portion is subject to a tenancy for a term expiring on 24 April 2025 at a current annual rent of RMB363,888.

Notes:

(1) As revealed from a Building Ownership Right Certificate (Ref Rong Fang Quan Zheng R Zhi 榕房權證 R 字 No. 0817434), the property with a gross floor area of 3,655.44 square metres is held by Fuzhou Gaojia Real Estate Development Company Limited（福州高佳房地產開發有限公司）.
(2) Opinion of the PRC Lawyer on the Property is summarized as follows:
2.1 Fuzhou Gaojia Real Estate Development Company Limited（福州高佳房地產開發有限公司） has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Building Ownership Right Certificate and mortgagees’ contractual rights.
2.2 The property is not subject to bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group for Investment

Particulars of Property Description and Tenure occupancy

Market Value of the Properties in existing state as at 30 September 2018

Various residential units and 89 carparking spaces in Block Nos. 1, 2 and 4 and the whole of Block No. 6 Sandi Kaixuan Fengdan No. 202 Minjiang Avenue Cangshan District Fuzhou City Fujian Province the PRC

福建省福州市晉安市倉山閩江大道185號凱旋楓丹1、2、4幢若干住宅單位及6幢全幢

The property comprises 133 The property is RMB232,800,000 residential units within 3 blocks of subject to a tenancy 7 to 39-storey residential buildings, for a term expiring the whole of a 6-storey commercial on 31 December building and a total of 89 basement 2032 at a current carparking space in basement level a n n u a l r e n t o f 1 underneath the above buildings. RMB2,796,415. The development was completed in 2014.

The respective gross floor areas of the residential units, commercial units and carparking space of the property are 7,779.65 square metres, 2,812.83 square metres and 2,715.06 square metres.

The property is held for a term of 70 years commencing on 18 October 1988 under a Land Use Right Contract dated 11 November 1988.

Notes:

(1) As revealed from 133 sets of Building Ownership Certificate (Ref Rong Fang Quan Zheng R Zhi 榕房權證R字Nos. 1418500, 1418761, 1435569, 1435570, 1435593, 1435594, 1436015, 1436020, 1436021, 1438502, 1438517 to 1438529, 1438531 to 1438541, 1438545, 1438547, 1438549 to 1438566, 1438568 to 1438570, 1438572 to 1438601, 1438603, 1438605 to 1438610, 1438614 to 1438618, 1438666, 1438797 to 1438799, 1438804, 1438806, 1438807, 1438809 to 1438811, 1438814, 1438842 to 1438852, 1438905, 1438908, 1438959 to 1438968), the 133 residential units of the property with a total gross floor area of 7,779.65 square metres are held by Fuzhou Gaojia Real Estate Development Company Limited（福州高佳房地產開發有限公司）.
(2) As revealed from a Building Ownership Certificate (Ref Rong Fang Quan Zheng R Zhi 榕房權證R 字No.1441680), the 6-storey commercial building of the property with a gross floor area of 2,812.83 square metres is held by Fuzhou Gaojia Real Estate Development Company Limited（福州高佳房地產開發有限公司）.
(3) As confirmed by Fuzhou Gaojia Real Estate Development Company Limited (福州高佳房地產開發有限公司), it shall have no legal and administrative impediment in obtaining title certificate for the 89 carparking spaces of the property free from any substantial payment.
(4) Opinion of the PRC Lawyer on the Property is summarized as follows:
4.1 Fuzhou Gaojia Real Estate Development Company Limited（福州高佳房地產開發有限公司） has legal and valid title to the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Building Ownership Right Certificate and mortgagees’ contractual rights.
4.2 The 133 residential units and the 6-storey commercial building of the property have been pledged for bank mortgage.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

VALUATION CERTIFICATE

Group II – Properties Held by the Target Group Under Development

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Lot N5 and N11 The property comprises two The property is RMB2,310,000,000 Zhongshan Street parcels of land with a total area of currently under Neigbourhood 11 70,540.40 square metres on which construction. Congjiang District shop/office/hotel development are Shanghai City the being built. As at the valuation date, PRC construction of superstructure was in progress and the development is
松江區中山街道11街 scheduled for completion in 2019. 坊 N5及 N11地塊
Lot N5 and N11 Zhongshan Street Neigbourhood 11 Congjiang District Shanghai City the PRC
According to the Construction Work Planning Approval of the property, the total gross floor area of the development is 172,989.69 plus substructure floor area of 99,927.17 square metres.

The property is held for a term of 50 years for office uses or 40 years for commercial/hotel uses commencing on between 13 March 2014 and 24 October 2016.

Notes:

(1) As revealed from the Shanghai Certificate of Real Estate Ownership (Ref Hu Fang Di Cong Zhi 滬房地松字(2014) No. 006716), the land use rights of Lot N5 of the property with a land area of 30,743.90 square metres have been granted to Shanghai Sandi Real Estate Development Company Limited（上海三迪房地產開發有限公司）for commercial/office/hotel uses.
(2) As revealed from the Shanghai Certificate of Real Estate Ownership (Ref Hu (2016) Cong Zhi Bu Dong Chan Quan 滬(2016)松字不動產權No. 006187), the land use rights of Lot N11 of the property with a land area of 39,796.50 square metres have been granted to Shanghai Gao Jia Real Estate Development Company Limited（上海高佳房地產開發有限公司）for commercial/office uses.
(3) As stipulated in the Land Use Right Granting Agreement of Lot No. N5, the grantee of the lot shall commit to build hotel and retail shop facilities within the development on the lot with minimum gross floor areas of 37,950 square metres and 5,000 metres respectively. Such hotel and retail shop portions are prohibited from being transferred on strata title basis.
(4) As stipulated in the Shanghai Certificate of Real Estate Ownership of Lot No. N11, 80% of the total gross floor area of the commercial portion and 40% of the total gross floor area of the office portion of the development shall be held and operated by the grantee for a period of not less than 20 years. Such portions of the development are prohibited from being transferred on strata title basis.

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VALUATION REPORT OF THE PROPERTIES

APPENDIX V

(5) According to the information provided by the Target Group, the construction costs with a total amount of RMB680,000,000 have been expended on the property as at the valuation date and the further costs to complete the proposed development is estimated at RMB1,626,000,000. The market value of the property as if it were fully developed on the valuation date is RMB5,773,000,000.
(6) Opinion of the PRC Lawyer on the Property is summarized as follows:
6.1 Shanghai Sandi Real Estate Development Company Limited（上海三迪房地產開發有限公司） has legal and valid title to the land use rights of Lot N5 of the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Shanghai Certificate of Real Estate Ownership and mortgagees’ contractual rights.
6.2 Shanghai Gao Jia Real Estate Development Company Limited（上海高佳房地產開發有限公司） has legal and valid title to the land use rights of Lot N11 of the property and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Shanghai Certificate of Real Estate Ownership and mortgagees’ contractual rights.
6.3 The land premium of the property has been settled by the grantees in full.
6.4 Lot No. 5 of the property has been pledged for bank mortgage in favour of Bank of Beijing Co., Ltd. Shanghai Branch and Lot No. 11 has been pledged for a building mortgage in favour of Zhongyuan Trust Co., Ltd..
6.5 Shanghai Sandi Real Estate Development Company Limited Shanghai Gao Jia Real Estate Development Company Limited have completed the filing of the proposed development scheme of the property to the Shanghai Congjiang Development and Reform Committee（上海市松江區發展和改革委員會）and has obtained the environmental impact investigation opinion from the Shanghai Congjiang Environmental Protection Bureau（上海市松江區環境保護局）for the proposed development scheme.
6.6 Shanghai Sandi Real Estate Development Company Limited Shanghai Gao Jia Real Estate Development Company Limited have been issued the Construction Land Use Planning Permits
（建設用地規劃許可證）, Construction Work Planning Permits（建設工程規劃許可證）and Construction Permits（建築工程施工許可證）for the construction of the proposed development on the property and has obtained all necessary construction permits relevant to the construction progress of the property.
6.7 Pre-sale Permit have been issued to the property in relation to gross floor area of 18,302.79 square metres of the proposed development on Lot N5 and 4,003.78 square metres of the proposed development on Lot N11.

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APPENDIX V

VALUATION CERTIFICATE

Group III – Properties Held by the Target Group Under Development

Property

Description and Tenure

Particulars of occupancy

Market Value of the Properties in existing state as at 30 September 2018

Development land parcels of Golden Mile Central Jintai District Baoji City Shaanxi Province the PRC

寶雞市金台區金域中央發展用地

The property comprises three parcels of land with a total area of 109,460.00 square metres on which commercial/residential development are being built. As at the valuation date, construction of superstructure was in progress and the development is scheduled for completion in 2020.

The property is RMB798,000,000 currently under construction.

According to the development scheme of the property, the total gross floor area of the development is 498,000 square metres comprising superstructure area of 380,500 square metres and substructure area of 117,500 square metres. Construction of superstructures of 8 high-rise residential towers, 12 medium-rise residential towers together with commercial facilities attached thereto with a total gross floor area of 276,876.21 square metres plus basement area of 33,464.55 square metres (the “Developing Portion”) are currently in progress.

The property is held for a term of 70 years expiring on 16 July 2076 for residential uses or 40 years expiring on 16 July 2046 for commercial/ finance uses.

Notes:

(1) As revealed from the Real Estate Title Certificate (Ref Shaan (2016) Bao Ji Shi Bu Dong Chan Quan 陝(2016)寶雞市不動產權 No. 0010038), the land use rights of one of the land parcels of the property with an area of 63,720 square metres are held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for residential use.
(2) As revealed from the Real Estate Title Certificate (Ref Shaan (2016) Bao Ji Shi Bu Dong Chan Quan 陝(2016)寶雞市不動產權 No. 0010039), the land use rights of another land parcels of the property with an area of 42,260.70 square metres are held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for residential use.

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APPENDIX V

(3) As revealed from the Real Estate Title Certificate (Ref Shaan (2016) Bao Ji Shi Bu Dong Chan Quan 陝(2016)寶雞市不動產權 No. 0010040), the land use rights of another land parcels of the property with an area of 3,479.30 square metres are held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for commercial/finance uses.
(4) According to the information provided by the Target Group, the construction costs with a total amount of RMB440,000,000 have been expended on the Development Portion as at the valuation date and the further costs to complete the Development Portion is estimated at RMB710,000,000. The market value of the Development Portion as if it were fully developed on the valuation date is RMB1,430,000,000.
(5) Pre-sale of the property has commenced. As at the valuation date, certain residential units and commercial units with a total gross floor area of approximately 205,548 square metres has contracted to be sold at a total consideration of approximately RMB1,033,000,000.
(6) Opinion of the PRC Lawyer on the Property is summarized as follows:
6.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司） has legal and valid title to the land use rights of the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate Title Certificates and mortgagees’ contractual rights.
6.2 The land premium of the property has been settled by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）in full.
6.3 The property has been pledged for bank mortgage.
6.4 Baoji Sandi Real Estate Development Company Limited has been issued the Construction Land Use Planning Permits（建設用地規劃許可證）, Construction Work Planning Permits（建設工程規劃許可證）and Construction Permits（建築工程施工許可證）for the construction of the Developing Portion of the property and has obtained all necessary construction permits relevant to the construction progress of the property.
6.5 The Construction Land Use Planning Permit（建設用地規劃許可證, Ref Bao Shi Jian Di Gui 2009 No. 0024 寶市建地規2009第0024號）for the development site with a buildable land area of 405.375 mous (270,251.35 square metres) of which the property forms part of has been issued to the property.
6.6 7 sets of Construction Work Planning Permit（建設工程規劃許可證, Ref Jian Zhi 建字 Nos. 610303201600044, 610303201700001 to 610303201700003, 610303201700022 to 610303201700024) have been issued to the Developing Portion of the property for a permitted total gross floor area of 310,340.76 square metres.
6.7 Two sets of Construction Permits（建築工程施工許可證, Ref Bao Shi Jian Shi 寶市建施 (2016) Nos. 036 and 037) have been issued for the construction of the Developing Portion of the property.
6.8 6 sets of Pre-sale Permit (Ref (2016) Bao Shi Fang Yu Shou Zheng 寶市房預售證 No. 1440, (2017) Bao Shi Fang Yu Shou Zheng 寶市房預售證 No. 1474, (2017) Bao Shi Fang Yu Shou Zheng 寶市房預售證 No. 1491, (2017) Bao Shi Fang Yu Shou Zheng 寶市房預售證 No. 1532, (2018) Bao Shi Fang Yu Shou Zheng 寶市房預售證 No. 1573 and (2018) Bao Shi Fang Yu Shou Zheng 寶市房預售證 No. 1594) have been issued to the Developing Portion of the property by which a total gross floor area of 222,097.86 square metres can be presold.

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APPENDIX V

VALUATION CERTIFICATE

Group III – Properties Held by the Target Group Under Development

Property Description and Tenure

Particulars of occupancy

Market Value of the Properties in existing state as at 30 September 2018

Development land parcels of Golden Mile Platinum Bay Jintai District Baoji City Shaanxi Province the PRC

寶雞市金台區金域鉑灣發展用地

The property comprises a parcel of land with an area of 27,049.20 square metres on which commercial/ residential development are being built. As at the valuation date, construction of superstructure was in progress and the development is scheduled for completion in 2020.

According to the development scheme of the property, the total gross floor area of the development is 167,419 square metres comprising superstructure area of 129,776 square metres and substructure area of 37,643 square metres. Construction of superstructures of five blocks of 11 to 34-storey residential towers together with commercial facilities attached thereto with a total gross floor area of 97,474.93 square metres (the “Developing Portion”) are currently in progress.

The property is RMB182,000,000 currently under construction.

The property is held for a term of 70 years expiring on 30 August 2075 for residential uses or 40 years expiring on 30 August 2045 for commercial/finance uses.

Notes:

(1) As revealed from the Land Use Right Certificate (Ref Bao Shi Guo Yong 寶市國用(2015) No. 038), the land use rights of the land parcel of the property with an area of 27,049.20 square metres are held by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）for residential use.
(2) According to the information provided by the Target Group, the construction costs with a total amount of RMB74,000,000 have been expended on the Development Portion as at the valuation date and the further costs to complete the Development Portion is estimated at RMB270,000,000. The market value of the Development Portion as if it were fully developed on the valuation date is RMB620,000,000.
(3) Pre-sale of the property has commenced. As at the valuation date, certain residential units and commercial units with a total gross floor area of approximately 24,945 square metres has contracted to be sold at a total consideration of approximately RMB170,000,000.

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(4) Opinion of the PRC Lawyer on the Property is summarized as follows:
4.1 Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司） has legal and valid title to the land use rights of the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Land Use Right Certificate and mortgagees’ contractual rights.
4.2 The land premium of the property has been settled by Baoji Sandi Real Estate Development Company Limited（寶雞三迪房地產開發有限公司）in full.
4.3 The land use rights of the property have been pledged for bank mortgage.
4.4 Baoji Sandi Real Estate Development Company Limited has been issued the Construction Land Use Planning Permits（建設用地規劃許可證）, Construction Work Planning Permits（建設工程規劃許可證）and Construction Permits（建築工程施工許可證）for the construction of the Developing Portion of the property and has obtained all necessary construction permits relevant to the construction progress of the property.
4.5 6 sets of Construction Work Planning Permit（建設工程規劃許可證, Ref Jian Zhi 建字 Nos. 610303201800026 to 610303201800031) have been issued to the Developing Portion of the property for a permitted total gross floor area of 123,149.51 square metres.
4.6 The Construction Permits（建築工程施工許可證, Ref Bao Shi Jian Shi 寶市建施(2018) No. 017) has been issued for the construction of the Developing Portion of the property.
4.7 The Pre-sale Permit (Ref (2018) Bao Shi Fang Yu Shou Zheng 寶市房預售證 No. 1601) has been issued to the Developing Portion of the property by which a total gross floor area of 58,219.13 square metres can be presold.

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APPENDIX V

VALUATION CERTIFICATE

Group III – Properties Held by the Target Group Under Development

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Development site (Western Zone Ecology City Lot C-09) of Sandi Xicheng Fengdan at the junction of Cheng Tan Shan Avenue and You Zou Road Jian Yang District Nanping City Fujian Province the PRC

南平市建陽區城譚山大道和遊佳酢交界西區生態城 C-09地塊三迪西城楓丹發展用地

The property comprises a parcel The property is RMB695,000,000 of land with an area of 66,706.90 currently under square metres on which a residential construction. development is being built. As at the valuation date, construction of superstructure was in progress and the development is scheduled for completion in 2019.

According to the Construction Work Planning Approval of the property, the total gross floor area of the development is 164,742.89 square metres.

The property is held for a term of 70 years for residential use and 40 years for commercial use commencing on 23 August 2017.

Notes:

(1) As revealed from the Real Estate Title Certificate (Ref Min (2017) Jian Yang Qu Bu Dong Chan Quan 閩(2017)建陽區不動產權 No. 0012041), the land use rights of the property with a land area of 66,706.90 square metres have been granted to Nanping Sandi Real Estate Development Company Limited（南平三迪房地產開發有限公司）for commercial/office/hotel uses.
(2) According to the information provided by the Target Group, the construction costs with a total amount of RMB84,000,000 have been expended on the property as at the valuation date and the further costs to complete the proposed development is estimated at RMB305,000,000. The market value of the property as if it were fully developed on the valuation date is RMB1,066,000,000.
(3) Pre-sale of the property has commenced. As at the valuation date, certain residential units with a total gross floor area of approximately 60,164 square metres has contracted to be sold at a total consideration of approximately RMB511,438,000.

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(4) Opinion of the PRC Lawyer on the Property is summarized as follows:
4.1 Nanping Sandi Real Estate Development Company Limited（南平三迪房地產開發有限公司） has legal and valid title to the land use rights of the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Land Use Right Certificate and mortgagees’ contractual rights.
4.2 The land premium of the property has been settled by Nanping Sandi Real Estate Development Company Limited（南平三迪房地產開發有限公司）in full.
4.3 According to the Real Estate Registration Certificate (Ref Min 2018 Jian Yang Qu Bu Dong Chan Zheng Ming 閔2018建陽區不動產證明 No. 0008854), Block No. 1, 8, 12, 18 and 29 of the proposed development of the property with a total gross floor area of 13,306.17 square metres have been pledged for a bank mortgage in favour of Industrial and Commercial Bank of China, Jianyang Branch with a loan amount of RMB406.12 million for a period from 18 January 2018 to 17 January 2021.
4.4 According to the Fujian Province Enterprise Investment Project Filing Form（福建省企業投資項目備案表）sealed by the Nanping City Jianyang District Development Reform and Technology Bureau（南平市建陽區發展改革和科技局）on 26 July 2017, the filing of the development scheme of the property to the said bureau has been accepted.
4.5 As revealed from the letter issued by the Nanping Jianyang Environmental Protection Bureau on 7 September 2017, the said bureau has allowed the development of the property subject to the implementation of the prescribed pollution prevention measures.
4.6 Shanghai Sandi Real Estate Development Company Limited has been issued the Construction Land Use Planning Permits（建設用地規劃許可證）, Construction Work Planning Permits（建設工程規劃許可證）and Construction Permits（建築工程施工許可證）for the construction of the proposed development on the property and has obtained all necessary construction permits relevant to the construction progress of the property.
4.7 7 sets of Pre-sale Permit have been issued to the property in relation to gross floor area of 74,450.34 square metres of residential units of the proposed development.

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APPENDIX V

VALUATION CERTIFICATE

Group IV – Properties Held by the Target Group Under Development

Property Description and Tenure

Particulars of occupancy

Market Value of the Properties in existing state as at 30 September 2018

Development site of Shou Chuang Zhen Yuan Hunchun Zhong Road Chang Yi District Jilin City Jilin Province the PRC

吉林省吉林市昌邑區暉春中街首創 • 臻園發展用地

The property constitutes the undevelopment portion of a residential/ hotel development (which includes the developed portion as mentioned in Property 10 of this valuation report) erected on a land parcel with a total area of 67,362.30 square metres.
According to the development scheme provided by the Company, the property, which is currently under construction, has a total gross floor area of 93,282.65 square metres including residential area of 66,587.27 square metres, retail area of 918.54 square metres, hotel area of 20,150.00 square metres and basement carpark of 5,626.84 square metres. The development is scheduled for completion in 2019.
The property is RMB82,000,000 currently vacant.

The property is held for a term of 70 years for residential use or 40 years for commercial uses commencing on 28 September 2014.

Notes:

(1) Pursuant to a Land Use Right Grant Agreement (Ref. Ji Shi Jing 吉市經 2013-043) entered into between the Land Resources Administration Bureau of Jilin City and Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司）on 22 September 2013 and its Supplemental Agreement dated 5 February 2018, the land use rights of Lot No. 020130160209000 with a land area of 67,362.30 square metres (of which the property forms part) were acquired by Jilin First Real Estate Development Co., Limited at a land premium of RMB97,510,000.

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APPENDIX V

(2) As provided in the aforesaid Land Use Right Grant Agreement, the land parcel is subject to the following salient development conditions:

Plot Rate:	not greater than 2.8 and not less than 1
Basement floor area:	17,000 square metres for Basement Level 1 and 8,000 square metres for Basement Level 2 (all are non-plot ratio accountable)
Site Coverage:	not greater than 40%
Green area ratio:	not less than 20%
Number and size of flat:	Not less than 1,000 flats shall be provided in the development and not less than 700 flats has a gross floor area not more than 90 square metres.
Building Covenant:	Construction start not later than 27 September 2014 and completion not later than 27 September 2018
Subsidized low rental flat:	5,275.75 square metres of the residential gross floor area are attributable to subsidized low rental flats which shall be allocated by the Government under the relevant subsidized housing policies

(3) A total of 5 sets of Land Use Right Certificate all dated 17 April 2014 (Ref Ji Shi Guo Yong 吉市國用 (2014) Nos. 220202003415 to 220202003417, 220202003420 and 220202003421) were issued in the name of Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司）for the land lot with a total land area of 32,879.31 square metres for a land use right term expiring on 27 September 2083 for residential use.
(4) A total of 2 sets of Land Use Right Certificate all dated 17 April 2014 (Ref Ji Shi Guo Yong 吉市國用 (2014) Nos. 220202003418 and 220202003419) were issued in the name of Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司）for the land lot with a total land area of 34,482.99 square metres for a land use right term expiring on 27 September 2053 for commercial and service uses.
(5) As revealed from the Minutes of the Municipal Government Meeting of 29 July 2017, Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司）has discharged its obligations to provide 5,275.75 square metres of subsidized low rental flats within the subject development by payment of RMB6,913,625 (being the costs for developing the subsidized low rental flats in alternative locations) to the Government. Hence, the property has been valued free from the obligation for provision of subsidized low rental flats.
(6) According to the information provided by the Target Group, the construction costs with a total amount of RMB22,000,000 have been expended on the property as at the valuation date and the further costs to complete the proposed development is estimated at RMB159,000,000. The market value of the property as if it were fully developed on the valuation date is RMB340,000,000.
(7) Pre-sale of the property has commenced. As at the valuation date, certain residential units and commercial units with a total gross floor area of approximately 26,235 square metres has contracted to be sold at a total consideration of approximately RMB136,460,000.
(8) As at the Latest Practicable Date, the construction of the property project is still ongoing and the development is scheduled to be completed by end of 2019.
(9) Since the property project has not been completed before 27 September 2018, the grantee of the land may be subject to a penalty at a daily rate of 1% to the amount of the total consideration of the land transfer for each day of delay in completion of the construction work. At as the Latest Practicable Date, Jilin First Real Estate Development Co., Limited (吉林首創房地產開發有限公司) has applied to the Jilin Municipal Land and Resources Bureau for an extension of the construction period and the bureau is now in the process of reviewing the application. The PRC lawyer is of the view that the likelihood of the penalty is remote on the ground that no action has been taken by the Jilin Municipal Land and Resources Bureau against the grantee in respect of the incident.

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(9) Opinion of the PRC Lawyer on the Property is summarized as follows:
9.1 Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司）has legal and valid title to the land use rights of the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Land Use Right Certificates and mortgagees’ contractual rights.
9.2 The land premium of the property has been settled by Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司）in full.
9.3 The property has not been pledged for bank mortgage.
9.4 According to the Project Approval (Ref Jin Shi Fa Gai Shen Pi Fa 吉市發改審批發 No. 2013144) issued by the Jilin City Development and Reform Committee（吉林市發展和改革委員會）to Jilin First Real Estate Development Co., Limited（吉林首創房地產開發有限公司）on 13 November 2013, the construction of the subject development on the subject land parcel has been approved.
9.5 Jilin City Development and Reform Committee has been issued the Construction Land Use Planning Permits（建設用地規劃許可證）, Construction Work Planning Permits（建設工程規劃許可證）and Construction Permits（建築工程施工許可證）for the construction of the proposed development on the property and has obtained all necessary construction permits relevant to the construction progress of the property.

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APPENDIX V

VALUATION CERTIFICATE

Group IV – Properties Held by the Target Group for Future Development

Market Value of the Properties in Particulars of existing state as at Property Description and Tenure occupancy 30 September 2018

Lot N6 Zhongshan The property comprises a parcel of The property is RMB780,000,000 Street Neigbourhood land with an area of 33,710.20 square currently vacant. 11 Congjiang District metres on which a commercial/hotel Shanghai City the development is proposed to be built. PRC According to the land grant conditions

松江區中山街道11街 of the property, the permitted plot

坊 N6地塊 ratio gross floor area of the proposed development of the property is 70,791 square metres.

The property is held for a term of 50 years for office uses or 40 years for commercial/hotel uses commencing on 24 October 2016.

Notes:

(1) As revealed from the Real Estate Title Certificate (Ref Hu (2016) Cong Zhi Bu Dong Chan Quan 滬(2016) 松字不動產權 No. 006188), the land use rights of the property with a land area of 33,710.20 square metres have been granted to Shanghai Gao Jia Real Estate Development Company Limited（上海高佳房地產開發有限公司）for commercial/office/hotel uses.
(2) As stipulated in the aforesaid Real Estate Title Certificate, the grantee of the lot shall commit to hold and operate the hotel (with a gross floor area not less than 15,000 square metres) and commercial units (with a gross floor area not less than 26,822.96 square metres) for a period of not less than 20 years. Such hotel and commercial portions are prohibited from being transferred on strata title basis.
(3) Opinion of the PRC Lawyer on the Property is summarized as follows:
3.1 Shanghai Gao Jia Real Estate Development Company Limited（上海高佳房地產開發有限公司） has legally obtained title certificates of the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its land use rights subject to the land grant conditions and mortgagees’ contractual rights.
3.2 The land premium of the property has been settled by Shanghai Gao Jia Real Estate Development Company Limited（上海高佳房地產開發有限公司）in full.
3.3 According to the Real Estate Registration Certificate (Ref Hu 2017 Cong Zhi Bu Dong Chan Zheng 滬(2017)松字不動產證明 No. 17040601), the property has been pledged for a mortgage loan in favour of Zhongyuan Trust Company Limited with a loan amount of RMB1.708 billion for a period from 9 October 2016 to 9 October 2018..
3.4 Shanghai Gao Jia Real Estate Development Company Limited has completed the filing of the proposed development scheme of the property to the Shanghai Congjiang Development and Reform Committee（上海市松江區發展和改革委員會）and has obtained the environmental impact investigation opinion from the Shanghai Congjiang Environmental Protection Bureau（上海市松江區環境保護局）for the proposed development scheme.

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APPENDIX V

VALUATION CERTIFICATE

Group IV – Properties Held by the Target Group for Future Development

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Development site (Lot The property comprises two parcels of The property is RMB215,800,000 A-02 and A-03) of land with a total area of 173,605.04 currently vacant. Jiangshan Waterfront square metres on which a residential, at the southern bank educational and research development of Da Zhang River is proposed to be built. Stream, Xinan Village According to the land grant conditions

Geling TownYong of the property, the permitted plot

Tai XuanFuzhou City ratio gross floor area of the proposed

Fujian Province the development of the property is

PRC 181,507.10 square metres

福建省福州市永泰縣葛嶺鎮溪南村大樟溪 The property is held for a term 南岸地塊A-02及 expiring on between 19 February A-03江山水岸發展用地 2067 and 9 September 2084.

Notes:

(1) As revealed from the Real Estate Title Certificate (Ref Ref Min (2017) Yong Tai Xuan Bu Dong Chan Quan 閩(2017)永泰縣不動產權 No. 0000782), the land use rights of Lot A-02 of the property with a land area of 73,218.04 square metres have been granted to Yong Tai Sandi Real Estate Development Company Limited（永泰三迪房地產開發有限公司）for scientific educational（科教）uses.
(2) As revealed from the Real Estate Title Certificate (Ref Ref Min (2017) Yong Tai Xuan Bu Dong Chan Quan 閩(2017)永泰縣不動產權 No. 0000548), the land use rights of Lot A-03 of the property with a land area of 100,387 square metres have been granted to Yong Tai Sandi Real Estate Development Company Limited（永泰三迪房地產開發有限公司）for residential uses.

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(3) Opinion of the PRC Lawyer on the Property is summarized as follows:
3.1 Yong Tai Sandi Real Estate Development Company Limited（永泰三迪房地產開發有限公司） has legal and valid title to the land use rights of the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its ownership rights subject to the restriction of use of the property as set out in the Real Estate TItle Certificates and mortgagees’ contractual rights.
3.2 The land premium of the property has been settled by Yong Tai Sandi Real Estate Development Company Limited（永泰三迪房地產開發有限公司）in full.
3.3 According to the Real Estate Registration Certificate (Ref Min 2017 Yong Tai Xuan Bu Dong Chan Zheng Ming 閩(2017)永泰縣不動產證明 No. 0007766), Lot A-03 of the property has been pledged for a mortgage loan in favour of China Cinda Asset Management Co., Ltd. Fujian Branch with a loan amount of RMB400 million for a period from 19 July 2017 to 18 July 2019.
3.4 According to the Fujian Province Enterprise Investment Project Filing Form（福建省企業投資項目備案表, Ref Min Fa Gai Bei 閩發改備 No. 2018A100076) issued by the Yong Tai Xuan Development Reform and Technology Bureau（永泰縣發展改革和科技局）to Yong Tai Sandi Real Estate Development Company Limited on 7 June 2018, the filing of the development scheme of Lot A-03 of the property to the said bureau has been accepted.
3.5 According to the Fujian Province Enterprise Investment Project Filing Form（福建省企業投資項目備案表, Ref Min Fa Gai Bei 閩發改備 No. 2018A100080) issued by the Yong Tai Xuan Development Reform and Technology Bureau（永泰縣發展改革和科技局）to Yong Tai Sandi Real Estate Development Company Limited on 19 June 2018, the filing of the development scheme of Lot A-02 of the property to the said bureau has been accepted.
3.6 The grantee has failed to comply with the building covenant as provided in the land grant conditions of the property to commence construction work on or before the agreed revised work commencement date on 31 December 2017. The grantee may be subject to a penalty at a daily rate of 0.03% to the amount of the total consideration of the land transfer for the delay in commencement of the construction work. The PRC lawyer is of the view that the likelihood of the penalty is remote on the grounds that (i) the land use rights of Lot A-02 has commenced construction before 31 December 2017; (ii) despite the land use rights of Lot A-03 has yet commenced construction, applications have been filed to the relevant authorities for commencement of the construction work; and (iii) no investigation has been taken by the Yong Tai Country Land and Resources Bureau against the Target Group for the incident.

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APPENDIX V

VALUATION CERTIFICATE

Group IV – Properties Held by the Target Group for Future Development

Property

Description and Tenure

Market Value of the Properties in Particulars of existing state as at occupancy 30 September 2018

Development site (Lot The property comprises two parcels The property is RMB123,300,000 2018-20 and 2018-21) of land with a total area of 197,811 currently vacant Jiao Ting Village Du square metres on which a tourist Bei Road Wu Yi Shan resort development is proposed to be City Fujian Province built. the PRC According to the land grant conditions of the property, the permitted plot

福建省武夷山市杜垻 ratio gross floor area of the proposed

路角亭村地塊2018-20 development of the property is

及 2018-21 approximately 95,244 square metres

The property is held for a term expiring on 13 June 2058 for commercial and service uses.

Notes:

(1) Pursuant to a Land Use Right Grant Agreement (Serial No. 35078220180416G010) entered into between the Land Resources Administration Bureau of Wuyi Shan City and Fuzhou Gao Jia Real Estate Development Company Limited（福州高佳房地產開發有限公司）on 16 April 2018 and an Amendment Agreement entered into among the Land Resources Administration Bureau of Wuyi Shan City, Fuzhou Gao Jia Real Estate Development Company Limited and Wuyi Shan Gao Jia Real Estate Development Company Limited（武夷山高佳房地產開發有限公司）on 21 May 2018, the land use rights of Lot No. A2018-20 with a land area of 96,449 square metres were acquired by Wuyi Shan Gao Jia Real Estate Development Company Limited at a land premium of RMB65,700,000. The Real Estate Title Certificate (Ref Min (2018) Wu Yi Shan City Bu Dong Chan Quan 閩(2018)武夷山市不動產權 No. 0007357) was issued in the name of Fuzhou Gao Jia Real Estate Development Company Limited for the land lot. As remarked in the title certificate, the land lot is permitted for hotel and catering (tourist resort) uses.
(2) Pursuant to another Land Use Right Grant Agreement (Serial No. 35078220180416G011) entered into between the Land Resources Administration Bureau of Wuyi Shan City and Fuzhou Gao Jia Real Estate Development Company Limited（福州高佳房地產開發有限公司）on 16 April 2018 and an Amendment Agreement entered into among the Land Resources Administration Bureau of Wuyi Shan City, Fuzhou Gao Jia Real Estate Development Company Limited and Wuyi Shan Gao Jia Real Estate Development Company Limited（武夷山高佳房地產開發有限公司）on 21 May 2018, the land use rights of Lot No. A2018-20 with a land area of 101,362 square metres were acquired by Fuzhou Gao Jia Real Estate Development Company Limited at a land premium of RMB57,600,000. The Real Estate Title Certificate (Ref Min (2018) Wu Yi Shan City Bu Dong Chan Quan 閩(2018)武夷山市不動產權 No. 0007430) was issued in the name of Wuyi Shan Gao Jia Real Estate Development Company Limited for the land lot. As remarked in the title certificate, a portion of the land lot with an area of approximately 26,454 square metres is permitted for hotel and catering (5 star hotel) uses and the remaining portion is permitted for hotel and catering (tourist resort) uses.

– V-44 –

VALUATION REPORT OF THE PROPERTIES

APPENDIX V

(3) As provided in the aforesaid Land Use Right Grant Agreements, the subject land lots are subject to the following salient development conditions:

	Lot 2018-20	Lot 2018-21
Plot Ratio	Not greater than 0.42	Not greater than 0.54
Site Coverage	Not greater than 32%	Not greater than 32%
Green area ratio	Not less than 30%	Not less than 31%
Construction Start	14 June 2019 or before	14 June 2019 or before
Construction Completion	Not later than 13 June 2022	Not later than 13 June 2022

The Real Estate Title Certificate (Ref: Min (2018) Wu Yi Shan Shi Bu Dong Chan Quan No. 0007357) has been issued in the name of Wuyi Shan Gao Jia Real Estate Development Company Limited for the land parcel of the property as mentioned in note 1 above. Another Real Estate Title Certificate (Ref: Min (2018) Wu Yi Shan Shi Bu Dong Chan Quan No.0007430) has been issued in the name of Wuyi Shan Gao Jia Real Estate Development Company Limited for the land parcel of the property as mentioned in note 2 above. As revealed from the aforesaid Real Estate Title Certificates, the land use rights of the 2 subject land parcels have been granted for a term of 40 years expiring on 13 June 2058 for development of hotel and resort facilities.
As revealed from the Construction Land Use Planning Permit (Ref Di Zhi No. 350782201800036) dated 1 August 2018, the land parcel as mentioned in note 1 above is planned for boarding and catering (holiday resort) use with a plot ratio of not greater than 0.42, site coverage not greater than 32% and greenery ratio of not less than 30%.
As revealed from the Construction Land Use Planning Permit (Ref Di Zhi No. 350782201800035) dated 1 August 2018, the land parcel as mentioned in note 2 above is planned for boarding and catering (hotel and holiday resort) use with a plot ratio of not greater than 0.54, site coverage not greater than 33% and greenery ratio of not less than 31%.
(6) Opinion of the PRC Lawyer on the Property is summarized as follows:
6.1 Wuyi Shan Gao Jia Real Estate Development Company Limited（武夷山高佳房地產開發有限公司） has legal and valid title to the land use rights of the subject development and has the rights to possess, use, charge or otherwise dispose of the property during the unexpired term of its land use rights subject to the land grant conditions and mortgagees’ contractual rights.
6.2 The land premium of the property has been settled by Wuyi Shan Gao Jia Real Estate Development Company Limited in full.
6.3 Wuyi Shan Gao Jia Real Estate Development Company Limited has been issued the Construction Land Use Planning Permits（建設用地規劃許可證）and has obtained all necessary construction permits relevant to the construction progress of the property.
6.4 According to 2 sets of Fujian Province Enterprise Investment Project Filing Form（福建省企業投資項目備案表, Ref Min Fa Gai Bei 閩發改備 No. Nos. 2018H030154 and 2018H030155) issued by the Wuyi Shan Development Reform and Technology Bureau（武夷山市發展改革和科技局）to Wuyi Shan Gao Jia Real Estate Development Company on 23 July 2018, the filing of the development scheme of the property to the said bureau has been accepted.
6.5 The property is not subject to any mortgage loan.

– V-45 –

GENERAL INFORMATION

APPENDIX VI

1. 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 Group. 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.

2. SHARE CAPITAL

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date; (ii) immediately after the issue of the Consideration Shares; and (iii) immediately after the issue of the Consideration Shares and upon full conversion of the Convertible Bonds (assuming there is no other change to the share capital of the Company prior to the issue of the Consideration Shares and upon full conversion of the Convertible Bonds) will be as follows:

(a) As at the Latest Practicable Date

Authorised:

200,000,000,000 Shares of HK$0.01 each HK$2,000,000,000

Issued and fully paid: 4,458,901,088 Shares of HK$0.01 each HK$44,589,011

(b) Immediately after the issue of the Consideration Shares and the Conversion Shares upon full conversion of the Convertible Bonds (assuming there is no other change to the share capital of the Company prior to the issue of the Consideration Shares and the Conversion Shares upon full conversion of the Convertible Bonds)

Authorised:

200,000,000,000	Shares of HK$0.01 each	HK$2,000,000,000
Issued and fully paid:
4,458,901,088	Shares as at the Latest Practicable Date	HK$44,589,011
485,436,893	Consideration Shares to be issued	HK$4,854,369
1,213,592,233	Conversion Shares to be issued	HK$12,135,922
6,157,930,214		HK$61,579,302

– VI-1 –

GENERAL INFORMATION

APPENDIX VI

3. DISCLOSURE OF INTERESTS OF DIRECTORS AND CHIEF EXECUTIVES

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the Shares and, in respect of equity derivatives, underlying Shares in, and debentures of, the Company or any of its associated corporations (within the meaning of Part XV of the SFO) or members of the Group (i) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or deemed to have under such provisions of the SFO), or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or, (iii) which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) contained in the Listing Rules to be notified to the Company and the Stock Exchange were as follows:

(a) Long positions in the Shares and underlying Shares

					Approximate%
					of the issued
					shares capital
			Number of	Number of	of the Company
Name of		Number of	underlying	share options	as at the Latest
Director	Capacity	Shares held	Shares held	held	Practicable Date
Mr. Guo	Interest of	2,901,469,002	312,500,000	–	72.1%
	controlled	(Note 1)	(Note 2)
	corporation
	Beneficial	–	–	4,400,000	0.1%
	owner			(Note 3)
Mr. Wang Chao	Beneficial	–	–	3,000,000	0.1%
	owner			(Note 4)
Ms. Amika Lan	Beneficial	–	–	4,400,000	0.1%
E Guo	owner			(Note 5)
Ms. Ma Shujuan	Beneficial	–	–	4,400,000	0.1%
	owner			(Note 6)
Ms. Zheng Yurui	Beneficial	–	–	4,400,000	0.1%
	owner			(Note 7)

– VI-2 –

GENERAL INFORMATION

APPENDIX VI

Notes:

1. The 2,901,469,002 Shares comprised (a) 2,581,054,801 Shares in issue held by United Century and (b) 320,414,201 Shares held by King Partner. By virtue of the SFO, Mr. Guo is deemed to be interested in the Shares held by United Century and King Partner respectively.

2. This represented United Century’s long position in 312,500,000 underlying Shares which constituted unlisted physically settled equity derivatives pursuant to an arrangement entered into with Beyond Steady Limited (“ Beyond Steady ”). Beyond Steady is taken to have the short position in the same underlying shares. Beyond Steady is a company incorporated in BVI with limited liability which is indirectly wholly owned by Huarong International Financial Holdings Limited (“ Huarong ”).

3. As at the Latest Practicable Date, Mr. Guo Jiadi, an executive Director and Chairman of the Company was entitled to receive share options to subscribe for a maximum of 4,400,000 Shares upon exercise of the options in full.

4. As at the Latest Practicable Date, Mr. Wang Chao, an executive Director was entitled to receive share options to subscribe for a maximum of 3,000,000 Shares upon exercise of the options in full.

5. As at the Latest Practicable Date, Ms. Amika Lan E Guo, an executive Director was entitled to receive share options to subscribe for a maximum of 4,400,000 Shares upon exercise of the options in full.

6. As at the Latest Practicable Date, Ms. Ma Shujuan, an Independent non-executive Director was entitled to receive share options to subscribe for a maximum of 4,400,000 Shares upon exercise of the options in full.

7. As at the Latest Practicable Date, Mr. Zheng Yurui, an Independent non-executive Director was entitled to receive share options to subscribe for a maximum of 4,400,000 Shares upon exercise of the options in full.

(b) Short positions in the Shares and underlying Shares

Approximately percentage of issued Number of underlying capital as at the Latest Name of Director Capacity Shares Practicable Date Mr. Guo (Note) Interest of 125,000,000 2.8% controlled (Note) corporation

– VI-3 –

GENERAL INFORMATION

APPENDIX VI

Note:

This represents United Century’s short position in 125,000,000 underlying Shares which constituted unlisted physically settled equity derivatives pursuant to an arrangement entered into with Chance Talent Management Limited (“Chance Talent”). Chance Talent’s intermediate holding company is CCB International Group Holdings Limited, and the ultimate holding company is Central Huijin Investment Ltd. Chance Talent is taken to have the long position in the same underlying Shares.

(c) Long positions in associated corporation

			Approximately
	Name of associate		percentage of
Name of Director	corporation	Capacity	registered capital
Mr. Guo_(Note)_	Fujian Jiake	Interest of controlled	49%
	Industrial Company	corporation
	Limited

Note: At as the Latest Practicable Date, Mr. Guo’s 49% interest in Fujian Jiake is held through Fuzhou Gaojia, a company established in the PRC and ultimately controlled by Mr. Guo. The Company indirectly held 51% equity interests of Fujian Jiake through an indirectly wholly-owned subsidiary, Fujian Sinco Industrial Company Limited. Therefore Fujian Jiaka is an associated corporation of the Company for the purposes of the SFO.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the chief executives of the Company or their respective associates had any interests or short positions in the shares or, in respect of equity derivatives, underlying shares in, or debentures of, the Company or any of its associated corporations (within the meaning of Part XV of the SFO) or members of the Group (i) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or deemed to have under such provisions of the SFO) or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or (iii) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

– VI-4 –

GENERAL INFORMATION

APPENDIX VI

DISCLOSURE OF INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the interests and short positions of Shareholders (not being Directors or the chief executives of the Company) in the Shares and underlying Shares which were notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO and required to be entered in the register maintained by the Company pursuant to section 336 of the SFO were as follows:

				Approximate% of
				issued share
				capital of the
			Number of	Company as at the
Name of		Number of	underlying	Latest Practicable
Shareholders	Capacity	Shares held	Shares held	Date
Long Position
United Century	Beneficial owner	2,581,054,801	312,500,000	64.9%
(Note 1)		(Note 1)	(Note 2a)
King Partner_(Note 1)_	Beneficial owner	320,414,201	–	7.2%
		(Note 1)
Central Huijin	Interest of controlled	–	2,399,039,555	53.8%
Investment Ltd.	corporations		(Note 2)
Change Talent	Beneficial owner	–	2,399,039,555	53.8%
Management Limited			(Note 2)
Huarong	Interest of controlled	312,500,000	625,000,000	21.0%
	corporations	(Note 3a)	(Note 3b)
Beyond Steady	Beneficial owner	312,500,000	625,000,000	21.0%
		(Note 3a)	(Note 3b)
Short Position
Huarong	Interest of controlled	–	312,500,000	7.0%
	corporations		(Note 3c)
Beyond Steady	Beneficial owner	–	312,500,000	7.0%
			(Note 3c)
United Century	Beneficial owner	–	125,000,000	2.8%
			(Note 1)

– VI-5 –

GENERAL INFORMATION

APPENDIX VI

Notes:

1. Please refer to Note (1) under section headed “Disclosure of Interests of Directors and Chief Executives” on page VI-3 of this circular.

2. The 2,399,039,555 underlying shares comprises: (a) security interest in 2,274,039,555 underlying Shares, and (b) a long position in 125,000,000 underlying Shares which constituted unlisted physically settled equity derivatives pursuant to an arrangement entered into with United Century. United Century is taken to have the short position in the same underlying Shares.

3. (a) The 312,500,000 Shares held by Beyond Steady, a company incorporated in BVI with limited liability which is indirectly wholly owned by Huarong.

(b) Beyond Steady has security interest in 625,000,000 underlying Shares.
(c) This represented Beyond Steady’s short position in 312,500,000 underlying Shares which constituted unlisted physically settled equity derivatives pursuant to an arrangement entered into with United Century during the year. United Century is taken to have the long position in the same number of underlying Shares.

Save as disclosed above, as at the Latest Practicable Date, none of the substantial shareholder of the Company (not being Directors or the chief executives of the Company) has any interests or short positions in the Shares or underlying Shares (i) which were notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO or (ii) required to be entered in the register maintained by the Company pursuant to section 336 of the SFO.

4. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

Interests in assets

Save for the subject assets under the Acquisition, as at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which, since 31 March 2018 (the date to which the latest published audited financial statements of the Group were made up), had been or were proposed to be acquired or disposed of by, or leased to, any member of the Enlarged Group.

Interest in contracts

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting which was significant in relation to the business of the Enlarged Group.

– VI-6 –

GENERAL INFORMATION

APPENDIX VI

5. COMPETING INTERESTS

As at the Latest Practicable Date, save and except for Mr. Guo, none of the Directors nor their respective associates had any businesses or interests that compete or might compete with the business of the Group or any other conflict of interests with the Group.

Mr. Guo carries out property development and investment businesses in the PRC through Fujian Sandi Property Development Company Limited and Fuzhou Gaojia. To deal with the potential conflict of interests between Mr. Guo and the Company, (i) Mr. Guo and (ii) the Company had entered into the deed of non-competition on 15 March 2017, pursuant to which, among other things, Mr. Guo had given non-compete undertakings in favour of the Company on the terms as summarised in item 7 (c) of the section headed “Material Contracts” to this circular and the Company’s announcement of 15 March 2017.

6. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation, arbitration or claims of material importance and no litigation or claim of material importance was pending or threatened by or against any member of the Enlarged Group.

7. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) had been entered into by the members of the Enlarged Group within the two years immediately preceding the date of this circular which are or may be material:

(a) the agreement dated 15 December 2016 and entered into between Fujian Sinco Industrial Co., Ltd（福建先科實業有限公司）(“ Fujian Sinco ”) and Fuzhou Gaojia in relation to the acquisition of the 95% of the equity interests of Fujian Jingdu Land Co., Ltd.（福建京都置業有限公司）(“ Fujian Jingdu* ”) and the entire amount of the loans owed by Fujian Jingdu to Fuzhou Gaojia at an aggregate consideration of approximately RMB455,816,462;
(b) the agreement dated 15 December 2016 and entered into between Fujian Sinco and Fuzhou Gaojia in relation to the acquisition of the 95% of the equity interests of Xian Sandi Real Estate Development Co., Ltd.（西安三迪房地產開發有限公司）(“ Xian Sandi* ”) and the entire amount of the loans owed by Xian Sandi to Fuzhou Gaojia at an aggregate cash consideration of approximately RMB202,437,651;

– VI-7 –

GENERAL INFORMATION

APPENDIX VI

(c) the deed of non-competition dated 15 March 2017 (the “ Non-competition Deed ”) whereby, among other things, Mr. Guo has undertaken to the Company that (i) he and his close associates would not engage in business compete (or may compete) with the business of the Group subject to the exceptions provided thereunder; (ii) if any new business opportunity is made available to him and/or his close associates during the restricted period under the Non-competition Deed, he and/or his close associates shall refer it to the Company for consideration; (iii) if he and/or any of his close associates wishes to sell any interest in his business and/or the business of his close associates to any third party (the “Opportunity for Sale”), Mr. Guo will offer and will procure his close associates to offer the Opportunity for Sale to the Company and the Company shall have a first right of refusal in respect of such Opportunity for Sale; and (iv) he shall indemnify and keep indemnified the Group against any damage, loss or liability suffered by the Group arising out of or in connection with his breach of the terms of the Non-competition Deed;
(d) the cooperation agreement dated 9 August 2018 entered into among Xi’an Chongfeng Real Estate Company Limited（西安崇豐置業有限公司）(“ Chongfeng Real Estate ”), Fujian Sinco and Grand International Development Company Limited（廣大國際發展有限公司）(“ Grand International ”) in relation to the proposed contribution to be made by Fujian Sinco and Grand International of RMB6,200,000 and US$30,000,000 to the registered capital of the Xi’an Zhichengda Real Estate Company Limited（西安智晟達置業有限公司）(“ Xi’an Zhichengda ”); (ii) the provision of the shareholder’s loans in an aggregate amount of RMB360,900,000 by Fujian Sinco and Grand International to Xi’an Zhuchengda; and (iii) the provision of advances of RMB50,000,000 each by Fujian Sinco and Chongfeng Real Estate to the Xi’an Zhichengda (collectively, the “ Transactions ”). Xi’an Zhichengda holds three parcels of land located in Xi’an Province for development into residential and commercial property projects. The accountants’ report of Xi’an Zhichengda is set out in Appendix III to the circular published by the Company on 21 December 2018. The remuneration payable to and benefits in kind receivable by the Directors (including the directors of Fujian Sinco and Grand International) will not be varied in consequence of the Transactions;
(e) the Agreement;
(f) the loan agreement dated 27 November 2018 entered into among Fujian Sinco (as lender), Shannan Tianyuan Investment Centre and Shannan Shengyuan Investment Centre (as borrowers) where by Fujian Sinco agreed to lend to the two borrowers the loan in the principal amount of up to RMB110 million at an interest of rare 20% per annum for a term of 18 months; and
(g) the Supplemental Deed.

– VI-8 –

GENERAL INFORMATION

APPENDIX VI

Save and except for the parties set out below who were the connected persons of the Company as at the date of the relevant material contracts, each of the counterparties to the material contracts referred to above were Independent Third Parties as at the date of the relevant material contracts:

(i) Fuzhou Gaojia, a party to the material contracts set out in paragraphs (a) and (b) above;
(ii) Mr. Guo, a party to the material contracts set out in paragraphs (c), (e) and (g); and above; and
(iii) Primary Partner International Limited, a party to the material contracts set out in paragraphs (e) and (g).

8. SERVICE CONTRACTS OF DIRECTORS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Enlarged Group which does not expire or is not determinable by the Enlarged Group within one year without payment of compensation (other than statutory compensation).

9. EXPERTS AND CONSENTS

The following are the qualifications of the expert who has given opinions or advice contained in this circular:

Name	Qualification
Deloitte Touche Tohmatsu	Certified public accountants
Messis Capital	Independent financial adviser
Asset Appraisal	Independent property valuer
Jingtian & Gongcheng	PRC Legal Advisor

As at the Latest Practicable Date, (a) the above experts did not have any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group and (b) did not have any direct or indirect interest in any assets which have been 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 since 31 March 2018, the date to which the latest published audited consolidated financial statements of the Group were made up.

– VI-9 –

GENERAL INFORMATION

APPENDIX VI

Each of the above experts have given and have not withdrawn its written consent to the issue of this circular, with the inclusion therein of its letter(s), report(s), opinion and/or the references to its name in the form and context in which they appear.

10. GENERAL

(a) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The principal place of business of the Company in Hong Kong is at Unit 3309, West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong;
(b) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong; and
(c) The company secretary of the Company is Ms. Chan Po Yu, who is a member of the Hong Kong Institute of Certified Public Accountants and the Hong Kong Institute of Chartered Secretaries.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. (except Saturdays and public holidays) at the principal office of the Company in Hong Kong at Unit 3309, 33/F, West Tower, Shun Tak Centre, 168 – 200 Connaught Road Central, Sheung Wan, Hong Kong for a period of 14 days from the date of this circular:

(a) the memorandum of association and the bye-laws of the Company;
(b) the material contracts referred to in the section headed “Material Contracts” in this appendix;
(c) the letter from the Board, the text of which is set out on pages 8 to 32 of this circular;
(d) the letter from the Independent Board Committee, the text of which is set out on pages 33 to 34 of this circular;
(e) the letter from the Independent Financial Adviser, the text of which is set out on pages 35 to 79 of this circular;
(f) the Accountants’ Report on the Target Group, the text of which is set out in Appendix III to this circular;

– VI-10 –

GENERAL INFORMATION

APPENDIX VI

(g) the report from Deloitte Touche Tohmatsu on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to this circular;
(h) the valuation report on the Properties, the text of which is set out in Appendix V to this circular;
(i) the written consents from the experts referred to in the section headed “Experts and Consents” of this appendix;
(j) the annual reports of the Company for each of the two financial years ended 31 March 2017 and 2018 respectively;
(k) the major transaction circular in relation to the Transactions as published by the Company on 21 December 2018; and
(l) this circular.

MISCELLANEOUS

For easy of reference, the names of the PRC established companies or entities (if any) and the PRC laws and regulations (if any) have generally been included in this circular in both Chinese and English languages and in the event of inconsistency, the Chinese language shall prevail.

Except for the above, the English text of this circular shall prevail over the Chinese text in the event of inconsistency.

– VI-11 –

NOTICE OF SGM

CHINA SANDI HOLDINGS LIMITED 中國三迪控股有限公司

(incorporated in Bermuda with limited liability)

(Stock Code: 910)

NOTICE IS HEREBY GIVEN THAT a special general meeting (the “ SGM ”) of China Sandi Holdings Limited (the “ Company ”) will be held at 11:00 a.m. on Wednesday, 16 January 2019 at Macau Jockey Club (HK Clubhouse), 3/F, East Wing Shun Tak Centre, Merchant Tower, 200 Connaught Road, Central, Hong Kong or any adjournment thereof to consider and, if thought fit, to pass with or without amendments, the following resolutions:

ORDINARY RESOLUTIONS

“ THAT
(a) the sale and purchase agreement dated 21 September 2018 (as supplemental by the supplemental and thereto dated 21 December 2018) (the “ Agreement ”) entered into among Grand Supreme Limited (the “ Purchaser ”), Primary Partner International Limited (the “ Vendor ”) and Mr. Guo Jiadi (“ Mr. Guo ”) (as guarantor) in respect of acquisition of the only issued share (the “ Target Share ”) of All Excel Industries Limited (the “ Target Company ”, together with its subsidiaries, the “ Target Group ”) at a total consideration of HK$1,500 million, which shall be satisfied by way of cash of HK$200 million, the issue of the Promissory Note (as defined below), the issue of the Consideration Shares (as defined below) and the issue of the Convertible Bonds (as defined below) by the Company to the Vendor (or its nominee(s)), a copy of the Agreement marked “ A ” is tabled before the SGM and signed for identification purpose by the chairman of the meeting, as more particularly described in the circular to the shareholders of the Company dated 26 December 2018 (the “ Circular ”) of which this notice forms part and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) conditional upon the Agreement referred to in ordinary resolution 1 (a) being approved, the issue of the convertible bonds in the aggregate amount principal amount of HK$500 million (the “ Convertible Bonds ”) by the Company to the Vendor (or its nominee(s)) as part of the consideration for the acquisition of Target Share pursuant to the terms and conditions of the Agreement, be and is hereby approved, ratified and confirmed;

– SGM-1 –

NOTICE OF SGM

(c) conditional upon the Agreement referred to in ordinary resolution 1 (a) being approved, the grant of specific mandate to allot and issue such number of conversion shares (the “ Conversion Shares ”) upon exercise of the conversion rights attaching to the Convertible Bonds at the initial conversion price of HK$0.412 per Conversion Share (subject to adjustments), in accordance with the terms and conditions of the Agreement and the Convertible Bonds;
(d) conditional upon the Agreement referred to in ordinary resolution 1 (a) being approved, the issue of the promissory note in the aggregate principal amount of HK$600 million (the “ Promissory Note ”) by the Company to the Vendor (or its nominee(s)) as part of the consideration of the acquisition of the Target Share pursuant to the terms and conditions of the Agreement be and is hereby approved, ratified and confirmed;
(e) conditional upon the Agreement referred to in ordinary resolution 1 (a) being approved, the allotment and issue of a maximum of 485,436,893 new shares (the “ Consideration Shares ”) of HK$0.01 each in the share capital of the Company, credited as fully paid, at the issue price of HK$0.412 per Consideration Share to the Vendor (or its nominee(s)) as part of the consideration for the acquisition of the Target Share pursuant to the terms and conditions of the Agreement, be and is hereby approved, ratified and confirmed; and
(f) any one or more of the directors of the Company be and is hereby authorised, for and on behalf of the Company, to exercise all the powers of the Company, take all steps and do all acts and things, sign such other documents or supplemental agreements or deeds for and on behalf of the Company and to do all such things and take all such actions as he/she/they may consider necessary, desirable or expedient for the purpose of carrying out or giving effect to or otherwise in connection with the Agreement and the transactions contemplated thereunder.”
2 “ THAT
(a) the corporate guarantees (details of which are set out on pages 26 to 27 of the Circular) (the “ Corporate Guarantees ”) provided by members of the Target Group to various entities (the “ CP Group ”) indirectly wholly-owned or controlled by Mr. Guo or Ms. Shum Xi Xia prior to the Latest Practicable Date in respect of the payment obligations of the bank loans obtained by the CP Group which will constitute connected transactions of the Company under Chapter 14A of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited be and are hereby approved, confirmed and ratified; and

– SGM-2 –

NOTICE OF SGM

(b) any one Director be and is hereby authorised to, on behalf of the Company, do all such acts and sign, seal, execute and deliver all such documents and take all such actions as he/she may consider necessary or desirable for the purpose of or in connection with or to give effect to the Corporate Guarantees.”

By order of the Board China Sandi Holdings Limited Guo Jiadi Chairman

Hong Kong, 26 December 2018

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Headquarters and principal place of business in Hong Kong: Unit 3309, 33/F, West Tower, Shun Tak Centre 168 – 200 Connaught Road Central Sheung Wan Hong Kong

Notes:

The register of members of the Company will be closed from Friday, 11 January 2019 to Wednesday, 16 January 2019, both days inclusive, during which period no transfer of Shares can be registered. In order to qualify for attending and voting at the SGM, all transfer forms accompanied by the relevant share certificates must be lodged for registration with the branch share registrar and transfer office of the Company in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Thursday, 10 January 2019.
Any member entitled to attend and vote at the SGM (and any adjournment of such meeting) shall be entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares of the Company may appoint more than one proxy to represent him and vote on his behalf at the SGM (and any adjournment of such meeting). A proxy needs not be a member of the Company. In addition, a proxy or proxies representing either a member who is an individual or a member which is a corporation shall be entitled to exercise the same powers on behalf of the member which he or they represent as such member could exercise.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.
In order to be valid, the proxy form and the power of attorney or other authority (if any) 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 and transfer office in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 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 the SGM (or any adjournment of such meeting) (as the case may be) at which the person named in the instrument proposes to vote.
Completion and return of the proxy form does not preclude a member from attending and voting in person at the SGM (or any adjournment of such meeting) and, in such event, the proxy form shall be deemed to be revoked.
Where there are joint holders of any shares of the Company, any one of such joint holders may vote, either in person or by proxy, in respect of such shares as if he were solely entitled thereto; but if more than one of such joint holders are present at the SGM (and any adjournment of such meeting), the most senior will alone be entitled to vote, whether in person or by proxy. For this purpose, seniority will be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

– SGM-3 –

AI assistant

C&D Property Management Group Co., Ltd — M&A Activity 2018

50406_rns_2018-12-26_b1ddf337-3038-4524-baa4-ef6fc3e02616.pdf

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION – ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF ALL EXCEL INDUSTRIES LIMITED INVOLVING ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; (2) CONNECTED TRANSACTIONS UPON COMPLETION OF THE ACQUISITION; AND

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

INTRODUCTION

(1) THE ACQUISITION

THE AGREEMENT AS SUPPLEMENTED BY THE SUPPLEMENTAL DEED

Date

Parties

Assets to be acquired

Consideration

Conditions precedent

LETTER FROM THE BOARD

Guarantee

Completion

ISSUE OF THE CONSIDERATION SHARES

LETTER FROM THE BOARD

ISSUE OF THE CONVERTIBLE BONDS

LETTER FROM THE BOARD

Conversion rights

Conversion price

LETTER FROM THE BOARD

Redemption

LETTER FROM THE BOARD

Transferability

ISSUE OF THE PROMISSORY NOTE

LETTER FROM THE BOARD

Interest

Repayment

INFORMATION ON THE TARGET GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Remaining Construction GFA/Planned Construction GFA

(A) Shanghai Property Project

(B) Fujian Property Project

(C) Baoji Property Project

(D) Jilin Property Project

Financial information of the Target Group

INFORMATION ON THE PARTIES TO THE AGREEMENT

Grand Supreme and the Group

Primary Partner

Mr. Guo

EFFECT ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

FINANCIAL EFFECTS OF THE ACQUISITION

Assets and liabilities

Earnings

(2) CONNECTED TRANSACTIONS UPON COMPLETION OF THE ACQUISITION

BACKGROUND

LETTER FROM THE BOARD

THE SUPPLEMENTAL DEED

Internal control measures adopted by the Group on the Connected Transactions

Reasons for the Supplemental Deed

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

THE SGM

GENERAL

RECOMMENDATION

ADDITIONAL INFORMATION

CHINA SANDI HOLDINGS LIMITED 中國 三 迪控 股有 限公 司

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION – ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF ALL EXCEL INDUSTRIES LIMITED INVOLVING ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE BONDS UNDER SPECIFIC MANDATE; AND (2) CONNECTED TRANSACTIONS UPON COMPLETION OF THE ACQUISITION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Yours faithfully,

Independent Board Committee of China Sandi Holdings Limited

(2) CONNECTED TRANSACTION UPON COMPLETION OF THE ACQUISITION

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. BACKGROUND AND REASONS FOR THE ACQUISITION

1.1 Background information of the Group

C&D Property Management Group Co., Ltd M&A Activity 2018

CHINA SANDI HOLDINGS LIMITED 中國三迪控股有限公司