China Energy Storage Technology Development Limited — Proxy Solicitation & Information Statement 2018

Feb 15, 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 stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Healthcare Enterprise Group Limited (the ‘‘Company’’), you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker 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.

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CHINA HEALTHCARE ENTERPRISE GROUP LIMITED 華 夏 健 康 產 業 集 團 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1143)

MAJOR TRANSACTION

A notice convening the extraordinary general meeting of the Company to be held on 6 March 2018 (Tuesday) at 11:00 a.m. at 1804A, 18/F., Tower 1, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong is set out on pages 72 to 74 of this circular. Whether or not you are able to attend the extraordinary general meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the office of the Hong Kong branch share registrar of the Company, Tricor Investor Services 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 extraordinary general meeting. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the extraordinary general meeting or any adjourned meeting thereof should you so desire.

15 February 2018

CONTENTS

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		4
APPENDIX I	— FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . .	19
APPENDIX II	— FINANCIAL INFORMATION OF THE TARGET
	COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
APPENDIX III	— UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54
APPENDIX IV	— MANAGEMENT DISCUSSION AND ANALYSIS
	ON THE TARGET COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	64
APPENDIX V	— GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	67
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		72

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DEFINITIONS

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

• ‘‘Acquisition’’ the acquisition of the Sale Shares by the Purchaser pursuant to the Sale and Purchase Agreement

• ‘‘Board’’ the board of Directors

• ‘‘Business Day’’ any day (other than a Saturday, Sunday or public holiday) on which banks in Hong Kong are generally open for the transaction of normal business

• ‘‘Company’’ China Healthcare Enterprise Group Limited, a company incorporated in the Cayman Islands with limited liability and the securities of which are listed on the Main Board of the Stock Exchange

• ‘‘Completion’’ completion of the Acquisition

• ‘‘connected person(s)’’ has the meaning ascribed thereto under the Listing Rules

• ‘‘Consideration’’ the consideration of RMB258.88 million payable by the Purchaser to the Vendor for the purchase of the Sale Shares pursuant to the Sale and Purchase Agreement

• ‘‘Director(s)’’ the director(s) of the Company

• ‘‘Distribution of Communication marketing and distribution of communication products Products’’

• ‘‘EGM’’ the extraordinary general meeting of the Company to be held and convened to consider and approve the Acquisition

• ‘‘EMS’’ electronic manufacturing services

• ‘‘Enlarged Group’’ the Group and the Target Company upon Completion of the Acquisition

• ‘‘Group’’ the Company and its subsidiaries

• ‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong ‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC ‘‘Independent Third Party(ies)’’ party(ies) which is/are independent of the Group and the connected persons of the Company

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DEFINITIONS

• ‘‘Lanxin Jinxiu’’

• 蘭州新區蘭新錦綉健康科技資產管理合夥企業(有限合夥) (Lanzhou New District Lanxin Jinxiu Healthcare Technology Asset Management Limited Partnership Corporation*), an Independent Third Party

• ‘‘Latest Practicable Date’’

• 13 February 2018, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein

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

• ‘‘Long Stop Date’’

• 31 March 2018, or such later date as the Vendor and the Purchaser may agree in writing

• ‘‘PRC’’ the People’s Republic of China

• ‘‘Purchaser’’

• 華 氏 管 理 諮詢 ( 深 圳 ) 有 限 公 司 (Huashi Management Consultancy (Shenzhen) Limited*), an indirect whollyowned subsidiary of the Company incorporated in the PRC

• ‘‘RMB’’

Renminbi, the lawful currency of the PRC

• ‘‘Sale and Purchase Agreement’’

• the conditional sale and purchase agreement in relation to the Acquisition entered into between the Purchaser and the Vendor on 11 October 2017 and supplemented by the Supplemental Agreement

• ‘‘Sale Shares’’

• 270 million shares of the Target Company, representing approximately 84.1% of the entire issued share capital of the Target Company as at the Latest Practicable Date

• ‘‘SFO’’ The Securities and Futures Ordinances

• ‘‘Share(s)’’

• ordinary share(s) of HK$0.001 each in the share capital of the Company

• ‘‘Shareholder(s)’’

• holder(s) of the Share(s)

• ‘‘Stock Exchange’’

• The Stock Exchange of Hong Kong Limited

• ‘‘Supplemental Agreement’’

• the supplemental agreement entered into between the Purchaser and the Vendor on 9 February 2018 to supplement and to amend certain clauses and terms of the Sale and Purchase Agreement

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DEFINITIONS

• ‘‘Target Company’’

• ‘‘Vendor’’

• ‘‘%’’

蘭 州 科 天 健 康 科 技 股 份 有 限 公 司 (Lanzhou Scisky Healthcare Science and Technology Company Limited*), a company incorporated in the PRC

蘭 州 科 天 投 資 控 股股 份 有 限 公 司 (Lanzhou Scisky Investment CMI Holding Company Limited*), a company incorporated in the PRC

per cent.

• For identification purposes only

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LETTER FROM THE BOARD

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CHINA HEALTHCARE ENTERPRISE GROUP LIMITED 華 夏 健 康 產 業 集 團 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1143)

Executive Directors: Registered office: Mr. Gong Shaoxiang Clifton House Mr. Lee Chi Hwa Joshua 75 Fort Street Mr. Duan Chuanhong PO Box 1350 Mr. Shi Xinbiao Grand Cayman KY1-1108 Cayman Islands Non-executive Director: Mr. Cao Yuyun Head office and principal place of business in Hong Kong: Independent Non-executive Directors: Suites 5815–5816 Mr. Bao Jinqiao 58/F., Two International Finance Centre Mr. Wong Chun Hung No. 8 Finance Street Mr. Leung Pok Man Central, Hong Kong 15 February 2018

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

INTRODUCTION

Reference is made to the announcements of the Company dated 11 October 2017 and 9 February 2018 in relation to the Acquisition. The purpose of this circular is to provide you with (i) details of the Acquisition, the Sale and Purchase Agreement and the transactions contemplated thereunder; (ii) further information of the Target Company, including, among others, its audited financial information; and (iii) the notice of the EGM.

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LETTER FROM THE BOARD

On 11 October 2017, the Purchaser and the Vendor entered into the Sale and Purchase Agreement, pursuant to which the Purchaser has conditionally agreed to purchase, and the Vendor has conditionally agreed to sell, the Sale Shares. On 9 February 2018, the Purchaser and the Vendor entered into the Supplemental Agreement to supplement and to amend certain clauses and terms of the Sale and Purchase Agreement.

The Sale and Purchase Agreement

Date: 11 October 2017 (as supplemented by the Supplemental Agreement on 9 February 2018)

Parties: The Purchaser, an indirect wholly-owned subsidiary of the Company;

The Vendor, which are owned by Mr. Dai Jiabing and Ms. Li Yewei; and The Target Company

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor is an investment holding company, and it and its ultimate beneficial owner are Independent Third Parties as at the date of the Sale and Purchase Agreement and as at the Latest Practicable Date.

According to the information provided by Mr. Yang Zhihui, a substantial shareholder of the Company, Mr. Yang Zhihui was involved in certain litigation cases against Mr. Dai Jiabing in 2015. Mr. Yang Zhihui, as creditor, claimed that Mr. Dai Jiabing has not fulfilled his obligation as a debtor. All litigation cases have been withdrawn by Mr. Yang Zhihui in 2015. Save for this, Mr. Yang Zhihui and Mr. Dai Jiabing have confirmed that they have no other relationship, either prior or current, between them.

Assets to be acquired

The Sale Shares, being 270 million shares in the Target Company and representing approximately 84.1% of the entire issued share capital of the Target Company.

As at the Latest Practicable Date, 70 million shares in the Target Company was owned by the Vendor and 200 million shares in the Target Company was owned by Lanxin Jinxiu, an Independent Third Party. The Vendor undertakes that it will procure Lanxin Jinxiu to transfer its 200 million shares in the Target Company to the Vendor such that the Vendor will become the sole beneficial owner of the Sale Shares before Completion.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Lanxin Jinxiu is an investment holding company which is especially founded and funded to invest into the Target Company by its shareholders and investors. It is owned by 蘭州新區鐵路建設投資管理有限公司 (Lanzhou New District Railway Construction

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LETTER FROM THE BOARD

Investment Co., Ltd), 蘭州新區錦繡絲路產業投資基金管理有限公司 (Lanzhou New District Jinxiu Silk Road Asset Investment Fund Management Co., Ltd), and 華泰證券(上海)資產管 理有限公司 (Huatai Securities (Shanghai) Asset Management Co., Ltd.*), and their ultimate beneficial owner are all Independent Third Parties as at the date of the Sale and Purchase Agreement and as at the Latest Practicable Date. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the abovementioned shareholders of Lanxin Jinxiu have a dispersed and widely distributed shareholding, and there is no controlling shareholder of Lanxin Jinxiu.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries,

• (a) save for involving in certain litigations cases with Mr. Yang Zhihui, the Vendor and its ultimate beneficial owners are independent to (i) the Company and its connected persons; (ii) Lanxin Jinxiu and its ultimate beneficial owners; and (iii) Keywan Global Limited (the subscriber as announced in the announcement of the Company dated 13 October 2017) and its ultimate beneficial owners;

• (b) Lanxin Jinxiu and its ultimate beneficial owners are independent to (i) the Company and its connected persons; (ii) the Vendor and its ultimate beneficial owners; and (iii) Keywan Global Limited and its ultimate beneficial owners; and

• (c) Keywan Global Limited and its ultimate beneficial owners are independent to (i) the Company and its connected persons; (ii) the Vendor and its ultimate beneficial owners; and (iii) Lanxin Jinxiu and its ultimate beneficial owners.

According to a Cooperation Agreement (Shareholding Investment and Repurchase) entered into among the Vendor, Lanxin Jinxiu and the Target Company in August 2016, Lanxin Jinxiu agreed to inject RMB200 million into the Target Company for one year and the Vendor agreed to repurchase Lanxin Jinxiu’s investment in August 2017 at RMB200 million plus a premium of 7.8% per year. As at the Latest Practicable Date, the premium has been paid by the Vendor, while the outstanding consideration for the Vendor to repurchase Lanxin Jinxiu’s investment was RMB200 million.

As at the Latest Practicable Date, the Vendor has agreed with Lanxin Jinxiu on the terms of transferring the 200 millions shares in the Target Company which was owned by Lanxin Jinxiu. The consideration of transferring is RMB200 million, equivalent to the par value of the 200 million shares. Completion of the transferring shall take place within 10 days after the Vendor pays the consideration to Lanxin Jinxiu. For avoid of doubt, the consideration of transferring the 200 million shares from Lanxin Jinxiu to the Vendor will be self-funded by the Vendor, and not be financed by the Purchaser.

As disclosed in the interim report of the Company for the six months ended 30 June 2017, it is a strategy of the Group to explore suitable opportunities in the medical and healthcare industry in order to pave the way for medium-to-long term growth. Since early 2017, an executive director of the Company has been actively searching promising investments in China’s medical and healthcare business. In August and September 2017, the said executive director has filtered potential investments, including the Target Company, via his personal

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LETTER FROM THE BOARD

business network in the PRC and then proposed them to the Board for their consideration. Then in September and October 2017, the Company started to research and investigate on such investment and finally concluded that the Target Company represents a good opportunity with significant growth potential. The Company noted that the Vendor is interested in only 21.8% equity interest in the Target Company. As the Company is optimistic on the prospect of the Target Company and considers this as a good opportunity for the Group to expand into the healthcare related industry by gaining control of the Target Company, the Purchaser requested the Vendor to negotiate with Lanxin Jinxin, the controlling shareholder of the Target Company. The Board considers that it is in the interest of the Company to acquire a controlling interest of 84.1% in the Target Company instead of only 21.8% equity interest. Given the previous arrangement agreed between the Vendor and Lanxin Jinxiu, the Company is of the view that it is more likely to succeed in acquiring the 84.1% interests in the Target Company from the Vendor, who shall assume responsibility to obtain the Sale Shares.

As at the Latest Practicable Date, the Company has no intention to acquire the remaining 15.9% interest in the Target Company.

Consideration

Upon Completion, the Consideration for the Sale Shares is RMB258.88 million (representing approximately HK$319 million), which shall be paid in cash by the Purchaser. The Consideration was reached based on arm’s length negotiation between the Company and the Vendor by reference to (i) the net asset value of the Target Company; and (ii) the business prospects of the Target Company.

The payment terms of the Consideration is as below:

• (i) amount will be paid to the Target Company to settle the entire indebtedness of the Vendor and its subsidiaries (if any); and

• (ii) any remaining balance being paid to the Vendor.

As at 30 September 2017, the Target Company had an amount due from Vendor and a fellow subsidiary of approximately RMB247,087,000, mainly resulted from the Vendor’s internal resource deployment in the past. The Vendor has already repaid RMB80,000,000 in October 2017. Hence, the Vendor is expected to have an indebtedness to the Target Company of approximately RMB167,087,000 immediately before Completion. Immediately before Completion, the Company and the Purchaser will conduct an audit on the Target Company to determine the exact amount of the receivable due from the Vendor.

Reference is made to the announcement of the Company dated 13 October 2017, in relation to subscription of new Shares. As disclosed in the announcement, the net proceeds of the subscription, after deduction of the relevant expenses, were estimated to be of approximately HK$295 million, which was intended to be used by the Company to finance the Acquisition and/or the general working capital of the Group. Outstanding amount of the Consideration will be satisfied by the Group’s internal resources and/or debt financing.

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LETTER FROM THE BOARD

Conditions Precedent

Completion of the Sale and Purchase Agreement shall only take place after all of the following conditions precedent is satisfied:

• (a) the Purchaser being satisfied with the outcome of the financial, legal and business due diligence against the Target Company;

• (b) the passing by the directors of the Vendor all necessary resolutions for approving the Sale and Purchase Agreement and the transactions contemplated thereunder;

• (c) the undertakings and warranties remaining true and correct in all respects and not misleading in any respect at Completion as if repeated at all times between the date of the Sale and Purchase Agreement up to Completion;

• (d) the passing of a resolution by the Shareholders in a general meeting approving the Sale and Purchase Agreement and the transactions contemplated thereunder; and

• (e) all necessary approvals, permits, consents and authorization having been obtained by the parties in connection with the transactions contemplated under the Sale and Purchase Agreement, whether pursuant to law, regulatory compliance or the Listing Rules or otherwise.

None of the conditions precedent is waivable. The Sale and Purchase Agreement shall be terminated automatically if any of the above conditions is not satisfied on or before the Long Stop Date (unless the parties have agreed in writing to extend the Long Stop Date for fulfilment of any of the relevant conditions) and none of the parties to the Sale and Purchase Agreement shall have any claim against the other party save in respect of any antecedent breaches of the terms of the Sale and Purchase Agreement.

As at the Latest Practicable Date, none of the above conditions was satisfied.

INFORMATION ON THE TARGET COMPANY

During the due diligence on the Target Company, the Company and the Purchaser have engaged a PRC lawyer to conduct legal research, engaged an auditor to conduct independent audit on the financial information, visited the production site, and interviewed senior management and staff of the Target Company. The Board is of the view that the due diligence works have covered all material aspects of the Target Company, including its legal status, finance situation and operation progress. During the whole due diligence progress, the Board does not notice any material issues which may affect the Target Company in an adverse way. Hence, the Board is satisfied with the due diligence results of the Target Company.

General background and history

The Target Company was incorporated on 7 January 2016 in the PRC with limited liability. The Target Company is located in the Scisky Waterborne Technology Industry Park of Lanzhou* (蘭州科天水性科技產業園) in the PRC. As at this stage, it is principally engaged

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LETTER FROM THE BOARD

in (i) manufacturing and selling of polyurethane condoms, which are branded as ‘‘Zhong Chuan 0.01 (中川0.01)’’ and ‘‘Zhong Chuan 0.02 (中川0.02)’’; and (ii) developing polyurethane gloves. The core team of the Target Company has been working in the study, research, development and production of polyurethane products for over 30 years.

The Vendor, its shareholders and management have been engaged in research of new material for years and then decided to form the Target Company for industrialized and commercialized production of polyurethane condoms in January 2016. Later, the Target Company attracted attentions of 蘭州新區鐵路建設投資管理有限公司 (Lanzhou New District Railway Construction Investment Co., Ltd), 蘭州新區錦繡絲路產業投資基金管理有限公司 (Lanzhou New District Jinxiu Silk Road Asset Investment Fund Management Co., Ltd), and 華泰證券(上海)資產管理有限公司 (Huatai Securities (Shanghai) Asset Management Co., Ltd.*), which together invested RMB200 million into the Target Company via Lanxin Jinxiu in August 2016.

Products and advantages

The Target Company develops and manufactures products which are made of polyurethane. Polyurethane is a kind of new material which is characterized with safety and flexibility, and can be made into a wide range of products by controlling its property, density and production progress. It has been used in building panels, artificial heart valves and electrical equipment.

Major products of the Target Company are the polyurethane condoms, which are branded as as ‘‘Zhong Chuan 0.01 (中川0.01)’’ and ‘‘Zhong Chuan 0.02 (中川0.02)’’. The Target Company is one of the first Chinese companies which successfully put the polyurethane condoms into industrialized and commercialized productions. The Target Company started streamline productions of the polyurethane condoms in August 2016 and obtained approvals from China Food and Drug Administration Department* (中國食品藥品監督管理局) in December 2016. Unlike normal condoms made of traditional material, products of the Target Company are characterized with (i) thinness with 0.01mm–0.02 mm in thickness, being just one third or one fifth of normal products; (ii) high material-density without large pores on product surface, and hence extremely safety against certain virus; (iii) softness and flexibility; and (iv) no emulsion or nitrosamine, and hence non-allergy to human body.

The Target Company is now focusing on the polyurethane condoms as at this stage. It may continuously research on the polyurethane materials’ utilization, and expand into production of medical gloves or skin protectors in the future. It expects to put the polyurethane gloves into industrialized production in April 2018.

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LETTER FROM THE BOARD

Production flow

The production flow of the polyurethane products is as follows:

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

Preparing raw material
Producing thin films
Molding
Drying raw products
Adding isolation fluid
Cleaning molds
Electronic checking
Sample checking
Packaging
Sale and distribution
----- End of picture text -----

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LETTER FROM THE BOARD

To produce condoms, the Target Company mainly uses polyurethane, silicone oil and complex film, which are purchased from outside suppliers. The Target Company first checks quality of all materials and then mixes them to a specific composition and dilution. Before being used to produce condoms, the mixture undergoes many critical tests, including its quality and purity. Then the mixture is passed to a molding machine to produce a thin film and to create the shape of a condom. During the progress of molding, the film is dried and curved to enhance its quality. At this stage, an isolation fluid which provides lubricating and disinfecting purposes is added to the raw material. Then the molds are cleaned for further production, while the condoms are passed to quality control which includes both electronic checking and workers’ sample checking. Packaging is the final step of the production, where the condoms are packaged in wrappers and then in paper or plastic boxes.

Production facility and staff

The Target Company has a built production facility of around 130,000 m[2] , which is a key program of industrialized high-technology in the technology industry park.

In September 2017, the Target Company has rented another factory of 5,600 m[2] in the technology industry park for two years. Such factory will be used for production of polyurethane condoms. In early 2018, the Target Company has constructed 5 new production lines and are in production with the existing production line as at the Latest Practicable Date. The Target Company is planning to construct 5 additional production lines which may be completed in stages by late 2018. Upon completion, the Target Company can produce a maximum of 492 million polyurethane condoms in one year.

As at this stage, the Target Company has employed around 190 staff, including over 110 production staff. The existing size of the production team is able to support the Target Company’s production plan in the near future.

Material and cost

Materials which are used in the production of polyurethane condoms include polyurethane, silicone oil and complex film. As at this stage, the polyurethane, the most important raw material, is wholly supplied by Hefei Ketian Shuixing Keji Limited* (合肥科天 水性科技有限責任公司) (‘‘Hefei Ketian’’). Hefei Ketian is indirectly and wholly owned by the Vendor, and has supplied polyurethane to the Target Company in the past. Save for the material supply, Hefei Ketian has no other business with the Target Company, and is an Independent Third Party. Other production costs include workers’ salary, fuel and packaging costs.

As at this stage, the supply of Hefei Ketian is able to secure and support the Target Company’s normal production. Nonetheless, the Target Company is in the progress of developing its own material supply line which is targeted to be completed in June 2018. According to the management of the Target Company and representation of the Vendor, the Target Company has obtained all necessary technique, facility and personnel to complete and operate the production line of polyurethane. Material used to produce polyurethane can be purchased via open market, and is confidently secured. The Target Company is now building its supplier network, and does not foresee any material shortage for polyurethane production.

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LETTER FROM THE BOARD

In the unlikely case that the self-produced polyurethane cannot support the Target Company’s condom production, it may turn to Hefei Ketian for an ad hoc supply. Based on the management of the Target Company, the Target Company can supply itself with sufficient polyurethane and there is no foreseeable shortage.

Production plan

The Target Company adopts a flexible production schedule and may change its condom production according to market demand. After completing the production lines, the Target Company will have sufficient capacity to support its production plan for the year 2018.

Patent

The Target Company is registering 6 patents in the State Intellectual Property Office of the PRC* (中華人民共和國國家知識產權局) for its production of polyurethane condoms and gloves. All of the patent are under government’s review and are expected to be fully granted in 2018. Such patents are related to, among others, (i) glass mold for production of polyurethane condoms and method for production of polyurethane condoms; (ii) preparation method for production of super thin polyurethane condoms; (iii) preparation method for production of polyurethane gloves; and (iv) preparation method of polyurethane liquid. According to the management of the Target Company, the abovementioned patents are crucial in industrialized and commercialized production of polyurethane condoms and gloves.

Marketing and distribution

The Target Company packages its products in small boxes of 2–11 condoms each, which are mainly distributed to retailers. In order to promote its brand recognition, the Target Company has been actively engaged in market expansion, including offline exhibition and online promotion. As at 30 June 2017, the Target Company had only two customers, being Zhejiang Likun Trade Limited (浙江力坤貿易有限公司) and Anhui Zhong En Chemical Limited (安徽中恩化工有限公司). The high concentration of customers before June 2017 was due to the fact that the production was still at initial stage and the Target Company has not fully started its marketing and promotion activities. As at this moment, the Target Company has entered into distribution agreements with 10 offline distributors and 6 online distributors which are Independent Third Parties.

The Target Company and its distributors have entered into legally-binding distribution agreements which have predetermined quantity and price of condoms that the Target Company agrees to supply within a specific time-range, usually one year. In order to motivate the distributors, the Target Company agrees to provide a price discount, and an additional rebate of around 2–8% if the sales volume achieves certain amount. Usually, there is no guaranteed amount or volume of sales distributors. Terms of the distribution agreements are generally standardized.

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LETTER FROM THE BOARD

Management

The Target Company is managed by 4 senior managers, including:

Mr. Dai Jia Jun (‘‘Mr. Dai’’), aged 40, is the chief executive officer of the Target Company. Mr. Dai graduated from Anhui University (安徽大學) and has been working in the chemical industry for over 15 years. Before joining the Target Company, he worked as senior managers in, among others, Hefei Ketian Chemical Limited (合肥市科天化工有限公司) and Lanzhou Ketian Investments Holdings Limited * (蘭州科天投資控股股份有限公司).

Mr. Qi Wei (‘‘Mr. Qi’’), aged 46, is the general manager of the Target Company. Mr. Qi graduated from Chang’an University (長安大學) and has been working in sales and distribution area for over 6 years. Before joining the Target Company, he worked as chief sales manager of Triumph International Group (黛安芬國際集團) and Wuhan Jissbon Hygiene Products Limited* (武漢傑士邦衛生用品有限公司).

Mr. Zhou Zheng Fa (‘‘Mr. Zhou’’), aged 44, is the senior manager of the production and manufacturing department in the Target Company. Mr. Zhou graduated from Wuhan Light Industry University* (武漢輕工業大學) and has been working in machine design and manufacturing for over 20 years. Before joining the Target Company, he worked as engineer or facility manager in, among others, Shengquan Group Beer Company (聖泉集團啤酒有限公 司), Hefei Hengda Automatic Control System Limited (合肥恆大自動化控制系統有限公司), Huatai Huali Food Limited (華泰華力食品有限公司) and Qiaqia Food Limited (洽洽食品股份 有限公司).

Mr. Feng Lin Lin (‘‘Mr. Feng’’), aged 37, is the deputy general manger of the Target Company. Mr. Feng graduated with a graduation degree from University of Science and Technology of China and has been working in new material development for over 10 years. Before joining the Target Company, he worked as engineer or developer in, among others, Beijing Linshi Refined New Material Limited (北京林氏精化新材料有限公司), Beijing Orient Rain Waterproof Technology Limited (北京東方雨虹防水技術股份有限公司), China Chemical International (Holdings) Limited (中化國際（控股）股份有限公司) and Zhejiang Satellite Petrochemical Limited (浙江衛星石化股份有限公司).

Non-competing undertaking by the Vendor

On 9 February 2018, the Vendor and its ultimate beneficial owners have entered into a non-competing letter in favor of the Target Company and the Purchaser. According to such letter, the Vendor and its ultimate beneficial owners shall not (i) engage in any business which may compete with the Target Company, either directly or indirectly; or (ii) invest in any business or companies whose products or businesses may compete with the Target Company, either directly or indirectly. The non-competing undertaking shall take effective for ten years, starting from the date of the letter.

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LETTER FROM THE BOARD

General industry

During the past years, China’s population is growing at a rapid rate. Number of the childbearing-age group in China is expected to be 700–800 million in the near future. It is no doubt that demand of pregnancy-control products in China is increasing. On the other hand, the Chinese government has always placed child-control policies which have further boosted people’s demand of such pregnancy-control products.

Among all existing pregnancy-control measures, the condom is convenient and has no byeffects, and therefore widely used. Most products are made of emulsion or latex, while polyurethane is much less common. Compared with the traditional ones, polyurethane condoms have the advantages of thinness, non-allergy, heat conductivity and efficiency in anti-virus. As at this stage, the polyurethane condoms are in the initial stage in China. However, its usage has significantly improved, demonstrated by the growing number of campaigns, promotions, and initiatives taken by the major condom producers to enhance the awareness of benefits related to the use of polyurethane condoms.

In general, the Board is of the view that the polyurethane condom industry in the PRC is in an initial stage and has a promising future. Due to its relatively small market at the existing status, there may lack statistics to predict its growth rate. Nonetheless, it is noted that the polyurethane condom has a much wider market-recognition in mature markets, such as America and Japan, and therefore the Company is positive in its growth potential. Moreover, it is noted that only a few companies have the required technique to produce the polyurethane condoms. Hence, the Company concludes that it is a good timing to enter into this industry.

Group shareholding

Set out below is the group chart of the Target Company as at the Latest Practicable Date:

The Vendor		Lanxin Jinxiu		Other shareholders (including Mr. Bao Jinqiao)
21.8% 62.3% 15.9% The Target Company

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LETTER FROM THE BOARD

The other shareholders are listed out below:

Chinese name of shareholders English name for identification only 王武生 Wang Wusheng 王宇 Wang Yu 戴家君 Dai Jiajun 李維虎 Li Weihu 何文霞 He Wenxia 青島鼎泰翰林置業有限公司 Qingdao Ding Tai Hanlin Properties Limited 安徽華柏利華投資中心 （有限合夥） Anhui Wabai Lihua Investment Center (Limited Partnership) 朱華 Zhu Hua 戴麗萍 Dai Liping 宋英之 Song Yingzhi 鮑金橋 Bao Jinqiao 鄭勇 Zheng Yong 任順英 Ren Shun Ying 陳一明 Chen Yiming 郭榮軍 Guo Rongjun 趙曦 Zhao Xi 汪飛 Wang Fei 郭文鶴 Guo Wenhe 余建龍 Yu Jianlong 朱有奎 Zhu Youkui 祝彬 Zhu Bin 馮林林 Feng Linlin 戴麗麗 Dai Lili Total

Shareholding (%) 4.6729 1.5576 0.9346 0.9346 0.6231 1.5576 1.5576 0.9346 0.7788 0.3115 0.3115 0.1558 0.1558 0.1558 0.1558 0.1558 0.0779 0.0779 0.1558 0.1558 0.1558 0.1558 0.1558

15.9

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, save for Mr. Bao Jinqiao, all shareholders above and their ultimate beneficial owner (if applicable) are Independent Third Parties.

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LETTER FROM THE BOARD

Set out below is the group chart of the Target Company immediately before Completion, when the Vendor will have procured Lanxin Jinxiu to transfer its 200 million shares in the Target Company to the Vendor such that the Vendor will become the sole beneficial owner of the Sale Shares:

==> picture [434 x 111] intentionally omitted <==

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

Other shareholders
The Vendor (including Mr. Bao
Jinqiao)
84.1% 15.9%
The Target
Company
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Set out below is the group chart of the Target Company after Completion:

==> picture [434 x 111] intentionally omitted <==

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

Other shareholders
The Purchaser (including Mr. Bao
Jinqiao)
84.1% 15.9%
The Target
Company
----- End of picture text -----

Financial information

Upon Completion, the Target Company will become a non wholly-owned subsidiary to the Company, and its financial results will be consolidated into the accounts of the Group. Financial information of the Target Group is disclosed in the appendix II to this circular.

FINANCIAL IMPACT OF THE ACQUISITION

Upon completion of the Acquisition, the total assets and the total liabilities of the Group are expected to increase by approximately HK$332,446,000 and HK$254,016,000 respectively, the revenue of the Group will be increased, and the profits of the Group may be decreased given the Target Company’s current loss-making position as at this stage. There will be an excess of the fair value of the net assets of the Target Company over the Consideration, and therefore a gain on bargain purchase will be recorded as a result of the Acquisition. More information of the financial impact of the Acquisition is disclosed in the appendix III to this circular.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is principally engaged in (i) electronic manufacturing services; (ii) marketing and distribution of communications products; (iii) trading and selling of medical equipments; and (iv) securities and other assets investments.

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LETTER FROM THE BOARD

The Group plans to shift its business focus on the medical and healthcare industry in the PRC, which is now expanding at a high speed. Having considered the Target Company’s business and financial performance in the past, the Acquisition represents a good opportunity for the Group to expand into the healthcare related industry and to broaden its income base. Given the increasing childbearing population in the PRC, the Board is optimistic on the Target Company’s growth potential and its ability to generate income in the future.

Although the Group has no experience in production of condoms, the Company is of the view that the Target Company is able to self-run its business without further managerial or technical support from outsiders. After reviewing its operation, the Directors believe that the Target Company has obtained all necessary technologies and facilities in order to build its production line, and has recruited a competent management team. An executive director of the Company, will be allocated to supervise the general operation of the Target Company.

The Target Company is now operating a complete and mature business model, and has competitive advantages in a promising industry. The Consideration which represents the net asset value of the Target Company attributable to the Sale Shares could also reduce the Group’s potential risk exposure to this new business segment. Considering the Target Company’s growth potential, the Board is of the view that the Company’s investment is secured and recoverable, with possible growth return. The terms of the Sale and Purchase Agreement were arrived at arm’s length negotiations between the Purchaser and the Vendor. The Board (excluding Mr. Bao Jinqiao) considers the terms of the Sale and Purchase Agreement are normal commercial terms and fair and reasonable, and, if materialized, will be in the interests of the Company and its Shareholders as a whole.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios as defined in the Listing Rules exceed(s) 25% but less than 100%, the Sales and Purchase Agreement and the transactions contemplated thereunder constitute a major transaction of the Company and are subject to the notification, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

GENERAL

The EGM will be convened for the Shareholders to consider and, if thought fit, approve the Sale and Purchase Agreement and the transactions contemplated thereunder. To the best of the Directors’ knowledge, information and belief having made all reasonable enquires, no Shareholder has a material interest in the transactions contemplated under the Sale and Purchase Agreement. As such, no Shareholder will be required to abstain from voting in favour of the resolution(s) to approve the Sale and Purchase Agreement and the transactions contemplated thereunder at the EGM. Mr. Yang Zhihui, a substantial shareholder of the Company, has been involved in certain litigation cases against Mr. Dai Jiabing, one shareholder of the Vendor, in 2015. All litigation cases have been withdrawn by Mr. Yang Zhihui in 2015. To avoid any potential interest conflict, Mr. Yang Zhihui, Power Port Holdings Limited and their associates will voluntarily abstain from voting in favor for the resolution at the EGM to approve the Sale and Purchase Agreement.

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LETTER FROM THE BOARD

Mr. Bao Jinqiao, an independent non-executive Director, is interested in 0.3115% equity interest of the Target Company. Mr. Bao Jinqiao has abstained from voting for the Board resolutions to approve the Sale and Purchase Agreement.

A notice convening the EGM of the Company to be held on 6 March 2018 (Tuesday) at 11:00 a.m. at 1804A, 18/F., Tower 1, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong is set out on pages 71 to 73 of this circular. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the office of the Hong Kong branch share registrar of the Company, Tricor Investor Services 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 EGM. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof should you so desire.

RECOMMENDATION

The Directors consider that the Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that all Shareholders should vote in favour of the relevant resolutions to be proposed at the EGM to approve the Sale and Purchase Agreement and the transactions contemplated thereunder.

FURTHER INFORMATION

Your attention is also drawn to the additional information as set out in the appendices to this circular.

By order of the Board of China Healthcare Enterprise Group Limited Gong Shaoxiang Chairman and Executive Director

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

Details of the financial information of the Group for each of the three financial years ended 31 December 2014, 31 December 2015 and 31 December 2016 respectively have been set out on pages 53 to 182, pages 48 to 181 and pages 63 to 181 of the Company’s annual reports for the years ended 31 December 2014, 31 December 2015 and 31 December 2016 respectively, and are incorporated by reference into this circular. Details of the financial information of the Group for the six months ended 30 June 2017 have been set out on pages 20 to 51 of the Company’s interim report for the six months ended 30 June 2017, and are incorporated by reference into this circular.

The said annual reports and interim report of the Company have been posted on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company at www.chinahealthcare.com.hk.

2. INDEBTEDNESS

(1) Borrowings

As at the close of business on 31 December 2017, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had total borrowings of approximately HK$163.0 million which comprised unsecured other borrowings of approximately HK$23.1 million and secured bank and other borrowings of approximately HK$139.9 million.

(2) Pledge of assets

As at the close of business on 31 December 2017, being the latest practicable date for this indebtedness statement, the Enlarged Group’s bank and other borrowings and other unutilised facilities were secured by charges over the shares of the Company’s subsidiaries, Vendor’s subsidiaries and certain shareholders’ equity interest in another subsidiary of the Vendor.

(3) Contingent liabilities

As at the close of business on 31 December 2017, being the latest practicable date for this indebtedness statement, the Enlarged Group had contingent liabilities in respect of guarantees issued for a trade balance under dispute at approximately HK$20.3 million. In the normal course of its business, the Enlarged Group had not provided any mortgage facilities.

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 December 2017, 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account of the Enlarged Group’s internal resources, cash flow from operations, the facilities presently available to the Group, the effect of the Acquisition, the Enlarged Group will have sufficient working capital to satisfy its present requirements, that is, for at least the next twelve months from the date of this circular in the absence of unforeseen circumstances.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Looking ahead, the management is cautiously optimistic about the Group’s development prospects. The Group intends to keep strengthening the pillars of its EMS and Distribution of Communications Products businesses while exploring new revenue streams in the medical and healthcare industry.

EMS and Distribution of Communications Products businesses

In the EMS and Distribution of Communications Products businesses, apart from addressing the needs of existing renowned consumer electronic brand clients, the Group will actively pursue opportunities to step up expansion by strengthening its marketing team and dedicating more efforts to reach more potential new customers. The Group will also direct its focus on products with rigid demand and with a higher profit margin and at the same time will exercise prudence in financial management to effectively control production costs. These moves will facilitate the EMS and Distribution of Communications Products businesses to increase market share and boost sales.

Healthcare business

The Acquisition represents the strategic movement for the Group to expand into a promising healthcare industry in the PRC. The reforms and policies implemented by the PRC government should promote the positive development of the medical and healthcare industry in a long run. In addition, with the growing need of healthcare support in the PRC driven by a rising disposable incomes, the management sees opportunities in the upstream and midstream segments of the sector. Thus the Group believes that there will be a period of remarkable development in the medical and healthcare industry.

5. MANAGEMENT DISCUSSION AND ANALYSIS ON THE COMPANY

Set out below is the latest management discussion and analysis on the Company.

Business overview

During the period ended 30 June 2017, the Group focused on building a solid foundation for both the electronic manufacturing services (‘‘EMS’’) and marketing and distribution of communications products (‘‘Distribution of Communications Products’’) segments. The Group also explores suitable opportunities in the medical and healthcare

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

industry in order to pave the way for medium-to-long term growth. Another reporting segment, the Securities and Other Assets Investment, was set up last year to facilitate the Group to carry out effective financial management function.

For the six months ended 30 June 2017 (‘‘Period’’), the Group recorded a total revenue of approximately HK$335.0 million (2016: HK$409.8 million). Gross profit amounted to HK$77.4 million (2016: HK$83.9 million), while loss attributable to owners of the Company was HK$88.2 million (2016: HK$18.5 million).

The Group was in a sound financial position with a healthy cash flow during the Period, with bank and cash balances of HK$289.8 million (2016: HK$208.3 million).

Review of Operations

The EMS and Distribution of Communications Products

With the external economic environment remaining weak and clients undergoing consolidation leading to declining sales orders, revenue from the EMS and Distribution of Communications Products was HK$299.7 million (2016: HK$368.5 million) and HK$34.8 million (2016: HK$41.3 million) respectively.

Securities and Other Assets Investment

The purpose of setting up the Securities and Other Assets Investment segment is to meet the Group’s growth ambition of tapping the healthcare and medical industry through more effectively utilising financial resources. The revenue from this segment amounting to approximately HK$0.5 million was modest as it is still only at the development stage. During the Period, the Group sold certain subsidiaries at a consideration of HK$25.0 million.

The Group continues to strive to invest in the future and will make strategic investments and collaborate with companies and authorities in the People’s Republic of China (‘‘PRC’’) in order to explore and identify suitable targets in the medical and healthcare industry so as to broaden its revenue streams.

Geographical Analysis

Revenue contributions from the major European countries (the United Kingdom, Switzerland, Poland, Russia and France) totalled HK$117.4 million (2016: HK$168.6 million), and accounted for 35.0% of the Group’s total revenue for the six months ended 30 June 2017 (2016: 41.1%). The United States (‘‘US’’) market contributed HK$73.5 million (2016: HK$92.0 million) in revenue, and accounted for 21.9% of total revenue (2016: 22.4%). The PRC (mainly Hong Kong) and other countries accounted for HK$44.0 million and HK$100.1 million respectively (2016: HK$43.2 million and HK$106.0 million respectively).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Highlights

Revenue

For the period ended 30 June 2017, the Group recorded total revenue of HK$335.0 million (2016: HK$409.8 million).

Cost of sales

Cost of sales decreased by 20.9% from HK$325.8 million in 2016 to HK$257.7 million in 2017 corresponded to the level of revenue of the Period.

Gross Profit

Gross profit decreased by 8.0% from HK$84.0 million in 2016 to HK$77.3 million in 2017, while the gross profit margin slightly increased from 20.5% in 2016 to 23.1% in 2017 resulting mainly from the improvement of rate of goods returned and increasing income from EMS project development.

Other income

Other income decreased by HK$10.7 million to HK$6.4 million for the current period (2016: HK$17.1 million). The major component of the other income is represented by gain on disposal of subsidiaries of HK$4.4 million.

Selling and distribution expenses

Selling and distribution expenses of HK$22.6 million (2016: HK$24.3 million) accounted for approximately 6.8% in 2017 and 5.9% in 2016 of the Group’s revenue respectively. The decrease is mainly caused by the reduction in staff cost of HK$3.3 million offset by the increase in promotion expenses of HK$1.3 million.

Administration expenses

Administration expenses of HK$61.7 million (2016: HK$56.9 million) accounted for approximately 18.4% in 2017 and 13.9% in 2016 of the Group’s revenue respectively. Increase is mainly contributed by the surge in staff costs of approximately HK$11.6 million offset by the decrease in consultancy fee of HK$6.6 million.

Other operating expenses

Other operating expenses increased by HK$40.3 million from HK$33.5 million in 2016 to HK$73.8 million in 2017. The increase was mainly resulted from the emerged loss on disposal of subsidiaries of HK$14.7 million and impairment loss on available-forsale financial assets of HK$28.1 million.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Finance costs

The Group’s finance costs is HK$10.8 million in 2017 and HK$1.8 million in 2016, represented approximately 3.2% and 0.4% of the revenue in 2017 and 2016 respectively. The increase in finance costs is mainly attributable to the imputed interest incurred for the amortisation of non-interest bearing loans from a substantial shareholder, amounting to HK$10.3 million.

Income tax expense

The Group’s income tax expense represents amounts of income tax paid by the Group, at the applicable tax rates in accordance with the relevant laws and regulations in Hong Kong, the PRC, US and Japan. The Group had no tax payable in other jurisdictions during the periods ended 30 June 2017 and 2016.

The Group’s effective income tax rates for the periods ended 30 June 2017 and 2016, was approximately -5.0% and -31.2%, respectively.

Loss for the period attributable to owners of the Company

The loss attributable to owners of the Company was HK$88.2 million for the period ended 30 June 2017 (2016: HK$18.5 million). The Group’s net loss margin attributable to owners of the Company for the period ended 30 June 2017 was -26.3% (2016: -4.5%).

Loss for the period attributable to non-controlling interests

The loss attributable to non-controlling interests amounted to HK$1.2 million for the period ended 30 June 2017 (2016: HK$1.8 million). The loss was primarily resulted from its operations.

Liquidity and financial resources

The Group generally finances its operations and capital expenditure by internally generated cashflows and borrowings.

The Group’s current ratio remains in a healthy position at 2.22 times (2016: 2.21 times). As at 30 June 2017, the bank and cash balances amounted to HK$289.8 million, representing an increase of HK$81.5 million from 2016. During the six months ended 30 June 2017, HK$56.6 million was used in the operating activities, HK$201.2 million was generated from investing activities and HK$61.9 million was used in financing activities. Net cash inflow from investing activities was mainly arising from the refund of deposit for the proposed acquisition of a target group of HK$140.0 million, net proceeds from the disposal of available-for-sale financial assets of HK$63.8 million and financial assets at fair value through profit or loss of HK$51.1 million, offset by the purchase of financial assets at fair value through profit or loss of HK$58.8 million. Net cash outflow from financing activities was mainly due to the full repayment of non-interest bearing loans from a substantial shareholder amounting to HK$70.0 million and interest bearing loans

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

from an independent third party of HK$20.0 million, whilst it was offset by the borrowing raised from another independent third party of HK$20.0 million and also the net borrowings raised from a related company of HK$8.1 million during the Period.

As at 30 June 2017, the carrying amounts of the interest-bearing loan from an independent third party and non-interest bearing loan from a related company amounted to HK$20.0 million and HK$8.1 million, respectively.

Capital structure

As at 30 June 2017, the total number of issued shares of the Company is 4,955,311,400 shares with a nominal value of HK$0.001 each.

Exchange risk exposure

The Group has transactional currency exposures. Such exposures arise from the business operations in the PRC and Hong Kong denominated in Renminbi (‘‘RMB’’) and US dollars respectively. As at 30 June 2017, the Group had minimal exposure to foreign currency risk as most of its business transactions, assets and liabilities were principally denominated in the respective functional currencies, i.e. RMB and US dollars, used by the respective group entities, or in US dollars for the respective group entities with HK dollars being the functional currency. As HK dollars is pegged to US dollars, the Group considers the risk of movements in exchange rates between HK dollars and US dollars to be insignificant for transactions denominated in US dollars. The RMB is not freely convertible into other foreign currencies and conversion of the RMB into foreign currencies is subject to rules and regulations of foreign exchange control promulgated by the PRC government. As at 30 June 2017, the Group does not have a foreign currency hedging policy in respect of its foreign currency assets and liabilities. The Group had no investment in any financial derivatives, foreign exchange contracts, interest or currency swaps, hedging or other financial arrangements for hedging purposes to reduce any currency risk nor made any over-the-counter contingent forward transactions. 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.

Capital expenditure and commitments

Capital expenditure for the period ended 30 June 2017 amounted to HK$3.2 million and the capital commitments as at 30 June 2017 amounted to approximately HK$1.3 million. Both the capital expenditure and capital commitments were mainly related to the acquisition of plant and machinery and leasehold improvements to cope with the requirement of the EMS operation.

Contingent liabilities

As at 30 June 2017, the Group had an outstanding guarantee (the ‘‘Guarantee’’) to one of the suppliers of an overseas subsidiary (‘‘Disposed Subsidiary’’), which was disposed of under the disposal agreement (as supplemented on 7 August 2015) pursuant to which the Company agreed to sell the equity interest of a group of subsidiaries and

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

associates to Dragon Fortune International Limited, for payment in relation to a sum of USD2.6 million (equivalent to approximately HK$20.3 million) representing a trade balance under dispute between the Disposed Subsidiary and the supplier. The Disposed Subsidiary had issued counter guarantee to the Company to indemnify the Company for any loss in relation to the Guarantee. Apart from the above, the Group and Company did not have any significant contingent liabilities.

Pledge of assets

As at 30 June 2017 (2016: Nil), certain shares of subsidiaries have been pledged to an independent third party to secure a loan facility available to the Group.

Significant investments

As at 30 June 2017, the Group was holding listed equity investments at a fair value of approximately HK$30.0 million, which were classified as available-for-sale financial assets of the Group. Due to the downward movements of the share prices, impairment losses in respect of such investments of approximately HK$28.1 million was recorded in profit or loss, which was reclassified from other comprehensive income during the six months ended 30 June 2017.

During the period under review, there was no other material acquisition, disposal or investment by the Group that should be notified to the shareholders of the Company.

Human resources

As at 30 June 2017, the Group had approximately 1,700 employees in various operating units in Hong Kong, US, and the PRC. In order to attract and retain high quality talents to ensure smooth operation and cater for the Group’s constant expansion, it offers competitive remuneration packages, with reference to market conditions and individual qualifications and experience.

There is no outstanding share option as at 30 June 2017 and 31 December 2016. In addition, no share option was granted, cancelled or lapsed during the six months ended 30 June 2017.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Moore Stephens CPA Limited, Certified Public Accountants, Hong Kong:

Moore Stephens CPA Limited 會計 大 801-806 Silvercord, Tower 1,30 Canton Road, Tsimshatsui, 師事 華 Kowloon, Hong Kong 務所 馬 T +852 2375 3180F +852 2375 3828 有限 施 www.moorestephens.com.hk 公司 雲

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF CHINA HEALTHCARE ENTERPRISE GROUP LIMITED

We report on the historical financial information of Lanzhou Scisky Healthcare Science and Technology Company Limited (蘭州科天健康科技股份有限公司) (the ‘‘Target Company’’) set out on pages 29 to 53, which comprises the statements of financial position of the Target Company as at 31 December 2016 and 30 September 2017, and the statements of profit or loss and other comprehensive income, the statements of changes in equity and the statements of cash flows for the period from 7 January 2016 (date of incorporation) to 31 December 2016 and the nine months ended 30 September 2017 (the ‘‘Relevant 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 29 to 53 forms an integral part of this report, which has been prepared for inclusion in the circular of China Healthcare Enterprise Group Limited (the ‘‘Company’’) dated 15 February 2018 (the ‘‘Circular’’) in connection with the proposed acquisition of approximately 84.11% equity interest in the Target Company by the Company.

Directors’ responsibility for the Historical Financial Information

The directors of the Company are 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 2 to the Historical Financial Information, and for such internal control as the directors of the Company determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Reporting accountant’s 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, Accountant’s 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.

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 accountant’s 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 accountant considers internal control relevant to the Target Company’s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 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 Target Company’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors of the Target Company (‘‘Target’s Directors’’) as well as evaluating the overall presentation of the Historical Financial Information.

We believe that the evidence we 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 accountant’s report, a true and fair view of the financial positions of the Target Company as at 31 December 2016 and 30 September 2017 and of its financial performance and cash flows for each of the Relevant Period in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the Target Company which comprises the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the period from 7 January 2016 (date of incorporation) to 30 September 2016 and other explanatory information (the ‘‘Stub Period Comparative Financial Information’’). The directors of the Company are 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 2 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

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

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 purposes of the accountant’s report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

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 29 have been made.

Dividends

We refer to Note 10 to the Historical Financial Information which states that no dividends have been paid by the Target Company or recommended by the Target’s Directors in respect of the Relevant Period.

Moore Stephens CPA Limited Certified Public Accountants

Li Wing Yin Practising Certificate Number: P05035 Hong Kong

15 February 2018

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

I. HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

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

For the purpose of this report, the Target’s Directors have prepared the financial statements of the Target Company (the ‘‘Underlying Financial Statements’’) for the Relevant Period in accordance with the Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA. The Underlying Financial Statements for each of the Relevant Period were audited by Moore Stephens CPA Limited in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

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

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Revenue 7 Cost of sales Gross profit Other income 8 Selling and distribution expenses Administrative expenses Finance cost Loss before income tax 9 Income tax expense 11 Loss and total comprehensive loss for the period	Period from 7 January 2016 (date of incorporation) to 31 December 2016 RMB’000 3,420 (1,579) 1,841 147 (371) (3,815) — (2,198) (14) (2,212)	Period from 7 January 2016 (date of incorporation) to 30 September 2016 RMB’000 (unaudited) — — — 86 (258) (2,687) — (2,859) — (2,859)	Nine months ended 30 September 2017 RMB’000 1,627 (1,276) 351 373 (2,563) (8,586) (975) (11,400) — (11,400)

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STATEMENTS OF FINANCIAL POSITION

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 12 Prepaid land leases 13 Deposits paid for acquisition of property, plant and equipment 14 Current assets Inventories 15 Trade and other receivables 16 Prepaid land leases 13 Amount due from holding company 17 Amount due from a fellow subsidiary 17 Pledged deposits 18 Bank and cash balances Current liabilities Trade and bills payables 19 Accruals and other payables 20 Amounts due to fellow subsidiaries 17 Bank loan 21 Tax payable Net current assets Net assets EQUITY Paid-in capital 22 Accumulated losses 23 Total equity	As at 31 December 2016 RMB’000 4,267 56,871 69,262 130,400 115 3,536 1,232 178,560 6,435 50,000 1,113 240,991 50,557 1,856 176 — 14 52,603 188,388 318,788 321,000 (2,212) 318,788	As at 30 September 2017 RMB’000 121,380 55,947 76,880 254,207 3,132 4,215 1,232 240,621 6,466 — 221 255,887 957 91,174 10,575 100,000 — 202,706 53,181 307,388 321,000 (13,612) 307,388

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STATEMENTS OF CHANGES IN EQUITY

Balance at 7 January 2016 (date of incorporation) Capital injection by equity owners Loss and total comprehensive loss for the period Balance at 31 December 2016 and 1 January 2017 Loss and total comprehensive loss for the period Balance at 30 September 2017 (unaudited) Balance at 7 January 2016 (date of incorporation) Capital injection by equity owners Loss and total comprehensive loss for the period Balance at 30 September 2016	Share capital RMB’000 — 321,000 — 321,000 — 321,000 — 300,000 — 300,000	Accumulated losses RMB’000 — — (2,212) (2,212) (11,400) (13,612) — — (2,859) (2,859)	Total RMB’000 — 321,000 (2,212) 318,788 (11,400) 307,388 — 300,000 (2,859) 297,141

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STATEMENTS OF CASH FLOWS

Notes Cash flows from operating activities Loss before income tax Adjustments for: Amortisation of prepaid land leases 13 Depreciation of property, plant and equipment 12 Inventories write-down 15 Finance costs Interest income Operating cash flows before movements in working capital Increase in inventories Increase in trade and other receivables Increase in trade payables Increase in accruals and other payables Cash used in operations Income tax paid Net cash used in operating activities Cash flows from investing activities Interest income received Payments of prepaid land leases Purchases of property, plant and equipment Deposit paid for acquisition of property, plant and equipment (Increase)/Decrease in pledged deposits Increase in amount due from holding company Increase in amount due from a fellow subsidiary Net cash used in investing activities	Period from 7 January 2016 (date of incorporation) to 31 December 2016 RMB’000 (2,198) 821 254 101 — (144) (1,166) (216) (3,536) 557 1,856 (2,505) — (2,505) 144 (58,924) (4,521) (69,262) (50,000) (178,560) (6,435) (367,558)	Period from 7 January 2016 (date of incorporation) to 30 September 2016 RMB’000 (unaudited) (2,859) 411 17 — — (86) (2,517) — (968) — 392 (3,093) — (3,093) 86 (58,924) (990) (40,364) — (46,625) — (146,817)	Nine months ended 30 September 2017 RMB’000 (11,400) 924 612 960 975 (327) (8,256) (3,977) (679) 400 1,243 (11,269) (14) (11,283) 327 — (29,947) (7,618) 50,000 (62,061) (31) (49,330)

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Notes Cash flows from financing activities Interest paid Capital injection by equity owners Proceeds from bank loan Increase/(Decrease) in bills payable Increase in amounts due to fellow subsidiaries Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period	Period from 7 January 2016 (date of incorporation) to 31 December 2016 RMB’000 — 321,000 — 50,000 176 371,176 1,113 — 1,113	Period from 7 January 2016 (date of incorporation) to 30 September 2016 RMB’000 (unaudited) — 300,000 — — 39 300,039 150,129 — 150,129	Nine months ended 30 September 2017 RMB’000 (678) — 100,000 (50,000) 10,399 59,721 (892) 1,113 221

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II. NOTES TO HISTORICAL FINANCIAL INFORMATION

1. CORPORATE INFORMATION

The Target Company was incorporated in the People’s Republic of China (the ‘‘PRC’’) on 7 January 2016 with limited liabilities. The registered office and the principal place of business of the Target Company is located at Scisky Waterborne Technology Industry Park of Lanzhou. During the Relevant Period, the Target Company was principally engaged in manufacturing and selling of polyurethane condoms, which are branded as ‘‘Zhong Chuan 0.01’’ and ‘‘Zhong Chuan 0.02’’.

* For identification purpose only

The statutory financial statements of the Target Company for the period from 7 January 2016 (date of incorporation) to 31 December 2016 prepared under the PRC Generally Accepted Accounting Principles were audited by Ruihua Certified Public Accountants, certified public accountants registered in the PRC.

2. BASIS OF PREPARATION

The Historical Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA. All HKFRSs effective for the accounting period commencing from 1 January 2017, together with the relevant transitional provisions, have been adopted by the Target Company in the preparation of the Historical Financial Information throughout the Relevant Period.

The preparation of Historical Financial Information in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Target Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information, are disclosed in Note 5.

The Historical Financial Information has been prepared under the cost convention. The Historical Financial Information is presented in RMB and all values are rounded to the nearest thousand except when otherwise indicated.

3. NEW AND REVISED HKFRSs

New and revised HKFRSs that are effective during the Relevant Period have been adopted by the Target Company at the respective effective dates. The adoption of these new and revised HKFRSs has no significant impact on the Target Company’s results and financial positions.

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The Target Company has not applied the following new and revised HKFRSs that have been issued but are not yet effective, in the Historical Financial Information:

Effective for annual reporting periods beginning on or after

HKAS 40 Amendments	Transfers of Investment Property	1 January 2018
HKFRS 2 Amendments	Classification and Measurement of Share-based	1 January 2018
	Payment Transactions
HKFRS 4 Amendments	Apply HKFRS 9 Financial Instruments with HKFRS 4	1 January 2018
	Insurance Contracts
HKFRS 9 (2014)	Financial Instruments	1 January 2018
HKFRS 15	Revenue from Contracts with Customers	1 January 2018
Amendments to HKFRS 15	Clarifications to HKFRS 15 Revenue from Contracts	1 January 2018
	with Customers
HK(IFRIC) Interpretation 22	Foreign Currency Transactions and Advance	1 January 2018
	Consideration
HK(IFRIC) Interpretation 23	Uncertainty over Income Tax Treatments	1 January 2019
HKFRS 16	Leases	1 January 2019
Amendments to HKFRSs	Amendments to a number of HKFRSs	1 January 2018
2014–2016 Cycle
HKFRS 10 and HKAS 28	Sale or Contribution of Assets between an Investor	To be determined*
Amendments	and its Associate or Joint Venture

The Target Company has already commenced an assessment of the related impact of adopting the above new and revised HKFRSs. So far, it has concluded that the above new and revised HKFRSs will be adopted at the respective effective dates and the adoption of them is unlikely to have a significant impact on the Historical Financial Information of the Target Company except for the followings:

HKFRS 9 ‘‘Financial Instruments’’

HKFRS 9 has introduced new requirements for (a) classification and measurement of financial assets, (b) impairment of financial assets and (c) general hedge accounting. Specifically, with regard to the classification and measurement of financial assets, HKFRS 9 requires all recognised financial assets that are within the scope of HKFRS 9 to be subsequently measured at amortised cost or fair value. Debt investments 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 outstanding are generally measured at amortised cost at the end of each of the subsequent accounting periods. Debt investments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. Further, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 applies) in other comprehensive income, with only dividend income generally recognised in the profit or loss and that cumulative fair value changes will not be reclassified to the profit or loss upon derecognition of the investment.

With regard to the measurement of financial liabilities designated as at fair value through profit or loss, HKFRS 9 requires that the amount of change in the fair value of a financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of such changes in other comprehensive income would create or enlarge an accounting mismatch in the profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to the profit or loss. Under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in the profit or loss.

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With regard to impairment of financial assets, HKFRS 9 has adopted an expected credit loss model, as opposed to an incurred credit loss model required under HKAS 39. In general, the expected credit loss model requires an entity to assess the change in credit risk of the financial asset since initial recognition at each reporting date and to recognise the expected credit loss depending on the degree of the change in credit risk.

With regard to the general hedge accounting requirements, HKFRS 9 retains the three types of hedge accounting mechanisms currently available in HKAS 39. Under HKFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.

The Target Company anticipates that the application of HKFRS 9 in the future may have impact on amounts reported in respect of the Target Company’s financial assets (e.g. the impairment on receivables) based on expected credit losses impairment model and disclosure changes. Currently the Target Company is in the midst of assessing the financial impact of the application of HKFRS 9 and a reasonable estimate of that effect will be available once a detailed review has been completed. The Target Company does not expect to adopt the new standard before 1 January 2018.

HKFRS 15 ‘‘Revenue from Contracts with Customers’’

HKFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including HKAS 18 Revenue, HKAS 11 Construction Contracts and the related interpretations when it becomes effective.

The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, HKFRS 15 introduces 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

Under HKFRS 15, an entity recognises revenue when a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in HKFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by HKFRS 15. The Target’s Directors have assessed the impact of HKFRS 15, and consider that the Target Company will continue to recognise revenue at a point in time, i.e. when the Target Company transfers a promised good to its customer, under HKFRS 15, similar to its current revenue recognition policy and therefore, anticipate that the application of HKFRS 15 will have no material impact on the Target Company’s financial statements. The Target Company does not expect to adopt the new standard before 1 January 2018.

HKFRS 16 ‘‘Leases’’

HKFRS 16 will supersede the current lease guidance including HKAS 17 Leases and the related interpretations when it becomes effective.

With regard to lessee accounting, the distinction of operating leases and finance leases, as required by HKAS 17, has been replaced by a model which requires a right-of-use asset and a corresponding liability to be recognised for all leases by lessees except for short-term leases and leases of low value assets. Specifically, 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 re-measurement of

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APPENDIX II

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. Furthermore, the classification of cash flows will also be affected as operating lease payments under HKAS 17 are presented as operating cash flows; whereas, under the HKFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.

With regard to lessor 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.

The Target Company expects to adopt HKFRS 16 on 1 January 2019 and is currently assessing the impact of HKFRS 16 upon adoption.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the Historical Financial Information are summarised below. These policies have been consistently applied to all the periods presented unless otherwise stated.

(a) Property, plant and equipment

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

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Target Company and the cost of the item can be measured reliably. All other repairs and maintenance are recognised in profit or loss during the period in which they are incurred.

Depreciation of property, plant and equipment is calculated at rates sufficient to write off their cost less their residual values over the estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Leasehold improvements 4 years, or over the terms of leases if shorter Plant and machinery 10 years Furniture and equipment 5 years Motor vehicles 5 years

The residual values, useful lives and depreciation method are reviewed and adjusted, if appropriate, at the end of each reporting period.

The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss. Estimated residual values, estimated useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at the end of each reporting period.

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

Construction in progress is stated at cost less impairment losses. Cost comprises direct costs incurred during the year of construction and borrowing cost. No depreciation is provided on construction in progress. Construction in progress is reclassified to the appropriate category of property, plant and equipment when the construction is completed and the asset is ready for use.

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(b) Prepaid land leases

Payments for obtaining land use rights are accounted for as prepaid lease payments and are charged to profit or loss on a straight-line basis over the lease terms as stated in the relevant land use rights certificates granted for usage by the Target Company in the PRC. Prepaid lease payments which are to be charged to profit or loss in the next twelve months are classified as current assets.

(c) Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined using the weighted average method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sales.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(d) Recognition and derecognition of financial instruments

Financial assets and financial liabilities are recognised in the statements of financial position when the Target Company becomes a party to the contractual provisions of the instruments.

Financial assets are derecognised when the contractual rights to receive cash flows from the assets expire; the Target Company transfers substantially all the risks and rewards of ownership of the assets; or the Target Company neither transfers nor retains substantially all the risks and rewards of ownership of the assets but has not retained control on the assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

(e) Financial assets

Financial assets are recognised and derecognised on a trade date basis where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial assets within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs except in the case of financial assets at fair value through profit or loss.

The Target Company classifies its financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These assets are carried at amortised cost using the effective interest method (except for short-term receivables where interest is immaterial) minus any reduction for impairment or uncollectibility. Typically trade and other receivables, bank balances and cash are classified in this category.

(f) Cash and cash equivalents

For the purpose of the statements of cash flows, cash and cash equivalents represent cash at banks and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value.

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(g) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method.

Borrowings are classified as current liabilities unless the Target Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

(h) Trade and other payables

Trade and other payables are subsequently measured at amortised cost, using the effective interest method.

(i) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is recognised when it is probable that the economic benefits will flow to the Target Company and the amount of revenue can be measured reliably.

Revenue from the sales of manufactured goods is recognised on the transfer of significant risks and rewards of ownership, which generally coincides with the time when the goods are delivered and the title has passed to the customers.

Interest income is recognised on a time proportion basis using the effective interest method.

(j) Pension obligations

The employees employed in the PRC are members of the state-managed retirement benefit schemes operated by the PRC government. The Target Company is required to contribute a certain percentage of their payroll to the retirement benefit schemes to fund the benefits. The only obligation of the Target Company with respect to the retirement benefit schemes is to make the required contributions under the schemes.

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

(k) Taxation

Income tax represents the sum of the current tax and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit recognised in profit or loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Target Company’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 differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unused tax losses or unused tax credits can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other 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 arising on investments in subsidiaries and associates, and interests in joint arrangements, except where the Target Company 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.

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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 is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.

The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Target Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Target Company intends to settle its current tax assets and liabilities on a net basis.

(l) Impairment of non-financial assets

The carrying amounts of non-financial assets are reviewed at each reporting date for indications of impairment and where an asset is impaired, it is written down as an expense through the profit or loss to its estimated recoverable amount unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for the cash-generating unit to which the asset belongs. Recoverable amount is the higher of value in use and the fair value less costs of disposal of the individual asset or the cash-generating unit.

Value in use is the present value of the estimated future cash flows of the asset/cash-generating unit. Present values are computed using pre-tax discount rates that reflect the time value of money and the risks specific to the asset/cash generating unit whose impairment is being measured.

Impairment losses for cash-generating units are allocated first against the goodwill of the unit and then pro rata amongst the other assets of the cash-generating unit. Subsequent increases in the recoverable amount caused by changes in estimates are credited to profit or loss to the extent that they reverse the impairment unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(m) Impairment of financial assets

At the end of each reporting period, the Target Company assesses whether its financial assets (other than those at fair value through profit or loss) are impaired, based on objective evidence that, as a result of one or more events that occurred after the initial recognition, the estimated future cash flows of the financial asset(s) have been affected.

In addition, for trade receivables that are assessed not to be impaired individually, the Target Company assesses them collectively for impairment, based on the Target Company’s past experience of collecting payments, an increase in the delayed payments in the portfolio, observable changes in economic conditions that correlate with default on receivables, etc.

Only for trade receivables, the carrying amount is reduced through the use of an allowance account and subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

For all other financial assets, the carrying amount is directly reduced by the impairment loss.

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For financial assets measured at amortised cost, if the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed (either directly or by adjusting the allowance account for trade receivables) through profit or loss. However, the reversal must not result in a carrying amount that exceeds what the amortised cost of the financial asset would have been had the impairment not been recognised at the date the impairment is reversed.

(n) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Company has a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow is remote.

5. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

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

Key sources of estimation uncertainty

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

(i) Property, plant and equipment and depreciation

The Target Company determines the estimated useful lives, residual values and related depreciation charges for the Target Company’s property, plant and equipment. This estimate is based on the historical experience of the actual useful lives and residual values of property, plant and equipment of similar nature and functions. The Target Company will revise the depreciation charge where useful lives and residual values are different to those previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned.

The carrying amount of property, plant and equipment as at 31 December 2016 and 30 September 2017 was approximately RMB4,267,000 and RMB121,380,000 respectively.

(ii) Impairment loss of bad and doubtful debts

The Target Company makes impairment loss for bad and doubtful debts based on assessments of the recoverability of the trade and other receivables, including the current creditworthiness and/or the past collection history of each debtor. Impairment arises where events or changes in circumstances indicate that the balances may not be collectable. The identification of bad and doubtful debts, in particular of a loss event requires the use of judgement and estimates. Where the actual result is different from the original estimate, such difference will impact the carrying value of the trade and other receivables and doubtful debt expenses in the reporting period in which such estimate has been changed.

During the Relevant Period, no allowance for trade receivables has been recognised.

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(iii) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market conditions and the historical experience of selling products of a similar nature. It could change significantly as a result of competitors’ actions in response to severe industry cycles. Management reassesses these estimations at the end of each reporting period to ensure inventories are shown at the lower of cost and net realisable value.

(iv) Estimates of current tax and deferred tax

The Target Company is subject to income tax in jurisdiction in which the Target Company operates. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(v) Central pension scheme

The Target Company is required to contribute certain percentage on their payroll costs for employees to the central pension scheme. However, the implementation and settlement of the contribution to the central pension scheme varies among various Social Security Bureaus in cities of the PRC. Accordingly, significant judgement is required in determining the amount of the contribution. The Target Company recognised the contribution based on management’s best estimates according to the understanding of the rules of the central pension scheme.

6. SEGMENT INFORMATION

An operating segment is a component of the Target Company that is engaged in business activities from which the Target Company may earn revenue and incur expenses, and is defined on the basis of the internal management reporting information that is provided to and regularly reviewed by the Target’s Directors in order to allocate resources and assess performance of the segment. For the Relevant Period, Target’s Directors regularly review revenue and operating results derived from sales of polyurethane condoms on an aggregate basis and consider as one single operating segment.

Geographical information

As the Target Company’s revenue is derived from customers based in PRC and all of the Target Company’s identifiable assets and liabilities are located in the PRC, no geographical information is presented in accordance with HKFRS 8 ‘‘Operating Segments’’.

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Information about major customers

The following table sets forth a breakdown of the Target Company’s customers individually accounted for over 10% of the Target Company’s total revenue during the Relevant Period:

		Period from	Period from
		7 January	7 January
		2016 (date of	2016 (date of
		incorporation)	incorporation)	Nine months
		to	to	ended 30
		31 December	30 September	September
		2016	2016	2017
		RMB’000	RMB’000	RMB’000
			(unaudited)
Customer	A	3,420	—	550
Customer	B	—	—	422
Customer	C	—	—	178

7. REVENUE

Revenue represents the sales of polyurethane condoms, net of return, discounts and sales related taxes during the periods.

8. OTHER INCOME

Bank interest income Sundry income	Period from 7 January 2016 (date of incorporation) to 31 December 2016 RMB’000 144 3 147	Period from 7 January 2016 (date of incorporation) to 30 September 2016 RMB’000 (unaudited) 86 — 86	Nine months ended 30 September 2017 RMB’000 327 46
			373

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

9. LOSS BEFORE INCOME TAX

Loss before income tax is arrived at after charging:

Salaries and other allowance Discretionary bonus Retirement benefit scheme contributions Total staff costs Cost of inventories sold Inventories write-down Amortisation of prepaid land leases (Note) Operating lease payments Depreciation of property, plant and equipment Marketing expenses Research and development cost	Period from 7 January 2016 (Date of incorporation) to 31 December 2016 RMB’000 1,723 55 393 2,171 1,478 101 821 — 254 271 —	Period from 7 January 2016 (Date of incorporation) to 30 September 2016 RMB’000 (unaudited) 1,266 — 254 1,520 — — 411 — 17 31 —	Nine months ended 30 September 2017 RMB’000 5,551 — 1,046
			6,597 316 960 924 30 612 1,259 2,918

Note: Amortisation of prepaid land leases and research and development cost are included in ‘‘ ’’ Administrative expenses .

10. DIVIDEND

No dividend was paid or proposed for the Relevant Period.

11. INCOME TAX EXPENSE

PRC Enterprise Income Tax (‘‘EIT’’) — Current period	Period from 7 January 2016 (date of incorporation) to 31 December 2016 RMB’000 14	Period from 7 January 2016 (date of incorporation) to 30 September 2016 RMB’000 (unaudited) —	Nine months ended 30 September 2017 RMB’000 —

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 is 25%. The Target Company is entitled to the preferential rate of 15% from the PRC government.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The income tax expense for the Relevant Period can be reconciled to the loss before income tax as follows:

Loss before income tax Tax calculated at the tax rate of 15% Tax effect of non-deductible expenses	Period from 7 January 2016 (date of incorporation) to 31 December 2016 RMB’000 (2,198) (330) 344 14	Period from 7 January 2016 (date of incorporation) to 30 September 2016 RMB’000 (unaudited) (2,859) (429) 429 —	Nine months ended 30 September 2017 RMB’000 (11,400
			(1,710 1,710
			—

No deferred tax has been provided in the Historical Financial Information as there were no material temporary differences at the end of each reporting period.

12. PROPERTY, PLANT AND EQUIPMENT

Cost At 7 January 2016 (date of incorporation) Additions At 31 December 2016 Additions At 30 September 2017 Accumulated depreciation At 7 January 2016 (date of incorporation) Depreciation At 31 December 2016 Depreciation At 30 September 2017 Net book value At 31 December 2016 At 30 September 2017	Leasehold improvements RMB’000 — 1,300 1,300 50 1,350 — 163 163 253 416 1,137 934	Plant and machinery RMB’000 — 2,694 2,694 1,533 4,227 — 60 60 271 331 2,634 3,896	Furniture and equipment RMB’000 — 429 429 3 432 — 28 28 69 97 401 335	Motor vehicles RMB’000 — 98 98 38 136 — 3 3 19 22 95 114	Construction in progress RMB’000 Note — — — 116,101 116,101 — — — — — — 116,101	Total RMB’000 — 4,521
						4,521 117,725
						122,246
						— 254
						254 612
						866
						4,267
						121,380

Note: The construction in progress mainly represents the construction works of the factory buildings and office buildings.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

13. PREPAID LAND LEASES

Carrying amount at date of incorporation/at beginning of the period Additions Amortisation for the period Carrying amount at the end of the period Less: Current portion Non-current portion	As at 31 December 2016 RMB’000 — 58,924 (821) 58,103 (1,232) 56,871	As at 30 September 2017 RMB’000 58,103 — (924
		57,179 (1,232
		55,947

Prepaid land leases represent cost of land use right in the PRC, with a medium term lease period of 50 years from the date of grant.

As at 31 December 2016 and 30 September 2017, the prepaid land leases of the Target Company with carrying amounts of approximately RMB58,103,000 and RMB57,179,000 respectively were pledged to a bank to secure the borrowing of the holding company.

As at 30 September 2017, the Target Company is still in the process of transferring the title of the land use right from the holding company. With reference to a legal opinion, the Target’s Directors considered that there would be no legal obstacle for such transfer.

14. DEPOSITS PAID FOR ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT

As at 31 December 2016 and 30 September 2017, the Target Company had paid deposits with a total balance of approximately RMB69,262,000 and RMB76,880,000 respectively, to several third parties for the acquisition of items of plant and machinery and construction work of the buildings.

15. INVENTORIES

Raw materials (net of provision of nil (2016: RMB101,000)) Work-in-progress Finished goods (net of provision of RMB960,000 (2016: nil))	As at 31 December 2016 RMB’000 115 — — 115	As at 30 September 2017 RMB’000 1,866 322 944
		3,132

During the period from 7 January 2016 (date of incorporation) to 31 December 2016, the Target’s Directors had made a provision of approximately RMB101,000 to reduce the cost of raw materials to their net realiable values. During the nine months ended 30 September 2017, the Target’s Directors had made a provision of approximately RMB960,000 to reduce the cost of finished goods to their net realisable values. These provisions were recognised as part of cost of sales for the Relevant Period.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

16. TRADE AND OTHER RECEIVABLES

Trade receivables Less: allowance for doubtful debts Trade receivables — net Other receivables	As at 31 December 2016 RMB’000 3,420 — 3,420 116 3,536	As at 30 September 2017 RMB’000 3,453 —
		3,453 762
		4,215

The Target Company did not grant any credit period to its major customers. At each reporting date, the Target Company reviews receivables for evidence of impairment on both an individual and collective basis. The Target Company did not hold any collateral as security or other credit enhancements over the trade receivables.

The ageing analysis of trade receivables based on invoice dates, as at the end of each period, is as follows:

0–90 days 181–365 days	As at 31 December 2016 RMB’000 3,420 — 3,420	As at 30 September 2017 RMB’000 33 3,420
		3,453

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The ageing analysis of trade receivables which are past due but not impaired is as follows:

Within 30 days past due 31–180 days past due 181–365 days past due	As at 31 December 2016 RMB’000 3,420 — — 3,420	As at 30 September 2017 RMB’000 5 28 3,420
		3,453

At 30 September 2017 and 31 December 2016, the Target’s Directors considered that no impairment is necessary as the receivables are subsequently settled.

17. AMOUNTS DUE FROM/TO HOLDING COMPANY/A FELLOW SUBSIDIARY/FELLOW SUBSIDIARIES

The amounts due from/to holding company/a fellow subsidiary/fellow subsidiaries are unsecured, interest free and repayable on demand.

18. PLEDGED DEPOSITS

As at 31 December 2016, the Target Company pledged RMB50,000,000 to a bank for the settlement of bills payables. The amount has subsequently settled during the nine months ended 30 September 2017.

19. TRADE AND BILLS PAYABLES

Trade payables Bills payable	As at 31 December 2016 RMB’000 557 50,000 50,557	As at 30 September 2017 RMB’000 957 —
		957

The payment terms with suppliers are unsecured, non-interest bearing, and mainly on credit terms of 30 days.

An ageing analysis of the trade and bills payables as at the end of each of the Relevant Period, based on the invoice date, is as follows:

Within 3 months 3–6 months 6–12 months	As at 31 December 2016 RMB’000 50,557 — — 50,557	As at 30 September 2017 RMB’000 540 80 337
		957

As at 31 December 2016, bills payable amounting to RMB50,000,000 were secured by the pledged deposits with the same amount as disclosed in note 18. The amount has subsequently settled during the nine months ended 30 September 2017.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

20. ACCRUALS AND OTHER PAYABLES

Accrued construction cost Accrued salaries Deferred income Other payables Other tax payables Receipt in advance Interest payable	As at 31 December 2016 RMB’000 1,038 514 — 302 2 — — 1,856	As at 30 September 2017 RMB’000 87,778 1,273 500 956 15 355 297
		91,174

21. BANK LOAN

Secured bank loan — repayable within one year	As at 31 December 2016 RMB’000 —	As at 30 September 2017 RMB’000 100,000

The bank loan bears a fixed interest rate of 8.0001% per annum at 30 September 2017 (2016: Nil).

As at 30 September 2017, certain land and buildings of a fellow subsidiary and 5% shareholding of a fellow subsidiary have been pledged to a bank for the bank loan granted to the Target Company.

22. PAID-IN CAPITAL

Paid-in capital At date of incorporation/At beginning of the period Capital injection by equity owners At the end of the period	As at 31 December 2016 RMB’000 — 321,000 321,000	As at 30 September 2017 RMB’000 321,000 —
		321,000

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

23. RESERVES

Statutory reserves

In accordance with the relevant laws and regulations of the PRC, the Target Company is required to make appropriation to a Statutory Reserve Fund (‘‘SRF’’). At least 10% of the statutory net profit for each year, as determined in accordance with the applicable PRC accounting standards and regulations, must be allocated to the SRF until the cumulative total of the SRF reaches at least 50% of the registered capital. Subject to approval from the relevant PRC authorities, the SRF may be used to offset any accumulated losses or increase the registered capital. The SRF is not available for dividend distribution to owners. The Target’s Directors have decided that 10% of the net profit, as reported in the statutory financial statements of the Target Company, be appropriated each year to the SRF. For the capitalisation of the SRF into the registered capital, the remaining amount of the SRF shall not be less than 25% of the registered capital. During the Relevant Period, the Target Company suffered losses and accordingly no transfer has been made.

24. OPERATING LEASES

Leases as lessee

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

Within one year In the second to fifth year	As at 31 December 2016 RMB’000 — — —	As at 30 September 2017 RMB’000 739 504
		1,243

The Target Company leases a warehouse under non-cancellable operating lease agreement. The lease term is being one to two years. The agreement does not include any extension option. There were no operating lease agreement entered into as at 31 December 2016.

25. RELATED PARTY TRANSACTIONS

In addition to the transactions detailed elsewhere in this Historical Financial Information, the Target Company had the following material transactions with related parties during the period from 7 January 2016 (date of incorporation) to 31 December 2016 and the nine months ended 30 September 2017:

Purchase of prepaid land lease from holding company Purchases of raw materials from fellow subsidiaries Purchases of raw materials from a company, in which a shareholder of the Target Company has equity interest Sales of finished goods to fellow subsidiaries Sales of finished goods to holding company	Period from 7 January 2016 (date of incorporation) to 31 December 2016 RMB’000 58,924 176 86 — —	Period from 7 January 2016 (date of incorporation) to 30 September 2016 RMB’000 (unaudited) 58,924 — — — —	Nine months ended 30 September 2017 RMB’000 — 1,079 — 125 33

During the Relevant Period, the holding company has provided the office premises and warehouse to the Target Company for free.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The transactions were conducted at terms and conditions mutually agreed between the relevant parties. The Target’s Directors are of the opinion that those related party transactions were conducted in the ordinary course of the business of the Target Company.

26. CAPITAL COMMITMENTS

Contracted but not provided for acquisition of property, plant and equipment	As at 31 December 2016 RMB’000 265,511	As 30 September 2017 RMB’000 278,469

27. CAPITAL RISK MANAGEMENT

The primary objectives of the Target Company’s capital management are to safeguard the Target Company’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Target Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Target Business is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the Relevant Period.

28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Target Company is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks include credit risk, interest rate risk and liquidity risk. The Target’s Directors review and agree policies and procedures for the management of these risks. It is, and has been throughout the periods under review, the Target Company’s policy that no trading in derivatives for speculative purposes shall be undertaken. The Target Company does not apply hedge accounting.

The following sections provide details regarding the Target Company’s exposure to the above-mentioned financial risks and objectives, policies and processes for the management of these risks.

(a) Credit risk

Credit risk exposure is minimised by undertaking transactions with a large number of counterparties and conducting credit reviews on related companies. In addition, the Target Company regularly reviews the recoverable amount of trade receivables to ensure that adequate provision for impairment losses is made for irrecoverable amounts. At 30 September 2017, the Target Company has concentrations of credit risk as 99% (2016: 100%) of the total trade receivables was due from one debtor (2016: one debtor).

With respect to credit risk arising from other financial assets of the Target Company, which mainly comprise trade and other receivables, amount due from holding company, amount due from a fellow subsidiary and bank and cash balances, the Target Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Further quantitative data in respect of the Target Company’s exposure to credit risk arising from the receivables are disclosed in notes to the Historical Financial Information.

(b) Interest rate risk

The Target Company is exposed to cash flow interest rate risk in relation to variable-rate bank balances. The Target Company did not expose to significant fair value interest rate risk as the Target Company did not have any interest-bearing borrowings at fixed rates. The Target Company did not enter into interest rate swap to hedge against its exposures to interest rate risk.

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APPENDIX II

Sensitivity analysis

The Target’s Directors consider that the Target Company’s exposure to interest rate risk of bank balances, which are short term in nature, is insignificant, accordingly no sensitivity analysis is presented.

(c) Liquidity risk

The Target’s Company ensures that it maintains sufficient cash and credit lines to meet its liquidity requirements. The Target Company’s objective is to maintain a balance between continuity of funding and flexibility through cash receipts from the issue of shares, as well as the strict control over its daily operating expenses. Accordingly, the Target Company expects to have adequate sources of funding to finance the Target Company’s operations and manages its liquidity position.

Analysis of financial instruments by remaining contractual maturities

The table below summarise the maturity profile of the Target Company’s financial liabilities as at the end of each of the Relevant Period based on contractual undiscounted repayment obligations:

As at 31 December 2016 Trade and bills payables Accruals and other payables Amounts due to fellow subsidiaries As at 30 September 2017 Trade and bills payables Accruals and other payables Amounts due to fellow subsidiaries Bank loan	On demand or within 1 year RMB’000 50,557 1,856 176 52,589 On demand or within 1 year RMB’000 957 91,174 10,575 104,407 207,113	Total contractual undiscounted cash flow RMB’000 50,557 1,856 176 52,589 Total contractual undiscounted cash flow RMB’000 957 91,174 10,575 104,407 207,113	Carrying amounts RMB’000 50,557 1,856 176
			52,589
			Carrying amounts RMB’000 957 91,174 10,575 100,000
			202,706

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

(d) Financial instruments by category

Financial assets Loans and receivables: — Trade and other receivables — Amount due from holding company — Amount due from a fellow subsidiary — Pledged deposits — Bank and cash balances Financial liabilities Financial liabilities measured at amortised cost: — Trade and bills payables — Accruals and other payables — Amounts due to fellow subsidiaries — Bank loan	As at 31 December 2016 RMB’000 3,536 178,560 6,435 50,000 1,113 239,644 50,557 1,856 176 — 52,589	As at 30 September 2017 RMB’000 4,215 240,621 6,466 — 221
		251,523
		957 91,174 10,575 100,000
		202,706

(e) Fair value of financial instruments

The fair values of the financial assets and liabilities which are due to be received or settled within one year approximate to their carrying amounts largely due to the short term maturities of these instruments, therefore, no disclosure of the fair values of these financial instruments is made.

29. EVENT AFTER THE REPORTING PERIOD

Except as disclosed elsewhere in this report, there are no other material subsequent events undertaken by the Target Company after 30 September 2017.

30. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Target Company have been prepared in respect of any period subsequent to 30 September 2017.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

A. INTRODUCTION

The unaudited pro forma statement of assets and liabilities of the Enlarged Group (the ‘‘Unaudited Pro Forma Financial Information’’) set out in section B below has been prepared by the Directors, for illustrative purpose only, to provide information about how the Acquisition might have affected the financial position of the Group as at 30 June 2017, had completion of the Acquisition taken place on 30 June 2017.

The Unaudited Pro Forma Financial Information is prepared based on the unaudited condensed consolidated statement of financial position of the Group as at 30 June 2017 as extracted from the interim report of the Group for the six months ended 30 June 2017 dated 24 August 2017 and the financial information of the Target Company as at 30 September 2017 as extracted from the Accountant’s Report set out in Appendix II of the Circular after making certain pro forma adjustments resulting from the Acquisition.

The Unaudited Pro Forma Financial Information is prepared based on a number of assumptions, estimates and uncertainties, and is provided for illustrative purposes only. Accordingly, the Unaudited Pro Forma Financial Information does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 30 June 2017. Neither does the Unaudited Pro Forma Financial Information purport to predict the Enlarged Group’s future financial position.

The Unaudited Pro Forma Financial Information should be read in conjunction with the historical financial information of the Group as set out in the published interim report of the Group for the six months ended 30 June 2017, the financial information of the Target Company as set out in Appendix II of the Circular and other financial information included elsewhere in the Circular.

This Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the Enlarge Group following the completion of the Acquisition.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

B. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

ASSETS AND LIABILITIES Non-current assets Property, plant and equipment Prepaid land leases Premium of prepaid land leases Deposit paid for acquisition of property, plant and equipment Intangible assets Deferred tax assets Current assets Inventories Prepaid land leases Trade receivables Prepayments, deposits and other receivables Available-for-sale financial asset Financial assets at fair value through profit or loss Current tax assets Amount due from a holding company Amount due from a fellow subsidiary Bank and cash balances (Note 5)	The Group as at 30 June 2017 HK$’000 Note 1 56,712 2,250 — — — 5,466 64,428 88,502 — 119,612 67,550 29,976 7,954 2,494 — — 289,778 605,866	The Target Company as at 30 September 2017 HK$’000 Notes 1 and 2 149,575 68,943 — 94,738 — — 313,256 3,860 1,518 4,255 939 — — — 296,514 7,968 272 315,326	Pro forma adjustments HK$’000 Note 3 398 — 12,388 — 15,378 — 28,164 — — — — — — — (296,514) (7,968) (19,818) (324,300)	Pro forma Enlarged Group as at 30 June 2017 HK$’000 206,685 71,193 12,388 94,738 15,378 5,466
				405,848
				92,362 1,518 123,867 68,489 29,976 7,954 2,494 — — 270,232
				596,892

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Current liabilities Trade payables Accruals and other payables Amount due to a non- controlling shareholder of a subsidiary Borrowings License rights payable Product warranty provisions Amounts due to fellow subsidiaries Current tax liabilities Net current assets Non-current liabilities License rights payable Deferred tax liabilities Net assets Notes:	The Group as at 30 June 2017 HK$’000 Note 1 70,141 161,745 411 28,069 5,683 3,956 — 2,788 272,793 333,073 1,313 3,760 5,073 392,428	The Target Company as at 30 September 2017 HK$’000 Notes 1 and 2 1,179 112,352 — 123,229 — — 13,031 — 249,791 65,535 — — — 378,791	Pro forma adjustments HK$’000 Note 3 — — — — — — — — — (324,300) — 4,225 4,225 (300,361)	Pro forma Enlarged Group as at 30 June 2017 HK$’000 71,320 274,097 411 151,298 5,683 3,956 13,031 2,788
				522,584
				74,308
				1,313 7,985
				9,298
				470,858

1. Basis of preparation

This Unaudited Pro Forma Financial Information has been prepared in accordance with Rule 4.29 of the Listing Rules and based upon: (i) the unaudited consolidated statement of financial position of the Group as of 30 June 2017, which has been extracted from the interim report of the Company for the six months ended 30 June 2017 dated 24 August 2017; and (ii) the audited statement of financial position of the Target Company as of 30 September 2017, which has been extracted from the accountant’s report on the Target Company included in Appendix II to this Circular; and adjusted in accordance with the pro forma adjustments described in note 3 below, as if the Acquisition had been completed on 30 June 2017. This Unaudited Pro Forma Financial Information has been prepared in a manner consistent with both the format and accounting policies adopted by the Company in its unaudited interim financial statements for the six months ended 30 June 2017.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. The audited statement of financial position of the Target Company presented in RMB are translated into HK$ at the approximate exchange rate of HK$1 to RMB0.8115 which was the prevailing exchange rate as at 9 February 2018 for illustration purpose only, and such translation does not constitute a representation that any amount has been, could have been, or may otherwise be exchanged or converted at the above rate.

2. In accordance with the Sale and Purchase Agreement and the Supplemental Agreement entered into between the Vendor and the Purchaser in connection with the proposed acquisition of approximately 84.11% of the issued share capital of the Target Company, the Consideration of the Acquisition is RMB258.88 million (representing approximately HK$319 million). The payment terms of the Consideration is: (i) amount will be paid to the Target Company to settle the entire indebtedness of the Vendor and its subsidiaries (if any); and (ii) any remaining balance being paid in cash by the Purchaser to the Vendor.

The adjustments represent the estimated amount of legal and professional fee and other expenses amount to approximately HK$5,300,000 and the gain on bargain purchase recognised from the Acquisition of approximately HK$19,736,000, being the excess of the fair value of the identified net assets acquired over the consideration transferred, and the fair value adjustments for the identifiable assets and liabilities.

notes Net consideration (a) Less: Fair value of identifiable assets and liabilities Carrying amount of identifiable assets and liabilities (b) Valuation adjustments on identifiable assets and liabilities — Property, plant and equipment (c) — Premium of prepaid land leases (c) — Patents (d) Deferred income tax liabilities (e) Vendor’s indebtedness to Target Company — Amount due from a holding company (a) — Amount due from a fellow subsidiary (a) Total net identifiable assets Non-controlling interest (f) Gain on bargain purchase to be recognised from the Acquisition (g)	HK$’000 378,791 398 12,388 15,378 (4,225) (296,514) (7,968)	HK$’000 14,518 (98,248) 63,994 (19,736)

• (a) In accordance with the Sale and Purchase Agreement and the Supplemental Agreement entered into between the Vendor and the Purchaser on 11 October 2017 and 9 February 2018, the total consideration of the Acquisition is approximately HK$319,000,000. The Company will satisfy the Consideration in cash after settling the entire Vendor’s indebtedness, which amounted to approximately RMB247,087,000 (equivalent to HK$304,482,000) as at 30 September 2017.

• (b) The carrying amount of identifiable assets and liabilities of the Target Company as at 30 September 2017 are extracted from the audited financial statement disclosed in Note 1.

• (c) The Directors of the Company have determined the fair values of property, plant and equipment of the Target Company as at 30 September 2017 with reference to a valuation report issued by an independent valuer.

The fair value of property, plant and equipment was established by market approach and cost approach (when market approach is not applicable) to value the property, plant and equipment. The market approach considers prices recently paid for similar assets with adjustment made to the

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

indicated market prices to reflect condition and utility of the appraised assets relative to the market comparative. The cost approach considers the cost to reproduce or replace in new condition the assets appraised in accordance with current market prices for similar assets including costs of transport, installation, commissioning, tax and consultants’ fees. Adjustment is then made for accrued depreciation, which encompasses condition, utility, age, wear and tear, functional and economic obsolescence.

The construction in progress is scheduled to be completed in the mid of 2018. Due to the specific nature of the buildings of the property being constructed, there were no readily available market comparable and thus the property cannot be valued on the basis of direct comparison. The fair value of construction in progress and prepaid lease payments was established by Depreciated Replacement Cost (‘‘DRC’’) Approach.

The DRC Approach is recognised as an application of the cost approach to derive at the market value of a property. The assessed DRC represents the estimated cost of replacing the property and is based on an estimate of the market value for the existing use of the land plus the current replacement costs of the buildings, from which deductions are made to allow for physical deterioration and all relevant forms of obsolescence and optimisation. The DRC of the property is subject to adequate potential profitability of the concerned business. The valuation applies to the whole of the complex or development as a unique interest, and no piecemeal transaction of the complex or development is assumed. The property was held under development as at the valuation date, thus valued on the basis that it will be developed and completed in accordance with the latest development proposal provided to us by the Company.

Upon completion of the Acquisition, the directors will engage an independent qualified professional valuer to carry out the valuation of the property, plant and equipment and prepaid land leases as at the date of completion of the Acquisition, based on facts and circumstances existing as at that date. The valuation of the property, plant and equipment and prepaid land leases may be significantly different from the assumed valuation used for the purpose of the Unaudited Pro Forma Financial Information.

• (d) The breakdown of the intangible assets (other than prepaid lease payments) adjusted to the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group as at 30 September 2017 are listed as below:

HK$’000 Patents 15,378

The Directors of the Company have determined the fair values of the intangible assets of the Target Company as at 30 September 2017 with reference to a valuation report issued by an independent valuer.

The fair value of the patents was derived by the Relief From Royalty method (‘‘RFR’’). It is based on the assumption that the Target Company would have to pay a royalty payment if the Target Company did not have the legal right to use the patented technology. As the patent ownership relieves the Target Company from paying a royalty payment for the patent usage, the Target Company’s financial performance is enhanced. The valuation is based on the annual financial enhancement to the Target Company discounted at the required rate of return for similar assets. The aforesaid annual financial enhancement is obtained by multiplying the forecasted gross revenue of the Target Company to a royalty rate.

Upon completion of the Acquisition, the directors will engage an independent qualified professional valuer to carry out the valuation of the brands and patents as at the date of completion of the Acquisition, based on facts and circumstances existing as at that date. The valuation of the brands and patents may be significantly different from the assumed valuation used for the purpose of the Unaudited Pro Forma Financial Information.

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APPENDIX III

• (e) The deferred income tax liabilities represent the deferred tax effect from the fair value of identifiable assets related with the Acquisition.

• (f) The non-controlling interest represent the total net identifiable assets allocated to the noncontrolling interest of the Target Company.

• (g) For the purpose of the Unaudited Pro Forma Financial Information of the Enlarged Group, fair values of the identifiable assets and liabilities of the Target Company as at 30 September 2017 were used to determine the gain on bargain purchase arising from the Acquisition. Upon completion of the Acquisition, the directors of the Company will engage an independent qualified professional valuer to carry out the valuation of the net identifiable assets and liabilities for the purchase price allocation as at the date of the Acquisition, based on facts and circumstances existing as at that date. The valuation of the net identifiable assets and liabilities may be significantly different from the assumed valuation used for the purpose of the Unaudited Pro Forma Financial Information.

• No other adjustment has been made to the Unaudited Pro Forma Financial Information to reflect any trading results or other transactions of the Group and the Target Company entered into subsequent to 30 June 2017.

• On 13 October 2017, the Company announced that it had entered into a subscription agreement with Keywan Global Limited. As stated in the announcement of the Company dated 13 October 2017, the net proceeds of the said share subscription of approximately HK$295 million will be used by the Company to finance the proposed acquisition of the Target Company and/or the general working capital of the Group. The subscription was completed on 1 November 2017.

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APPENDIX III

C. INDEPENDENT REPORTING ACCOUNTANT ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from the reporting accountant, Moore Stephens CPA Limited, Certified Public Accountant, Hong Kong, on the unaudited pro forma financial information of the Enlarged Group as set out in this appendix and prepared, for inclusion in this circular.

Moore Stephens CPA Limited 會計 大 801-806 Silvercord, Tower 1,30 Canton Road, Tsimshatsui, 師事 華 Kowloon, Hong Kong 務所 馬 T +852 2375 3180F +852 2375 3828 有限 施 www.moorestephens.com.hk 公司 雲

The Directors

China Healthcare Enterprise Group Limited

INDEPENDENT REPORTING ACCOUNTANT ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

We have completed our assurance engagement to report on the compilation of pro forma financial information of China Healthcare Enterprise Group 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 statement of assets and liabilities as at 30 June 2017 (the ‘‘Unaudited Pro Forma Financial Information’’) as set out on pages 54 to 59 of the circular issued by the Company dated 15 February 2018 (the ‘‘Circular’’), in connection with the proposed acquisition of approximately 84.11% of the issued share capital of Lanzhou Scisky Healthcare Science and Technology Company Limited (the ‘‘Target Company’’) (the ‘‘Acquisition’’). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are described on pages 54 to 59.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the Acquisition the Group’s financial position as at 30 June 2017 as if the Acquisition had been taken place on 30 June 2017. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s unaudited interim financial statements as included in the interim report for the six months ended 30 June 2017 dated 24 August 2017, on which a review report has been published.

Information about the Target Company’s financial position has been extracted by the Directors from financial information of the Target Company as at 30 June 2017, on which an accountant’s report has been published in Appendix II to the Circular.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 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’’).

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 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 Accountant’s 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 accountant plans and performs 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 the 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.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The purpose of the Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Acquisition on unadjusted financial information of the Group as if the Acquisition 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 Acquisition at 30 June 2017 would have been as presented.

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 Acquisition, 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 accountant’s judgement, having regard to the reporting accountant’s understanding of the nature of the Group, the Acquisition 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.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Opinion

In our opinion:

• (a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors 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.

Yours faithfully,

Moore Stephens CPA Limited

Certified Public Accountants

Li Wing Yin Practising Certificate Number: P05035 Hong Kong

15 February 2018

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET COMPANY

APPENDIX IV

Set out below is the management discussion and analysis on the Target Company for the period from 7 January 2016 (date of incorporation) to 31 December 2016 and for the nine months ended 30 September 2017.

BUSINESS REVIEW

The Target Company is principally engaged in developing and manufacturing of polyurethane condoms.

FINANCIAL PERFORMANCE

For the period from 7 January 2016 (date of incorporation) to 31 December 2016 and the nine months ended 30 September 2017, the Target Company recorded (i) a revenue of RMB3,420,000 and RMB1,627,000, respectively, which are mainly sale proceeds of the polyurethane condoms, and (ii) a cost of goods sold of RMB1,579,000 and RMB1,276,000, respectively, which mainly included raw material cost and salary paid to manufacturing staff.

For the period from 7 January 2016 (date of incorporation) to 31 December 2016 and the nine months ended 30 September 2017, other major expenses of the Target Company were the administrative expenses of RMB3,815,000 and RMB8,586,000, respectively, which mainly included staff salary paid to the management.

FINANCIAL POSITION AND CAPITAL STRUCTURE

As at 31 December 2016, the Target Company’s total assets mainly include (i) non-current assets of RMB130,400,000, including the Target Company’s factory and manufacturing lines, and (ii) current assets of RMB240,991,000.

As at 30 September 2017, the Target Company’s total assets mainly include (i) noncurrent asset of RMB254,207,000; and (ii) current asset of RMB255,887,000. For the nine months ended 30 September 2017, the Target Company has significantly expanded its production line, including renting more factories and building five more production lines. During the same period, the Target Company has obtained a bank facility of RMB100,000,000, which has been fully drawn to fund the Target Company’s general operation and facility expansion. Therefore, there is an increase in the accounts of (i) property, plant and equipment and (ii) bank loan.

The Target Company was mainly financed by capital from shareholders and bank loans, and had not incurred any long-term liabilities. As at 31 December 2016 and 30 September 2017, the gearing ratio of the Target Company, being the total liabilities divided by the total equity, was 0.17 and 0.66, respectively.

TREASURY POLICY AND HEDGING ARRANGEMENT

For the period from 7 January 2016 (date of incorporation) to 31 December 2016 and the nine months ended 30 September 2017, the Target Company did not have any treasury policy or hedging arrangement.

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET COMPANY

APPENDIX IV

SIGNIFICANT INVESTMENT

As at 31 December 2016 and 30 September 2017, the Target Company did not have any significant investment.

SEGMENT INFORMATION

For the period from 7 January 2016 (date of incorporation) to 31 December 2016 and the nine months ended 30 September 2017, the Target Company operated in only one business segment which is the developing and manufacturing of polyurethane condoms.

CHARGE OF ASSETS

As at 31 December 2016 and 30 September 2017, none of the assets of the Target Company has been charged.

MATERIAL ACQUISITIONS AND DISPOSALS

For the period from 7 January 2016 (date of incorporation) to 31 December 2016 and the nine months ended 30 September 2017, the Target Company did not enter into any material transaction to acquire or dispose of its assets.

CONTINGENT LIABILITY

As at 31 December 2016 and 30 September 2017, the Target Company did not have any contingent liability.

CAPITAL COMMITMENT

As at 31 December 2016 and 30 September 2017, capital commitments contracted but not provided for acquisition of property, plant and equipment amounted to approximately RMB265,511,000 and RMB278,469,000, respectively.

EXPOSURE ON FOREIGN CURRENCY FLUCTUATION

For the period from 7 January 2016 (date of incorporation) to 31 December 2016 and the nine months ended 30 September 2017, the Target Company only conducted business in the PRC and had no currency exposure other than Renminbi.

EMPLOYEE

As at 31 December 2016 and 30 September 2017, the Target Company had around 190 employee.

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MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET COMPANY

APPENDIX IV

FUTURE PLAN

The Target Company is now focusing on the polyurethane condoms as at this stage. It may continuously research on the polyurethane materials’ utilization, and expand into production of medical gloves or skin protectors in the future.

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GENERAL INFORMATION

APPENDIX V

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, there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS

As at the Latest Practicable Date, none of the Directors and chief executives of the Company had any interest and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they have taken or deemed to have taken under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which is required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, so far as the Directors or chief executive of the Company are aware, no director or proposed director was interested in or had a short position in the Shares, underlying Shares or debentures which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO and none of the Directors is a director or employee of a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

			Approximate
			percentage of
			issued share
Name of substantial	Nature of	Number of	capital of the
Shareholders	interests/capacity	Shares held	Company
Power Port Holdings Limited
(Note 1)	Beneficial owner	1,516,340,000	25.50%
Keywan Global Limited (Note 2)	Beneficial owner	990,000,000	16.65%
China Huarong International
Holdings Ltd (Note 3)	Beneficial owner	738,400,000	12.42%
Hearts Capital SPC — Hearts SP2
(Note 4)	Beneficial owner	718,600,000	12.09%

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GENERAL INFORMATION

APPENDIX V

Notes:

1. 1,516,340,000 ordinary shares are held by Power Port Holdings Limited, a company incorporated in the British Virgin Islands whose entire issued share capital is held by Mr. Yan Zhihui.

2. 990,000,000 ordinary shares are held by Keywan Global Limited, a company incorporated in the British Virgin Islands whose entire issued share capital is held by Mr. He Xiaoming.

3. 738,400,000 ordinary shares are held by Partners Special Investments Fund SP2 (‘‘SP2’’), a company incorporated in the British Virgin Islands whose entire issued share capital is held by Azaleas Investment Holding Limited, which in turn is wholly controlled by China Huarong International Holdings Limited. PH Investment Management Limited (‘‘PH Investment’’) is the investment manager of SP2 and is therefore deemed to be interested in the shares owned by SP2 under the SFO. PH Investment is wholly controlled by Bullion Riches Limited, which in turn is wholly controlled by Partners Financial Holdings Limited (‘‘Partner Financial’’). Partner Financial is held by Winnex International Investments Limited (‘‘Winnex’’) and Bright Hope Global Investments Limited (‘‘Bright Hope’’) with 50% and 44% interest, respectively. Winnex is wholly owned by Cheng Kin Ming whereas Bright Hope is wholly controlled by Zhang Yi.

4. 718,600,000 ordinary shares are held by Hearts Capital SPC — Hearts SP2, a company incorporated in Cayman Islands whose entire issued share capital is held by Hearts Capital (Asia) Limited, which in turn is 70% controlled by Mr. Cao Longbing who is also interested in 8,560,000 Shares.

Save as disclosed above, so far as is known to the Directors or the chief executive of the Company, as at the Latest Practicable Date, no other person (other than Directors or the chief executive of the Company whose interests are disclosed above) had an interest or a short position in the Shares or the underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company, or of any other company which is a member of the Group, or any options in respect of such share capital.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or was proposing to enter into any service contracts with the Company or any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation)).

5. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors, controlling Shareholders or their respective associates was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group as required to be disclosed pursuant to the Listing Rules.

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GENERAL INFORMATION

APPENDIX V

6. MATERIAL ADVERSE CHANGE

Save as the above, as at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2016, being the date to which the latest published audited consolidated financial statements of the Group were made up.

7. LITIGATION

So far as the Company is aware and save as disclosed above, as at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors pending or threatened by or against any member of the Enlarged Group.

8. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Enlarged Group, which was subsisting and was significant in relation to the business of the Enlarged Group.

None of the Directors had any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Enlarged Group or proposed to be so acquired, disposed of by or leased to any member of the Enlarged Group since 28 March 2017, being the date to which the latest published audited accounts of the Company were made up, and up to the Latest Practicable Date.

9. QUALIFICATIONS AND CONSENTS OF EXPERTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualification

Moore Stephens CPA Limited Certified Public Accountants

The above expert has given and confirmed that it has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter, report, advice, opinion and/or references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, the above expert did not have any shareholding in any member of the Enlarged Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any Shares, convertible securities, warrants, options or derivatives which carry voting rights in any member of the Enlarged Group.

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GENERAL INFORMATION

APPENDIX V

As at the Latest Practicable Date, the expert did not have any interest, either directly or indirectly, in any assets which have been since 31 December 2016 (being the date to which the latest published audited consolidated financial statements of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

10. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Enlarged Group within the two years preceding the date of this circular and up to the Latest Practicable Date and are or may be material:

• (a) The Sale and Purchase Agreement.

• (b) The subscription agreement dated 13 October 2017 entered into between the Company and Keywan Global Limited, in relation to subscription of 990,000,000 new Shares by Keywan Global Limited at a price of HK$0.3 per subscription share.

• (c) The sale and purchase agreement dated 18 July 2017 entered into between Healthcare Holdings (Shenzhen) Co., Ltd (華氏醫藥控股(深圳)有限公司), an indirect wholly owned subsidiary of the Company and Anhui Huayuan Pharmaceutical Company Limited (安徽華源醫藥股份有限公司), in relation to the Group’s acquisition of 51% of the entire issued share capital of Anhui Huayuan Guoyi Medical Investment Management Limited* (安徽華源國怡醫療投資管理有限公司) at the consideration of RMB1.

• (d) The sale and purchase agreement dated 7 April 2017 entered into between the Company and Golden Record Limited, in relation to the Group’s disposal of the entire issued share capital of Pacific Time Holdings Limited at the consideration of HK$25 million.

11. GENERAL

• (a) The company secretary of the Company is Mr. Lee Chi Hwa Joshua, who is a fellow member of the Association of Chartered Certified Accountants and a member of the Hong Kong Institute of Certified Public Accountants.

• (b) The registered office of the Company is Clifton House, 75 Fort Street, PO Box 1350, Grand Cayman KY1-1108, Cayman Islands.

• (c) The head office and principal place of business of the Company in Hong Kong is at Suites 5815–5816, 58/F., Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong.

• (d) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

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GENERAL INFORMATION

APPENDIX V

• (e) The English text of this circular shall prevail over their respective Chinese text for the purpose of interpretation.

12. DOCUMENTS FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at Suites 5815–5816, 58/F., Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong during normal business hours on any Business Day from the date of this circular up to and including the date of the EGM:

• (a) this circular;

• (b) the memorandum of association and articles of association of the Company;

• (c) the annual reports of the Company for the last three years ended 31 December 2016;

• (d) the interim report of the Company for the six months ended 30 June 2017;

• (e) the financial report of the Target Company for the period from 7 January 2016 (date of incorporation) to 30 September 2017;

• (f) the accountant’s report from Moore Stephens CPA Limited in respect of the unaudited pro forma financial information of the Enlarged Group;

• (g) the material contracts referred to in the section headed ‘‘Material Contracts’’ in this appendix; and

• (h) the written consents of the experts as referred to in the section headed ‘‘Qualifications and Consents of Experts’’ in this appendix.

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NOTICE OF EGM

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CHINA HEALTHCARE ENTERPRISE GROUP LIMITED 華 夏 健 康 產 業 集 團 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1143)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the ‘‘EGM’’) of China Healthcare Enterprise Group Limited (the ‘‘Company’’) will be held at 1804A, 18/F., Tower 1, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong on 6 March 2018 (Tuesday) at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

‘‘THAT

• (a) the conditional Sale and Purchase Agreement (as defined in the circular dated 15 February 2018 despatched to the shareholders of the Company), a copy of which has been produced to this meeting and signed by the chairman hereof marked ‘‘A’’ for the purpose of identification, and all transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and

• (b) any one director or, if the affixation of the common seal of the Company is necessary, any one Director and the company secretary of the Company or any two Directors or such other person (including a director) or persons as the Board may appoint be and is/are hereby authorised for and on behalf of the Company to approve and execute all documents, instruments and agreements and to do such acts or things deemed by him/her/them to be incidental to, ancillary to or in connection with the matters contemplated in or related to the Sale and Purchase Agreement and transactions contemplated thereunder or incidental thereto and completion thereof as he/she/they may consider necessary, desirable or expedient.’’

By order of the Board of China Healthcare Enterprise Group Limited Gong Shaoxiang

Chairman and Executive Director

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NOTICE OF EGM

Registered office: Head office and principal place of business in Clifton House Hong Kong: 75 Fort Street Suites 5815–5816 PO Box 1350 58/F., Two International Finance Centre Grand Cayman KY1-1108 No. 8 Finance Street Cayman Islands Central, Hong Kong

Notes:

1. A shareholder entitled to attend and vote at the EGM or any adjourned meeting is entitled to appoint a person or persons as his proxy or proxies to attend and, on a poll, vote instead of him. A proxy need not be a shareholder of the Company.

2. To be valid, a form of proxy together with 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 at the Company’s branch share registrar in Hong Kong, Tricor Investor Services, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting, and in default thereof the form of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiry of 12 months from the date of its execution.

3. Delivery of an instrument appointing a proxy shall not preclude a shareholder from attending and voting in person at the meeting, and in such event the instrument appointing a proxy shall be deemed to be revoked.

As at the date of this notice, the Board comprises the following Directors:

Executive Directors:

Mr. Gong Shaoxiang Mr. Lee Chi Hwa Joshua

Mr. Duan Chuanhong Mr. Shi Xinbiao

Non-Executive Director:

Mr. Cao Yuyun

Independent Non-executive Directors:

Mr. Bao Jinqiao Mr. Wong Chun Hung Mr. Leung Pok Man

Notes:

• (a) Any Shareholder entitled to attend and vote at the EGM is entitled to appoint a proxy to attend and to vote instead of him/her. A proxy need not be a Shareholder of the Company. A Shareholder who is the holder of two or more Shares may appoint more than one proxy to represent him/her and vote in his/her stead.

• (b) Where there are joint registered holders of any share, any one of such holders may vote at the EGM, either personally or by proxy, in respect of such share as if he was solely entitled thereto; but if more than one of such joint holders are present at the EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.

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NOTICE OF EGM

• (c) In order to be valid, the form of proxy duly completed and signed in accordance with the instructions printed thereon must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power or authority, not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.

• (d) Completion and return of the form of proxy will not preclude a Shareholder from attending and voting in person at the EGM or any adjournment thereof should he so wish, and in such event, the instrument appointing the proxy shall be deemed to be revoked.

• (e) Pursuant to the Listing Rules, any voting on the resolutions at the EGM will be taken by poll.

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