CR Construction Group Holdings Limited — Proxy Solicitation & Information Statement 2014

Nov 24, 2014

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 Chinese People Holdings Company Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was affected 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.

==> picture [53 x 87] intentionally omitted <==

==> picture [331 x 31] intentionally omitted <==

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

CHINESE PEOPLE HOLDINGS COMPANY LIMITED
���������������
----- End of picture text -----

(incorporated in Bermuda with limited liability) (stock code: 681)

MAJOR AND CONNECTED TRANSACTION AND NOTICE OF SPECIAL GENERAL MEETING

Financial Adviser to the Company

==> picture [59 x 33] intentionally omitted <==

Astrum Capital Management Limited 阿仕特朗資本管理有限公司

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

==> picture [28 x 27] intentionally omitted <==

==> picture [115 x 9] intentionally omitted <==

A letter from the Board is set out on pages 6 to 46 of this circular. A letter from the Independent Board Committee is set out on page 47 of this circular. A letter from New Spring Capital containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 48 to 113 of this circular.

A notice dated 25 November 2014 convening the SGM to be held at the head office of Chinese People Holdings Company Limited, Conference Room, 1st Floor, No.36 BDA International Business Park, No.2 Jingyuan North Street, Economic Technological Development Area, Beijing, China on Friday, 12 December 2014 at 1:30 p.m. is set out on pages 276 to 277 of this circular. Whether or not you are able to attend the SGM in person, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or at any adjourned meeting thereof if you so wish and, in such event, the relevant form of proxy shall be deemed to be revoked.

25 November 2014

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . .	47
LETTER FROM NEW SPRING CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . . . .	114
APPENDIX IIA – ACCOUNTANTS’ REPORT OF THE TARGET GROUP. . . . . . . . . . .	118
APPENDIX IIB – ACCOUNTANTS’ REPORT OF TIANJIN HONG FU . . . . . . . . . . . . .	154
APPENDIX IIC – ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE. . . . . . . . . . . .	189
APPENDIX III – MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET
GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE. . . . . .	217
APPENDIX IV – UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
THE ENLARGED GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	231
APPENDIX V – BUSINESS VALUATION REPORT OF THE TARGET GROUP. . . . .	241
APPENDIX VI – REPORTS ON FORECASTS UNDERLYING THE
VALUATION ON THE TARGET GROUP. . . . . . . . . . . . . . . . . . . . .	258
APPENDIX VII – PROPERTY VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . .	262
APPENDIX VIII – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	268
NOTICE OF SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	276

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms or expressions shall have the meanings set out below:

• “2017 EBITDA”

the audited consolidated profit or loss before interest, taxes, depreciation and amortisation of the Target Group for the year ending 31 March 2017 as shown in the audited financial statements of the Target Group prepared in accordance with the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and substantially the same as the accounting standards and principles adopted by the Company for preparation of its accounts

• “Acquisition”

• the acquisition by the Company of the Sale Shares and the Sale Loan pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement)

• “Aggregated Consideration”

• the aggregated consideration for the Acquisition of RMB370,000,000 (equivalent to HK$466,612,550), subject to adjustment according to the details as set out in the sub-paragraph headed “Profit Guarantee” under the paragraph headed “THE S&P AGREEMENT AND THE SUPPLEMENTAL AGREEMENT” in the letter from the Board of this circular

• “associate(s)”

• shall have the same meaning as ascribed to it under the Listing Rules

• “Beijing Zhong Feng”

• Beijing Civigas Zhong Feng Investment Consultancy Limited* (北京中民忠鋒投資諮詢有限公司), a wholly foreign owned enterprise established in the PRC, which is wholly owned by the Target Company

• “Board”

• the board of Directors

• “Business Day”

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

• “BVI”

• British Virgin Islands

– 1 –

DEFINITIONS

“Company”

• Chinese People Holdings Company Limited, a company incorporated in Bermuda with limited liability and the issued Shares of which are listed on the Stock Exchange

• “Compensation” the amount to be compensated by the Vendor to the Company in the event that the actual 2017 EBITDA showing on the Profit Certificate is less than RMB30,000,000, the calculation of which is set out in the sub-paragraph headed “Profit Guarantee” under the paragraph headed “THE S&P AGREEMENT AND THE SUPPLEMENTAL AGREEMENT” in the letter from the Board of this circular

• “Completion” completion of the Acquisition contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement) in accordance with its terms and conditions

• “Completion Date” the date on which Completion occurs

• “Director(s)”

• the director(s) of the Company

• “Enlarged Group”

• the Group as enlarged by the Target Group immediately upon Completion

• “Group”

the Company and its subsidiaries

• “HK$”

Hong Kong dollars, the lawful currency in Hong Kong

• “Hong Kong”

the Hong Kong Special Administrative Region of the PRC

• “Independent Board Committee”

the independent board committee comprising Dr. Liu Junmin, Prof. Zhao Yanyun and Mr. Sin Ka Man, being all the independent non-executive Directors, appointed by the Board for the purpose of advising the Independent Shareholders in relation to the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement)

– 2 –

DEFINITIONS

• “Independent Financial Adviser” or “New Spring Capital”

• New Spring Capital Limited, a licensed corporation permitted to carry out type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement)

• “Independent Shareholder(s)”

• any Shareholder(s) who is not required to abstain from voting at the SGM to approve the S&P Agreement (as supplemented by the Supplemental Agreement) in relation to the Acquisition and the transactions contemplated thereon

• “Independent Valuer”

• Grant Sherman Appraisal Limited, an independent professional valuer nominated by the Company for the purpose of the Acquisition

• “Latest Practicable Date”

• 20 November 2014, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular

• “Listing Rules”

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

• “LPG” liquefied petroleum gas

• “m[3] ”

cubic metre(s)

• “Ping Da Development”

• Ping Da Development Limited, a company incorporated in BVI with limited liability, which is wholly owned by the Vendor

• “PRC” the People’s Republic of China, and for the purpose of this circular only, excluding Hong Kong, Macau Special Administrative Region of the People’s Republic of China and Taiwan

• “PRC Companies”

• Beijing Zhong Feng, Tianjin Hong Fu and Tianjin Yun Ze De

• “Profit Certificate”

• the written certificate to be issued by the Company’s auditor or the reporting accountant for the Acquisition within seven Business Days after the issue of the audited financial statements of the Target Group for the year ending 31 March 2017 showing the actual 2017 EBITDA

– 3 –

DEFINITIONS

“Profit Guarantee”	the guarantee given by the Vendor to the Company that the
	2017 EBITDA shall be not less than RMB30,000,000
“RMB”	Renminbi, the lawful currency in the PRC
“Sale Loan”	the debt, loan or liability due from the Target Company to the
	Vendor (if any) as at the Completion Date
“Sale Shares”	100 shares of US$1.00 each in the share capital of the Target
	Company, representing the entire issued share capital of the
	Target Company as at the date of the S&P Agreement
“SFC”	the Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	the special general meeting of the Company to be convened
	and held to consider and approve, among other things, the
	S&P Agreement (as supplemented by the Supplemental
	Agreement) in relation to the Acquisition and the transactions
	contemplated thereon
“Share(s)”	ordinary share(s) of HK$0.07 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Shares”	up to 1,135,000,000 new Shares (subject to adjustment) to be
	allotted and issued by the Company upon the exercise by Ping
	Da Development of the subscription rights attaching to the
	Warrants
“Supplemental Agreement”	the supplemental agreement dated 13 November 2014 (after
	trading hours) entered into between the Company and the
	Vendor to amend certain terms of the S&P Agreement
“S&P Agreement”	the sale and purchase agreement dated 5 September 2014 (after
	trading hours) entered into between the Company and the
	Vendor in relation to the Acquisition

– 4 –

DEFINITIONS

• “Target Company” True Vanguard Holdings Limited, a company incorporated in BVI with limited liability, which is wholly owned by the Vendor as at the date of the S&P Agreement

• “Target Group” comprising the Target Company, Beijing Zhong Feng, Tianjin Hong Fu and Tianjin Yun Ze De as at the date of the S&P Agreement and the Latest Practicable Date

• “Tianjin Hong Fu” Tianjin Hong Fu Pharmaceutical Limited* (天津洪福藥業有限 公司), a domestic enterprise established in the PRC, which is wholly owned by Beijing Zhong Feng

• “Tianjin Yun Ze De” Tianjin Yun Ze De Biotechnology Limited* (天津市雲澤德 生物科技有限公司), a domestic enterprise established in the PRC, which is wholly owned by Beijing Zhong Feng

• “US$” United States dollars, the lawful currency in the United States of America

• “Vendor” Dr. Mo Shikang, the chairman of the Board, an executive Director and a Shareholder

• “Warrants” the 1,135,000,000 unlisted warrants issued by the Company to Ping Da Development on 31 July 2013

• “%” per cent.

• If there is any inconsistency between the Chinese names of PRC entities, departments, facilities or titles mentioned in this circular and their English translations, the Chinese version shall prevail.

For the purpose of this circular, unless otherwise indicated, conversion of RMB into HK$ is calculated at the historical exchange rate of RMB1.000000 to HK$1.261115, being the average of the bid price and the ask price of CNH/HKD exchange rate as quoted on Bank of China (Hong Kong) Limited at 4:00 p.m. on the date of the S&P Agreement. This exchange rate is for illustration purpose only and does not constitute a representation that any amounts have been, could have been, or may be exchanged at this or any other rate at all.

– 5 –

LETTER FROM THE BOARD

==> picture [53 x 87] intentionally omitted <==

CHINESE PEOPLE HOLDINGS COMPANY LIMITED ���������������

(incorporated in Bermuda with limited liability) (stock code: 681)

Executive Directors: Dr. Mo Shikang (Chairman) Mr. Zhang Hesheng (Deputy Chairman) Mr. Jin Song (Managing Director) Mr. Chu Kin Wang Peleus

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Independent Non-executive Directors Dr. Liu Junmin Prof. Zhao Yanyun Mr. Sin Ka Man

Principal Place of Business in Hong Kong: Unit 1101, 11th Floor Tung Ning Building 2 Hillier Street Central, Hong Kong

25 November 2014

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

INTRODUCTION

References are made to the announcements of the Company dated 5 September 2014, 8 September 2014, 29 September 2014, 31 October 2014 and 13 November 2014 in relation to the Acquisition.

On 5 September 2014 (after trading hours), the Company entered into the S&P Agreement (as supplemented by the Supplemental Agreement) with the Vendor for the sale and purchase of (i) the Sale Shares, representing the entire issued share capital of the Target Company; and (ii) the Sale Loan. Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), the Vendor has conditionally agreed to sell and the Company has conditionally agreed to purchase the Sale Shares and the Sale Loan at the Aggregated Consideration of RMB370,000,000 (equivalent to HK$466,612,550), subject to adjustment according to the details as set out in the sub-paragraph headed “Profit Guarantee” under the paragraph headed “THE S&P AGREEMENT AND THE SUPPLEMENTAL AGREEMENT” below.

– 6 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, (i) further information on the Acquisition; (ii) the recommendation of the Independent Board Committee to the Independent Shareholders; (iii) the advice from New Spring Capital to the Independent Board Committee and the Independent Shareholders; (iv) the accountants’ reports of the Target Group, Tianjin Hong Fu and Tianjin Yun Ze De; (v) the business valuation report of the Target Group prepared by the Independent Valuer; (vi) the property valuation report prepared by the Independent Valuer; and (vii) the notice of SGM, and other information as required under the Listing Rules.

THE S&P AGREEMENT AND THE SUPPLEMENTAL AGREEMENT

Date: the S&P Agreement: 5 September 2014 (after trading hours) the Supplemental Agreement: 13 November 2014 (after trading hours)

Parties

Vendor: Dr. Mo Shikang, who was, as at the Latest Practicable Date, the chairman of the Board, an executive Director and a Shareholder holding (i) 427,841,375 Shares, representing approximately 7.36% of the issued share capital of the Company; and (ii) 1,135,000,000 Warrants through Ping Da Development

Purchaser: the Company

Assets to be acquired

Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), the Vendor has conditionally agreed to sell and the Company has conditionally agreed to purchase (i) the Sale Shares, representing the entire issued share capital of the Target Company, free from all encumbrances and together with all existing and future rights and benefits attaching with or accruing to the Sale Shares; and (ii) the Sale Loan free from all encumbrances, subject to the satisfaction (or waiver, where applicable) of the conditions precedent as set out in the paragraph headed “Conditions” below.

Consideration

The consideration for the Sale Shares is RMB361,025,956.98 (equivalent to HK$455,295,250), among which Tianjin Hong Fu and Tianjin Yun Ze De are attributable to approximately RMB198 million and approximately RMB163 million, respectively, and the consideration for the Sale Loan is RMB8,974,043.02 (equivalent to HK$11,317,300). The Aggregated Consideration of RMB370,000,000 (equivalent to HK$466,612,550), subject to adjustment according to the details as set out in the paragraph headed “Profit Guarantee” below, shall be settled in the following manner:

• (i) at Completion, as to HK$232,675,000 (equivalent to RMB184,499,431), by offsetting the subscription proceeds (the “ Subscription Proceeds ”) to be paid by Ping Da Development upon the exercise of the subscription rights attaching to the 1,135,000,000 Warrants at the subscription price of HK$0.205 per Subscription Share; and

– 7 –

LETTER FROM THE BOARD

• (ii) on the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor), as to the balance of HK$233,937,550 (equivalent to RMB185,500,569) (the “ Cash Consideration ”), to be paid by the Company to the Vendor by a banker’s cashier order in the amount of HK$233,937,550 issued by any licensed bank in Hong Kong or the PRC.

• Note: Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), RMB to HK$ are exchanged at the rate of 1.261115, being the average of the bid price and the ask price of CNH/HK$ exchange rate as quoted on Bank of China (Hong Kong) Limited at 4:00 p.m. on the date of the S&P Agreement.

As to the partial payment of approximately 50% of the Aggregated Consideration at Completion, the Directors had considered other alternatives in lieu of offsetting the Subscription Proceeds. Such alternatives include (i) cash payment; (ii) issue of consideration shares of the Company; and (iii) issue of convertible bonds of the Company. As to the cash payment alternative, the Directors considered that the immediate cash outflow would not be beneficial to the Group as the cash position of the Group as of 31 March 2014 would reduce by approximately 67.3% to approximately RMB89.6 million. As to the issue of consideration shares of the Company, the shareholding of the existing Shareholders would possibly be diluted by twice upon the issue of consideration shares of the Company and upon the exercise of the subscription rights attaching to the Warrants by Ping Da Development. As to the issue of convertible bonds of the Company, the Group would incur interest expense and the gearing ratio of the Group would increase accordingly. On the assumption of a minimal interest rate of 1% per annum on the principal amount of RMB184,499,431 (i.e. the Subscription Proceeds), the total interest expense for the period from 1 January 2015 to 30 June 2017 (being the approximate maturity of the convertible bonds) would be approximately RMB4.6 million. Having considered that (i) the offsetting arrangement with the Subscription Proceeds will not have immediate cash impact on the Group; (ii) the effect of dilution on shareholding had been considered and accepted by the then Shareholders upon their approval of the issue of the Warrants in 2013; (iii) the Warrants will be exercised at a premium to the recent Share price; and (iv) no interest or finance cost will be borne by the Group as a result of offsetting arrangement of the Subscription Proceeds, the Directors are of the view that the offsetting arrangement of the Subscription Proceeds with the partial payment of the Aggregated Consideration at Completion is beneficial to the Company and the Shareholders as a whole.

The Directors expected that the Cash Consideration will be settled by way of internal resources of the Group. Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), in the event that the Company fails to settle the Cash Consideration on the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor), the Company shall pay an interest to the Vendor calculated based on the outstanding amount of the Cash Consideration at the best lending rate in Hong Kong dollars as quoted from time to time by The Hongkong and Shanghai Banking Corporation Limited on the basis of 365-day a year for the period from the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor) to the date of settling the outstanding payment.

– 8 –

LETTER FROM THE BOARD

Pursuant to an undertaking letter signed by Ping Da Development on the date of the S&P Agreement, Ping Da Development has undertaken to exercise the subscription rights attaching to the 1,135,000,000 Warrants at the subscription price of HK$0.205 per Subscription Share on the Completion Date irrespective of the then market price of the Shares.

The subscription price of HK$0.205 per Subscription Share represents:

• (i) a premium of approximately 9.98% over the average closing price of HK$0.1864 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to the date of the S&P Agreement (i.e. from 29 August 2014 to 4 September 2014);

• (ii) a premium of approximately 10.81% over the closing price of HK$0.185 per Share as quoted on the Stock Exchange on the date of the S&P Agreement; and

• (iii) a premium of approximately 17.14% over the closing price of HK$0.175 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Basis in determining the Aggregated Consideration

The consideration for the Sale Loan was determined with reference to the debt, loan and/or liability due from the Target Group to the Vendor as at the date of the S&P Agreement on a dollarto-dollar basis.

– 9 –

LETTER FROM THE BOARD

The consideration for the Sale Shares was determined after arm’s length negotiations between the Vendor and the Company after taking into account a number of factors including, among other things, the business nature and prospects of the Target Group and the preliminary estimation of the fair value of the Target Group of not less than RMB370,000,000 pursuant to the business valuation carried out by the Independent Valuer under discounted cashflow approach as at 31 August 2014. According to the business valuation report prepared by the Independent Valuer as set out in Appendix V to this circular, the fair market value of the Target Group as at 31 August 2014 (being the appraisal date of the valuation) was RMB380,306,000, whereas the fair market value of Tianjin Hong Fu and Tianjin Yun Ze De were RMB208,620,000 and RMB171,686,000, respectively.

In determining the consideration for any possible acquisitions or disposals of business and/ or entity, it is commonly adopted to make reference to (i) the net asset value of the target; (ii) the profit to earnings ratio of the target; and/or (iii) the market price of other business entities in similar nature of the target. Given that the Target Group is undergoing business transformation which has no historical earning records on the LPG business and barreled drinking water business, the Directors considered that references to the net asset value or the profit to earnings ratio of the Target Group and the comparison of the market comparables in similar business nature would not be feasible and therefore decided to make reference to the valuation of the Target Group assessed by the Independent Valuer.

In view of the above, the Directors consider that the Aggregated Consideration is fair and reasonable.

Valuation

The business valuation carried out by the Independent Valuer under discounted cashflow approach as at 31 August 2014 is regarded as a profit forecast under Rule 14.61 of the Listing Rules and is arrived at based on the following assumptions:

• the Target Group will successfully obtain and renew all the necessary licenses for the on-going operation of LPG business and barreled drinking water business;

• all approvals, licenses and contractual agreements with respect to the Target Group and its operations are legal, valid and will be enforceable in accordance with the legal terms;

• there will be no major changes in the existing political, legal, fiscal and economic conditions in the PRC in which the Target Group carries on its businesses;

• there will be no major changes in the current taxation law in the PRC, that the rates of tax payable will remain unchanged and that all applicable laws and regulations will be complied with;

– 10 –

LETTER FROM THE BOARD

• exchange rates, inflation rates and interest rates will not differ materially from those presently prevailing;

• the availability of finance will not be a constraint on the forecast growth of the Target Group’s operations and the repayment of its debts when they fall due;

• the Target Group will successfully maintain its competitiveness and market share through optimising the utilisation of its production capacity and expanding its customer base;

• the Target Group can keep abreast of the latest development of the industry such that its competitiveness and profitability can be sustained;

• the Target Group will retain and has competent management, key personnel, and technical staff to support their ongoing operations;

• any management changes or changes in ownership of the Target Group in the future will not have adverse effects on the long term profitability of its operations;

• industry trends and market conditions for LPG and barreled drinking water industries will not deviate materially from economic forecasts;

• the labor market conditions will not differ materially from those presently prevailing; and

• the financial projection of the Target Group has been prepared on a reasonable basis, reflecting estimates which have been arrived at after due and careful consideration by the management.

According to the business valuation report prepared by the Independent Valuer as set out in Appendix V to this circular, the business valuation of the Target Group principally comprised of (i) the valuation of the LPG business under Tianjin Hong Fu; and (ii) the valuation of the barreled drinking water business under Tianjin Yun Ze De. In arriving at the valuation of each of the LPG business and the barreled drinking water business, the Independent Valuer had made reference to the financial projection of Tianjin Hong Fu and Tianjin Yun Ze De (which was prepared by the Target Group based on, among others, the respective business plan of Tianjin Hong Fu and Tianjin Yun Ze De, the estimated operating expenses, the expected capital expenditure and source of funds, as well as the applicable tax rate in respect of the LPG business and the barreled drinking water business in the PRC) and had taken into consideration of working capital and cashflow forecast of Tianjin Hong Fu and Tianjin Yun Ze De. In addition, the Independent Valuer had adopted certain variables (including but not limited to the discount rate, terminal growth rate and marketability discount rate) based on their experience in valuating similar businesses and/or companies and had conducted sensitivity analysis before arriving at the valuation.

– 11 –

LETTER FROM THE BOARD

The management of the Company has reviewed the financial projection of Tianjin Hong Fu and Tianjin Yun Ze De. Although there is no historical track record in respect of the LPG business and barreled drinking water business as a base for the financial projection of Tianjin Hong Fu and Tianjin Yun Ze De, the management of the Company considered that, in respect of the LPG business, such projection is in line with the historical financial records of the Group’s LPG segment, such as distribution model, sales growth, profitability margins and so forth; and in respect of the barreled drinking water business, the projected sales volume increases progressively and taking into account the maximum drawing amount per annum as permitted by the Water Drawing Permit* (取 水許可證) possessed by Tianjin Hong Fu. In addition, the management of the Company noted that small capitalisation risk premium, start-up risk premium and discount for lack of marketability were factored in the business valuation of Tianjin Hong Fu and Tianjin Yun Ze De in order to reflect that Tianjin Hong Fu and Tianjin Yun Ze De are private companies with limited track record. The financial projection of Tianjin Hong Fu and Tianjin Yun Ze De were also reviewed by the reporting accountant and the financial adviser of the Company, whose views were disclosed in Appendix VI to this Circular.

Having reviewed and discussed with the Independent Valuer about the basis and assumptions of the Valuation Report, the Board considers that the valuation of the Target Group conducted by the Independent Valuer, including (i) the major variables adopted for the valuation; (ii) sensitivity analysis; (iii) reference to the financial projection of Tianjin Hong Fu and Tianjin Yun Ze De (which was prepared based on, among others, the expected capital expenditure and source of funds); and (iv) taking into consideration of working capital and cashflow forecast of Tianjin Hong Fu and Tianjin Yun Ze De, is fair and reasonable.

There can be no assurance that the assumptions which the profit forecasts were based on will materialise. If any of the assumptions which the profit forecasts were based on does not materialise as expected, the prospects and performance of LPG business and barreled drinking water business may be materially and adversely affected.

Conditions

Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), completion is conditional upon fulfillment or waiver (as the case may be) of the following conditions:

• (1) the Company being satisfied with the results of the due diligence review in respect of, among other things, the assets, liabilities, business operation and financial position of the Target Group;

• (2) the passing by the Independent Shareholders at a special general meeting of the Company to be convened and held of an ordinary resolution to approve the S&P Agreement (as supplemented by the Supplemental Agreement) and the transactions contemplated thereunder;

– 12 –

LETTER FROM THE BOARD

• (3) the Vendor and the Target Company having obtained all necessary approvals and consents in respect of the Acquisition;

• (4) the Company having obtained all necessary approvals and consents in respect of the Acquisition;

• (5) a PRC legal opinion (the “ PRC Legal Opinion ”) (in form and substance satisfactory to the Company including (i) the existing permits possessed by the PRC Companies are still valid; and (ii) there are no legal barriers restricting the PRC Companies to carry on LPG business and the production of barreled drinking water) to be issued by a PRC legal counsel nominated by the Company covering such matters which are relevant to the S&P Agreement (as supplemented by the Supplemental Agreement) and the transactions contemplated thereunder having been obtained;

• (6) a business valuation report (in form and substance satisfactory to the Company) to be issued by a valuer nominated by the Company indicating the fair value of the Target Group being assessed under discounted cashflow approach to be not less than RMB370,000,000 having been obtained; and

• (7) all statements, guarantee and warranties given by the Vendor under the S&P Agreement (as supplemented by the Supplemental Agreement) remaining true and accurate and not misleading from the date of the S&P Agreement.

The Company may at any time waive conditions (1) and (7) as stated above while the other conditions cannot be waived by any parties to the S&P Agreement. If any of the conditions set out above is not fulfilled or, as the case may be, waived by the Company on or before 31 October 2014 or such later date as the Vendor and the Company may mutually agree (the “ Long Stop Date ”), the obligations of the parties to the S&P Agreement (as supplemented by the Supplemental Agreement) shall cease and terminate and neither party shall have any claim under the S&P Agreement (as supplemented by the Supplemental Agreement) against the other save for any rights already accrued. As additional time is required for the fulfilment of certain conditions precedent under the S&P Agreement (as supplemented by the Supplemental Agreement), the Company and the Vendor mutually agreed in writing on 31 October 2014 to extend the Long Stop Date to 31 December 2014 or such later date as the Vendor and the Company may mutually agree.

– 13 –

LETTER FROM THE BOARD

The provision of waiver of conditions precedent in the S&P Agreement (as supplemented by the Supplemental Agreement) is to allow certain commercial flexibility for the Company in its discretion as to whether to proceed with the Completion or not. As at the time of the entering into of the S&P Agreement, the Company and its advisers were still in the process of conducting due diligence review on the Target Group. The discretion in granting waiver provides flexibility for the Company to deal with circumstances such as immaterial non-compliance by the Target Group which may be discovered during the due diligence process, such that the Company may still proceed to Completion notwithstanding certain immaterial non-compliance by the Target Group, which may be remedial at a later stage or would not have any material adverse effect on the Target Group. As the discretion to waive certain conditions precedent is solely exercisable by the Company, the Directors consider that such term would provide flexibility to the Company and the Directors would exercise such discretion with due care. As at the Latest Practicable Date, the Company had no intention to waive any of the conditions precedent and conditions (1), (3) and (5) had been fulfilled.

Completion

Completion shall take place on the day of the fulfillment or, as the case may be, waiver of the abovementioned conditions (or such later time as may be agreed between the Company and the Vendor).

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and all the results and assets and liabilities of the Target Group will be consolidated to the financial statements of the Group.

Profit Guarantee

Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), the Vendor has irrevocably warranted and guaranteed to the Company that the 2017 EBITDA will not be less than RMB30,000,000. The guaranteed amount of the 2017 EBITDA was arrived at after business negotiations between the Company and the Vendor and was determined with reference to the financial projection of the LPG business and barreled drinking water business of the Target Group for the year ending 31 March 2017 (which was prepared by the Target Group based on, among others, the business plan of Tianjin Hong Fu and Tianjin Yun Ze De, the estimated operating expenses, the expected capital expenditure and source of funds, as well as the applicable tax rate in respect of the LPG and barreled drinking water businesses in the PRC).

In the event that the actual 2017 EBITDA showing on the Profit Certificate equals to or more than RMB30,000,000, the Company shall pay the Vendor the Cash Consideration by a banker’s cashier order in the amount of HK$233,937,550 issued by any licensed bank in Hong Kong or the PRC on the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor).

– 14 –

LETTER FROM THE BOARD

In the event that the actual 2017 EBITDA showing on the Profit Certificate is less than RMB30,000,000, the Vendor shall compensate the Company an amount calculated in accordance with the following formula:

Compensation = (Profit Guarantee – the actual 2017 EBITDA) x[A][gg][re][g][ated Consideration] Profit Guarantee

For avoidance of doubt, if the actual 2017 EBITDA records a loss, the actual 2017 EBITDA provided in the above formula shall be set at “0”.

In the event that the Vendor has to pay the Compensation to the Company,

• (1) the Company shall have the right to offset the Cash Consideration against the Compensation; and

• (2) if the offsetting amount as provided in item (1) above is insufficient for offsetting the whole amount of the Compensation and other reasonable expenses, the Vendor shall settle the shortfall by cash on the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor).

For avoidance of doubt, if the Cash Consideration exceeds the Compensation, the Company shall pay the remaining balance of the Cash Consideration to the Vendor after deduction of the Compensation and other reasonable expenses on the sixth Business Day after issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor).

In the event that the actual 2017 EBITDA showing on the Profit Certificate is less than RMB30,000,000 (i.e. the Profit Guarantee fails to be met), pursuant to Rule 14A.63 of the Listing Rules, the Company will disclose in an announcement in a timely manner and in its next annual report (i) the shortfall from the Profit Guarantee; (ii) the adjustment on the Aggregated Consideration in accordance with the mechanism as stated above; (iii) whether the Vendor has fulfilled his obligations under the Profit Guarantee; and (iv) the independent non-executive Directors’ opinion on whether the Vendor has fulfilled his obligations under the Profit Guarantee.

– 15 –

LETTER FROM THE BOARD

As the Target Group is in the preliminary stage of developing the LPG business and barreled drinking water business with no trading track record, the Directors consider that the Profit Guarantee serves as an assurance to the Company in respect of the financial performance of the Target Group for the financial year ending 31 March 2017, by which time the Target Group is expected to be under commercial operation for more than one year. The actual 2017 EBITDA was determined as the benchmark of the Profit Guarantee as EBITDA can fairly represent the operating performance of the Target Group and it eliminates the effects of financing, depreciation, amortisation and other non-cash items. On the contrary, profit after taxation is arrived at after taking into consideration of financing, depreciation and amortisation cost. As such, the Directors are of the view that EBITDA serves as a better indicator of the operating performance of the Target Group. In the event that the Profit Guarantee cannot be fulfilled, the Company will be compensated by the amount of Compensation calculated as aforesaid, which to the maximum extent, will be equal to the Aggregated Consideration. Hence, the Directors are of the view that the Profit Guarantee is beneficial to the Company.

To secure the payment of the Compensation, the Vendor executed a facility letter on 13 November 2014 (the “ Facility Letter ”). Pursuant to the Facility Letter, a licensed money lender in Hong Kong, being an independent third party to the Company, agreed to grant a working capital facility which is available for drawdown during the period from 1 April 2017 to 30 June 2017 up to HK$232,675,000 (the “ Facility ”) to the Vendor for the purpose of financing the Vendor in relation to the S&P Agreement. Having considered that (i) the maximum amount of the Compensation is equal to the Aggregate Consideration; (ii) pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), the Company has the right to offset the Cash Consideration against the Compensation; and (iii) the amount of the Facility is equivalent to the remaining amount of the Aggregate Consideration after deducting the Cash Consideration, the Directors are of the opinion that sufficient financial resources are available to the Vendor to satisfy the Compensation (if necessary), and that the Company’s interest is safeguarded.

INFORMATION OF THE TARGET GROUP

The Target Company is an investment holding company incorporated in BVI with limited liability on 15 April 2014. The Sale Shares represent the entire issued share capital of the Target Company. As at the Latest Practicable Date, the Target Company was wholly owned by the Vendor.

Beijing Zhong Feng is a wholly foreign owned enterprise established in the PRC on 14 August 2014. As at the Latest Practicable Date, Beijing Zhong Feng was wholly owned by the Target Company and the total registered capital of Beijing Zhong Feng of RMB50,000,000 was unpaid. The business scope of Beijing Zhong Feng is consultancy in social economy (excluding projects subject to administrative approval), investment and corporate management.

– 16 –

LETTER FROM THE BOARD

Tianjin Hong Fu is a domestic enterprise established in the PRC on 5 July 1999. The total registered capital of Tianjin Hong Fu is RMB18,000,000. As at the Latest Practicable Date, Tianjin Hong Fu was wholly owned by Beijing Zhong Feng. Tianjin Hong Fu was previously engaged in the production of medicine in the form of capsule, tablet, granule and mixture and the production of Sheng Xuan Pai capsule (聖宣牌彼德膠囊) and Sheng Feng Pai Xue Yang Tong Li capsule (聖 峰牌雪氧通力膠囊) in Tianjin City, the PRC. Since early 2014, Tianjin Hong Fu discontinued its pharmaceutical business due to unsatisfactory operating results and it has planned to pursue in the filling and sale of LPG business.

Tianjin Yun Ze De is a domestic enterprise established in the PRC on 27 November 2012. The total registered capital of Tianjin Yun Ze De is RMB3,010,000. As at the Latest Practicable Date, Tianjin Yun Ze De was wholly owned by Beijing Zhong Feng. Tianjin Yun Ze De is inactive and it has planned to pursue in the production and sale of barreled drinking water and sale of electrical appliances such as water dispenser and water purification systems in Tianjin City, the PRC.

Reorganisation of the Target Group

Immediately prior to 21 November 2013, the Vendor owned 23.5% and 25.0% equity interests in Tianjin Hong Fu and Tianjin Yun Ze De, respectively. The Vendor’s investment amount in Tianjin Hong Fu and Tianjin Yun Ze De were RMB4,230,000 and RMB750,000 respectively, which were equivalent to the then registered capital contributed by the Vendor with respect to his equity shareholding interests in Tianjin Hong Fu and Tianjin Yun Ze De.

On 21 November 2013, the Vendor inherited the remaining equity interests in Tianjin Hong Fu and Tianjin Yun Ze De from his mother. Subsequent to the said inheritance, the Vendor owned the entire equity interests in Tianjin Hong Fu and Tianjin Yun Ze De.

On 27 November 2013, the spouse of the Vendor contributed RMB10,000 registered capital to Tianjin Yun Ze De. Subsequently, Tianjin Yun Ze De was owned as to approximately 99.7% and approximately 0.3% by the Vendor and his spouse, respectively.

For the purpose of internal reorganisation of the Target Group, the Vendor established the Target Company and Beijing Zhong Feng on 15 April 2014 and 14 August 2014, respectively, as the holding companies of Tianjin Hong Fu and Tianjin Yun Ze De. On 25 August 2014, the Vendor transferred his entire equity interests in Tianjin Hong Fu to Beijing Zhong Feng at a total consideration of RMB18,000,000, which is equivalent to the registered capital of Tianjin Hong Fu. On the same day, the Vendor and his spouse respectively transferred approximately 99.7% and approximately 0.3% equity interests in Tianjin Yun Ze De to Bejing Zhong Feng at a total consideration of RMB3,010,000, which is equivalent to the registered capital of Tianjin Yun Ze De. Subsequently, Tianjin Hong Fu and Tianjin Yun Ze De became the wholly-owned subsidiaries of Beijing Zhong Feng.

– 17 –

LETTER FROM THE BOARD

Set out below is the shareholding structure of the Target Group (i) immediately after the aforementioned group reorganisation and as at the Latest Practicable Date; and (ii) upon Completion.

(i) immediately after reorganisation and as at the Latest Practicable Date

==> picture [435 x 337] intentionally omitted <==

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

The Vendor
100%
The Target Company
(Limited liability company
incorporated in BVI
on 15 April 2014)
100%
Beijing Zhong Feng
(Wholly foreign owned enterprise
established in the PRC on 14 August 2014)
100% 100%
Tianjin Hong Fu Tianjin Yun Ze De
(PRC domestic company (PRC domestic company
established on 5 July 1999) established on 27 November 2012)
----- End of picture text -----

– 18 –

LETTER FROM THE BOARD

(ii) upon Completion

==> picture [435 x 399] intentionally omitted <==

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

The Vendor
22.50% [(Note)]
The Company
100%
The Target Company
(Limited liability company
incorporated in BVI
on 15 April 2014)
100%
Beijing Zhong Feng
(Wholly foreign owned enterprise
established in the PRC on 14 August 2014)
100% 100%
Tianjin Hong Fu Tianjin Yun Ze De
(PRC domestic company (PRC domestic company
established on 5 July 1999) established on 27 November 2012)
----- End of picture text -----

• Note: Ping Da Development has undertaken, pursuant to the undertaking letter signed by it on the date of the S&P Agreement, to exercise the subscription rights attaching to the 1,135,000,000 Warrants at the subscription price of HK$0.205 per Subscription Share on the Completion Date. Ping Da Development is wholly-owned by the Vendor, and accordingly, the Vendor will beneficially own 1,562,841,375 Shares, representing approximately 22.50% of the issued share capital of the Company as enlarged by the issue of 1,135,000,000 Subscription Shares upon Completion, assuming that the Consideration Shares (as defined below) have not yet been distributed pursuant to the Settlement Deed (as defined below) (details of the distribution of the Consideration Shares are set out in note 2 to the shareholding table under the paragraph headed “ CHANGE IN THE SHAREHOLDING STRUCTURE OF THE COMPANY ” below).

– 19 –

LETTER FROM THE BOARD

Financial information of the Target Group

The Target Group

Set out below is the summary of the key audited consolidated financial figures of the Target Group for the period from 21 November 2013 (the Acquisition Date, as defined in note 22 to the audited accountants’ report of the Target Group as set out in Appendix IIA to this circular) to 31 December 2013 and the eight months ended 31 August 2014 prepared under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants:

	For the period from	For the period from
	21 November 2013		For the
	(the Acquisition Date)		eight months ended
	to 31	December 2013	31 August 2014
		(RMB’000)	(RMB’000)
		(audited)	(audited)
Revenue		–	45
Profit before tax		–	942
Profit for the period		–	655
		As at	As at
	31	December 2013	31 August 2014
		(RMB’000)	(RMB’000)
		(audited)	(audited)
Total assets		21,940	23,091
Net assets		10,235	10,890

Tianjin Hong Fu

Set out below is the summary of the key audited financial figures of Tianjin Hong Fu for the three years ended 31 December 2013 and the eight months ended 31 August 2014 prepared under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants:

Revenue Profit/(loss) before tax Profit/(loss) for the year/ period	For theyear ended 31 December 2011 2012 2013 (RMB’000) (RMB’000) (RMB’000) (audited) (audited) (audited) 1,717 1,636 514 (2,119) (2,497) (988) (2,127) (2,502) (1,017)	For the eight months ended 31 August
		2013 2014 (RMB’000) (RMB’000) (unaudited) (audited) 401 45 (546) 1,150 (564) 863

– 20 –

LETTER FROM THE BOARD

	As at	As at	As at	As at
	31 December	31 December	31 December	31 August
	2011	2012	2013	2014
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
	(audited)	(audited)	(audited)	(audited)
Total assets	13,640	11,690	11,168	12,308
Net assets	3,583	1,081	64	927

Tianjin Yun Ze De

Set out below is the summary of the key audited financial figures of Tianjin Yun Ze De for the period from 27 November 2012 (i.e. the date of incorporation of Tianjin Yun Ze De) to 31 December 2012, the year ended 31 December 2013 and the eight months ended 31 August 2014 prepared under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants:

	For the
	period from
	27 November
	2012	For the	For the eight	For the eight
	to	year ended	months ended	months ended
	31 December	31 December	31 August	31 August
	2012	2013	2013	2014
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
	(audited)	(audited)	(unaudited)	(audited)
Loss before tax	–	(522)	(220)	(194)
Loss for the year/period	–	(522)	(220)	(194)
		As at	As at	As at
		31 December	31 December	31 August
		2012	2013	2014
		(RMB’000)	(RMB’000)	(RMB’000)
		(audited)	(audited)	(audited)
Total assets		3,000	2,492	2,355
Net assets		3,000	2,488	2,294

Note: Given that Beijing Zhong Feng was recently established on 14 August 2014, the financial figures of Beijing Zhong Feng were not available as at the Latest Practicable Date.

As at the Latest Practicable Date, the Sale Loan amounted to approximately RMB8,996,000.

– 21 –

LETTER FROM THE BOARD

The LPG business

Industry overview

Being the most populous country, the PRC is one of the most energy-demanding countries with a steady increase on energy demand. According to the “ China Statistical Yearbook 2013 ” compiled by the National Bureau of Statistics of China, the total energy consumption in the PRC increased from approximately 1.50 billion tons of coal equivalent (“ TCE ”) in 2001 to approximately 3.62 billion TCE in 2012, representing a compound annual growth rate (“ CAGR ”) of approximately 8.3%.

LPG serves as one of the important energy sources in the PRC. According to the National Bureau of Statistics of China, the national output of LPG increased from approximately 14.17 million tons in 2004 to approximately 25.00 million tons in 2013, with a CAGR of approximately 6.5%. Net import of LPG in 2013 reached to approximately 2.91 million tons, representing an increase of approximately 26.16% as compared to the previous year. According to “Jinyin Dao 2014 Interim Report on LPG” (金銀島液化氣行業2014年中期報告), chemical industry and civil use are the major users of LPG in the PRC, which accounted for approximately 39.3% and 31.0% of the total consumption of LPG in the PRC for the first half of 2014, respectively.

Recently, the PRC government has been exercising a strong support for the development of green energy and the rapid growth of natural gas consumption would undoubtedly hinder the development of LPG market. However, given the development of natural gas is restricted by transmission pipelines and resource supply, LPG still enjoys a large market share in medium and small towns, rural areas and city borders. It is expected that the rapid economic growth and accelerated urbanisation in the PRC will continue to drive higher in demand of LPG and thus, the PRC’s LPG industry is still optimistic.

Laws and regulations

The LPG business intended to be operated by the Enlarged Group upon Completion is subject to supervision of the State Council, competent ministries and commissions and other relevant authorities and departments including the Ministry of Housing and Urban-Rural Development, the Ministry of Transport and the General Administration of Quality Supervision, Inspection and Quarantine (the “ AQSIQ ”) under the State Council. Operating enterprises are subject to various laws and regulations promulgated by the said authorities and effective in the PRC.

– 22 –

LETTER FROM THE BOARD

Administrative licensing:

• (1) On 3 April 2003, the AQSIQ issued the “Gas Cylinders Safety Supervision Regulation” (氣 瓶安全監察規定), which came into effect on 1 June 2003. It mainly regulates the design, manufacture, filling, transportation, storage, sale, use and inspection of gas cylinders within the PRC. It requires entities filling gas cylinders to submit a written application for filling permit to the special safety supervision bodies of provincial quality inspection authorities. Upon review, provincial quality inspection authorities will issue a Gas Cylinder Filling Permit to qualified applicants, and entities without the Gas Cylinder Filling Permit shall not be permitted to engage in gas cylinder filling business.

• (2) On 28 October 2008, the Standing Committee of National People’s Congress (“ NPC ”) passed the amended “Fire Control Law of the PRC” (中華人民共和國消防法), which came into effect on 1 May 2009. It provides that the public security department of the State Council shall monitor and administer the nationwide fire control work; the public security authority of local People’s Governments at county level or above shall monitor and administer the fire control work within their administrative region and the fire control institutions of public security authority of the People’s Government at the same level shall be responsible for the implementation. For the construction of a large-scale densely populated site or any other special construction project as prescribed by the public security department of the State Council, the construction unit shall apply to the fire protection division of the public security organ for a fire protection as-built acceptance. A construction project that fails to undergo or pass the fire protection as-built acceptance shall be prohibited from being put into use. The establishment of factories, warehouses and special depots or docks for the production, storage and loading and unloading of such dangerous articles as flammables and explosives shall conform to the fire protection technical standards. The filling, supply and pressure regulating stations of flammable and explosive gas and liquid shall be set up at places meeting the fire safety requirements, and conform to the requirements for the prevention of fire and explosion. The provisions on fire protection technical standards and administration must be observed in the production, storage, transport, sale, use and disposal of such dangerous articles as flammables and explosives.

• (3) On 19 October 2010, the State Council issued the “Regulation on the Administration of Urban Gas” (城鎮燃氣管理條例), which came into effect on 1 March 2011. The regulation regulates urban gas development planning and emergency plan, gas operation and services, gas use, gas facilities protection, prevention and treatment of gas safety incidents and relevant management. In accordance with the “Regulation on the Administration of Urban Gas”, the PRC implements a licensing system for gas operation and gas business licenses shall be issued by gas administration authorities of the People’s Government at county level or above. Before registering with the industry and commerce authorities, an applicant must obtain a gas business license.

– 23 –

LETTER FROM THE BOARD

• (4) On 29 June 2013, the Standing Committee of NPC passed and promulgated the “Safety Law of Special Equipment” (特種設備安全法), which came into effect on 1 January 2014. It regulates the production (including design, manufacture, installation, renovation and repair), operation, use, inspection, examination and safety monitoring of special equipment. Among others, boilers, pressurised vessels (including gas cylinders) and pressurised pipelines which pose great threat to personal and property safety are within the scope of special equipment subject to the law. It requires entities using special equipment to register the use of special equipment with the competent authority responsible for special equipment safety monitoring and management and obtain a registration certificate either before the special equipment is put to use or within 30 days after the special equipment is put to use.

Standard for construction of stations:

On 12 July 2006, the Ministry of Construction and the AQSIQ jointly published the “Code for Design of City Gas Engineering” (城鎮燃氣設計規範)(GB50028-2006), which came into effect on 1 November 2006. The code states that the planning of LPG supply facilities shall conform to overall urban planning and they shall be located away from densely populated areas such as urban residential areas, villages and townships, schools, theaters and stadiums. The distance between fully pressurised storage tanks at LPG supply facilities and buildings and structures outside the facilities shall not be less than the prescribed distance.

Specified rules in Tianjin City:

• (1) On 24 May 2005, Tianjin Municipal People’s Congress Standing Committee passed the “Tianjin Gas Administration Regulation” (天津市燃氣管理條例), which provides that the construction administration authority in Tianjin shall be in charge of gas administration in Tianjin and the gas administration authority in Tianjin will undertake the specific administration of gas matters in Tianjin. The People’s Governments of Tanggu, Hangu, Dagang, Wuqing and Baodi Districts, Ji, Jinghai and Ninghe Counties, and the management committees of Tianjin Economic-Technological Development Area and Tianjin Port Bonded Area, shall designate urban administration authorities to take charge of gas administration within their respective jurisdiction.

• (2) Enterprises operating gas business shall file an application with the gas administration authority in Tianjin and obtain a Gas Business License before it can commence operation.

• (3) Gas supply stations such as those supplying gas with cylinders and piped network in residential areas or engaged in gas storage and distribution (and filling) or filling gas for gas vehicles, shall obtain the Gas Supply Station (Point) Sale Permit issued by the gas administration authority in Tianjin before it can operate gas business.

– 24 –

LETTER FROM THE BOARD

Road transport:

On 23 January 2013, the Ministry of Transport under the State Council issued the “Provisions on the Administration of Road Transport of Dangerous Goods” (道路危險貨物運輸管理規定), which came into effect on 1 July 2013. The provisions mainly regulate transportation of dangerous goods by enterprises. Enterprises applying for qualification for road transport of dangerous goods shall comply with the standards under the provisions relating to dedicated vehicles and equipment, parking area, staff and safety management personnel and a sound production safety management system, and shall submit application to the local road transport authority where they are located. In the case of approval of the licensing, the road transport administration authority shall issue to the applicant an Administrative Licensing Decision on the Road Transport of Dangerous Goods (道路危險貨物運輸行政許可決定書) to clarify the licensed matters, including categories and types of dangerous goods to be transported, quantity and requirements of special vehicles and the transportation nature, and shall, within 10 days, issue a Road Transport Business License (道路運輸 經營許可證) to the applicant for the business road transport of dangerous goods or issue a License for the Road Transport of Dangerous Goods (道路危險貨物運輸許可證) to the applicant for the non-business road transport of dangerous goods.

An enterprise engaged in road transport of dangerous goods shall commission a qualified institution to conduct an appraisal of its safety management and issue an appraisal report at least every three years.

An enterprise or entity engaged in road transport of dangerous goods shall conduct road transport of dangerous goods in strict compliance with the decisions of the road transport administration authority and shall not transfer or lease its License for the Road Transport of Dangerous Goods.

Permits

Pursuant to the PRC Legal Opinion, the following permits are requisite for the operation of the LPG business in the PRC:

		Estimated
	Estimated	time for
	time for	obtaining the	Administrative	Expected legal	Estimated cost
Name of permits	application	permit	approval time required	impediments	and expenses
Gas Operation Permit*
(燃氣經營許可證)	March 2015	March 2015	~20 business days	Nil	minimal
Gas Cylinder Filling Permit*
(氣瓶充裝許可證)	March 2015	March 2015	~20 business days	Nil	minimal
Gas Sale Permit*
(燃氣准銷證)	April 2015	April 2015	~20 business days	Nil	minimal

– 25 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, Tianjin Hong Fu has not yet obtained any of the required permits. According to the PRC Legal Opinion, the administrative approval time required for the above permits is approximately 20 business days. As advised by the PRC legal adviser of the Company, the Directors do not anticipate any legal impediments in obtaining the required permits.

Development plan

Tianjin Hong Fu has planned to pursue in the filling and sale of LPG business. On 1 August 2014, Tianjin Hong Fu received an administration approval (the “ Site Expansion Approval ”) from the Development and Reform Commission of Wuqing District in Tianjin City (天津市武清區發展 和改革委員會) in respect of its application for the expansion of production site, warehouse, office and ancillary area and purchase and the establishment of LPG boiler and LPG storage tank within its self-owned land parcel (the “ Land Parcel ”) located in Dagaokou Cun, Cao Zi Li Zhen, Wuqing District, Tianjin City (天津市武清區曹子里鎮大高口村). Tianjin Hong Fu possesses the land use right of the Land Parcel, which will expire on 1 February 2058.

The development of Tianjin Hong Fu consists of two phases. In the first expansion phase, a LPG storage and distribution station (the “ LPG Station ”) with a storage capacity of 450 m[3] will be built which will bring approximately 20,000 tons to 30,000 tons LPG filling capacity per annum and is expected to commence operation in the second half of 2015. With reference to the quotations obtained by Tianjin Hong Fu from independent third parties in respect of the construction of the LPG Station (including but not limited to the purchase cost of machineries and equipment, and the construction fee), the expected capital expenditure is approximately RMB14.7 million. Upon completion of the first expansion phase, the LPG Station will consist of the following units:

Units Components LPG storage: 4 x 100 m[3] horizontal tank (臥罐); and 1 x 50 m[3] LPG residual horizontal tank (殘液臥罐) Production: Weighbridge (electronic truck scale) (地秤(電子汽車衡)); Truck loading platform (汽車裝卸台); LPG compressors area (液化石油氣壓縮機房); Gasification area (氣化間); and Cylinder filling area (鋼瓶灌裝間) Ancillary area: Fire pool (消防水池); Fire pumping room (消防泵房); Substation (變配電間); Diesel generators room (柴油發電機房); and Boiler area (鍋爐間) Office: Office building (辦公樓); and Production coordination center (生產調度中心)

– 26 –

LETTER FROM THE BOARD

In the second expansion phase, additional tanks with total storage capacity of 1,100 m[3] will be installed and an automatic LPG filling facilities will be set up in the LPG Station which will bring an additional LPG filling capacity of approximately 80,000 tons per annum and is expected to commence operation in the second half of 2017. With reference to the quotations obtained by Tianjin Hong Fu from independent third parties in respect of the expansion of the LPG Station (including but not limited to the purchase and installation cost of additional horizontal tanks and automatic LPG filling facilities), the expected capital expenditure is approximately RMB11.4 million. Upon completion of the second expansion phase, the LPG Station will consist of the following additional units:

Units Components Storage: 5 x 200 m[3] horizontal tank (臥罐); and 1 x 100 m[3] LPG residual horizontal tank (殘液臥罐) Production: Compressors (壓縮機); hydrocarbon pumping area (烴泵間); production plant (生產車間); and distribution centre (配送中心) Ancillary area: Fire pumping area (消防水泵房); generators area (發電機房); power distribution area (配電房); machineries maintenance room (機修房); and fire pool (消防水池)

After the completion of these two phases, the LPG Station will have a total storage capacity of 1,550 m[3] and the LPG filling capacity will reach a maximum of approximately 110,000 tons per annum.

– 27 –

LETTER FROM THE BOARD

Business model

Equipped with the LPG Station, Tianjin Hong Fu can participate in the wholesale and retail of LPG business with a target to serve local residential, commercial and industrial users in Tianjin. It plans to source LPG from local refineries in Tianjin and adjacent regions, including Tianjin Dagang Oil Field* (天津大港油田) being an existing supplier of the Group. The following diagram illustrates the business model of the LPG business from sourcing to distribution:

==> picture [369 x 495] intentionally omitted <==

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

Suppliers
LPG
Delivery of LPG
by tank trucks
LPG Station
Horizontal tanks
Cylinders Bottling
Inspection
Warehouse
Return of Delivery of LPG
empty cylinders cylinders by trucks
Distribution
Retail stores
Delivery of LPG
cylinders by
Return of
motorcycles
empty cylinders
Target customers Target customers
Residential Commercial Industrial Wholesalers
----- End of picture text -----

– 28 –

LETTER FROM THE BOARD

As illustrated in the above, Tianjin Hong Fu plans to distribute LPG through a combination of modes including (i) from LPG Station directly to end users; (ii) from LPG Station to store and subsequently to end users; and (iii) from LPG Station to wholesalers, which is consistent with the distribution model of the Group in other cities in the PRC. As to the retail business, the Target Group intends to establish its foothold in Wuqing District in Tianjin and then expands further to other districts surrounding Wuqing District year by year. The retail stores will be catergorised into three types, being the sales of (i) both LPG cylinders and barreled drinking water; (ii) LPG cylinders only; and (iii) barreled drinking water only. As both LPG cylinders and barreled drinking water are fast moving consumer goods which share common end users, the Target Group will strategically sell both products in a majority number of stores, unless local rules and regulations have restriction or the market research conducted by the Target Group shows that selling both products in a store is not feasible. The following table sets forth the number of retail stores expected to be operated by the Target Group in Tianjin in the next five years:

August 2014 August 2015 August 2016 August 2017 August 2018 to July 2015 to July 2016 to July 2017 to July 2018 to July 2019

Retail stores
– LPG cylinders and
barreled drinking
water	16	40	66	88	94
– LPG cylinders	–	–	2	12	31
– barreled drinking water	4	10	17	22	42
Total number of retail
stores	20	50	85	122	167
Year-to-year increment	–	30	35	37	45

When formulating the store opening plan, the management of the Company has taken into account the facts that (i) the first foothold will be established in Wuqing District in Tianjin, where the newly built LPG Station and the Water Factory (as defined below) locate; (ii) the expansion to other districts surrounding Wuqing District has considered the population and composition of end users in different districts, the current market demand and supply, the availability of retail stores, costs of rental, transportation and labour, and so forth; (iii) the expected production outputs of the Target Group under the LPG business and the barreled drinking water business; and (iv) the management’s industry experience in estimating the investment and time cost for setting up the retail stores. In view of the foregoing, the Directors consider that the opening progress of the retail stores as set out above is reasonable and achievable.

– 29 –

LETTER FROM THE BOARD

Management team

Mr. Ban Shilun (班仕倫) (“ Mr. Ban ”), aged 48, graduated from Nanchang Institute of Aeronautical Technology (南昌航空工業學院). From 1992 to 1999, he worked at Guizhou Civil Gas Industry Co., Ltd. (貴州民用氣體工業有限公司) as manager of production department, where he had become familiar with various processes in respect the storage, transportation and safe supply of LPG and accumulated considerable work experience at fundamental levels. From 1999 to 2007, he served as the chief engineer of Southwest Panva Gas Co., Ltd (百江西南燃氣有限公司) and accumulated extensive experience in production safety. Since 2007, Mr. Ban successively acted as deputy general manager, general manager and chairman of the board of directors of the LPG project companies within the Group, and was responsible for construction projects and production safety. Mr. Ban has extensive experience in LPG enterprise management and production safety. Mr. Ban will be appointed as a general manager of Tianjin Hong Fu.

Mr. Tang Xinjian (湯新建) (“ Mr. Tang ”), aged 42, graduated from the Law School of Hunan University of Arts and Science (湖南文理學院法學院). He served as assistant to general manager of Panva Gas Changde project from 2003 to 2006, general manager of Panva Gas Xiangtan project from 2006 to 2010 and general manager of Changsha project of China Gas from 2010 to 2012. He has accumulated extensive industry experience in LPG enterprise management and market development. Mr. Tang is currently general manager of Tianjin Binhai New District Civigas Co., Ltd. (天津濱海 新區中民聯運燃氣有限公司) (formerly known as Tianjin Binhai New District Dagong Anbao Gas Co., Ltd.) (“ Tianjin Binhai* ”) and will be appointed as a deputy general manager of Tianjin Hong Fu.

Risk factors

Delay in commencement of operation

The Target Group is in the preliminary stage of stepping into the LPG business in Tianjin. The construction plan and the commercial operation of the LPG Station may be delayed as a result of various factors, including but not limited to, availability of machinery and equipment, establishment and testing of the production lines, or inspection and approval by the relevant local regulatory bodies. As the business model involves the distribution of LPG cylinders in retail stores, the Target Group has formulated a retail stores opening plan in different districts and will assign designated personnel to monitor and oversee the progress of opening of retail stores. The opening plan of retail stores may also be delayed due to the change in market demand or the availability of suitable stores with reasonable rent and appropriate length of tenancy. If the Target Group encounters any difficulties which lead to the delay in the commencement of operation in the LPG business, the financial results of the Target Group will be adversely affected.

– 30 –

LETTER FROM THE BOARD

Licenses and permits

According to the PRC Legal Opinion, the operation of the LPG business in the PRC requires the obtaining of Gas Operation Permit (燃氣經營許可證), Gas Sale Permit (燃氣准銷證) and Gas Cylinder Filling Permit* (氣瓶充裝許可證). As at the Latest Practicable Date, the Target Group had not yet submitted the applications for the said permits. Should the Target Group fail to obtain any licenses and permits which are necessary for the operation of the LPG business, the Target Group cannot commence the operation of the LPG business in Tianjin.

Safety of the LPG Station

The LPG Station to be built and operated by the Target Group requires high standard of safety and technical specifications from construction, operation to maintenance as LPG is a flammable and explosive gas. Hence, there is a significant risk of industry-related accidents which may cause the Target Group to incur extra liabilities or even suffer a loss if the insurance coverage is inadequate.

As at the Latest Practicable Date, Tianjin Hong Fu did not maintain any insurance coverage as the LPG Station is still under construction. Tianjin Hong Fu will maintain insurance coverage in respect of its assets, personnel and users as and when appropriate.

Lack of prior operating history

The Target Group has no operating history on the LPG business in Tianjin and therefore may have difficulties in evaluating the prospects, viability and sustainability of the business. In particular, the business model and ability to maintain profitability are unproven. The Target Group may not be able to compete effectively with well-established competitors or new entrants with more resources or experience in the LPG business in Tianjin.

The barreled drinking water business

Industry overview

The PRC, being the key global economy driver, experienced an exciting economic growth in the last decade. According to the “ China Statistical Yearbook 2013 ” compiled by the National Bureau of Statistics of China, the PRC’s gross domestic product escalated from approximately RMB10,965.5 billion in 2001 to approximately RMB51,894.2 billion in 2012, representing a CAGR of approximately 15.2%. Along with the economic growth, the average annual cash consumption expenditure of urban household per capita increased by over two times to approximately RMB16,674.3 in 2012 throughout the same period of time. Food is the major category of cash consumption expenditure, accounting for approximately 36.2% in 2012.

– 31 –

LETTER FROM THE BOARD

The encouraging economic growth in the PRC drives demand for higher quality and healthy beverages, leading the rapid development of the bottled drinking water industry in the PRC. Bottled drinking water refers to tap water or underground water being processed with modern industrial technologies to purified water or mineral water and then filled and sealed in plastic bottles, cans, glass bottles, barrels or other containers. From 2010 to 2013, the annual consumption of bottled drinking water in the PRC increased from approximately 39.82 million tons to approximately 65.79 million tons, with a CAGR of approximately 18.2%. According to the market research conducted by IBISWorld, a global publisher of business intelligence, revenue derived from the bottled water production industry in the PRC has been accelerating with an annual growth of approximately 15.0% in the past five years and will reach to approximately US$18.2 billion in 2014.

Due to the poor quality of tap water which induces increasing health awareness among people, the PRC is expected to surpass the United States of America as the world’s largest market for bottled water. Askci, a Shenzhen-based consulting firm, projected that the sales of bottled drinking water in the PRC will exceed US$24.1 billion in 2018. In conclusion, the prospect of the bottled drinking water industry in the PRC is optimistic.

Laws and regulations

As referred to in the PRC Legal Opinion, the barreled drinking water business intended to be operated by the Enlarged Group shall be governed by the relevant laws and regulations set forth below:

– 32 –

LETTER FROM THE BOARD

Exploitation of Underground Water

The “Water Law of the PRC” (中華人民共和國水法) and the relevant administrative regulations are applicable to the development, utilisation, protection and management of underground water resources.

Pursuant to the amended “Water Law of the PRC” promulgated by Order No. 74 of the President of the PRC on 29 August 2002 and which came into effect on 1 October 2002, the PRC implements a water drawing licensing system and compensated use of water system. The water administration authority under the State Council is responsible for the organisation and implementation of the water drawing licensing system and compensated use of water system.

Pursuant to the “Regulations on the Administration of the Licensing for Water Drawing and the Collection of Water Resource Fees” (取水許可和水資源費徵收管理條例) promulgated by Order No. 460 of the State Council of the PRC and which came into effect on 15 April 2006, water administration authorities of the People’s Governments at county level or above shall, in light of the powers for graded administration, take charge of organising, implementing, supervising and administering the licensing regime for water drawing. The water administration authorities, finance authorities and price administration authorities of the People’s Governments at county level or above shall be responsible for the collection, management and supervision of water resource fees. The water drawing permit is generally issued for a term of five years and up to ten years. The water drawing entity or individual may apply to the original approval authorities for renewal of its water drawing permit upon expiry. The water drawing entity or individual shall draw water in accordance with the approved annual water drawing plan. Water drawing beyond the scope of the plan or exceeding the prescribed amount is subject to progressive water resource fees based on the volume of drawn water that is beyond the scope of the plan or exceeds the prescribed amount.

Tianjin Municipal Measures for Implementation of the Water Law of the People’s Republic of China (天津市實施《中華人民共和國水法》辦法)

In order to achieve reasonable development, utilisation, preservation and protection of water resources, to prevent and treat water hazards, and to make full use of water resources to enable sustainable utilisation of water resources and facilitate the national economic growth and social development, these measures were established in accordance with the Water Law of the PRC and in light of the actual situations in Tianjin. The water administration authority in Tianjin is responsible for the administration of and supervision over water resources in Tianjin. An underground water drawing licensing regime is implemented in Tianjin, and entities and individuals drawing water shall pay water resource fees based on the actual water drawing volume and water resource rates, which shall be set by the price administration authority in Tianjin together with the finance authority in Tianjin and the water administration authority in Tianjin.

– 33 –

LETTER FROM THE BOARD

Regulations relating to Production and Sale of Food

Pursuant to the “Food Safety Law of the PRC” (中華人民共和國食品安全法), the PRC implements a licensing system for food production and trading. To engage in food production, food circulation and catering services, the food production license, food circulation license, and catering service license shall be obtained in accordance with the law. Food production and trading enterprises may either carry out inspection on the food produced by themselves or entrust the inspection to a food inspection institution complying with the provisions of the Food Safety Law.

Pursuant to the “Measures for the Administration of Food Production Licenses” (食品生產 許可管理辦法), the AQSIQ is responsible for managing licenses for national food production and trading within its authority, and quality and technology supervision authorities at county level or above are responsible for managing licenses for food production and trading in the administrative regions under its jurisdiction and within its authority.

Newly-established food production enterprises shall apply for production approval and inspection in respect of the food types for which a licensing system is implemented.

The food production license is effective for a term of three years. Enterprises holding such permits may apply for renewal if they wishes to continue with their food production.

Pursuant to the “Administration Measures for Food Circulation Licenses” (食品流通許可證管 理辦法) promulgated and which came into effect on 30 July 2009, a food circulation permit shall be obtained in accordance with the law to be engaged in food trading in circulation links. Industry and commerce administration authorities at county level or above are the competent authorities for implementing the food circulation licensing system, with the authorities responsible for food safety in circulation links performing specific functions. The division of authority in respect of licensing of local industry and commerce administration authorities shall be determined by the industry and commerce administration authorities at provincial, autonomous region or municipality level.

Laws and regulations relating to barreled drinking water

Pursuant to the “Urban Water Supply Regulation” (城市供水條例) promulgated by Order 158 of the State Council of the PRC, urban tap water supply enterprises and enterprises supplying water with their self-constructed facilities shall establish and improve a water quality inspection system to ensure that the quality of urban water supply complies with the national hygiene standards for drinking water. Currently the “Standards for Drinking Water Quality” (生活飲用水 衛生標準) (GB5749-2006) are applicable for drinking water in the PRC, which provide for the hygiene standards for drinking water, sources of drinking water and products relating to hygiene and safety of drinking water, water quality monitoring, and water quality inspection methods. The “Hygienic Standard of Bottled (Barreled) Purified Water for Drinking” (瓶(桶)裝飲用純淨水衛生 標準) (GB17324-2003) is currently applicable to barreled drinking water in the PRC, which states the sense indicator, physical and chemical indicators, microorganism indicator, hygiene standard for production and processing, and requirements on packaging, logo, storage, transportation and inspection of barreled drinking water.

– 34 –

LETTER FROM THE BOARD

Permits

Pursuant to the PRC Legal Opinion, the following permits are requisite for the operation of the barreled drinking water business in the PRC:

	Estimated time
	for application/	Estimated time for	Administrative approval	Expected legal	Estimated cost and
Name of permits	renewal	obtaining the permit	time required	impediments	expenses
Water Drawing Permit*	November 2014	December 2014	~45 calendar days	Nil	minimal
(取水許可證)
Food Production Permit*	December 2014	January 2015	~60 business days	Nil	minimal
(食品生產許可證)
Food Circulation Permit*	December 2014	January 2015	~20 business days from the	Nil	minimal
(食品流通許可證)			acceptance date of the
			application

As at the Latest Practicable Date, Tianjin Hong Fu possessed a Water Drawing Permit (取水 許可證) which will expire on 31 December 2014. Tianjin Hong Fu intended to submit application for renewing the Water Drawing Permit (取水許可證) in late November 2014. According to the PRC Legal Opinion, the administrative approval time required for renewing the Water Drawing Permit (取水許可證) is approximately 45 calendar days. As advised by the PRC legal adviser of the Company and with reference to the past experience of renewing the Water Drawing Permit (取 水許可證), the Directors do not anticipate any legal impediments in renewing the Water Drawing Permit* (取水許可證).

Concurrently, Tianjin Yun Ze De is now preparing the application documents for Food Production Permit (食品生產許可證) and Food Circulation Permit (食品流通許可證). According to the PRC Legal Opinion, the administrative approval time required for Food Production Permit (食品生產許可證) and Food Circulation Permit (食品流通許可證) is approximately 60 business days and approximately 20 business days, respectively. As advised by the PRC legal adviser of the Company, the Directors do not anticipate any legal impediments in obtaining these permits.

Development plan

Tianjin Hong Fu possesses a Water Drawing Permit (取水許可證) allowing it to draw a maximum of 40,000 m[3] underground water per annum within the Land Parcel. According to the PRC Legal Opinion, the Water Drawing Permit (取水許可證) will expire on 31 December 2014 and the renewal of which will have no any legal impediments. As per an inspection report dated 8 March 2013 and issued by Centre for Disease Prevention and Control in Wuqing District of Tianjin

– 35 –

LETTER FROM THE BOARD

City (天津市武清區疾病預防控制中心), the quality of water sample collected from the Land Parcel complies with the “Standards for Drinking Water Quality” (生活飲用水衛生標準) (GB57492006), which are the standards applicable to drinking water business in the PRC as referred to in the PRC Legal Opinion. Tianjin Yun Ze De has planned to pursue in the production and sale of barreled drinking water and sale of electrical appliances such as water dispenser and water purification systems in Tianjin City. Tianjin Yun Ze De is now preparing the application documents for Food Production Permit (食品生產許可證) for the production of barreled drinking water by processing the underground water drawn within the Land Parcel. As at the Latest Practicable Date, the construction of the water factory (“ Water Factory* ”) on the Land Parcel had been completed. It is expected that the commercial production of barreled drinking water will commence in the second half of 2015 after obtaining various permits from local regulatory bodies. The designed production capacity of the Water Factory is 40,000 tons per annum and it is expected the Water Factory will produce 20,000 tons of water for the year from August 2015 to July 2016, 30,000 tons of water for the year from August 2016 to July 2017 and 40,000 tons of water for the year from August 2017 to July 2018 and thereon. With reference to, among others, (i) the sale and purchase agreement entered into between Tianjin Yun Ze De and a third party provider in respect of the machineries and equipment for production of barreled drinking water in June 2014; and (ii) the service contract entered into between Tianjin Yun Ze De and a third party contractor for the construction of the Water Factory in August 2014, the capital expenditure for the development of the Water Factory is approximately RMB500,000, which consists of the following units:

Units

Components

Water processing line: Sterilisation; filtration; softening of underground water Automatic water Uncapping (拔蓋); filling line: cleaning (清洗); filling (上桶、灌裝); capping (封蓋); lighting inspection (燈檢); and thermal shrinkage (熱收縮) Quality control: Air shower room (風淋室); air purifier (空氣自淨器); laboratory equipment (化驗室設備); and clean bench (超淨工作台) Ancillary equipment: Ozone generator (臭氧發生器); underground water tank (原水箱); and purified water tank (純水箱)

– 36 –

LETTER FROM THE BOARD

Business model

Tianjin Yun Ze De plans to engage in the production, wholesale and retail of barreled drinking water in Tianjin. The retail business will begin from the sale of other branded barreled drinking water in order to build up a stable sales network. Upon the commercial production of the own branded barreled drinking water in around the second half of 2015, Tianjin Yun Ze De will engage in the wholesale and retail of own branded barreled drinking water and parallel with the wholesale and retail of other branded barreled drinking water. As a complement, Tianjin Yun Ze De also plans to sell other branded water dispensers and water purification systems in its retail stores. Leveraging on the LPG distribution network of Tianjin Hong Fu, Tianjin Yun Ze De can distribute the barreled drinking water in Tianjin City through the same distribution network. The following diagram illustrates the business model of the barreled drinking water business from sourcing to distribution:

==> picture [377 x 364] intentionally omitted <==

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

Water Factory Suppliers
Raw water Multi-medium
control filtration
Precision Activated carbon
filtration filtration
Other branded
First-stage Second-stage barreled
reverse osmosis reverse osmosis
drinking water
Ozone
Bottling
disinfection
Barrels Inspection Warehouse
Return of Delivery of barreled
empty barrels drinking water by trucks
Distribution
Retail stores
Delivery of
barreled drinking
Return of
water by trucks
empty barrels
Target customers Target customers
Residential Commercial Industrial Wholesalers
----- End of picture text -----

– 37 –

LETTER FROM THE BOARD

Management team

Mr. Wu Jianghai (吳江海) (“ Mr. Wu ”), aged 40, graduated from Tianjin Institute of Technology (天津理工學院), majoring in industrial accounting. He served as deputy general manager of Tianjin Hong Fu from 2000 to 2013 and is currently general manager of Tianjin Yun Ze De. Mr. Wu has many years of experience in the food and medicine industries and has accumulated extensive experience and expertise in food, medicine and corporate management.

Ms. Yu Jinfeng (于金鳳)(“ Ms. Yu ”), aged 62, has the competent Chinese medicine pharmacist (主管中藥師) qualification issued by the Middle-level Qualification Assessment Committee on Hygiene Technology and Chinese Medicine of Tianjin Pharmaceutical Holdings Ltd. (天津市醫藥 集團有限公司衛生技術中藥專業中級資格評審委員會). She served as head of the quality assurance section of Tianjin Tongrentang Pharmaceutical Co., Ltd. (天津同仁堂製藥廠) from 1997 to 2008 and director of the quality assurance department of Tianjin Eagle Pharmaceutical Co., Ltd.* (天津 飛鷹製藥廠) from 2008 to 2013. She is currently head of the quality assurance section of Tianjin Yun Ze De. Ms. Yu has many years of experience in medicine inspection. She is familiar with the process and quality research on food and pharmaceutical production and has rich experience and expertise in food research and development process and food quality inspection.

In addition, Tianjin Yun Ze De is in the process of recruiting suitable candidates who possesses extensive experience in the area of production of barreled drinking water in the PRC to join its management team.

Risk factors

Delay in commencement of operation

The Target Group is in the preliminary stage of stepping into the production and sale of barreled drinking water in Tianjin. The commercial operation of the Water Factory may be delayed as a result of delay in inspection and approval by the relevant local regulatory bodies. As the business model involves the distribution of the barreled drinking water in retail stores, the Target Group has formulated a retail stores opening plan in different districts and will assign designated personnel to monitor and oversee the progress of opening of retail stores. The opening plan of retail stores may also be delayed due to the change in market demand or the availability of suitable stores with reasonable rent and appropriate length of tenancy. If the Target Group encounters any difficulties which lead to the delay in the production and sale of the barreled drinking water, the financial results of the Target Group will be adversely affected.

– 38 –

LETTER FROM THE BOARD

Licenses and permits

According to the PRC Legal Opinion, the operation of the barreled drinking water business in the PRC requires Water Drawing Permit (取水許可證), Food Production Permit (食品生產 許可證) and Food Circulation Permit (食品流通許可證). As at the Latest Practicable Date, the Target Group possessed the Water Drawing Permit which is subject to renewal by December 2014 and the Target Group was in the course of preparing the application documents for Food Production Permit (食品生產許可證) and Food Circulation Permit* (食品流通許可證). Should the Target Group fail to obtain or renew any licenses and permits which are necessary for the operation of the barreled drinking water business, the Target Group cannot commence the operation of the barreled drinking business in Tianjin.

Source of underground water

Tianjin Yun Ze De plans to source underground water within the Land Parcel for the production of barreled drinking water. If the source of underground water is contaminated, or the extractable volume of underground water decreases substantially, and Tianjin Yun Ze De cannot identify any replacements of water source in a timely manner, the production of barreled drinking water could be ceased to operate.

Lack of prior experience and operating history

The Target Group has no experience and operating history on the barreled drinking water business and therefore may have difficulties in evaluating the prospects, viability and sustainability of the business. In particular, the business model and ability to maintain profitability are unproven. The Target Group may not be able to compete effectively with well-established competitors or new entrants with more resources or experience in the barreled drinking water business in Tianjin.

INFORMATION OF THE VENDOR

The Vendor is the chairman of the Board, an executive Director and a Shareholder. As at the Latest Practicable Date, the Vendor held (i) 427,841,375 Shares, representing approximately 7.36% of the issued share capital of the Company; and (ii) 1,135,000,000 Warrants through Ping Da Development (which is a wholly-owned company of the Vendor).

INFORMATION OF THE COMPANY

The Company is principally engaged in the sales and distribution of natural gas and LPG in the PRC including the provision of piped gas, transportation, distribution and retail of LPG and lottery agency.

– 39 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

Development of the Target Group

Tianjin Hong Fu was previously engaged in the business of production of medicine in the form of capsule, tablet, granule and mixture and the production of Sheng Xuan Pai capsule (聖宣 牌彼德膠囊) and Sheng Feng Pai Xue Yang Tong Li capsule (聖峰牌雪氧通力膠囊). Tianjin Yun Ze De has been inactive since its establishment on 27 November 2012.

For the three years ended 31 December 2013 and the eight months ended 31 August 2014, total revenue of Tianjin Hong Fu, being the major operating subsidiary of the Target Group, amounted to approximately RMB1,717,000, approximately RMB1,636,000, approximately RMB514,000 and approximately RMB45,000, respectively, which were all derived from the sale of pharmaceutical products. The decrease in sales was mainly due to keen competition in pharmaceutical industry and shrinkage in demand.

In view of the unsatisfactory operating results of the pharmaceutical business, in early 2014, the Vendor decided to cease the pharmaceutical business and transform Tianjin Hong Fu and Tianjin Yun Ze De into other prospective businesses. The business transformation started from the disposal of all pharmaceutical production technologies in April 2014 and the disposal of machineries and equipment for production of pharmaceutical products in July 2014. Subsequently, Tianjin Hong Fu submitted its application to the Development and Reform Commission of Wuqing District in Tianjin City* (天津市武清區發展和改革委員會) for the development of the LPG Station on the Land Parcel and the Site Expansion Approval was granted on 1 August 2014. Concurrently, Tianjin Yun Ze De purchased the machineries and equipment for the production of barreled drinking water in June 2014 and entered into contract with third party contractor for the establishment of the Water Factory in August 2014.

Development of the Group in LPG business

For the year ended 31 March 2014, the Group recorded a rapid growth in transportation, distribution and retail of LPG business in the PRC, which is a major component of the Group’s business and source of revenue. Revenue derived from its LPG business amounted to approximately RMB379.8 million (accounting for approximately 45.6% of the Group’s total revenue), representing an annual growth of approximately 7.4% as compared to the financial year ended 31 March 2013. Such improvement was mainly attributable to the increase in the sales volume of LPG.

– 40 –

LETTER FROM THE BOARD

In view of the market potential in the LPG business, the Group has been striving to expand its presence in the LPG business by developing markets with huge potential such as Xi’an and Tianjin while continuing to expand its existing market in south-western China. In May 2014, the Group acquired from independent third parties the entire equity interests of two companies, namely Tianjin Binhai and Tianjin Ji County Civigas Co., Ltd. （天津薊縣中民燃氣銷售有限公司） (formerly known as Tianjin Baoyuan Taida Gas Co., Ltd.) (“ Ji County Civigas* ”), both of which are principally engaged in LPG business in Tianjin City. Tianjin Binhai possesses a LPG storage and distribution station with a storage capacity of 200 m[3] on a land with leasing term until December 2027 located in Binhai New District, Tianjin. Ji County Civigas also possesses a LPG storage and distribution station with a storage capacity of 110 m[3] on a land with leasing term until October 2024 located in Ji County, Tianjin. Both Tianjin Binhai and Ji County Civigas are serving retail and wholesale customers who purchase directly, or request for delivery, from the LPG storage and distribution station. As at the Latest Practical Date, no retail stores were operated by Tianjin Binhai and Ji County Civigas.

According to the past experience of the management of the Company, the existing business mode of Tianjin Binhai and Ji County Civigas would restrict the customer base and hinder the market penetration process in Tianjin as all sales have to be conducted in the LPG storage and distribution station. It is the intention of the Group to establish a network of retail stores in different districts of Tianjin City in order to capture the market share. With such an expansion and penetration plan, the Directors consider that the storage capacity of the two LPG storage and distribution stations may be insufficient to support the plan and that the Group should secure another sizeable LPG storage and distribution station in Tianjin.

Based on the preliminary market research of the Company, the local regulatory body of Tianjin City requires newly-built LPG storage tank to be built on self-owned land parcel. In addition, pursuant to “Code for fire protection design of petroleum and natural gas engineering” (石油天然 氣工程設計防火規範) (GB50183-2004) (the “ Code for Fire Protection Design* ”) of Standardisation Administration of the PRC, a LPG storage and distribution station in the PRC should be of a minimum distance of 120 meters away from residential areas for the community with more than 100 residents and a distance of at least 60 meters away from railways. Given the requirement of the safety distance under the Code for Fire Protection Design, the Directors are of the view that it is uneasy for the Group to acquire a suitable land parcel for the development of the LPG storage and distribution station in Tianjin. During the recent interviews with the officer of Government of Cao Zi Zhen in Wuqing District, Tianjin City, the government officer advised the management of the Company that the location of the Land Parcel fulfills the safety distance as required under the Code for Fire Protection Design.

– 41 –

LETTER FROM THE BOARD

The Acquisition

The Company is aware of the fact that the Target Group is in the preliminary stage of transforming into the LPG business and the barreled drinking water business in Tianjin without relevant track record. Having considered that (i) Tianjin Hong Fu received the Site Expansion Approval for the establishment of the LPG Station on the Land Parcel; (ii) the expected storage capacity of the LPG Station will sufficiently fulfill the demand for the wholesale and retail of LPG business in Tianjin; (iii) the Company failed to identify potential target company with operating track record in LPG and sizeable LPG storage and distribution station in Tianjin; (iv) the location of the LPG stations in the PRC is subject to certain requirements under the Code for Fire Protection Design, and the Land Parcel fulfills the safety distance as required under the Code for Fire Protection Design; (v) Tianjin Hong Fu possesses a Water Drawing Permit* (取水 許可證) allowing it to draw at a maximum of 40,000 m[3] underground water per annum which can serve as the water source for production of barreled drinking water; (vi) barreled drinking water and LPG cylinders are fast moving consumer goods sharing common end users; (vii) the penetration and distribution of barreled drinking water can strategically be done through the same distribution network of LPG business; and (viii) the barreled drinking water business is expected to be profitable, the Directors consider the Acquisition matches with the expansion and penetration plan of the Group in LPG business in Tianjin and also represents a good opportunity for the Group to tap into the wholesale and retail markets of barreled drinking water business in Tianjin City.

As the Target Group ceased its pharmaceutical business before the Acquisition, the management of the Company has conducted a review on the books and records of the Target Group. Based on such review and the discussion with the Vendor, the management of the Company was not aware of any possible contingent liability and potential risk associated with the discontinued pharmaceutical business.

Based on the foregoing, the Directors consider that the terms of the S&P Agreement (as supplemented by the Supplemental Agreement) and the Acquisition are on normal commercial terms, and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

CHANGES IN THE SHAREHOLDING STRUCTURE OF THE COMPANY

As at the Latest Practicable Date, the Company had an authorised share capital of HK$560,000,000 divided into 7,999,999,999 Shares and an issued share capital of HK$406,696,790 divided into 5,809,954,136 Shares.

– 42 –

LETTER FROM THE BOARD

The shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) immediately after the full exercise of the subscription rights attaching to the Warrants by Ping Da Development (before the distribution of the Consideration Shares (as defined in Note 2 below)); and (iii) immediately after the full exercise of the subscription rights attaching to the Warrants by Ping Da Development (after the distribution of the Consideration Shares) are as follows:

			Immediately after the full	Immediately after the full	Immediately after the full	Immediately after the full
			exercise of the subscription		exercise of the subscription
			rights attaching to the Warrants		rights attaching to the Warrants
			(before the distribution of the		(after the distribution of the
Shareholders	As at the Latest	Practicable Date	Consideration SharesNote 2)		Consideration SharesNote 2)
	No. of Shares	Approximate%	No. of Shares	Approximate%	No. of Shares	Approximate%
The Vendor_Note 1_	427,841,375	7.36	427,841,375	6.16	608,917,695	8.77
Ping Da Development	–	–	1,135,000,000	16.34	1,135,000,000	16.34
Sub-total for the Vendor
and his associates	427,841,375	7.36	1,562,841,375	22.50	1,743,917,695	25.11
Yongheng Development
Corporation Limited_Note 2_	1,727,729,582	29.74	1,727,729,582	24.88	–	–
Mr. Yeung Paak Ching_Note 3_	600,000	0.01	600,000	0.01	853,939	0.01
Mr. Zhang Hesheng_Note 1_	227,138,793	3.91	227,138,793	3.27	323,271,283	4.65
Mr. Chu Kin Wang Peleus
Notes 1 & 4	9,840,000	0.17	9,840,000	0.14	14,004,607	0.20
Public Shareholders	3,416,804,386	58.81	3,416,804,386	49.20	4,862,906,612	70.02
Total	5,809,954,136	100.00	6,944,954,136	100.00	6,944,954,136	100.00

Notes:

1. The Vendor, Mr. Zhang Hesheng and Mr. Chu Kin Wang Peleus are Directors.

– 43 –

LETTER FROM THE BOARD

1. The entire issued share capital are currently held and dealt with by an escrow agent in accordance with the settlement arrangement as stipulated in a settlement deed dated 8 April 2013 (as supplemented by a supplemental settlement deed dated 16 May 2013) entered into between the Company and Yongheng Development Corporation Limited (the “ Settlement Deed ”), details of which were disclosed in the circular of the Company dated 8 July 2013. On 14 October 2014, the Board announced to distribute the 1,727,729,582 Shares (the “ Consideration Shares ”) to the qualifying Shareholders whose names appear on the register of members of the Company at the close of business on 31 October 2014 on a pro-rata basis pursuant to the Settlement Deed. The beneficial ownership of the Consideration Shares shall be under the name of Yongheng Development Corporation Limited until the register of members of the Company has been updated in respect of the aforementioned distribution. For further details, please refer to the announcement of the Company dated 14 October 2014.

2. This represents interest beneficially held by Mr. Yeung Paak Ching, who is a director of certain subsidiaries of the Group.

3. This represents interests legally and beneficially held by his spouse.

FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and all the results and assets and liabilities of the Target Group will be consolidated to the financial statements of the Group. The unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to this circular is prepared as if the Acquisition had been completed and all equity interest was acquired on 31 March 2014 to illustrate the effect of the Acquisition.

Net assets and liabilities

As set out in the unaudited pro forma financial information of the Enlarged Group in Appendix IV to this circular, the total assets of the Enlarged Group as at 31 March 2014 will increase from approximately RMB1,554.4 million to approximately RMB1,943.1 million as a result of the Acquisition.

As set out in the unaudited pro forma financial information of the Enlarged Group in Appendix IV to this circular, the total liabilities of the Enlarged Group as at 31 March 2014 will increase from approximately RMB271.6 million to approximately RMB468.6 million as a result of the Acquisition.

– 44 –

LETTER FROM THE BOARD

Earnings

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and the financial result of the Target Group will be consolidated to the Enlarged Group’s accounts. The Group’s net profit for the year ended 31 March 2014 was approximately RMB57.9 million. Based on the financial projection of Tianjin Hong Fu and Tianjin Yun Ze De prepared by the Target Group, the Acquisition is expected to have a positive effect on the earnings of the Group. As set out in the unaudited pro forma financial information of the Enlarged Group in Appendix IV to this circular, the Enlarged Group would incur an estimated transaction cost relating to the Acquisition of approximately RMB1.8 million.

LISTING RULES IMPLICATIONS

As the applicable percentage ratios (as calculated in accordance with Rule 14.07 of the Listing Rules) for the Acquisition are more than 25% but less than 100%, the Acquisition constitutes a major transaction of the Company under Rule 14.06 of the Listing Rules. Besides, given that as at the Latest Practicable Date, the Vendor was the chairman of the Board, an executive Director and a Shareholder holding (i) 427,841,375 Shares, representing approximately 7.36% of the entire issued share capital of the Company; and (ii) 1,135,000,000 Warrants through Ping Da Development, the Vendor is therefore considered as a connected person (as defined in the Listing Rules) to the Company. Accordingly, the Acquisition also constitutes a connected transaction of the Company and is subject to the reporting, announcement and the Independent Shareholders’ approval requirements under the Listing Rules.

In view of his interests in the Acquisition, the Vendor has abstained from voting on the Board in relation to the resolution approving the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

The Vendor and his associates are regarded as having material interest in the Acquisition and therefore they are required to abstain from voting on the resolution to be proposed at the SGM for approving the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

In addition, as at the Latest Practicable Date, the 1,727,729,582 Consideration Shares legallyowned by Yongheng Development Corporation Limited (representing approximately 29.74% of the entire issued share capital of the Company as at the Latest Practicable Date) were held and dealt with by an escrow agent in accordance with the settlement arrangement as stipulated in the Settlement Deed, details of which were disclosed in the circular of the Company dated 8 July 2013. Pursuant to the Settlement Deed, Yongheng Development Corporation Limited shall unconditionally and irrevocably refrain from exercising any of the voting rights attaching to the Consideration Shares for so long as Consideration Shares are held in escrow by the escrow agent. Accordingly, Yongheng Development Corporation Limited is not entitled to vote on the resolution proposed to be passed at the SGM for approving the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

– 45 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information contained in the appendices to this circular.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 47 of this circular, which contains its recommendation to the Independent Shareholders regarding the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

Your attention is also drawn to the letter from New Spring Capital set out on pages 48 to 113 of this circular, which contains, among other things, its advice to the Independent Board Committee and the Independent Shareholders regarding the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

The Directors (including the independent non-executive Directors who have taken into account the recommendations from New Spring Capital) are of the view that the terms of the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole, and recommend the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the SGM to approve the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

Your faithfully

For and on behalf of the Board

Jin Song

Managing Director and Executive Director

– 46 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [53 x 87] intentionally omitted <==

CHINESE PEOPLE HOLDINGS COMPANY LIMITED ���������������

(incorporated in Bermuda with limited liability) (stock code: 681)

25 November 2014

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

We have been formed to advise the Independent Shareholders on the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement), details of which are set out in the circular issued by the Company to the Shareholders dated 25 November 2014 (the “ Circular ”), of which this letter forms part. New Spring Capital has been appointed by the Company as the Independent Financial Adviser to advise us in this regard. Terms defined in the Circular will have the same meanings when used herein unless the context otherwise requires.

We wish to draw your attention to the letter from the Board and the letter of advice from New Spring Capital set out on pages 6 to 46 and pages 48 to 113 of the Circular, respectively, and the additional information set out in the appendices to the Circular.

Having taken into account the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement), and the principal factors and reasons considered by New Spring Capital and its conclusion and advice, we concur with the view of New Spring Capital and consider that the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

Yours faithfully,

For and on behalf of the Independent Board Committee

Dr. Liu Junmin Prof. Zhao Yanyun Mr. Sin Ka Man Independent non-executive Independent non-executive Independent non-executive Director Director Director

Independent non-executive Director

– 47 –

LETTER FROM NEW SPRING CAPITAL

The following is the text of the letter of advice from New Spring Capital Limited, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement), which has been prepared for the purpose of inclusion in this circular.

==> picture [30 x 28] intentionally omitted <==

==> picture [122 x 9] intentionally omitted <==

Unit 2108, China Merchants Tower Shun Tak Centre 168-200 Connaught Road Central Hong Kong

25 November 2014

• To: the Independent Board Committee and the Independent Shareholders of Chinese People Holdings Company Limited

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement), details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company dated 25 November 2014 (the “ Circular ”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

On 5 September 2014 (after trading hours), the Company entered into the S&P Agreement (as supplemented by the Supplemental Agreement) with the Vendor, the connected person, pursuant to which, the Vendor has conditionally agreed to sell and the Company has conditionally agreed to purchase the Sale Shares and the Sale Loan, at the Aggregated Consideration of RMB370,000,000 (equivalent to HK$466,612,550), subject to adjustment according to the details as set out in the paragraph headed “The S&P Agreement and the Supplemental Agreement – Profit Guarantee” of the Letter from the Board. Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company.

– 48 –

LETTER FROM NEW SPRING CAPITAL

As at the Latest Practicable Date, the Vendor was the chairman of the Board, an executive Director and a Shareholder holding (i) 427,841,375 Shares, representing approximately 7.36% of the issued share capital of the Company; and (ii) 1,135,000,000 Warrants through Ping Da Development, which is a wholly-owned company of the Vendor. Pursuant to Rule 14A.07 of the Listing Rules, the Vendor is regarded as a connected person of the Company, and therefore the Acquisition constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. In addition, as the applicable percentage ratios for the Acquisition under the Listing Rules are more than 25% but less than 100%, the Acquisition constitutes a non-exempt connected transaction and a major transaction of the Company, and shall be subject to the reporting, announcement and the Independent Shareholders’ approval requirements under the Listing Rules. The Vendor and his associates shall abstain from voting on the resolution to be proposed at the SGM for approving the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

The Independent Board Committee (comprising Dr. Liu Junmin, Prof. Zhao Yanyun and Mr. Sin Ka Man, being all the independent non-executive Directors) has been established to advise the Independent Shareholders as to (i) whether the terms of the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole; and (ii) how to vote at the SGM, after taking into account the factors and reasons considered by the Independent Financial Adviser and its conclusion and advice.

In this connection, we, New Spring Capital, have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement). We do not, by this letter, warrant the merits of the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement), other than to form an opinion, for the purpose of the Listing Rules. We are not associated with the Company, the Vendor, and their respective associates (as defined under the Listing Rules), including but not limited to, the Vendor and his associates who are interested or involved in the Acquisition, and accordingly, are considered eligible to give independent advice in respect of the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement). Apart from normal professional fees payable to us for this appointment, no arrangement exists whereby we will receive any fees or benefits from any parties abovementioned.

– 49 –

LETTER FROM NEW SPRING CAPITAL

BASIS OF OUR OPINION

In formulating our opinions and recommendations to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the information, opinions and representations contained or referred to in the Circular (or otherwise provided to us by the Directors and the management of the Company (the “ Management ”)), and have assumed that all information, opinions and representations contained or referred to in the Circular (or otherwise provided to us by the Directors and the Management) were true, accurate and complete in all respects at the time when they were made and up to the date of this letter. We have also assumed that all statements of belief, opinions and intention made by the Directors in the Circular (or otherwise provided to us by the Directors and the Management) are reasonably made after due enquiry. We have no reason to doubt that any relevant information has been withheld or omitted, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular (or otherwise provided to us by the Directors and the Management) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular (or otherwise provided to us by the Directors and the management of the Company) have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading. We consider that we have received sufficient information to enable us to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular to provide a reasonable basis for our opinions and recommendations. We consider that we have performed all the necessary steps as required under Rule 13.80 of the Listing Rules to enable us to reach an informed view and to justify our reliance on the information provided and representations made to us so as to form a reasonable basis for our opinions including, among other things:

• (a) reviewed the announcements of the Company dated 5 September 2014, 8 September 2014, 29 September 2014, 31 October 2014 and 13 November 2014 in relation to the Acquisition, the Letter from the Board, and the annual reports of the Company for the years ended 31 March 2013 and 2014 (“ 2013 Annual Report ” and “ 2014 Annual Report ” respectively);

• (b) reviewed relevant information, documents and/or agreements in relation to the S&P Agreement, the Supplemental Agreement and the Acquisition;

• (c) reviewed the PRC legal opinion (the “ PRC Legal Opinion ”) prepared by the PRC legal counsel (the “ PRC Legal Adviser ”) nominated by the Company in relation to the PRC Companies;

• (d) conducted market and comparable researches to analyse the terms of the Acquisition;

– 50 –

LETTER FROM NEW SPRING CAPITAL

• (e) conducted physical inspection to the operating site of the PRC Companies;

• (f) interviewed an officer of Government of Cao Zi Zhen in Wuqing District, Tianjin City regarding, among other things, the market conditions and land supplies in Wuqing District, Tianjin City, and the industry regulations related to the businesses to be conducted by the PRC Companies;

• (g) discussed with the Directors and the Management regarding, among other things, the reasons for and background of the Acquisition, the basis of the major terms of the S&P Agreement and the Supplemental Agreement, the business development plan, future operation and prospect of the Target Group and so forth; and

• (h) reviewed the business valuation report of the Target Group (the “ Valuation Report ”) prepared by the Independent Valuer and its underlying financial projections and assumptions prepared by the Target Group (the “ Projections ”).

We have not, however, for the purpose of this exercise, conducted any independent detailed verification or audit into the businesses or affairs or future prospects of the Company, the Target Group, or their respective subsidiaries or associates, nor have we investigated the legal title or any liabilities against the subject matters relating to the Acquisition. Our opinion was necessarily based on financial, economic, market and other conditions in effect, and the information made available to us as at the Latest Practicable Date.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinions and recommendations to the Independent Board Committee and the Independent Shareholders with regard to the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement), we have considered the following principal factors and reasons:

I. Background and financial information of the Group

The Group currently has three operating segments, namely (i) the provision of piped gas, where the Group constructs gas pipeline networks and provides piped gas in the PRC; (ii) the transportation, distribution and retail of LPG, where the Group sells LPG in bulk to wholesale customers and engages in retail sales of LPG to end user households, industrial and commercial customers in the PRC; and (iii) the lottery agency, where the Group acts as an agent to operate and sell welfare lottery tickets in the PRC. The following table summarises the results of operation and financial positions of the Group for the three years ended 31 March 2014 (“ FY2012 ”, “ FY2013 ” and “ FY2014 ” respectively):

– 51 –

LETTER FROM NEW SPRING CAPITAL

Revenue Piped gas business Transportation, distribution and retail of LPG business Lottery agency business Total revenue Gross profit Piped gas business Transportation, distribution and retail of LPG business Lottery agency business Total gross profit Segment profit/(loss) (note 3) Piped gas business Transportation, distribution and retail of LPG business Lottery agency business Total segment profit/(loss) Profit/(loss) before tax Profit/(loss) for the year Bank balances and cash Total assets Total liabilities Net assets

For the year ended/as at 31 March 2012 2013 2014 RMB’000 RMB’000 RMB’000 (audited, restated_notes 1 & 2_) (audited, restated_note 1_) (audited) 371,003 414,087 448,105 271,549 353,546 379,777 372 1,823 4,713 642,924 769,456 832,595 100,613 107,130 119,172 44,302 50,665 55,986 (2,067) (7,359) (6,081) 142,848 150,436 169,077 60,392 59,679 63,553 10,422 17,495 12,801 (20,641) (626,329) (78,404) 50,173 (549,155) (2,050) 267,728 (464,215) 68,244 248,130 (325,535) 57,943 293,195 258,520 274,099 1,827,995 1,365,849 1,554,379 356,077 224,217 271,589 1,471,918 1,141,632 1,282,790

Source: 2013 Annual Report and 2014 Annual Report published by the Company in the website of the Stock Exchange

– 52 –

LETTER FROM NEW SPRING CAPITAL

Notes:

1. Starting from 1 April 2013, the Directors have determined to change the presentation currency of the Group’s consolidated financial statements from HK$ to RMB. The closing exchange rates of HK$ against RMB applied in the consolidated statements of financial position as at 31 March 2013 and 1 April 2012 were 1: 0.809 and 1: 0.814 respectively. The average exchange rate of HK$ against RMB applied in the consolidated statement of profit or loss and other comprehensive income for FY2013 was 1: 0.814. Further details are set out in 2014 Annual Report.

2. For illustration purpose of this letter, the average exchange rate of HK$ against RMB applied in the consolidated statement of profit or loss and other comprehensive income for FY2012 was 1: 0.819.

3. Segment profit represents the profit earned by each segment without allocation of share of results of associates, share of results of joint ventures, share-based payment expense, gain on bargain purchase of acquisition of an associate, central administration costs and finance costs.

(i) Financial results for FY2013 compared with FY2012

Revenue of the Group increased from approximately RMB642.9 million for FY2012 to approximately RMB769.5 million for FY2013, which represented an increase of approximately 19.7%. As referred to 2013 Annual Report, such increase was mainly due to the increase in the Group’s sales volume of piped gas fuel and LPG during the period. For FY2013, the Group’s LPG business contributed more than one-third of its revenue and became an important component of the Group’s business. The revenue derived from its LPG business was approximately RMB353.5 million for FY2013, increased by approximately 30.2% comparing to the preceding period. The sales volume of LPG increased significantly by almost 2.6 times from approximately 36,993 tons (being all were derived from controlling interests) for FY2012 to approximately 95,509 tons (with approximately 50,684 tons were derived from controlling interests) for FY2013. During FY2013, the Group has been paying effort in technical and operational aspects to enhance the competitiveness of its LPG business and to continue strengthening its partnership with upper stream resource corporations, as the Company considered such partnership would benefit to the development of its LPG business. Among a total of sixty-five projects of the Group for FY2013, twenty were the LPG projects. Gross profit of the Group was approximately RMB142.8 million for FY2012 and RMB150.4 million for FY2013, with gross profit margins of approximately 22.2% and 19.6% respectively. Gross profit attributable from its LPG business was approximately RMB44.3 million for FY2012 and RMB50.7 million for FY2013, with gross profit margins of approximately 16.3% and 14.3% respectively. We were given to understand that the slightly lower gross profit margin for FY2013 was principally due to the change in sales strategy with larger focus on LPG wholesaling relating to a Group’s subsidiary, which had relatively lower gross profit margin as compared to its LPG retailing.

– 53 –

LETTER FROM NEW SPRING CAPITAL

In terms of segment results, the Group’s piped gas business recorded segment profit of approximately RMB60.4 million for FY2012 and RMB59.7 million for FY2013, with segment profit margins of approximately 16.3% and 14.4% respectively. Its LPG business recorded segment profit of approximately RMB10.4 million for FY2012 and RMB17.5 million for FY2013, with segment profit margins of approximately 3.8% and 4.9% respectively. However, due to the loss of its lottery agency business primarily arising from the impairment loss in respect of intangible assets, goodwill and property, plant and equipment and the amortisation charge from the intangible assets, with approximately RMB626.3 million, the Group recorded net loss of approximately RMB325.5 million for FY2013, compared to the net profit of approximately RMB248.1 million for FY2012.

As at 31 March 2013, the Group had total assets of approximately RMB1,365.8 million and total liabilities of approximately RMB224.2 million. Bank balances and cash of the Group as at 31 March 2013 amounted to approximately RMB258.5 million.

(ii) Financial results for FY2014 compared with FY2013

As referred to 2014 Annual Report, revenue of the Group increased from approximately RMB769.5 million for FY2013 to approximately RMB832.6 million for FY2014, which represented an increase of approximately 8.2% and was mainly contributed to its increased sales of piped gas and LPG by approximately 8.2% and 7.4% respectively. It is noted that the LPG business is one of the major sources of income of the Group, revenue of which was approximately RMB379.8 million and accounted for approximately 45.6% of the Group’s revenue for FY2014. As referred to 2014 Annual Report, the increased revenue derived from the LPG business was mainly due to the growth in the distribution of LPG gas tanks in Yunnan Province, the PRC and the exploration of new LPG markets, in which the Group strived to expand the presence of its LPG business by developing markets with large potential including Xi’an and Tianjin in the PRC. Hence, sales volume of LPG in FY2014 had reached to approximately 146,740 tons (with approximately 53,352 tons were derived from to controlling interests), representing an increase of approximately 53.6% as compared to the last financial year. During FY2014, the Group has developed a total of fifteen new projects, nine of which were LPG projects covering Yunnan Province, Guangxi Zhuang Autonomous Region, Guizhou Province, Hunan Province, Sichuan Province, Shaanxi Province, Chongqing City and Tianjin City in the PRC. For FY2013 and FY2014, gross profits of the Group were approximately RMB150.4 million and RMB169.1 million, with stable gross profit margins of approximately 19.6% and 20.3%, respectively. Gross profits attributable from its LPG business were approximately RMB50.7 million and RMB56.0 million, recording stable gross profit margins of approximately 14.3% and 14.7%, for FY2013 and FY2014 respectively.

– 54 –

LETTER FROM NEW SPRING CAPITAL

For FY2013 and FY2014, segment results of the Group’s piped gas business and LPG business remained generally stable. Its piped gas business recorded segment profits of approximately RMB59.7 million and RMB63.6 million, with segment profit margins of approximately 14.4% and 14.2%, for FY2013 and FY2014 respectively. Its LPG business recorded segment profits of approximately RMB17.5 million and RMB12.8 million, with segment profit margins of approximately 4.9% and 3.4%, for the same periods respectively. As for its lottery agency business, recurring losses of approximately RMB626.3 million and RMB78.4 million were recorded for FY2013 and FY2014 respectively. For FY2014, the Group recorded net profit of approximately RMB57.9 million, whereas losses from its lottery agency business were narrowed.

As at 31 March 2014, the Group had total assets of approximately RMB1,554.4 million and total liabilities of approximately RMB271.6 million. As at 31 March 2014, the Group had bank balances and cash of approximately RMB274.1 million.

II. Information of the Vendor

The Vendor is the chairman of the Board, an executive Director and a Shareholder. As illustrated in the Letter from the Board, as at the Latest Practicable Date, the Vendor held (i) 427,841,375 Shares, representing approximately 7.36% of the issued share capital of the Company; and (ii) 1,135,000,000 Warrants through Ping Da Development, which is a whollyowned company of the Vendor.

III. Information of the Target Group

The Target Company is an investment holding company incorporated in BVI with limited liability on 15 April 2014. The Sale Shares represent the entire issued share capital of the Target Company. As at the Latest Practicable Date, the Target Company was whollyowned by the Vendor.

– 55 –

LETTER FROM NEW SPRING CAPITAL

As at the Latest Practicable Date, the Target Group comprising the Target Company, and the PRC Companies, being Beijing Zhong Feng, Tianjin Hong Fu and Tianjin Yun Ze De. Set out below is the shareholding structure of the Target Group:

The Vendor 100% The Target Company (Limited liability company incorporated in BVI on 15 April 2014) 100% Beijing Zhong Feng (Wholly foreign owned enterprise established in the PRC on 14 August 2014)

100% 100% Tianjin Hong Fu Tianjin Yun Ze De (PRC domestic company (PRC domestic company established on 5 July 1999) established on 27 November 2012)

– 56 –

LETTER FROM NEW SPRING CAPITAL

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company. Set out below is the shareholding structure of the Enlarged Group:

==> picture [197 x 310] intentionally omitted <==

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

The Vendor
22.50% [(Note)]
The Company
100%
The Target Company
(Limited liability company
incorporated in BVI
on 15 April 2014)
100%
Beijing Zhong Feng
(Wholly foreign owned enterprise
established in the PRC on 14 August 2014)
----- End of picture text -----

==> picture [435 x 91] intentionally omitted <==

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

100% 100%
Tianjin Hong Fu Tianjin Yun Ze De
(PRC domestic company (PRC domestic company
established on 5 July 1999) established on 27 November 2012)
----- End of picture text -----

Note: Ping Da Development has undertaken, pursuant to the undertaking letter signed by it on the date of the S&P Agreement, to exercise the subscription rights attaching to the 1,135,000,000 Warrants at the subscription price of HK$0.205 per Subscription Share on the Completion Date. Ping Da Development is wholly-owned by the Vendor, and accordingly, the Vendor will beneficially own 1,562,841,375 Shares, representing approximately 22.50% of the issued share capital of the Company as enlarged by the issue of 1,135,000,000 Subscription Shares upon Completion, assuming that the Consideration Shares (as defined in the Circular) have not yet been distributed pursuant to the Settlement Deed (as defined in the Circular) (details of the distribution of the Consideration Shares are set out in note 2 to the shareholding table under the paragraph headed “Change in the shareholding structure of the Company” in the Circular).

– 57 –

LETTER FROM NEW SPRING CAPITAL

(i) Business information

(a) Business transformation

The Target Group was previously engaged in the production of medicine in the form of capsule, tablet, granule and mixture and the production of Sheng Xuan Pai capsule (聖宣牌彼德膠囊) and Sheng Feng Pai Xue Yang Tong Li capsule (聖峰牌雪氧通力膠囊), through Tianjin Hong Fu which is a PRC enterprise incorporated on 5 July 1999, in Tianjin City, the PRC. As stated in the Letter from the Board, since early 2014, Tianjin Hong Fu discontinued its pharmaceutical business due to its unsatisfactory operating results and disposed all pharmaceutical production technologies in April 2014 and all machineries and equipment for production of pharmaceutical products in July 2014. Tianjin Hong Fu has planned to pursue in the filling and sale of LPG (the “ LPG Business ”) in Tianjin by developing a LPG storage and distribution station (the “ LPG Station ”) within its self-owned land parcel (the “ Land Parcel ”) located in Dagaokou Cun, Cao Zi Li Zhen, Wuqing District, Tianjin City (天津市武清區曹子里鎮大高口村). It is noted from the Letter of the Board that Tianjin Hong Fu possesses the land use right of the Land Parcel, which will expire on 1 February 2058.

As stated in the Letter from the Board, the Target Group has also planned to pursue in the production and sale of barreled drinking water and the sale of electrical appliances such as water dispenser and water purification systems (the “ Water Business ”) in Tianjin City, the PRC, through Tianjin Yun Ze De which is a PRC enterprise incorporated on 27 November 2012. The Target Group intends to utilise the underground water resources available within the Land Parcel to step into the sale and production of own branded barreled drinking water. As referred to the Letter from the Board, Tianjin Yun Ze De had purchased machineries and equipment for the production of barreled drinking water and engaged third party contractor for the establishment of a water factory (the “ Water Factory ”) on the Land Parcel. We were given to understand that, as at the Latest Practicable Date, the construction of the Water Factory was completed.

The Management further advised us that, as at the Latest Practicable Date, the Target Group is still undergoing the aforesaid business transformation and yet to commence commercial production. We were given to understand that, based on the Management’s due and careful review on the books and records of the Target Group and the discussion with the Vendor, the Management was not aware of any possible contingent liability and potential risk associated with the discontinued pharmaceutical business of the Target Group. We have also been furnished with the mentioned books and records and nothing has come to our attention that causes us to doubt the aforementioned view of the Management.

– 58 –

LETTER FROM NEW SPRING CAPITAL

(b) License and permits

• The LPG Business

Tianjin Hong Fu had applied to the Development and Reform Commission of Wuqing District in Tianjin City (天津市武清區發展和改革委 員會) (the “ Commission ”) for the expansion of production site, warehouse, office and ancillary area and the establishment of LPG boiler and LPG storage tank within the Land Parcel. We note from the Management that, on 1 August 2014, Tianjin Hong Fu received an administration approval (the “ Site Expansion Approval ”) from the Commission relating to the said expansion, which formulated its plan to develop the LPG Station for its business transformation into the LPG Business.

As advised by the PRC Legal Adviser, Tianjin Hong Fu did not involve in any litigations and legal proceedings as at the Latest Practicable Date.

We also refer to the PRC Legal Opinion and note that Tianjin Hong Fu legally owns the Land Parcel attaching with the land use right until 1 February 2058. As stated in the PRC Legal Opinion, the Land Parcel was not pledged as collateral. We have been confirmed by the Directors that, up to the Latest Practicable Date, there was no change in the status relating to the Land Parcel aforesaid.

• The Water Business

As stated in the Letter from the Board, Tianjin Hong Fu possesses a water drawing permit (取水許可證) (the “ Water Drawing Permit ”) allowing it to draw a maximum of 40,000 m[3] underground water per annum within the Land Parcel, which will expire on 31 December 2014. Referring to an inspection report issued by Centre for Disease Control and Prevention in Wuqing District of Tianjin City (天津市武清區疾病預防控制中心) dated 8 March 2013, the quality of water sample collected from the Land Parcel complies with the “Standards for Drinking Water Quality” 《生活飲用水 衛生標準》(GB5749-2006), which are the standards applicable to drinking water business in the PRC as advised by the PRC Legal Adviser. As at the Latest Practicable Date, Tianjin Yun Ze De is in the process of applying a food production permit (食品生產許可證), which is a required permit for the processing of underground water drawn within the Land Parcel into the barreled drinking water as advised by the PRC Legal Adviser. With

– 59 –

LETTER FROM NEW SPRING CAPITAL

the Water Drawing Permit and the satisfactory quality of underground water resource, Tianjin Yun Ze De has formulated its plan for the Water Business.

As advised by the PRC Legal Adviser, Tianjin Yun Ze De did not involve in any litigations and legal proceedings as at the Latest Practicable Date.

(ii) Financial information

(a) The Target Group

Set out below is the summary of the key audited consolidated financial figures of the Target Group for the period from 21 November 2013 (i.e. the date upon the completion on the acquisition of entire equity interests in Tianjin Hong Fu and Tianjin Yun Ze De by the Vendor) to 31 December 2013 and the eight months ended 31 August 2014 prepared under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and prepared as if the Target Company had been the holding company of Tianjin Hong Fu and Tianjin Yun Ze De throughout the Relevant Periods, where the details are set out in Appendix IIA to the Circular:

	For the period
	from
	21 November
	2013 to	For the eight
	31 December	months ended
	2013	31 August 2014
	(RMB’000)	(RMB’000)
	(audited)	(audited)
Revenue	–	45
Profit before tax	–	942
Profit for the period	–	655
	As at	As at
	31 December	31 August
	2013	2014
	(RMB’000)	(RMB’000)
	(audited)	(audited)
Total assets	21,940	23,091
Net assets	10,235	10,890

– 60 –

LETTER FROM NEW SPRING CAPITAL

As stated in the Letter from the Board, prior to 21 November 2013, the Vendor owned 23.5% and 25.0% equity interests in Tianjin Hong Fu and Tianjin Yun Ze De respectively. On 21 November 2013, the Vendor inherited the remaining equity interests in Tianjin Hong Fu and Tianjin Yun Ze De and the Vendor subsequently owned the entire equity interests in these two companies. The Target Group then underwent a group reorganisation, details of which are set out in the Letter from the Board. As at the Latest Practicable Date, the Target Group comprises the Target Company and the PRC Companies.

Since early 2014, the Target Group discontinued its pharmaceutical business and has been undergone business transformation. For the period from 21 November 2013 to 31 December 2013 and the eight months ended 31 August 2014, the Target Group had net profit of nil and approximately RMB655,000 respectively.

As at 31 August 2014, the Target Group had total assets of approximately RMB23.1 million and net assets of approximately RMB10.9 million. Referring to the Letter from the Board, as at the Latest Practicable Date, the Sale Loan amounted to approximately RMB8,996,000.

(b) Tianjin Hong Fu

Set out below is the summary of the key audited financial figures of Tianjin Hong Fu for the three years ended 31 December 2013 and the eight months ended 31 August 2014 prepared under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, details of which are set out in Appendix IIB to the Circular:

				For the eight months	For the eight months
	For the year ended 31		December	ended 31	August
	2011	2012	2013	2013	2014
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
	(audited)	(audited)	(audited)	(unaudited)	(audited)
Revenue	1,717	1,636	514	401	45
Gross profit	536	459	261	171	43
(Loss)/profit before tax	(2,119)	(2,497)	(988)	(546)	1,150
(Loss)/profit for the
year/period	(2,127)	(2,502)	(1,017)	(564)	863

– 61 –

LETTER FROM NEW SPRING CAPITAL

				As at
	As	at 31 December		31 August
	2011	2012	2013	2014
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
	(audited)	(audited)	(audited)	(audited)
Total assets	13,640	11,690	11,168	12,308
Total liabilities	10,057	10,609	11,104	11,381
Net assets	3,583	1,081	64	927

As previously mentioned, Tianjin Hong Fu was engaged in the pharmaceutical business in Tianjin and is undergoing business transformation into the LPG Business. As stated in the Letter from the Board, Tianjin Hong Fu had no historical earning records on the LPG Business and its operating results during the aforesaid periods were primarily attributable to its discontinued pharmaceutical business.

For the years ended 31 December 2011 and 2012, revenue of Tianjin Hong Fu remained generally stable at approximately RMB1.7 million and RMB1.6 million respectively, which was generated from the sales of its pharmaceutical products. The declines in revenue for the year ended 31 December 2013 and the eight months ended 31 August 2014 were principally due to the downsizing of its pharmaceutical business and its cessation in early 2014 as advised by the Management. For the years ended 31 December 2011, 2012 and 2013, Tianjin Hong Fu had net losses of approximately RMB2.1 million, RMB2.5 million and RMB1.0 million respectively, as the amounts of gross profit were inadequate to cover its operating expenses recorded for the respective periods. For the eight months ended 31 August 2014, Tianjin Hong Fu recorded net profit of approximately RMB863,000, which was attributable to the gain on disposal of its pharmaceutical production technologies of approximately RMB1.7 million.

As at 31 December 2011, 2012 and 2013, Tianjin Hong Fu had total assets of approximately RMB13.6 million, RMB11.7 million and RMB11.2 million respectively. The Letter from the Board stated that, the Vendor disposed the pharmaceutical production technologies and the machineries and equipment of Tianjin Hong Fu in April 2014 and July 2014 respectively due to the business transformation. As at 31 August 2014, Tianjin Hong Fu had total assets of approximately RMB12.3 million, mainly comprising the prepaid land lease and other receivables from the disposal of the aforesaid pharmaceutical production technologies and machineries and equipment. The total liabilities of Tianjin Hong Fu as at 31 December 2011, 2012 and 2013 and 31 August 2014 were approximately RMB10.1 million, RMB10.6 million, RMB11.1 million and RMB11.4 million respectively, which remained relatively stable.

– 62 –

LETTER FROM NEW SPRING CAPITAL

As at 31 December 2011, 2012 and 2013 and 31 August 2014, Tianjin Hong Fu had net assets of approximately RMB3.6 million, RMB1.1 million, RMB64,000 and RMB927,000 respectively. The low net assets position of Tianjin Hong Fu as at the aforesaid dates were principally due to the adverse impact of the accumulated losses to its capital and reserves.

(c) Tianjin Yun Ze De

Set out below is the summary of the key audited financial figures of Tianjin Yun Ze De for the period from 27 November 2012 (i.e. the date of incorporation of Tianjin Yun Ze De) to 31 December 2012, the year ended 31 December 2013 and the eight months ended 31 August 2014 prepared under the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, details of which are set out in Appendix IIC to the Circular:

	For the
	period from
	27 November		For the
	to	year ended		For the eight	months ended
	31 December	31 December		31 August
	2012		2013	2013	2014
	(RMB’000)	(RMB’000)		(RMB’000)	(RMB’000)
	(audited)	(audited)		(unaudited)	(audited)
Loss before tax	–		(522)	(220)	(194)
Loss for the year/period	–		(522)	(220)	(194)
					As at
	As	at 31	December		31 August
		2012		2013	2014
	(RMB’000)		(RMB’000)		(RMB’000)
	(audited)			(audited)	(audited)
Total assets		3,000		2,492	2,355
Net assets/(liabilities)		3,000		2,488	2,294

Note: Given that Beijing Zhong Feng was recently established on 14 August 2014, the financial figures of Beijing Zhong Feng were not available as at the Latest Practicable Date.

– 63 –

LETTER FROM NEW SPRING CAPITAL

Referring to the Letter from the Board, Tianjin Yun Ze De was incorporated on 27 November 2012 and has been inactive since its incorporations, hence it had not generated any revenue from operations. For the year ended 31 December 2013 and the eight months ended 31 August 2014, it had net losses of approximately RMB522,000 and RMB194,000 respectively, mainly resulting from the staff costs and administrative expenses incurred during the respective period.

As at 31 December 2012 and 2013 and 31 August 2014, Tianjin Yun Ze De had total assets of approximately RMB3.0 million, RMB2.5 million and RMB2.4 million respectively, which were mainly related to the amount due from a director. As at the same dates, Tianjin Yun Ze De had net assets of approximately RMB3.0 million, RMB2.5 million and RMB2.3 million respectively.

(iii) Development plans and prospects

(a) The LPG Business

• Industry overview

2014 Annual Report stated that, with the characteristics of high heat value, free of smoke, dust and carbon residue and easy to use, LPG has been widely applied in people’s life as a fuel and also be applied in industrial areas including slicing of non-ferrous metal, baking of agricultural products and roasting of industrial stoves. From 2008 to 2013, consumption of LPG in the PRC maintained stable and gradual growth. As indicated in the Valuation Report, China has the highest population in the world and is also the world’s biggest LPG consumer and importer. Its domestic output extended from approximately 14.17 million tons in 2004 to 25.00 million tons in 2013, with a compound annual growth rate (“ CAGR ”) of 6.5% according to National Bureau of Statistics of China. The chemical industry and civil use are the major users of LPG in the PRC which accounted for approximately 39.3% and 31.0% of the total national consumption of LPG for the first half of 2014 respectively, according to “Jinyin Dao 2014 Interim Report on LPG” (金銀島液化氣行 業2014年中期報告). The Management is of the view that factors including, among other things, the urbanisation progress in China, the government’s implementation of environment treatment measures, the higher expectations for the quality of life and environment, and the growing urban and rural household income, will drive the growth of LPG demand and consumption in China.

– 64 –

LETTER FROM NEW SPRING CAPITAL

Further, we were advised by the Management that, given LPG is easy to transport, it will continue to enjoy a large market scale in medium and small towns, rural areas and city borders in China where natural gas pipelines cannot easily reach. We referred to 2014 Annual Report and note that, in regions where there is no supply of natural gas or there are difficulties in or huge investment required for laying natural gas pipelines, LPG will still have demand in such regions. Based on the above, the Management is of the view that the LPG market in China is still of a great potential and will continue to undergo stable development in the

foreseeable future.

We refer to the Opinion of the State Council on Accelerating the Development of the Energy-Saving and Environmental Protection Industry (國務院關於加快發展節能環保產業的意見) released by the Central People Government on 1 August 2013 and the Detailed Rules for the Implementation of the Action Plan for Preventing and Controlling Air Pollution in Beijing, Tianjin, Hebei and the Surrounding Areas (關 於印發《京津冀及周邊地區落實大氣污染防治行動計畫實施細則》的通 知) collaboratively released by six different governmental bodies of the Central People Government on 17 September 2013, and note that the PRC government is paying strong emphasis on the national environmental issues through preventing and combating air pollution and promoting the use of less pollutant energy such as LPG and natural gas across provinces and cities in China, where Tianjin City is one of the targeted regions. We also refer to the National Guidelines for Developing a New Type of Urbanisation (2014-2020) (國家新型城鎮化規劃(2014-2020年)) formally promulgated in March 2014, which promotes, among other things, the green and low-carbon emission development, the environment protection and the ecological restoration in the urbanisation process of the nation, and consider such guideline will prompt the demand for clean energy in China. With the characteristics of less pollutant and easy to transport, the LPG industry in China is expected to benefit from the government environmental policies and guidelines aforesaid.

• Business development plan

As illustrated in the Letter from the Board, Tianjin Hong Fu has planned to pursue in the LPG Business in Tianjin City, the PRC, by engaging in the wholesale and retail of LPG targeting to serve the local residential, commercial and industrial users in Tianjin. The Target Group will develop the LPG Station within the Land Parcel, which will equip with a total storage capacity of 1,550 m[3] and a maximum of LPG filling capacity of approximately 110,000 tons per annum. It is expected that the LPG Station will commence first phase of operation in the second half of 2015.

– 65 –

LETTER FROM NEW SPRING CAPITAL

As illustrated in the Letter from the Board, Tianjin Hong Fu plans to distribute LPG through a combination of modes including (i) from LPG Station to end users; (ii) from LPG Station to store and subsequently to end users; and (iii) from LPG Station to wholesalers, which is consistent with the distribution model of the Group in other cities in the PRC. As to the retail business, the Target Group intends to establish its foothold in Wuqing District in Tianjin and then expands further to other districts surrounding Wuqing District year by year. The retail stores will be catergorised into three types, being the sales of (i) both LPG cylinders and barreled drinking water; (ii) LPG cylinders only; and (iii) barreled drinking water only. The following table sets forth the number of retail stores expected to be operated by the Target Group in Tianjin in the next five years, as referred to the Letter from the Board:

	August 2014	August 2015	August 2016	August 2017	August 2018
	to	to	to	to	to
	July 2015	July 2016	July 2017	July 2018	July 2019
Retail stores
– LPG cylinders and
barreled drinking
water	16	40	66	88	94
– LPG cylinders	–	–	2	12	31
– barreled drinking water	4	10	17	22	42
Total number of retail stores	20	50	85	122	167
Year-to-year increment	–	30	35	37	45

In considering the feasibility of the above development plan, we have discussed with the Management and were advised that, among other things, (i) there is high market demand for LPG in Tianjin City. Based on the Company’s feasibility study conducted in May 2014, the estimated market size of LPG in Tianjin could reach to around 280,000 tons per year mainly driven by residential and commercial demands; (ii) based on its feasibility study, the business model of wholesaling and retailing of LPG are common market practice, where the Group has also successfully adopted the same model in its LPG business in other cities in the PRC; and (iii) both LPG cylinders and barreled drinking water are fast moving consumer goods which share common end users and could therefore facilitate the sharing of retail stores among these two businesses. The Management also considered that the opening progress of retail stores

– 66 –

LETTER FROM NEW SPRING CAPITAL

set forth above would be achievable, as the number of stores of both the LPG Business and the Water Business had taken into account (i) the first foothold will be established in Wuqing District in Tianjin, where the LPG Station and the Water Factory locate; (ii) the expansion to other districts surrounding Wuqing District in Tianjin has considered the population and composition of end users in different districts, the current market demand and supply, the availability of retail stores with suitable locations, costs of rental, transportation and labour, and so forth; (iii) the expected production outputs of the Target Group under each business; and (iv) the Management’s industry experience in estimating the investment and time cost for setting up the retail stores. Based on the aforesaid reasons and factors, we agree with the Management that such development plan is considered feasible, in particular that the basis of expectation of the number of retail stores of both the LPG Business and the Water Business

is justifiable.

The Management advised that, in the view of the business transformation of Tianjin Hong Fu and the development plan aforesaid, the Company intends to acquire Tianjin Hong Fu to strengthen the Group’s recent development of LPG business in Tianjin and to grasp the local market share promptly, with the support of additional storage and filling capacities of LPG to be brought by the Acquisition. We refer to 2014 Annual Report and note that, in May 2014, the Group acquired Tianjin Binhai New District Civigas Co., Ltd. (天津濱海新區中民聯運燃氣有 限公司) (formerly known as Tianjin Binhai New District Dagong Anbao Gas Co., Ltd.) (“ Tianjin Binhai ”) and Tianjin Ji County Civigas Co., Ltd. (天津薊縣中民燃氣銷售有限公司) (formerly known as Tianjin Baoyuan Taida Gas Co., Ltd.) (“ Ji County Civigas ”), being two PRC companies engaging in LPG business in Tianjin. As advised by the Management, the existing storage capacities of Tianjin Binhai and Ji County Civigas are 200 m[3] and 110 m[3] respectively, however the Management considered that such capacities are still insufficient to respond to the market demand in Tianjin. Further, Tianjin Binhai and Ji County Civigas currently have no retail stores and the lack of retail sales network restricts their customer base. Due to the aforesaid, the Management considered that the development plan of Tianjin Hong Fu aligns with the Group’s strategies in LPG business, and upon Completion, the LPG Station will be developed into a major LPG filling station of the Group in Tianjin. The Company is confident in having secured and stable source of LPG in Tianjin in the future, given its business relationship with the existing suppliers. In view of (i) the development plan of the LPG Business is considered feasible by the Management and is also in line with the Group’s business strategies

– 67 –

LETTER FROM NEW SPRING CAPITAL

and continuous development; (ii) the existing capacities of Tianjin Binhai and Ji Country Civigas limit the development of the Group’s LPG business in Tianjin; (iii) leveraging the existing business model of Tianjin Binhai and Ji Country Civigas with the expected retail network of Tianjin Hong Fu enables the Group to achieve higher market penetration and larger customer base, we consider that the LPG Business could bring synergy effect to the Group’s existing business in Tianjin City.

• Construction and production plan

As advised by the Management, the Target Group has planned to build the LPG Station with two phases on the Land Parcel. The first phase of the LPG Station will consist of the following units:

Units Components LPG storage: 4 x 100 m[3] horizontal tank (臥罐); and 1 x 50 m[3] LPG residual horizontal tank (殘液臥罐). Production: weighbridge (electronic truck scale) (地秤(電子汽 車衡)); truck loading platform (汽車裝卸台); LPG compressors area (液化石油氣壓縮機房); gasification area (氣化間); and cylinder filling area (鋼瓶灌裝間). Ancillary area: fire pool (消防水池); fire pumping room (消防泵房); substation (變配電間); diesel generators room (柴油發電機房); and boiler area (鍋爐間). Office: office building (辦公樓); and production coordination center (生產調度中心).

The first phase of the LPG Station will bring a storage capacity of 450m[3] and a LPG filling capacity of approximately 20,000 tons to 30,000 tons per annum. The capital expenditure for the first phase is expected to be of approximately RMB14.7 million.

– 68 –

LETTER FROM NEW SPRING CAPITAL

The second phase of the LPG Station will consist of the following units:

Units Components Storage: 5 x 200 m[3] horizontal tank (卧罐); and 1 x 100 m[3] LPG residual horizontal tank (殘液卧罐). Production: compressors (壓縮機); hydrocarbon pumping area (烴泵間); production plant (生產車間); and distribution centre (配送中心). Ancillary area: fire pumping area (消防水泵房); generators area (發電機房); power distribution area (配電房); machineries maintenance room (機修房); and fire pool (消防水池).

The second phase of the LPG Station will bring a storage capacity of 1,100 m[3] and a LPG filling capacity of approximately 80,000 tons per annum. The capital expenditure for the second phase is expected to be of approximately RMB11.4 million.

As advised by the Management, the LPG Station was in the preparatory stage for the construction of the first phase as at the Latest Practicable Date.

– 69 –

LETTER FROM NEW SPRING CAPITAL

We have reviewed the aforesaid construction plan and were advised by the Management that, upon the completion of the two phases, the LPG Station will have a total storage capacity of 1,550 m[3] and the LPG filling capacity will reach to a maximum of approximately 110,000 tons per annum. We were given to understand that the first and the second phases of the LPG Station are expected to commence operations in the second half of 2015 and 2017 respectively, where the Management considered that the construction progress is feasible based on their industry experience. The expected capital expenditure comprises mainly the construction cost of the LPG Station, the cost of machineries and equipment and the relevant installment costs under each phase. In estimating the capital expenditure, the Management advised us that they had made reference to (i) quotations obtained by Tianjin Hong Fu from independent third parties in respect of the construction of the LPG Station; (ii) market studies on costs of machines and equipment; and (iii) the best estimation of the Management according to their extensive industry experience. We have been furnished with the breakdown of the estimated capital expenditure for two phases and consider that the basis of the estimation of the capital expenditure is justifiable. In addition, having considered that (i) the Target Group has been granted with the Site Expansion Approval for the establishment of the LPG Station; (ii) the construction plan and progress are considered feasible by the Management based on their industry experience; and (iii) the expected capital expenditure is properly estimated, we are of the view that the aforementioned construction plan of Tianjin Hong Fu is reasonably estimated.

– 70 –

LETTER FROM NEW SPRING CAPITAL

We refer to “Code for fire protection design of petroleum and natural gas engineering” (the “ Code for Fire Protection Design ”) of Standardization Administration of the PRC, and understand that the building of the LPG Station in the PRC requires the station to be of a minimum distance of 120 meters away from residential areas for the community with more than 100 residents and a distance of at least 60 meters away from railways. Given the requirement of the safety distance under the Code for Fire Protection Design, the Management advised us that the land supplies with appropriate site area that fulfills such stringent safety distance requirement for the development of LPG filling station in Tianjin are limited and hard to identify. The Letter from the Board stated that, as at the Latest Practicable Date, the Company did not identify any potential target company with operating track record in LPG and sizeable LPG storage and distribution station in Tianjin. In view of this, we were advised by the Management that they have exercised due and careful inquiries and considered that the Land Parcel complied with the safety distance requirement of the Code for Fire Protection Design. In addition, during our interview with the officer of Government of Cao Zi Zhen in Wuqing District, Tianjin City, we were advised by the government officer that the location of the Land Parcel fulfilled the safety distance as required under the Code for Fire Protection Design. We further refer to the PRC Legal Opinion and note that the PRC Legal Adviser held the same view. The Target Group had also received, on 1 August 2014, the Site Expansion Approval issued by the Commission in respect of the expansion of production site within the Land Parcel. Having considered that (i) the Group intends to develop market in Tianjin for its continuous development of LPG business as mentioned in the section headed “I. Background and financial information of the Group” above; (ii) both of the local government officer’s representation and the PRC Legal Adviser’s legal view that the Land Parcel satisfies with the safety distance requirement under the Code for Fire Protection Design; (iii) the Site Expansion Approval obtained by Tianjin Hong Fu allows the establishment of the LPG Station within the Land Parcel; and (iv) the Company fails to identify alternative target company with suitable site area and operating track record, we are of the view that the acquisition of Tianjin Hong Fu could address the Company’s difficulty in finding a suitable land parcel for the expansion of its LPG business in Tianjin City.

– 71 –

LETTER FROM NEW SPRING CAPITAL

• Licenses and permits

We note from the PRC Legal Opinion that, the operation of the LPG Business in the PRC requires, among other things, the obtaining of Gas Operation Permit (燃氣經營許可證), Gas Sale Permit (燃氣准銷 證) and Gas Cylinder Filling Permit (氣瓶充裝許可證). We were given to understand that the Target Group has yet obtained those permits as at the Latest Practicable Date. Further details of laws and regulations relating to the LPG Business can be referred to the paragraph headed “The LPG business – laws and regulations” under the section headed “Information of the Target Group” of the Letter from the Board.

We note from the PRC Legal Opinion that, as at the Latest Practicable Date, the PRC Legal Adviser were not aware of any legal barriers or obstacles in obtaining all relevant approvals, licenses or permits by Tianjin Hong Fu in respect of conducting the LPG Business in the PRC.

• Management team

As advised by the Management, the Company will establish a management team, comprising personnel with extensive industry experience in LPG, to oversee the development of the LPG Business operated by Tianjin Hong Fu and assist in implementing the business development plan of the LPG Business abovementioned. As advised by the Management, Mr. Ban Shilun (班仕倫) (“ Mr. Ban ”) will be appointed as the general manager of Tianjin Hong Fu, who has been in the LPG industry since 1992. Since 2007, Mr. Ban successively acted as deputy general manager, general manager and chairman of the board of directors of the LPG project companies within the Group, and was responsible for construction projects and production safety. Mr. Ban has extensive experience in LPG enterprise management and production safety. Mr. Tang Xinjian (湯新建) (“ Mr. Tang ”) will be appointed as the deputy general manager of Tianjin Hong Fu, who has been in the LPG industry since 2003 and has extensive experience in LPG enterprise management and market development. Mr. Tang is currently general manager of Tianjin Binhai.

Further details of Mr. Ban and Mr. Tang can be referred to the paragraph headed “The LPG business – management team” under the section headed “Information of the Target Group” of the Letter from the Board.

– 72 –

LETTER FROM NEW SPRING CAPITAL

(b) The Water Business

• Industry overview

The Letter from the Board mentioned that, the rapid development of the bottled drinking water industry in the PRC has been driven by the domestic demand for higher quality and healthy beverages led by the encouraging economic growth and the increasing health awareness in the nation. Along with the economic growth, the average annual cash consumption expenditure of urban household per capita increased by over two times to approximately RMB16,674.3 in 2012 since 2001, according to the “China Statistical Yearbook 2013” complied by the National Bureau of Statistics of China. We note from the Letter from the Board that, bottled drinking water refers to tap water or underground water being processed with modern industrial technologies to purified water or mineral water and then filled and sealed in plastic bottles, cans, glass bottles, barrels or other containers. The annual consumption of bottled drinking water in the PRC recorded a CAGR of approximately 18.2% from approximately 39.82 million tons in 2010 to approximately 65.79 million tons in 2013. In addition, according to IBISWorld’s market research, revenue derived from the bottled water production industry in the PRC recorded an annual growth of approximately 15.0% in the past five years and will reach to approximately US$18.2 billion in 2014. The Management considered that the above indicated the optimistic prospect of the bottled drinking water industry in the PRC.

We also refer to an article released by Xinhuanet (新華網) on 26 March 2014 in respect of the production composition of beverages in China, where the article stated that the national production of packaged drinking water accounted for approximately 45% among all types of beverages in 2013 and the portion of which has been rising. The article indicated that the main drivers of the demand for packaged drinking water in China include the increasing demand for quality drinking water, environmental concerns as well as the higher human mobility. In households, packaged drinking water even becomes more common. The above has implied the rising demand and popularity for bottled drinking water in China.

– 73 –

LETTER FROM NEW SPRING CAPITAL

• Business development plan

As illustrated in the Letter from the Board, Tianjin Yun Ze De has planned to pursue in the Water Business in Tianjin City, the PRC, by engaging in the production, wholesale and retail of barreled drinking water targeting to serve the local residential, commercial and industrial consumers in Tianjin. As a complement, Tianjin Yun Ze De also plans to sell electrical appliances such as water dispenser and water purification systems in the local market. As advised by the Management, Tianjin Yun Ze De has established the Water Factory on the Land Parcel and it will utilise the existing underground water within the Land Parcel for the production of own branded barreled drinking water. The Water Factory is of a designed maximum production capacity of 40,000 tons per annum by August 2017 to July 2018. It is expected to commence commercial production of barreled drinking water since the second half of 2015 with an initial production capacity of 20,000 tons per annum.

As illustrated in the Letter from the Board, the retail business of Tianjin Yun Ze De will begin with the sale of other branded barreled drinking water in order to build up a stable retail sales network. Upon the commencement of the production of barreled drinking water in around the second half of 2015, Tianjin Yun Ze De will engage in the wholesale and retail of own branded barreled drinking water and parallel with the wholesale and retail of other branded barreled drinking water. Leveraging on the LPG distribution network of Tianjin Hong Fu, Tianjin Yun Ze De can distribute the barreled drinking water in Tianjin City through the same distribution network. The number of retail stores expected to be operated by the Target Group in Tianjin in the next five years are set forth in the paragraph headed “The LPG business – business development plan” in this sub-section. Referring to the Letter from the Board, as a complement, Tianjin Yun Ze De also plans to sell other branded water dispensers and water purification systems in its retail stores.

In considering the feasibility of the above development plan, we have discussed with the Management and were advised that, among other things, (i) the bottled drinking water is of rising demand and popularity in China, as illustrated under the paragraph headed “The Water Business – industry overview” above; (ii) Tianjin Yun Ze De could utilise the underground water resources available within the Land Parcel permitted by the Water Drawing Permit for the production of barreled drinking water; (iii) the construction of the Water Factory was completed and the Water Factory has commenced trial production and testing for water processing; and (iv)

– 74 –

LETTER FROM NEW SPRING CAPITAL

the plan of opening retail stores and the model of sharing distribution networks with the LPG Business are considered feasible, as analysed under the paragraph “The LPG Business – business development plan” above, we therefore agree with the Management that the aforementioned development plan of the Water Business is considered feasible and the Acquisition will provide the Group with the opportunity to step into the barreled drinking water industry in the PRC.

• Construction and production plan

As advised by the Management, the construction of the Water Factory was completed as at the Latest Practicable Date. The Water Factory which erected on the Land Parcel consists of the following units:

Units	Components
Water processing line:	sterilisation; filtration; and softening of
	underground water.
Automatic water filling line:	uncapping (拔蓋);
	cleaning (清洗);
	filling (上桶、灌裝);
	capping (封蓋);
	lighting inspection (燈檢); and
	thermal shrinkage (熱收縮).
Quality control:	air shower room (風淋室);
	air purifier (空氣自淨器);
	laboratory equipment (化驗室設備); and
	clean bench (超淨工作臺).
Ancillary equipment:	ozone generator (臭氧發生器);
	underground water tank (原水箱); and
	purified water tank (純水箱).

– 75 –

LETTER FROM NEW SPRING CAPITAL

As illustrated in the Letter from the Board, the capital expenditure for the development of the Water Factory is approximately RMB500,000, with reference to, among others, (i) the sale and purchase agreement entered into between Tianjin Yun Ze De and a third party provider in respect of the machineries and equipment for production of barreled drinking water in June 2014; and (ii) the service contract entered into between Tianjin Yun Ze De and a third party contractor for the construction of the Water Factory in August 2014. We have reviewed the respective contracts and breakdowns, and consider that the level of the capital expenditure is justifiable.

We have also reviewed the construction plan and were advised by the Management that the designed maximum production capacity of the Water Factory is 40,000 tons per annum, and is expected to be developed in accordance with the following schedule: (i) 20,000 tons of water for the year from August 2015 to July 2016; (ii) 30,000 tons of water for the year from August 2016 to July 2017; and (iii) 40,000 tons of water for the year from August 2017 to July 2018 and thereon. During our site inspection to the PRC Companies, we note that the Water Factory has been built erected on the Land Parcel and equipped with a production line for water processing, which is currently under trial production as advised by the Management. Taking into account that (i) the progress of the Water Factory met with the construction plan; and (ii) the level of capital expenditure is justifiable, we are of the view that the construction plan of Tianjin Yun Ze De is reasonably estimated.

– 76 –

LETTER FROM NEW SPRING CAPITAL

• Licenses and permits

We noted from the PRC Legal Opinion that, the operation of the Water Business in the PRC requires, among other things, the obtaining of Water Drawing Permit (取水許可證), Food Production Permit (食品生產 許可證) and Food Circulation Permit (食品流通許可證). It is noted that as at the Latest Practicable Date, Tianjin Hong Fu possesses the Water Drawing Permit allowing it to draw a maximum of 40,000 m[3] underground water per annum within the Land Parcel, which will expire on 31 December 2014. As previously mentioned, the PRC Legal Adviser is of the view that the renewal of the Water Drawing Permit will not have any legal impediments and they are not aware of any legal impediments relating to the use of such underground water permitted to be drawn under the Water Drawing Permit in the subsequent production of the barreled drinking water by the Target Group. The Vendor also confirmed that Tianjin Hong Fu has not experienced any difficulties in the previous renewal(s) of the Water Drawing Permit, as advised by the Management.

As aforementioned, the quality of water sample collected from the Land Parcel complies with the “Standards for Drinking Water Quality” 《生活飲用水衛生標準》(GB5749-2006), according to an inspection report issued by Centre for Disease Control and Prevention in Wuqing District of Tianjin City (天津市武清區疾病預防控制中心) dated 8 March 2013. The PRC Legal Adviser is of the view that such standards are applicable to drinking water business in the PRC.

As illustrated in the Letter from the Board, Tianjin Yun Ze De is also in the process of applying the food production permit (食品生產許可 證), which is a required permit for the processing of underground water drawn with the Land Parcel into the barreled drinking water as advised by the PRC Legal Adviser. Further details of laws and regulations relating to the Water Business can be referred to the paragraph headed “The barreled drinking water business – laws and regulations” under the section headed “Information of the Target Group” of the Letter from the Board.

We note from the PRC Legal Opinion that, as at the Latest Practicable Date, the PRC Legal Adviser were not aware of any legal barriers or obstacles in obtaining all relevant approvals, licenses or permits or renewing the Water Drawing Permit by the PRC Companies in respect of conducting the Water Business in the PRC.

– 77 –

LETTER FROM NEW SPRING CAPITAL

• Management team

As advised by the Management, the Company will establish a management team, comprising personnel with extensive industry experience in production of drinking water to oversee the development of the Water Business operated by Tianjin Yun Ze De and assist in implementing the business development plan of the Water Business abovementioned. As advised by the Management, Tianjin Yun Ze De currently has two key personnel, being Mr. Wu Jianghai (吳江海) (“ Mr. Wu ”) and Ms. Yu Jinfeng (于金鳳) (“ Ms. Yu ”), with extensive experiences and expertise in the food industry. Mr. Wu, who served as the deputy general manager of Tianjin Hong Fu from 2000 to 2013 and is currently the general manager of Tianjin Yun Ze De, has many years of experience in the food and medicine industries and has accumulated extensive experience and expertise in food, medicine and corporate management. Ms. Yu, who is currently the head of quality assurance section of Tianjin Yun Ze De, is familiar with the process and quality research on food and pharmaceutical production and has rich experience and expertise in food research and development process and food quality inspection. It is considered that Tianjin Yun Ze De could leverage on their experiences and expertise in food production and quality inspection in starting up the Water Business, as the businesses of drinking water and food share similar operation workflows. It is also noted from the Management that Tianjin Yun Ze De is in the process of recruiting suitable candidates who possesses experience in the area of production of barreled drinking water in the PRC. Further details of Mr. Wu and Ms. Yu can be referred to the paragraph headed “The barreled drinking water business – management team” under the section headed “Information of the Target Group” of the Letter from the Board.

– 78 –

LETTER FROM NEW SPRING CAPITAL

IV. Reasons for and benefits of the Acquisition

We refer to the Letter from the Board and further understand from the Management that the Company has taken into account the following reasons for and benefits of the Acquisition to the Group:

(i) The development of the Target Group aligns with the continuous growth of the Group’s LPG business

As illustrated in the section headed “I. Background and financial information of the Group” above in this letter, the transportation, distribution and retail of LPG is a core business and a prominent source of revenue of the Group, where the portion of revenue derived from the sale of LPG accounted for approximately 45.6% of the Group’s total revenue for FY2014. The Company attributed the recent success of its LPG business towards, among other things, its expansion in the existing market in south-western China and exploring new LPG markets. It is noted from 2014 Annual Report that Tianjin City is a newly developed LPG market of the Group, where in May 2014, the Group acquired Tianjin Binhai and Ji County Civigas and stepped into LPG business in Tianjin. We were advised by the Management that, as at the Latest Practicable Date, the Group had two LPG projects in Tianjin.

With the rapid growth of China’s economy, the urbanisation progress in the nation and the higher environmental awareness promulgated by the PRC government, the Management considered that China will continue to have enormous domestic demand for cleaner energy such as LPG and natural gas. As advised by the Management, LPG is the less polluting energy, which is easy to transport and has diversified uses. These characteristics would prompt the popularity of LPG particularly in medium and small towns, large scale rural areas and city borders in China where natural gas is not easily reached due to, among others, the restrictions of transmission pipelines and resource supply amount of natural gas, or the development of piped gas is considered to be economically ineffective because of the huge capital investment in gas supply facilities and the less concentration of population in such areas to generate sufficient sales for compensating the investment costs. In connection with these factors, the Management advised us that the Company intends to expand its LPG business in medium and small towns or rural areas and will continue to develop markets such as Xi’an and Tianjin, as the Management considered that these cities are of large potential.

As illustrated in the Letter from the Board, the Target Group has undergoing business transformation into the LPG Business since April 2014, due to the unsatisfactory operating results of its previous pharmaceutical business hit by the keen industry competition and shrinking demand in pharmaceutical products. With the Site Expansion Approval, the LPG Station will be established for the filling of LPG and supplying to the local residential, commercial and industrial users in Tianjin. We refer to (i) the increasing significance of LPG business to the Group’s financial results; (ii)

– 79 –

LETTER FROM NEW SPRING CAPITAL

the Group’s recent acquisitions and its intention to expand LPG business in Tianjin; and (iii) the business transformation and development plan of the Target Group, and therefore concur with the Management that the Acquisition represents a valuable opportunity for the Group to further expand its LPG business in Tianjin, which is also in line with the Company’s strategy for the LPG business abovementioned.

(ii) Difficulties in identifying suitable production site for the LPG Business

Though the Management considered Tianjin as a potential market for the business of LPG, the limited supplies of suitable land for the development of LPG production site impose difficulties for its entry or expansion. As aforesaid, the Group currently has two subsidiaries engaged in the LPG business in Tianjin, being Tianjin Binhai and Ji Country Civigas. However, the Letter from the Board mentioned that, the LPG storage and distribution stations of these subsidiaries are erected on leased lands, with terms until December 2027 and October 2024 respectively. With only around the 10-year terms, the leases impose relocation risk to the Group upon their expirations and the Group may incur substantial cost for relocation and waste its initial investments. We also refer to the Code for Fire Protection Design and understand that there is specific restriction on construction of LPG stations, which strictly requires any of these stations shall be located at not less than 120 meters away from any residential area for a community with more than 100 residents and at least 60 meters away from railways. In addition, as advised by the Management, based on the Company’s preliminary market research, the local regulatory body of Tianjin City requires newly-built LPG storage tank to be built on self-owned land parcel. The requirements mentioned above have imposed difficulties for the Company in finding potential target with suitable site location. We were given to understand that, as at the Latest Practicable Date, the Company failed to identify potential target company with operating track record and sizeable LPG storage and distribution station in Tianjin. We take into consideration (i) the difficulties in finding suitable target resulting from the aforesaid construction and safety distance requirements; (ii) the successful obtaining of the Site Expansion Approval by the Target Group for the development of the LPG Station; (iii) the selfowned Land Parcel fulfills the Code for Fire Protection Design; and (iv) the Company has yet identified alternative target company with suitable land parcel and operating track record, and are therefore of the view that the Acquisition enables the Group to acquire the LPG Business equipped with a suitable, self-owned production site and without facing relocation risk.

(iii) The LPG Station will be served as the major LPG filling station of the Group in Tianjin and provide synergy effect

As referred to the Letter from the Board, the existing business model of Tianjin Binhai and Ji County Civigas would restrict the expansion of customer base and hinder the market penetration process of the Group in Tianjin as all sales have to be conducted in their LPG storage and distribution stations, given such two subsidiaries

– 80 –

LETTER FROM NEW SPRING CAPITAL

have no retail stores. It is the intention of the Group to establish a network of retail stores in different districts of Tianjin City in order to capture the market share. With such an expansion and penetration plan, the Directors considered that the storage capacities of the two existing LPG storage and distribution stations, which are 200 m[3] and 110 m[3] for Tianjin Binhai and Ji County Civigas respectively, are insufficient to support the plan and that the Group should look for another sizeable LPG storage and distribution station in Tianjin. The Letter from the Board also mentioned that the local regulatory body of Tianjin City requires newly-built LPG storage tank to be built on self-owned land parcel. However, the Management considered that it is uneasy for the Group to acquire a suitable land parcel for the development of the LPG storage and distribution station in Tianjin due to the reasons as mentioned in above paragraph. It is noted that, upon the expansion of the LPG Station, the Target Group is expected to provide a total storage capacity of 1,550 m[3] , and could also bring a maximum LPG filling capacity of approximately 110,000 tons per annum. We were advised by the Management that the LPG Station is intended to be served as the major filling station of the Group in Tianjin. Having considered the LPG Business will provide synergy effect to the Group’s existing business in the city, in the ways that (i) the additional capacities expected to be provided by the LPG Station enable the Group to grasp the larger market share; and (ii) the establishment of retail channels in the sales of LPG enables the Group to achieve higher market penetration with a larger customer base, we are of the view that the Acquisition would benefit the Group’s existing LPG business in Tianjin and its continuous development in LPG market.

(iv) The Acquisition provides the Group with an opportunity to step into the barreled drinking water industry

As illustrated previously, the Target Group has also planned to pursue in the Water Business in the view of the Water Drawing Permit possessed by Tianjin Hong Fu and the water resource available within the Land Parcel. We were advised by the Management that, taking into account the commodity nature of both energy and drinking water, the Company considered that the LPG Business and the Water Business share common end users and therefore could leverage on the same distribution channel for operations. Although the Water Business is new to the Company, the Management considered that the sharing of distribution channel could ensure the entry of such new business smooth and enable the Group to penetrate into the market in a faster pace. Having considered that (i) the market potential as described under the paragraph headed “The Water Business – industry overview” under the sub-section headed “Development plans and prospects” in section “III. Information of the Target Group” above in this letter; (ii) the development and construction plans are considered feasible as set forth under the same sub-section; (iii) the similarity in nature of LPG and barreled drinking water facilitate the sharing of distribution model and (iv) the existence of water resource and the Water Drawing Permit, we concur with the Management that the Acquisition creates new business opportunity to the Group.

– 81 –

LETTER FROM NEW SPRING CAPITAL

We were given to understand that the Company is aware of the fact that the Target Group is in the preliminary stage of transforming into the LPG business and the barreled drinking water business in Tianjin without relevant track records. However, having considered the aforesaid reasons, in particular, (i) the Group’s intention to expand its LPG business in Tianjin where the business plan of the Target Group is in line with it; (ii) difficulties for and failure of the Company in identifying suitable and sizeable LPG station serving its expansion needs where the Acquisition could address to such issue as previously illustrated; (iii) the insufficient LPG filling and storage capacities of Tianjin Binhai and Ji County Civigas to grasp the market demand and to expand its distribution network, where the Acquisition would provide synergy effect to the Group in such areas with the support of the LPG Station and the future retail stores; and (iv) the new business opportunity to the Group to step into the Water Business which could also be advantaged to the sharing of distribution network with the LPG Business, we are of the view that the Acquisition will benefit to the Group. In addition, we have taken into account other factors which discussed previously in this letter, among other things, (i) the industry prospects and market potentials for both the LPG Business and the Water Business, as set forth in section “I. Information of the Target Group” above; (ii) the feasibility of development and construction plans of both Tianjin Hong Fu and Tianjin Yun Ze De; and (iii) the existing licenses and permits obtained by the Target Group and that the PRC Legal Adviser were not aware of any legal barriers or obstacles in obtaining all relevant approvals, licenses or permits by the PRC Companies in respect of the LPG Business and the Water Business, including the renewal of the Water Drawing Permit. Based on the aforesaid, we concur with the Directors that the Acquisition matches with the expansion and penetration plan of the Group in LPG business in Tianjin and also represents a good opportunity for the Group to tap into the wholesale and retail of the Water Business and therefore consider that the Acquisition is in the interests of the Company and the Shareholders as a whole.

V. Principal terms of the S&P Agreement and the Supplemental Agreement

As set out in the Letter from the Board, the principal terms of the S&P Agreement (as supplemented by the Supplemental Agreement) are summarised as below:

(i) Assets to be acquired

Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), the Vendor has conditionally agreed to sell and the Company has conditionally agreed to purchase (i) the Sale Shares, representing the entire issued share capital of the Target Company, free from all encumbrances and together with all existing and future rights and benefits attaching with or accruing to the Sale Shares; and (ii) the Sale Loan free from all encumbrances, subject to the satisfaction (or waiver, where applicable) of the conditions precedent as set out in the paragraph headed “The S&P Agreement and the Supplemental Agreement – Conditions” in the Letter from the Board.

– 82 –

LETTER FROM NEW SPRING CAPITAL

(ii) Consideration

The consideration for the Sale Shares is RMB361,025,956.98 (equivalent to HK$455,295,250) among which Tianjin Hong Fu and Tianjin Yun Ze De are attributable to approximately RMB198 million and RMB163 million respectively, and the consideration for the Sale Loan is RMB8,974,043.02 (equivalent to HK$11,317,300). The Aggregated Consideration of RMB370,000,000 (equivalent to HK$466,612,550), subject to adjustment according to the details as set out in the sub-section headed “Profit Guarantee” below, shall be settled in the following manner:

• (i) at Completion, as to HK$232,675,000 (equivalent to RMB184,499,431), by offsetting the subscription proceeds (the “ Subscription Proceeds ”) to be paid by Ping Da Development upon the exercise of the subscription rights attaching to the 1,135,000,000 Warrants at the subscription price of HK$0.205 per Subscription Share; and

• (ii) on the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor), as to the balance of HK$233,937,550 (equivalent to RMB185,500,569) (the “ Cash Consideration ”), to be paid by the Company to the Vendor by a banker’s cashier order in the amount of HK$233,937,550 issued by any licensed bank in Hong Kong or the PRC.

• Note: Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), RMB to HK$ are exchanged at the rate of 1.261115, being the average of the bid price and the ask price of CNH/HK$ exchange rate as quoted on Bank of China (Hong Kong) Limited at 4:00 p.m. on the date of the S&P Agreement.

The Letter from the Board stated that, as to the partial payment of approximately 50% of the Aggregated Consideration at Completion, the Directors had considered other alternatives in lieu of offsetting the Subscription Proceeds. Such alternatives include (i) cash payment; (ii) issue of consideration shares of the Company; and (iii) issue of convertible bonds of the Company. As to the cash payment alternative, the Directors considered that the immediate cash outflow would not be beneficial to the Group as the cash position of the Group as of 31 March 2014 would reduce by approximately 67.3% to approximately RMB89.6 million. As to the issue of consideration shares of the Company, the shareholding of the existing Shareholders would possibly be diluted by twice upon the issue of consideration shares of the Company and upon the exercise of the subscription rights attaching to the Warrants by Ping Da Development. As to the issue of convertible bonds of the Company, the Group would incur interest expense and the gearing ratio of the Group would increase accordingly. On the assumption of a minimal interest rate of 1% per annum on the principal amount of RMB184,499,431 of the Subscription Proceeds, the total interest expense for the period from 1 January 2015 to 30 June 2017 (being the approximate maturity of the convertible bonds)

– 83 –

LETTER FROM NEW SPRING CAPITAL

would be approximately RMB4.6 million. Having considered that (i) the offsetting arrangement with the Subscription Proceeds will not have immediate cash impact on the Group; (ii) the effect of dilution on shareholding had been considered and accepted by the then Shareholders upon their approval of the issue of the Warrants in 2013; (iii) the Warrants will be exercised at a premium to the recent Share price; and (iv) no interest or finance cost will be borne by the Group as a result of offsetting the Subscription Proceeds, the Directors are of the view that the offsetting arrangement of the Subscription Proceeds with the partial payment of the Aggregated Consideration at Completion is beneficial to the Company and the Shareholders as a whole.

The Letter from the Board also stated that the Directors expected the Cash Consideration will be settled by way of internal resources of the Group. Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), in the event that the Company fails to settle the Cash Consideration on the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor), the Company shall pay an interest to the Vendor calculated based on the outstanding amount of the Cash Consideration at the best lending rate in Hong Kong dollars as quoted from time to time by The Hongkong and Shanghai Banking Corporation Limited on the basis of 365-day a year for the period from the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor) to the date of settling the outstanding payment.

Ping Da Development has further undertaken, pursuant to the undertaking letter signed by it on the date of the S&P Agreement, to exercise the subscription rights attaching to the 1,135,000,000 Warrants at the subscription price of HK$0.205 per Subscription Share on the Completion Date irrespective of the then market price of the Shares.

As illustrated in the Letter from the Board, the subscription price of HK$0.205 per Subscription Share represents:

• (i) a premium of approximately 9.98% over the average closing price of HK$0.1864 per Share as quoted on the Stock Exchange for the last five consecutive trading days immediately prior to the date of the S&P Agreement (i.e. from 29 August 2014 to 4 September 2014);

• (ii) a premium of approximately 10.81% over the closing price of HK$0.185 per Share as quoted on the Stock Exchange on the date of the S&P Agreement; and

• (iii) a premium of approximately 17.14% over the closing price of HK$0.175 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

– 84 –

LETTER FROM NEW SPRING CAPITAL

Immediately after the full exercise of the subscription rights attaching to the Warrants, the issued share capital of the Company owned by the Vendor and his associates will be increased from approximately 7.36% to approximately 22.50%.

(a) Payment arrangement

We were advised by the Management that the payment arrangement of the Aggregated Consideration was determined after arm’s length negotiations between the Company and the Vendor based on normal commercial terms. Having considered that (i) at Completion, the HK$232,675,000 will be offset by the Subscription Proceeds through the full exercise of the subscription rights attaching to the Warrants, as a result there will be no immediate cash outflows by the Company; (ii) in the event that the market price of the Shares is lower than HK$0.205 on the Completion Date, Ping Da Development has undertaken to fully exercise the subscription rights attaching to the Warrants at HK$0.205 per Subscription Share and the Company will not incur additional costs for any shortfall; (iii) when the actual 2017 EBITDA fails to meet the Profit Guarantee, the Aggregated Consideration will be subject to downward adjustment, which could serve as a safeguard to the Company in respect of the performance and financial results of the Target Group for the year ending 31 March 2017 (as analysed below); (iv) when the Vendor has to pay the Compensation, the Cash Consideration will be used to offset the Compensation and any shortfall after deduction of the Cash Consideration will be further settled by the Vendor by cash supported with an available working capital facility (as mentioned below), which to the maximum extent, will be equal to the Aggregated Consideration and is therefore considered beneficial to the Company (as analysed below); and (v) in the event that the Company fails to settle the Cash Consideration, the agreed interest on the relevant outstanding amount charged to the Company will be based on the prevailing market rate, we therefore concur with the Management that the payment arrangement of the Aggregated Consideration is fair and reasonable so far as the Independent Shareholders are concerned.

(b) Basis in determining the Aggregated Consideration

We were given to understand that, in order to determine the Aggregated Consideration, the Directors have considered various approaches that are commonly adopted by the market, such as making reference to (i) the net asset value of the Target Group; (ii) the profit to earnings multiple of the Target Group; and/or (iii) the market price of other business entities in similar nature of the Target Group. However, given that the Target Group is undergoing business transformation and has no historical earning records on the LPG Business and the Water Business, the Directors considered that it would not be feasible to make reference to the net asset value or the profit to earnings ratio of the Target

– 85 –

LETTER FROM NEW SPRING CAPITAL

Group and the comparison of market comparables as referred to the aforesaid approaches. Therefore, as illustrated in the Letter from the Board, the Aggregated Consideration is the sum of (i) the consideration for the Sale Loan, which was determined with reference to the debt, loan and/or liability due from the Target Group to the Vendor as at the date of the S&P Agreement on a dollar-to-dollar basis; and (ii) the consideration for the Sale Shares, which was determined after arm’s length negotiations between the Vendor and the Company after taking into account a number of factors including, among other things, the business nature and prospects of the Target Group and the preliminary estimation of the fair value of the Target Group of not less than RMB370,000,000 pursuant to the business valuation carried out by the Independent Valuer under discounted cashflow (“ DCF ”) approach as at 31 August 2014.

We consider that it is justifiable to determine the consideration of the Sale Shares by making reference to the valuation of the Target Group assessed by the Independent Valuer, taking into account that (i) the Target Group is undergoing business transformation without any earning records on the LPG Business and the Water Business, the use of its net asset value and profit to earnings multiple which were principally as a result of its discontinued pharmaceutical business or any initial investments in the Target Group would not be relevant nor fully reflect the underlying value of the Target Group; (ii) the lack of public market price of other private companies in similar business nature as the Target Group for referencing/benchmarking; and (iii) the valuation of the Target Group is carried out by the experienced Independent Value with fairness and reasonableness (as analysed below). As for the Sale Loan which equals to the exact amount of the debt, loan or liability due from the Target Group to the Vendor (if any) as at the Completion Date, we consider it is commercially reasonable for the Vendor to bear full repayment obligation for such amount at the time when the acquisition of the entire issued share capital of the Target Company is completed.

(c) The valuation

According to the Valuation Report prepared by the Independent Valuer as set out in Appendix V to the Circular, the fair market value of the Target Group was RMB380,306,000 as at 31 August 2014, being the appraisal date of the valuation, in which the fair market values of Tianjin Hong Fu and Tianjin Yun Ze De were RMB208,620,000 and RMB171,686,000 respectively. In assessing the fairness and reasonableness of the consideration for the Sale Shares, we have reviewed the Valuation Report prepared by Grant Sherman Appraisal Limited, the Independent Valuer, regarding the fair market value of a 100% equity interest in the business enterprise of the Target Group as at 31 August 2014. We have further discussed with the Independent Valuer regarding, among other things, the basis, assumptions and methodologies adopted therein.

– 86 –

LETTER FROM NEW SPRING CAPITAL

• Valuation methodology

We note that the Independent Valuer have considered the cost approach, the market approach and the income approach, being three commonly used valuation methodologies, in valuing the business enterprise of the Target Group and had selected the income approach with the adoption of the DCF method based on the relevant financial projections and underlying assumptions.

We understand from the Independent Valuer that the income approach was selected after taking into consideration that (i) the cost approach is not applicable as it cannot reflect the fair market values of Tianjin Hong Fu and Tianjin Yun Ze De which are driven by the future revenue generated, rather than the cost of replacement; (ii) the market approach was not applied as there are rare transactions of companies with similar business in an open second hand market and acquisitions frequently involves specific buyers who pay a premium/discount under their unique circumstances which make it difficult to know if the price paid truly represents the approximate price of the transaction or not, and Tianjin Hong Fu and Tianjin Yun Ze De are start-up companies with no historical earning records in relevant businesses; and (iii) the income approach is applied as it explicitly recognises that the current value of an investment is premised upon the expected receipt of future economic benefits such as cost savings, periodic income, or sale proceeds. The DCF method was applied in appraising the economic benefits of the asset being appraised, which consists of estimating future annual cash flows and individually discounting them to present value.

In view of the above factors considered by the Independent Valuer, we further considered that (i) the fair value of the business enterprise value of the Target Group is determined by the generation of economic benefit streams in the future, where the cash flows generated from the Target Group can be reasonably identified; (ii) the profit after taxation nor the net asset value of the Target Group are not considered as appropriate indicators in assessing its value, given it has no historical track record for the LPG Business and the Water Business; and (iii) the lack of reliable public market price of private companies with similar business(es) as the Target Group for valuation purpose, and therefore we are of the view that it is acceptable to use the income approach by applying the DCF method in appraising the business value of the Target Group.

– 87 –

LETTER FROM NEW SPRING CAPITAL

• Underlying financial projection

The development of the fair market value of the business enterprise of the Target Group under income approach requires a number of parameters, including revenue and expense forecasts, working capital requirement and capital expenditure requirement. In the valuation of the Target Group, we were given to understand that the Independent Valuer was furnished with the Projections, records and documents by the Target Group. In relation to the Projections, we have reviewed and have been advised by the Company with sources of the following information and documents, among other things:

• (a) feasibility studies and business plans conducted by the Company for each of the LPG Business and the Water Business in Tianjin stipulating, among others, the market conditions (such as size, share, and competition), relevant rules and regulations, market demand and supply, unit purchase cost and selling price, market gross profit margins for wholesale and/or retail (when applicable), projected sales volume, sales and distribution model, establishment plan of distribution network, construction plan and capital expenditure requirement and working capital requirement;

• (b) the historical financial information of the Group’s LPG segment stipulating, among others, sales volume, cost structure, gross profit margins for wholesale and/or retail, operating expenses and so forth;

• (c) the PRC Legal Opinion issued by the PRC Legal Adviser, covering matters, including among others, the status of the existing permits possessed by the PRC Companies and legal barriers restricting the PRC Companies to carry on the LPG Business and the Water Business;

• (d) the Water Drawing Permit possessed by Tianjin Hong Fu allowing it to draw a maximum of 40,000 m[3] underground water per annum and the inspection report issued by Centre for Disease Control and Prevention in in Wuqing District of Tianjin City (天津市武清區疾病預防控制中心) relating to the quality of water sample in the Land Parcel;

– 88 –

LETTER FROM NEW SPRING CAPITAL

• (e) the audited financial figures of the Target Group, Tianjin Hong Fu and Tianjin Yun Ze De and the management discussion and analysis, details of which are set out in Appendixes II and III respectively to the Circular; and

• (f) the respective development plan of the LPG Business and the Water Business, details of which are set out in the section headed “Information of the Target Group” in the Letter from the Board.

It is noted that the Target Group is lack of trading track record in the LPG Business and the Water Business, which may impose uncertainties on the Projections. However, upon our review of the information and documents, we consider that the Projections relating to the Valuation Report are reasonably estimated, after taking into consideration the following factors:

• (a) due care is exercised by the Management in examining each of the feasibility study and business plan of the LPG Business and the Water Business through various approaches, including desktop researches, store visits in market players’ outlets, interviews with market players, suppliers and local authorities, in-house studies on the Group’s LPG segment and so forth;

• (b) the respective projected revenue and gross profit of the LPG Business and the Water Business based on the relevant projected sales volume and purchase cost/selling price are in line with the respective feasibility study, in particular, the business model of the LPG Business combining wholesale and retail sales, and the business model of the Water Business combining wholesale and retail for its own and other branded barreled drinking water. The commencement and expansion of sales for each business are also in line with the respective construction plan and establishment plan of distribution network. It is further noted that the Projection relates to:

• the LPG Business was made reference to the historical financial records of the Group’s LPG segment, in particular, the profitability margins, the existing distribution model of its LPG business and so forth. The Management advised us that (i) the pricing strategy and cost structure of Tianjin Hong Fu would be similar to those of the Group’s subsidiaries in the LPG segment as they share the similar business model and common end users; and (ii) leveraging to the Group’s expertise where

– 89 –

LETTER FROM NEW SPRING CAPITAL

the Company retains experienced personnel to oversee the future operation of the LPG Business, the smooth operation of Tianjin Hong Fu could shortly be achieved. We have reviewed the historical results of the Group’s subsidiaries in the LPG business and note that six subsidiaries engaging in LPG business have gross profit margins ranging from around 15% to 24% for FY2014, the variances of which are mainly due to the different combination of distribution models on wholesale and retail. The gross profit margins of the LPG Business relating to the Projections fall within the said range. We therefore consider that the financial records of the Group’s LPG segment represent a relevant indicator and the financial projection of Tianjin Hong Fu is reasonably prepared; and

– the Water Business was made reference to, among others, the demand for barreled drinking water in Tianjin City and the business model and pricing of barreled drinking water among prevailing market players, and the maximum drawing amount per annum as permitted by the Water Drawing Permit possessed by Tianjin Hong Fu. The Management considered that, since the drinking water industry is of relatively low entry barrier and no particular technological expertise would be required in production, the referencing to the abovementioned is appropriate. We also understand from the Management that the Target Group had also considered (i) the adoption of a stable pricing strategy due to the high bargaining power of buyers in the drinking water industry as there could be numerous alternatives in the market, where we note that the target price set by Tianjin Yun Ze De is comparable to the market players as referred to the feasibility study; and (ii) the progressively increasing sales volume of the own branded barreled drinking water (which will be capped at 40,000 tons of water per annum, being the maximum drawing amount as permitted by the Water Drawing Permit) and other branded barreled drinking water forecasted in accordance with the opening progress of retail stores of the Target Group. We are of the view that the above factors are reasonably considered and note that they had been reflected in the financial projection of Tianjin Yun Ze De;

– 90 –

LETTER FROM NEW SPRING CAPITAL

• (c) the respective operating expenses are in line with the respective sales expansion and expenses on the development of the distribution model. In particular, the respective breakdown of selling and distribution expenses, including staff costs, transportation costs and rental expenses, aligns with the respective establishment plan of distribution network of the LPG Business and the Water Business;

• (d) the respective capital expenditures of the LPG Business and the Water Business are in line with the construction plans and are justifiable as illustrated previously. For the LPG Business, the total LPG filling capacity will reach to a maximum of approximately 110,000 tons per annum through two expansion phases, where in the first phase, a newly built LPG Station with a storage capacity of 450 m[3] will bring approximately 20,000 tons to 30,000 tons LPG filling capacity per annum with expected commencement in the second half of 2015; and in the second phase, the LPG Station will further expand to bring the additional storage capacity of 1,110 m[3] and LPG filling capacity of approximately 80,000 tons per annum with expected commencement in the second half of 2017. For the Water Business, the Water Factory has been established on the Land Parcel with expected commencement in the second half of 2015. In addition, the depreciation and amortisation methods are in line with the accounting policies adopted by the Company;

• (e) as advised by the Management, the LPG Business and the Water Business will be subjected to value-added tax of 13% and 17% respectively and both of which will be subjected to corporate income tax of 25% in the PRC for the projection period;

• (f) the working capital movement has made reference to the actual operation of the Group’s subsidiaries to estimate the respective required working capital of the LPG Business and the Water Business in sustaining its operation;

• (g) as advised by the Company, based on business plans and capital structure of Tianjin Hong Fu and Tianjin Yun Ze De, the finance costs will be minimal or nil as the Company intends to maintain low level of borrowings or debt. The operation of the Target Group will be supported by its internal resources;

– 91 –

LETTER FROM NEW SPRING CAPITAL

• (h) the respective development plan of Tianjin Hong Fu and Tianjin Yun Ze De are considered feasible given the respective reasons taken into account, among other things, the potential market demand for LPG and barreled drinking water, the business and distribution models under each business, and the opening progress of retail stores, which are illustrated under the paragraphs headed “The LPG Business – business development plan” and “The Water Business – business development plan” above in the sub-section headed “Development plans and prospects” of section “III. Information of the Target Group” in this letter;

• (i) as at the Latest Practicable Date, Tianjin Hong Fu was granted with the Site Expansion Approval for the development of the LPG Station on the Land Parcel and possesses the Water Drawing Permit (which will expire on 31 December 2014) for the production of barreled drinking water, where the PRC Legal Adviser were not aware of any legal barriers or obstacles for the PRC Companies in obtaining all relevant approvals, licenses or permits in respect of conducting the LPG Business and the Water Business in the PRC or renewing the Water Drawing Permit; and

• (j) the Management has extensive experience in LPG industry and the Company retains relevant personnel to oversee the future operation of the LPG Business, whilst the Target Group has expertise in food production and quality inspection leveraging to the development of the Water Business. Details of management teams relating to the two businesses are set forth under the paragraph headed “The LPG Business – management team” and “The Water Business – management team” above in sub-section “Development plans and prospects of section “III. Information of the Target Group” in this letter.

– 92 –

LETTER FROM NEW SPRING CAPITAL

However, we have not conducted any independent detailed verification on the above information and documents and we have no reason to doubt the accuracy of the information contained therein. The Independent Shareholders should note that the Independent Valuer has relied to a very considerable extent upon such data, records, documents, financial and business information provided by the Company and the Target Group, as well as a number of assumptions that are subjective and uncertain in nature. Hence, any variation to these assumptions could seriously affect the fair market value of the appraised business enterprises. In addition, the Independent Shareholders should note that the profitability of Tianjin Hong Fu and Tianjin Yun Ze De in the future is not ascertained in case of any material changes in the businesses of Tianjin Hong Fu and Tianjin Yun Ze De and/or the economic and market conditions, including but not limited to, the costing, profit margin and the progress of the business plans.

We were further advised by the Independent Valuer that the business valuation of the Target Group in the application of the DCF method is dependent on the Projections and the management’s expectations in the relevant business or industry. While the Target Group has no historical track records in the LPG Business and the Water Business, the Projection is likely subject to uncertainty. In view of this, we were given to understand that the Independent Valuer has taken into account (i) the industry prospects, such as market size, industry trend and regulatory policies; (ii) the commodity nature of the two businesses that require less particular expertise; and (iii) based on the Management’s industry experience and sufficient track record of the Group in LPG business, the Directors are of the view that the projected revenues of the Target Group are within reasonable range and achievable and the Projections are reasonably estimated. In addition, the Independent Valuer has adopted, based on their professional judgment, the appropriate discount rates and marketability discount to the Projections where they considered such adjustments will enable the valuation to better address such uncertainty in the Valuation Report. To further formulate our view on the basis and assumptions relating to the business valuation, we set forth below the factors we considered on the discount rates and marketability discount in the below paragraphs.

– 93 –

LETTER FROM NEW SPRING CAPITAL

• Discount rate determination

We have also discussed with the Independent Valuer regarding the determination of the discount rates to apply to the cash flow streams attributable to the business enterprises of Tianjin Hong Fu and Tianjin Yun Ze De and note that it had been derived from the cost of equity, based on data and factors relevant to the economy, the industry and the business as at 31 August 2014.

The cost of equity is developed through the application of the Capital Asset Pricing Model (“ CAPM ”) with reference to the required rates of return demanded by investors for similar projects. We were given to understand that cost of equity is the sum of (i) the systematic risks comprising the risk-free rate return, the equity risk premium and beta; and (ii) the non-systematic risks comprising (a) the small capitalisation risk premium; and (b) the company specific risk premium.

It is noted from the Independent Valuer that risk-free rate has adopted the 10-year long-term government bond rates in the PRC as at 31 August 2014 (i.e. 4.26%), after considering the location of the Target Group’s principal operations. Further, we consider it is reasonable that the duration of the securities used as an indication of risk-free rate matched the horizon of the projected cash flows that were being prepared, which is 10 years in the present case.

The equity risk premium was referenced from the equity risk premium of the United States market with adjustments by the ratio of the relative volatility between principal indices of the United States and the respective country where the subject company is located. We consider the mentioned adjustment on the equity risk premium is reasonable to have taken into account the volatility of Shanghai and Shenzhen 300 index, as operations of the Target Group are located in the PRC.

– 94 –

LETTER FROM NEW SPRING CAPITAL

We understand that the purpose of adopting beta is to factor in the systematic risks exposed to Tianjin Hong Fu and Tianjin Yun Ze De, which companies engaged in the same industry would generally expose to. Hence, a major requirement in generating the cost of equity is to identify companies that are comparable to Tianjin Hong Fu and Tianjin Yun Ze De in terms of business nature and associated risks (the “ Comparables ”), which are selected by the Independent Valuer based on factors including (i) products, (ii) markets, (iii) earnings and growth, (iv) capital structure, (v) nature of competition and (vi) the characteristics of driving underlying investment risk and expected rate of return. In particular, as noted from the Independent Valuer, the Comparables of Tianjin Hong Fu are listed companies conducting business of filling and sale of LPG or other energy sources such as natural gas in the PRC, while five of the Comparables of Tianjin Yun Ze De are listed companies engaging in production and sale of bottled drinking water or beverages in the PRC and one of its Comparables is engaging in production and sale of bottled drinking water in India. Details of the particulars of each of the Comparables are set out in the Valuation Report. As demand of LPG and barrel drinking water are highly related to the economic condition in the region, we consider that it is prudent and appropriate to factor in the beta derived from the Comparables and is reasonable to estimate the respective systematic risk of Tianjin Hong Fu and Tianjin Yun Ze De by assessing their Comparables who engaged in similar business(es) and shared similar systematic risk.

In addition, the non-systematic risks, being the risks specific to Tianjin Hong Fu and Tianjin Yun Ze De, have been factored in, including small capitalisation risk premium, which reflects the amount of return in excess of a company’s systematic risk derived from the CAPM due to the company size, and start-up risk premium, which was also adopted for each company to reflect Tianjin Hong Fu and Tianjin Yun Ze De are start-up companies without track record performance in the LPG Business and the Water Business and require time to implement their business plans.

After understanding the development process of the discount rates and reviewing the underlying reasons and basis in determining the systematic and non-systematic risks, we consider that the discount rates, which is determined by taking into account the risk-free return, the equity risk premium, the beta referenced from the Comparables, the small size and the specific risks involved in the subject businesses, adopted for Tianjin Hong Fu and Tianjin Yun Ze De at 15.83% and 19.39% respectively are reasonably developed.

– 95 –

LETTER FROM NEW SPRING CAPITAL

• Terminal growth rate and lack of marketability discount

Referring to the Valuation Report, a number of assumptions have to be established in order to sufficiently support the Independent Valuer concluded the value of the business enterprise. One major assumption in the Valuation Report is that the Target Group will successfully obtain and renew all the necessary licenses for the on-going operation of the LPG Business and the Water Business. Regarding this major assumption, we were advised by the PRC Legal Adviser that (i) there is no legal barrier either restricting the PRC Companies to carry on the LPG Business and the Water Business, or restricting the PRC Companies to obtain and/or renew all necessary licenses for the operation of the LPG Business and the Water Business in the PRC; and (ii) the Water Drawing Permit possessed by Tianjin Hong Fu allows Tianjin Yun Ze De to draw a maximum of 40,000 m[3] underground water per annum for its on-going Water Business. The Water Drawing Permit can be renewed upon its expiration for every five years in relevant local authority. There is no legal barrier restricting Tianjin Hong Fu to renew such permit. Based on the opinion from the PRC Legal Adviser aforesaid and the Management’s view in operating the LPG Business and the Water Business in a going concern basis, we consider that the Independent Valuer’s assumption of perpetuity in the duration of the LPG Business and the Water Business is reasonable. We note that the terminal growth rate applied in the terminal value of the Target Group is 3% with reference to the long-term sustainable growth rate and inflation rate in the region and therefore consider that such long-term growth rate is determined with reasonable grounds. However, the Independent Shareholders should note that the economic cycle may fluctuate from time to time and such long-term growth rate represents the hypothetical general trend of economic growth in the long run, but not the actual realisation of such long-term growth rate in the future. Nevertheless, notwithstanding the foregoing, the Independent Shareholders should note that the income stream of Tianjin Hong Fu and Tianjin Yun Ze De relies heavily on the successfulness in obtaining and/or renewal of all the necessary licenses for the operation of the LPG Business and the Water Business, and any failure in obtaining or renewal of any necessary licenses might adversely affect the business and the profitability of Tianjin Hong Fu and Tianjin Yun Ze De respectively.

– 96 –

LETTER FROM NEW SPRING CAPITAL

We have also discussed with the Independent Valuer regarding the adjustment of lack of marketability discount and were given to understand that the lack of marketability discount reflects the fact that there is no ready market for shares in a closely held corporation. Since the shares of the Target Group is not publicly traded and an active market for its shares does not existed, a lack of marketability discount of 30% is applied for the valuation of Tianjin Hong Fu and Tianjin Yun Ze De respectively. In addition, the said discount rate was applied by the Independent Valuer after considering various factors, including (i) statistics published in the “Mergerstat(r) Review 2013” by FactSet Mergerstat, LLC., which the Independent Valuer considered as a more complete and systematic market data available in the United States; (ii) the business nature and industry engaged by Tianjin Hong Fu and Tianjin Yun Ze De; and (iii) the development stages of two companies. As such, we consider that the aforementioned adjustments on the valuation were made on reasonable grounds.

• Letters from financial adviser and reporting accountants

In compliance with Rule 14.62 of the Listing Rules that for the Valuation Report, the Company has obtained (i) letter from Astrum Capital Management Limited, being the financial adviser to the Company, confirming that they are satisfied that the forecast in the Valuation Report has been made by the Directors after due and careful enquiry (the “ FA Letter ”) and (ii) letter from its reporting accountants confirming that they have reviewed the accounting policies and arithmetical calculations for the forecast and containing in the Valuation Report (the “ Auditor Letter ”), copies of which are set out in Appendix VI to the Circular respectively. We have considered the Auditor Letter regarding the arithmetical accuracy of the calculations in respect of the Valuation Report and have not performed independent verification of the accuracy of such calculations.

– 97 –

LETTER FROM NEW SPRING CAPITAL

• Our opinion

Based on our review of the Valuation Report and discussions with the Independent Valuer and the Management regarding, among other things, (i) the scope of work and experiences of the Independent Valuer; (ii) the reasons and appropriateness of adopting the income approach by applying DCF method in the business valuation of the Target Group; (iii) the basis, assumptions and methodologies adopted in the Valuation Report, in particular the development of the discount rate adopted, the adoption of the marketability discount under the DCF and the major assumptions relating to the Projections; and (iv) the valuation performed by the Independent Valuer in preparing the Valuation Report, in particular of the Projections and the relevant supporting information (where appropriate), the worksheets prepared by the Independent Valuer in respect of the parameters of the Comparables and the computation of the fair market value of Tianjin Hong Fu and Tianjin Yun Ze De respectively, and taking into account the FA Letter and the Auditor Letter, nothing has come to our attention that causes us to doubt the fairness and reasonableness of the assumptions underlying the Valuation Report. In the view of the above, we consider that the valuation performed by the Independent Valuer as well as the basis, assumptions and methodologies adopted for the Valuation Report are appropriate.

However, our aforementioned opinion in relation to the Valuation Report does not in any manner implies that the Projections based on which the Valuation Report is made will be eventually achieved in the future and we disclaim any liabilities in relation to any discrepancy between the respective Projections of the LPG Business and the Water Business and their respective actual financial performance in the future. Furthermore, the Independent Shareholders are reminded that the profitability of Tianjin Hong Fu and Tianjin Yun Ze De in the future is subject to various uncertainties, in particular taking into account the risks involved in the businesses of Tianjin Hong Fu and Tianjin Yun Ze De, including the risks associated with the delay in commencement of operation, the successfully obtaining and/or renewal of all the necessary licenses for the operation of the LPG Business and the Water Business, the safety of the LPG Station, the source of underground water within the Land Parcel for the production of barreled drinking water, and the lack of prior operating history for the two businesses, details of which are set out in the paragraphs headed “The LPG business – risk factors” and “The barreled drinking water business – risk factors” under section headed “Information of the Target Group” in the Letter from the Board respectively.

– 98 –

LETTER FROM NEW SPRING CAPITAL

According to the Valuation Report, the fair market value of a 100% equity interest in the business enterprise of the Target Company as at 31 August 2014 was RMB380,306,000, whereas the fair market values of a 100% equity interest in Tianjin Hong Fu and Tianjin Yun Ze De were RMB208,620,000 and RMB171,686,000 respectively. Accordingly, we consider that the consideration of the Sale Shares of RMB361,025,956.98, is determined on normal commercial terms and is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

(iii) Profit Guarantee

Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), the Vendor has irrevocably warranted and guaranteed to the Company that the 2017 EBITDA will not be less than RMB30,000,000. As referred to the Letter from the Board, in the event that:

• (1) the actual 2017 EBITDA showing on the Profit Certificate equals to or more than RMB30,000,000, the Company shall pay the Vendor the Cash Consideration by a banker’s cashier order in the amount of HK$233,937,550 issued by any licensed bank in Hong Kong or the PRC on the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor); or

• (2) the actual 2017 EBITDA showing on the Profit Certificate is less than RMB30,000,000, the Vendor shall compensate the Company an amount calculated in accordance with the following formula:

Compensation = (Profit Guarantee – the actual 2017 EBITDA) x

Aggregated Consideration Profit Guarantee

For avoidance of doubt, if the actual 2017 EBITDA records a loss, the actual 2017 EBITDA provided in the above formula shall be set at “0”.

In the event that the Vendor has to pay the Compensation to the Company,

• (1) the Company shall have the right to offset the Cash Consideration against the Compensation; and

– 99 –

LETTER FROM NEW SPRING CAPITAL

• (2) if the offsetting amount as provided in item (1) above is insufficient for offsetting the whole amount of the Compensation and other reasonable expenses, the Vendor shall settle the shortfall by cash on the six Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor).

For avoidance of doubt, if the Cash Consideration exceeds the Compensation, the Company shall pay the remaining balance of the Cash Consideration to the Vendor after deduction of the Compensation and other reasonable expenses on the sixth Business Day after issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor).

We note from the Letter from the Board that, to secure the payment of the Compensation, the Vendor executed a facility letter on 13 November 2014 (the “ Facility Letter ”). Pursuant to the Facility Letter, a licensed money lender in Hong Kong, being an independent third party to the Company, agreed to grant a working capital facility which is available for drawdown during the period from 1 April 2017 to 30 June 2017 up to HK$232,675,000 (the “ Facility ”) to the Vendor for the purpose of financing the Vendor in relation to the S&P Agreement. As stated in the Letter from the Board, (i) the maximum amount of the Compensation is equal to the Aggregate Consideration; (ii) pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), the Company has the right to offset the Cash Consideration against the Compensation; and (iii) the amount of the Facility is equivalent to remaining amount of the Aggregate Consideration after deducting the Cash Consideration. With the support of such available Facility, we thereby concur with the Directors that sufficient financial resources are available to the Vendor to satisfy the Compensation (if necessary), and that the Company’s interest is safeguarded.

As stated in the Letter from the Board, the guaranteed amount of the 2017 EBITDA was arrived at after business negotiations between the Company and the Vendor and was determined with reference to the financial projection of the LPG Business and the Water Business for the year ending 31 March 2017 (which was prepared by the Target Group based on, among others, the business plans of Tianjin Hong Fu and Tianjin Yun Ze De, the estimated operating expenses, the expected capital expenditure and source of funds as well as the applicable tax rate in respect of the LPG Business and the Water Business in the PRC).

– 100 –

LETTER FROM NEW SPRING CAPITAL

According to the Letter from the Board, as the Target Group is in the preliminary stage of developing the LPG Business and the Water Business with no relevant trading track record, the Directors considered that the Profit Guarantee serves as an assurance to the Company in respect of the financial performance of the Target Group for the financial year ending 31 March 2017, by which time the Target Group is expected to be under commercial operation for more than one year. In the event that the Profit Guarantee cannot be fulfilled, the Company will be compensated by the amount of Compensation calculated as aforesaid, which to the maximum extent, will be equal to the Aggregated Consideration. Hence, the Directors are of the view that the Profit Guarantee is beneficial to the Company.

(a) The mechanism of the Profit Guarantee

We were given to understand that the Directors had considered the use of profit after taxation as the benchmark of the Profit Guarantee. However, they are of the view that earnings before interest, taxes, depreciation and amortisation (“ EBITDA ”) serves as a better indicator to fairly represent the operating performance of the Target Group as it eliminates the effects of financing, depreciation and amortisation. We further consider that since the Target Group has no track record for both the LPG Business and the Water Business, the actual capital structure, applicable taxation, capital expenditures and accounting decisions in the year ending 31 March 2017 may vary from those of the current estimations. Hence, we agree with the Directors that the use of the actual 2017 EBITDA as the benchmark of the Profit Guarantee is more reliable in assessing the future profitability of the Target Group.

Since the LPG Business and the production of barreled drinking water will commence operations in the second half of 2015, we consider it is reasonable to assess the then operating results of the Target Group by the time of March 2017, where the Target Group is expected to be under commercial operation for more than one year.

– 101 –

LETTER FROM NEW SPRING CAPITAL

As regards to the amount of the Profit Guarantee, we note from the Directors that it was arrived at after arm’s length negotiation between the Company and the Vendor and was determined with reference to the financial projection of the LPG Business and the Water Business for the year ending 31 March 2017. We refer to our previous analysis under the paragraph headed “The valuation – underlying financial projection” above in this sub-section, where we concluded that the Projections relating to the Valuation Report are reasonably estimated, after considering the Projections were reviewed by the Management with due care based on factors, among others, feasibility study and business plans of the LPG Business and the Water Business, construction plans, historical financial records of the Group’s LPG segment, estimated operating expenses, capital expenditures and working capital movements. Given that the guaranteed amount of the 2017 EBITDA is part of the Projections relating to the Valuation Report, we therefore consider that it was determined with reasonable basis.

We further reviewed the historical financial performance of the Target Group which is summarised under the section headed “III. Information of the Target Group” in this letter, and note that the Target Group had been lossmaking for the three years ended 31 December 2013 due to the unsatisfactory performance of the previous pharmaceutical business. Without proven track record on the LPG Business and the Water Business, we consider that it increases uncertainties and operating risks associated with the future performance of the Target Group, which may in turn affect the financial result of the Group. Hence, we agree with the Directors that the Profit Guarantee could serve as a safeguard to the Company in respect of the performance and financial results of the Target Group for the year ending 31 March 2017.

In addition, we consider that the Profit Guarantee provides further assurance to the Acquisition and protections to the Company’s interest, due to (i) the whole Aggregated Consideration will be adjusted according to the formula set out in the paragraph headed “The S&P Agreement and the Supplemental Agreement – Profit Guarantee” of the Letter from the Board, in the event that the actual 2017 EBITDA fails to meet the Profit Guarantee; (ii) the Aggregated Consideration will only be adjusted downward and no additional amount beyond the Aggregated Consideration will be paid to the Vendor; and (iii) the Compensation is considered well secured, as it will be paid to the Company (a) by offsetting the Cash Consideration, and (b) for any shortfall after deduction of the Cash Consideration will be settled by the Vendor by cash supported with the Facility, where the maximum amount of the Compensation equals to the Aggregated Consideration.

– 102 –

LETTER FROM NEW SPRING CAPITAL

Having considered (i) the use of the actual 2017 EBITDA as the benchmark of the Profit Guarantee is more reliable in assessing the future profitability of the Target Group; (ii) it is reasonable to assess the then operating results of the Target Group by the time of March 2017; (iii) the Projections and the guaranteed amount of the 2017 EBITDA are reasonably estimated; (iv) the basis and factors considered by the Directors in determining the mechanism of the Profit Guarantee; and ( v) the Profit Guarantee serves a safeguard to the Company’s investment in the Target Group which has no proven track records in the LPG Business and the Water Business and provides assurance and protections to the Company as aforesaid, we concur with the Directors that the Profit Guarantee is reasonably and fairly determined and it is in the interests of the Company and the Shareholders as a whole.

(b) P/EBITDA analysis

By using the Profit Guarantee at RMB30,000,000, for illustration purpose, we further conduct an analysis to compare the respective ratio of price (i.e. consideration) to EBITDA (“ P/EBITDA ”) for Tianjin Hong Fu and Tianjin Yung Ze De with the P/EBITDA of their respective industry peers engaging in similar businesses, so as to reassess the fairness and reasonableness of the consideration for the Sale Shares.

• P/EBITDA for Tianjin Hong Fu and Tianjin Yun Ze De

We estimate the respective P/EBITDA for Tianjin Hong Fu and Tianjin Yun Ze De by (i) calculating the respective consideration derived from the consideration of the Sale Shares; and (ii) calculating the present value of respective EBITDA (the “ 2014 EBITDA ”) by discounting the respective 2017 EBITDA. Details of the calculation are summarised as follows:

(approximately)

Tianjin Hong Fu

Consideration [(note 1)] 2014 EBITDA [(note 2)] P/EBITDA [(note 3)]

RMB198.0 million RMB14.4 million 13.8x

Tianjin Yun Ze De

Consideration [(note 1)] 2014 EBITDA [(note 2)] P/EBITDA [(note 3)]

Discount period [(note 4)] Discount rate [(note 5)]

RMB163.0 million RMB13.5 million 12.1x 2.5 years 3.0%

– 103 –

LETTER FROM NEW SPRING CAPITAL

Notes:

1. Based on the Valuation Report, the fair market value of a 100% equity interest in the business enterprise of the Target Company as at 31 August 2014 was RMB380,306,000, where Tianjin Hong Fu and Tianjin Yun Ze De accounted for approximately 54.9% and 45.1% respectively. For illustration purpose, it is assumed that the consideration for Tianjin Hong Fu and Tianjin Yun Ze De accounted for same proportion in the consideration for the Sale Share of RMB361,025,956.98.

2. Based on the Profit Guarantee, the 2017 EBITDA of the Target Group shall be not less than RMB30,000,000, where according to the Projections under the best estimation of the Management, Tianjin Hong Fu and Tianjin Yun Ze De will account for approximately 51.6% and 48.4% respectively. The respective 2017 EBITDA of Tianjin Hong Fu and Tianjin Yun Ze De will then be discounted to its present value with the discount rate in note 5 below, resulting the 2014 EBITDA.

3. P/EBITDA is calculated by dividing the respective consideration of Tianjin Hong Fu and Tianjin Yun Ze De stated in note 1 above by the respective 2014 EBITDA started in note 2 above.

4. From 31 August 2014 (i.e. the appraisal date of the valuation of the Target Group) to 31 March 2017 (i.e. the date of the 2017 EBITDA).

5. Referenced from the perpetuity growth rate of 3.0% adopted in the Valuation Report, after taking into consideration the long-term sustainable growth rate and inflation rate in the region.

6. Comparable analysis – the P/EBITDA for Tianjin Hong Fu

To analyse the P/EBITDA for Tianjin Hong Fu, we set forth the following criteria to identify the comparable companies of Tianjin Hong Fu (“ LPG Comparable Companies ”) that these companies (i) are listed on the Stock Exchange or the recognised stock exchanges in the PRC; (ii) are engaged in the sales and distribution of LPG in the PRC and/or Hong Kong; and (iii) recorded positive EBITDA for their most recent audited financial year. We understand from the Valuation Report that in order to reflect that Tianjin Hong Fu is a private company with limited track record, small capitalisation risk premium, start-up risk premium and a lack of marketability discount were factored in when appraising the fair market value of Tianjin Hong Fu, and therefore we consider the P/EBITDA for Tianjin Hong Fu also reflects the same features when comparing with the LPG Comparable Companies. Further, as no relevant information of private companies is available for comparison purpose, we are of the view that the comparable analysis using the aforesaid criteria and sets forth below is appropriate and relevant.

– 104 –

LETTER FROM NEW SPRING CAPITAL

Based on the aforesaid criteria, we have identified eight LPG Comparable Companies which set out below and consider that the following list is exhaustive. However, the Independent Shareholders should note that the values of the LPG Comparable Companies may be affected by numerous factors, including among other things, their actual business conditions, financial performance and business environments, which may not be fully comparable to Tianjin Hong Fu. We have not conducted any in-depth investigation into these factors and hence, the analysis below is given for the Independent Shareholders’ reference only. Details of the LPG Comparable Companies are summarised below:

						Normalised
					Market	EBITDA
					capitalisation	for the most
					as of	recent
		Stock	Listing		31 August	audited
	Company name	code	venue	Principal business activities	2014	financial year	P/EBITDA
						(Note 1)	(Note 2)
1	The Hong Kong	3.HK	the Stock	Production, distribution and marketing of gas, water	HK$185.3	HK$8.4	22.0
	and China		Exchange	supply and emerging environmentally-friendly	billion	billion
	Gas Company			energy businesses in Hong Kong and mainland
	Limited			China, in which the emerging environmentally-
				friendly energy businesses has two major
				businesses, being an aviation fuel facility
				servicing Hong Kong International Airport, and
				dedicated LPG vehicular filling stations.
2	China	260.HK	the Stock	Operation of compressed natural gas and LPG	HK$1.1	HK$72.3	14.7
	Environmental		Exchange	refueling stations, management and operation of	billion	million
	Investment			light-emitting diode energy management contracts
	Holdings			and trading of light-emitting diode energy
	Limited			products and provision of finance lease and loan
				services.
3	NewOcean	342.HK	the Stock	Sale and distribution of LPG, oil products business	HK$6.5	HK$830.5	7.8
	Energy		Exchange	and sales of electronic products. The sales and	billion	million
	Holdings			distribution of LPG segment derives its revenue
	Limited			from selling of LPG to various customers
				including industrial customers, auto-gas operators,
				overseas wholesaler customers, bottled LPG
				endusers, auto-gas end-users etc.

– 105 –

LETTER FROM NEW SPRING CAPITAL

						Normalised
					Market	EBITDA
					capitalisation	for the most
					as of	recent
		Stock	Listing		31 August	audited
	Company name	code	venue	Principal business activities	2014	financial year	P/EBITDA
						(Note 1)	(Note 2)
4	China Gas	384.HK	the Stock	Construction and operation of city gas pipelines,	HK$69.5	HK$4.3	16.2
	Holdings		Exchange	and transmission of natural gas and sale of LPG	billion	billion
	Limited			to residential, industrial and commercial users in
				China.
5	China Resources	1193.HK	the Stock	Sale and distribution of gas fuel and related	HK$50.5	HK$4.1	12.3
	Gas Group		Exchange	products (being sale of natural gas and to a much	billion	billion
	Limited			lesser extent, LPG for residential, commercial
				and industrial use) and gas connection (being
				construction of gas pipelines networks under gas
				connection contracts).
6	Binhai	2886.HK	the Stock	Construction of gas pipeline networks, provision	HK$4.3	HK$378.8	11.3
	Investment		Exchange	of connection services and the sale of LPG and	billion	million
	Company			piped gas in the PRC.
	Limited
7	Shenzhen Gas	601139.SS	Shanghai	Urban piped gas supply, liquefied petroleum gas	RMB14.0	RMB1.0	13.9
	Corporation		Stock	wholesale, retail of bottled LPG, as well as	billion	billion
	Limited		Exchange	investment and construction of gas pipelines.
8	Oriental Energy	002221.SZShenzhen		Import and distribution of LPG, as well as the	RMB8.5	RMB288.2	29.6
	Co., Ltd.		Stock	trading of steel products.	billion	million
			Exchange
						Average	16.0x
						Maximum	29.6x
						Minimum	7.8x
						2014
						EBITDA
–	Tianjin Hong	–	–	The LPG Business	–	RMB14.4	13.8x
	Fu					million

Source: the website of the Stock Exchange; Thomson Reuters.

– 106 –

LETTER FROM NEW SPRING CAPITAL

Notes:

1. The normalised EBITDA represented an adjusted EBITDA excluding nonrecurring or extraordinary items.

2. The P/EBITDA of the LPG Comparable Companies is calculated as dividing market capitalisation as of 31 August 2014 (i.e. the appraisal date of the Target Group) by normalised EBITDA for the most recent audited financial year, where if applicable, the normalised EBITDA is converted into the same currency as the market capitalisation by the corresponding exchange rate as of the date of the respective year end date.

As illustrated above, the P/EBITDA of the LPG Comparable Companies ranged from around 7.8x to 29.6x, with an average P/EBITDA of around 16.0x. The P/EBITDA for Tianjin Hong Fu of around 13.8x falls within the aforesaid range, and is lower than that of the average P/EBITDA of the LPG Comparable Companies. Among the eight LPG Comparable Companies, the P/EBITDA for Tianjin Hong Fu is lower than the P/EBITDA of five of them.

• Comparable analysis – the P/EBITDA for Tianjin Yun Ze De

To analyse the P/EBITDA for Tianjin Yun Ze De, we set forth the following criteria to identify the comparable companies of Tianjin Yun Ze De (“ Water Comparable Companies ”) that these companies (i) are listed on the Stock Exchange or the recognised stock exchanges in the PRC; (ii) are engaged in the sales of barreled/bottled drinking water or water purifying products in the PRC and/or Hong Kong; and (iii) recorded positive EBITDA for their most recent audited financial year. We understand from the Valuation Report that in order to reflect that Tianjin Yun Ze De is a private company with limited track record, small capitalisation risk premium, start-up risk premium and a lack of marketability discount were factored in when appraising the fair market value of Tianjin Yun Ze De, and therefore we consider the P/EBITDA for Tianjin Yun Ze De also reflects the same features when comparing with the Water Comparable Companies. Further, as no relevant information of private companies is available for comparison purpose, we are of the view that the comparable analysis using the aforesaid criteria and sets forth below is appropriate and relevant.

– 107 –

LETTER FROM NEW SPRING CAPITAL

Based on the aforesaid criteria, we have identified seven Water Comparable Companies which set out below and consider that the following list is exhaustive. However, the Independent Shareholders should note that the values of the Water Comparable Companies may be affected by numerous factors, including among other things, their actual business conditions, financial performance and business environments, which may not be fully comparable to Tianjin Yun Ze De. We have not conducted any in-depth investigation into these factors and hence, the analysis below is given for the Independent Shareholders’ reference only. Details of the Water Comparable Companies are summarised below:

						Normalised
					Market	EBITDA
				capitalisation		for the most
					as of	recent
		Stock	Listing		31 August	audited
	Company name	code	venue	Principal business activities	2014	financial year	P/EBITDA
						(Note 1)	(Note 2)
1	Uni-President China Holdings	220.HK	the Stock	Manufacturing and sale of beverages	HK$30.3	RMB1.6	15.3
	Limited		Exchange	and instant noodles in the PRC,	billion	billion
				in which its beverages include tea
				drinks, juice drinks, milk tea, coffee,
				and bottled water.
2	China Resources Enterprise,	291.HK	the Stock	Retail, beer, food and beverage	HK$50.3	HK$8.3	6.0
	Limited		Exchange	businesses.	billion	billion
3	Tingyi (Cayman Islands)	322.HK	the Stock	Manufacture and sale of instant noodles,	HK$121.9	USD1.1	13.9
	Holding Corp.		Exchange	beverages and instant food products	billion	billion
				in the PRC.
4	Vitasoy International	345.HK	the Stock	Manufacture and sale of food and	HK$10.2	HK$656.0	15.5
	Holdings Limited		Exchange	beverages.	billion	million
5	Tibet 5100 Water Resources	1115.HK	the Stock	Manufacturing and sales of mineral	HK$6.3	RMB572.1	8.7
	Holdings Limited		Exchange	water products and beer products in	billion	million
				the PRC.
6	Ozner Water International	2014.HK	the Stock	Provision of water purification services	HK$5.3	RMB236.6	17.6
	Holding Limited		Exchange	and manufacture of water purifiers in	billion	million
				the PRC.

– 108 –

LETTER FROM NEW SPRING CAPITAL

						Normalised
					Market	EBITDA
					capitalisation	for the most
					as of	recent
		Stock	Listing		31 August	audited
	Company name	code	venue	Principal business activities	2014	financial year	P/EBITDA
						(Note 1)	(Note 2)
7	Beijing Originwater	300070.SZShenzhen		Sewage treatment, development and	RMB33.0	RMB979.7	33.7
	Technology Co Ltd		Stock	application of technologies on	billion	million
			Exchange	changing waste water into resource.
						Average	15.8x
						Maximum	33.7x
						Minimum	6.0x
						2014 EBITDA
–	Tianjin Yun Ze De	–	–	The Water Business	–	RMB13.5	12.1x
						million

Source: the website of the Stock Exchange; Thomson Reuters.

Notes:

1. The normalised EBITDA represented an adjusted EBITDA excluding nonrecurring or extraordinary items.

2. The P/EBITDA of the Water Comparable Companies is calculated as dividing market capitalisation as of 31 August 2014 (i.e. the appraisal date of the Target Group) by normalised EBITDA for the most recent audited financial year, where if applicable, the normalised EBITDA is converted into the same currency as the market capitalisation by the corresponding exchange rate as of the date of the respective year end date.

As illustrated above, the P/EBITDA of the Water Comparable Companies ranged from around 6.0x to 33.7x, with an average P/EBITDA of around 15.8x. The P/EBITDA for Tianjin Yun Ze De of around 12.1x falls within the aforesaid range, and is lower than that of the average P/EBITDA of the Water Comparable Companies. Among the seven Water Comparable Companies, the P/EBITDA for Tianjin Yun Ze De is lower than the P/EBITDA of five of them.

– 109 –

LETTER FROM NEW SPRING CAPITAL

By using the respective adjusted P/EBITDA for Tianjin Hong Fu and Tianjin Yung Ze to reassess the fairness and reasonableness of the consideration for the Sale Shares, it is noted from the above analyses that the respective P/EBITDA for Tianjin Hong Fu and Tianjin Yun Ze De is within the range and below average of the respective P/EBITDA of the LPG Comparable Companies and the Water Comparable Companies. Therefore, we concur with the view of the Directors that the amount of the consideration for the Sale Shares is fairly and reasonably determined.

Having considered that (i) the business valuation of the Target Group carried out by the Independent Valuer, which is a principal reference for determining the consideration of the Sale Shares, is considered appropriate; (ii) the Aggregated Consideration was determined after arm’s length negotiations between the Vendor and the Company; (iii) the mechanism of the Profit Guarantee is reasonably determined by the Directors; (iv) the Profit Guarantee warranted by the Vendor could serve as an assurance to the Company on the Target Group’s operating result for the year ending 31 March 2017 and is a safeguard for the Company’s investment in the Target Group; and (v) the P/EBITDA for Tianjin Hong Fu and Tianjin Yun Ze De is within the range and below average of the P/EBITDA of their respective Comparable Companies, which implied that the consideration of the Sale Shares is fairly and reasonably determined, we concur with the Management that the major terms of the S&P Agreement (as supplemented by the Supplemental Agreement) is fair and reasonable so far as the Independent Shareholders are concerned and is on normal commercial terms. We further take into account the reasons and benefits which would likely to be brought by the Acquisition to the Group set forth in the section headed “IV. Reasons for and benefits of the Acquisition” in this letter, we therefore agree with the Management that the Acquisition is in the interests of the Company and the Shareholders as a whole.

VI. Financial effects of the Acquisition

Based on our discussion with and the representation from the Directors, we understand from the Directors that they have taken into account the following factors when they considered the potential impact of the Acquisition on the financial positions of the Group, where the Target Company will become a wholly-owned subsidiary of the Company and the financial result of the Target Group will be consolidated to the Enlarged Group’s accounts upon Completion:

(i) Net asset value

According to 2014 Annual Report, the Group’s net assets as at 31 March 2014 were approximately RMB1,282.8 million. Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to the Circular, assuming the Acquisition had taken place on 31 March 2014, the net assets of the Enlarged Group would have increased to approximately RMB1,474.5 million. Hence, the Acquisition is expected to have a positive effect on the Group’s net asset value.

– 110 –

LETTER FROM NEW SPRING CAPITAL

(ii) Earnings

According to 2014 Annual Report, the Group’s net profit for FY2014 was approximately RMB57.9 million. Going forward, based on the Projections relating to the Valuation Report, the Acquisition is expected to have a positive effect on the earnings of the Group. In addition, as mentioned in the Letter from the Board, the Vendor has irrevocably warranted and guaranteed to the Company that the 2017 EBITDA will not be less than RMB30,000,000. In the event that the Profit Guarantee cannot be fulfilled, the Vendor will compensate the Company by the amount of Compensation, which to the maximum extent, will be equal to the Aggregated Consideration at RMB370,000,000 (equivalent to HK$466,612,550).

Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to the Circular, the Enlarged Group would incur an estimated transaction cost relating to the Acquisition of approximately RMB1.8 million, which would affect earnings, but is one-off in nature.

(iii) Liquidity

According to 2014 Annual Report, the Group’s bank balances and cash as at 31 March 2014 were approximately RMB274.1 million. Given the Acquisition will not involve any immediate cash outlay of the Group (save for the payment of related expenses), where the Aggregated Consideration of RMB370,000,000 (subject to adjustment according to the details as set out in the paragraph headed “The S&P Agreement and the Supplemental Agreement – Profit Guarantee” in the Letter from the Board) shall be settled (i) as to HK$232,675,000 by offsetting the Subscription Proceeds upon the full exercise of the subscription rights attaching to the Warrants by Ping Da Development at Completion; and (ii) as to the balance of HK233,937,550 (being the Cash Consideration) to be paid by the Company on the sixth Business Day after the issue of the Profit Certificate for the year ending 31 March 2017, it is considered that there would be no immediate cash outflows and immediate impact to the Group’s liquidity position.

– 111 –

LETTER FROM NEW SPRING CAPITAL

(iv) Gearing

As referred to 2014 Annual Report, the gearing ratio of the Group (calculated based on the total borrowings (defined as total debts excluding trade-related payables) of approximately RMB58.2 million over total equity of approximately RMB1,282.8 million) as at 31 March 2014 was approximately 4.5%. Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to the Circular, assuming the Acquisition had taken place on 31 March 2014, the total borrowings (defined as total debts excluding trade-related payables) of the Enlarged Group would be approximately RMB243.7 million and the total equity of the Enlarged Group would be approximately RMB1,474.5 million, with the gearing ratio of approximately 16.5%. Even though the gearing ratio will be slightly negatively affected after the Completion, the gearing ratio of the Enlarged Group is still considered healthy by the Management.

It should be noted that the aforementioned analyses are for illustrative purpose only and do not purport to represent how the financial position of the Group will be upon Completion.

VII. Risk factors

However, we would like to reiterate that notwithstanding the foregoing, the Independent Shareholders should take note that (i) the profitability of Tianjin Hong Fu and Tianjin Yun Ze De in the future may not be ascertain in case of any changes in the business of the Target Group, including but not limited to, the costing and/or profit margins of the entities; (ii) the income stream of Tianjin Hong Fu and Tianjin Yun Ze De depends on the progress of the construction plan of the LPG Station and Water Factory and the opening plan of retail stores, and any delay in the expansion plans will adversely affect the financial results of the Target Group; and (iii) the sustainability of the Target Group relies heavily on the obtaining and/ or renewal of all the necessary licenses for the operation of the LPG Business and the Water Business, and any failure may lead to adversely impact to the financial results of the Target Group. Details regarding the business risks of the operation of Tianjin Hong Fu and Tianjin Yun Ze De are set out in the paragraphs headed “The LPG business – risk factors” and “The barreled drinking water business – risk factors” under section headed “Information of the Target Group” in the Letter from the Board respectively.

– 112 –

LETTER FROM NEW SPRING CAPITAL

OPINION AND RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we are of the view that the Acquisition is on normal commercial terms and in the ordinary and usual course of business, the terms of the S&P Agreement (as supplemented by the Supplemental Agreement) is fair and reasonable so far as the Independent Shareholders are concerned and the entering into the S&P Agreement (as supplemented by the Supplemental Agreement) and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Acquisition and the transactions contemplated under the S&P Agreement (as supplemented by the Supplemental Agreement).

Yours faithfully, For and on behalf of NEW SPRING CAPITAL LIMTIED Paul Lui Tina Tian Managing Director Director

Note: Mr. Paul Lui and Ms. Tina Tian are licensed person registered with the SFC to carry out type 6 (advising on corporate finance) regulated activities under the SFO and have over 18 years and 7 years of experience in corporate finance industry respectively.

– 113 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. THREE-YEAR AUDITED FINANCIAL INFORMATION

Financial information of the Group for each of the three years ended 31 March 2012, 2013 and 2014 are disclosed in (i) pages 59 to 167 of the annual report of the Company for the year ended 31 March 2012; (ii) pages 66 to 191 of the annual report of the Company for the year ended 31 March 2013; and (iii) pages 83 to 209 of the annual report of the Company for the year ended 31 March 2014, respectively, which are published on both the website of the Stock Exchange (http:// www.hkex.com.hk) and the website of the Company (http://www.681hk.com).

2. INDEBTEDNESS STATEMENT

Borrowings

As at the close of business on 30 September 2014, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had total indebtedness of approximately RMB51,078,000 as follows:

• (i) Interest bearing bank borrowings in the amount of approximately RMB18,000,000 of which all will be due within one year;

• (ii) Amount due to a former director in the amount of approximately RMB31,528,000. Short term portion amounted to approximately RMB8,397,000 while others will be due after one year. The amount is unsecured, non-interest bearing and repayable on demand; and

• (iii) Amounts due to non-controlling interests of subsidiaries of approximately RMB1,550,000 which are unsecured, non-interest bearing and repayable on demand;

As at the close of business on 30 September 2014, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Target Group had total indebtedness of approximately RMB8,996,000 as follows:

• (i) Amount due to the sole director in the amount of approximately RMB8,996,000 which is unsecured, non-interest bearing and repayable on demand;

Pledge of assets

As at the close of business on 30 September 2014, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, certain of the Enlarged Group’s assets have been pledged to secure the borrowings with details as follow:

RMB’000 Property, plant and equipment 40,390

– 114 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital Commitment

		The Target
Capital expenditure contracted for but not provided in the	The Group	Group
consolidated financial statements in respect of:	RMB$’000	RMB’000
Property, plant and equipment and prepaid lease payments	34,329	66

As at 30 September 2014, the Group had entered into a contract with several third parties for capital injection to set up a new company, the Group’s committed amount is RMB114,000,000.

The Group’s share of the capital commitments made jointly with other joint venturers relating to its joint venture is as follows:

	RMB$’000
Capital expenditure contracted for but not provided in the joint venture’s
financial statements in respect of acquisition of property, plant and
equipment	92,315

As at 30 September 2014, the Enlarged Group had contracted with tenants for the following future minimum lease payments under non-cancellable operating leases which falling due as follow:

Within one year In the second to fifth years, inclusive	RMB$’000 2,285 3,934
	6,219

Save as aforesaid and apart from intra-group liabilities, at the close of business on 30 September 2014, the Enlarged Group did not have any outstanding mortgages, charges, debentures or other loan capital or bank overdrafts, loans debt securities or other similar indebtedness, liabilities under acceptance or acceptances credits or hire purchase commitments, or any guarantees or any contingent liabilities.

The Directors have confirmed that, save as disclosed above, there had not been any material change in the indebtedness and contingent liabilities of the Enlarged Group since 30 September 2014 and up to the Latest Practicable Date.

– 115 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the purpose of the above indebtedness statement, foreign currency accounts have been translated into Renminbi at the approximately rates of exchange prevailing at the close of business on 30 September 2014.

3. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirmed that there had been no material adverse change in the financial or trading position or prospects of the Group since 31 March 2014, being the date to which the latest audited consolidated financial statements of the Group were made up.

4. WORKING CAPITAL

The Directors are of the opinion that, after due and careful enquiry, after taking into account the existing bank balances and cash, internal resources, available credit facilities and the effect of the Acquisition, the Enlarged Group will have sufficient working capital for its present requirements for a period of twelve months from the date of this circular.

5. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Company is principally engaged in the sales and distribution of natural gas and LPG in the PRC including the provision of piped gas, transportation, distribution and retail of LPG and lottery agency.

For the year ended 31 March 2014, the Group recorded revenue of approximately RMB832.6 million, representing an annual growth of approximately 8.2%. In particular, revenue derived from LPG business increased from RMB353.5 million for the year ended 31 March 2013 to RMB379.8 million for the year ended 31 March 2014. Such increase was mainly attributable to the increase in the distribution of LPG gas tanks in Yunnan Province and exploring new LPG markets in the PRC.

Due to the increase in revenue, together with the decrease in impairment loss recognised in respect of intangible assets, goodwill and property, plant and equipment of approximately RMB638.5 million, the Group turned around from a loss-making position of approximately RMB325.5 million for the year ended 31 March 2013 to a profit-making position of RMB57.9 million for the year ended 31 March 2014.

In 2014, global economic recovery is expected to gradually accelerate amid fluctuations, and developed economies will once again become the main force driving the world’s economic growth, while emerging and developing countries will maintain steady economic growth. The PRC is at a stage of industrialisation, urbanisation, consumption structure upgrade and rapid growth of income, and some new drivers of economic growth are coming into being, with economic fundamentals remaining positive. Encouraging domestic and overseas economic growth momentum has built a favourable external environment and internal drivers for the development of the gas industry.

– 116 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

According to the National Bureau of Statistics of China, the national production of LPG increased from approximately 14.17 million tons in 2004 to approximately 25.00 million tons in 2013, with a CAGR of 6.5%. Net import of LPG in 2013 reached approximately 2.91 million tons, representing an increase of approximately 26.16% as compared to last year. According to “Jinyin Dao 2014 Interim Report on LPG” (金銀島液化氣行業2014年中期報告), chemical industry and civil use are the major users of LPG accounted for approximately 39.3% and approximately 31.0%, respectively.

There are great prospects for the LPG market. On one hand, China’s rapid economic growth, improving living standards of people, increasingly prominent environment problems and growing awareness of environment protection among the people have given impetus to the domestic demand for LPG. On the other hand, natural gas cannot fully replace LPG, despite the impact of natural gas development on the LPG market. In regions where there is no supply of natural gas or there are difficulties in or huge investment is required for laying pipelines to build a natural gas pipeline network, there will still be demand for LPG.

In March 2014, “National Guidelines for Developing a New Type of Urbanisation (2014-2020)” (國家新型城鎮化規劃(2014-2020年)) (the “ Guidelines ”) was formally promulgated. The Guidelines specifically state that the principle of “building ecological civilisation and achieving green lowcarbon emission” (生態文明,綠色低碳) shall be adhered to by way of fully integrating the concepts of building ecological civilisation into the urbanisation process, putting great efforts into promoting green development, circular development and low-carbon emission development, saving and realising intensive use of resources including land, water and energy, strengthening environment protection and ecological restoration, reducing interruptions and harms to the nature, and facilitating the forming of green low-carbon emission production and life style and city construction and operation model. With growing rural population relocating to towns and cities, the demand for clean energy will record fast growth and LPG will also benefit from the urbanisation trend.

The Company understands that retail of LPG is the core of its LPG business and also the key factor affecting the competitiveness and profitability in the LPG market, and shall accelerate the construction of its retail network. The Company shall take advantage of the central government’s promotion of use of clean energy to seek opportunities to expand into new markets while actively increasing its shares in the existing markets.

– 117 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

The following is the text of a report received from the Company’s reporting accountant, Pan-China (H.K.) CPA Limited, Certified Public Accountants, Hong Kong for the purpose of incorporation in this circular.

25 November 2014

The Directors

Chinese People Holdings Company Limited

Unit 1101, 11th Floor Tung Ning Building 2 Hillier Street Central, Hong Kong

Dear Sirs,

We set out below our report on the financial information relating to True Vanguard Holdings Limited (the “ Target Company ”) and its subsidiaries (hereinafter collectively referred to as the “ Target Group ”) which comprises the consolidated statement of financial position of the Target Group as at 31 December 2013 and 31 August 2014, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and consolidated statement of cash flows for the period from 21 November 2013 (the Acquisition Date, as defined and explained in note 22) to 31 December 2013 and eight months ended 31 August 2014 (the “ Relevant Periods ”), and notes thereto (the “ Financial Information ”), for inclusion in the circular dated 25 November 2014 (the “ Circular ”) in connection with the proposed acquisition of the entire interests of Target Company (the “ Acquisition ”). Details of the Acquisition are set out in the Circular.

True Vanguard Holdings Limited was incorporated in the British Virgin Islands (the “ BVI on 15 April 2014 as a company with limited liability.

– 118 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Particulars of the Target Company’s subsidiaries are set out below:

Country/place and date of Attributable equity interest incorporation and Registered Contributed held by the Target Company Name of subsidiary establishment capital capital as at Principal activities 31 August the date of 2014 this report % % 北京中民忠鋒投資諮詢 The People’s Republic of RMB50 million – 100% 100% Consultancy in social 有限公司 China) (the “ PRC ”), (note b) economy (excluding (Beijing Civigas Zhong Feng 14 August 2014 projects subject to Investment Consultancy administrative approval), Limited) (Beijing Zhong investment and corporate Feng) management 天津洪福藥業有限公司 PRC RMB18 million RMB18 million 100% 100% Production of medicine (Tianjian Hong Fu 5 July 1999 in the form of capsule, Pharmaceutical Limited) tablet, granule and mixture (Tianjin Hong Fu) 天津市雲澤德生物科技 PRC RMB3,010,000 RMB3,010,000 100% 100% Inactive 有限公司 27 November 2012 (Tianjian Yun Ze De Biotechnology Limited*) (Tianjin Yun Ze De)

• For identification purpose

Notes:

• (a) All the subsidiaries of the Target Company are private limited liability companies.

• (b) Up to the date of this report, the Target Company has not yet contributed capital to Beijing Zhong Feng. In accordance with the Beijing Zhong Feng’s Articles of Association, the registered capital of Beijing Zhong Feng shall be settled (i) in the amount of RMB7,500,000 within one year up to 5 August 2015; and (ii) in the amount of RMB42,500,000 after one year but on or before 5 August 2019.

The Target Company has adopted 31 December as its financial year end date.

No statutory audited financial statements have been prepared for the Target Company since its date of incorporation as there are no statutory audit requirements for it to prepare the audited financial statements.

– 119 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

For the purposes of this report, the director of the Target Company has prepared the consolidated financial statements of the Target Group for the Relevant Periods in accordance with the Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”) (the “ Underlying Financial Statements ”). We have undertaken an independent audit on the Underlying Financial Statements in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the director of the Target Company who approved their issue. The director of the Target Company is also responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information, and to report our opinion to you.

In our opinion, on the basis of presentation set out in note 2 of Section I below, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Target Group as at 31 December 2013 and 31 August 2014, and of the consolidated results and consolidated cash flows of the Target Group for the Relevant Periods.

– 120 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

I. FINANCIAL INFORMATION

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Revenue 8 Cost of sales Write-down of inventories Other income and gains 9 Staff costs Administrative expenses Profit before tax 10 Income tax expense 12 Total profit and other comprehensive income for the period attributable to owners of the Target Company	Period from 21 November 2013 (Acquisition Date) to 31 December 2013 RMB’000 – – – – – – – – –	Eight months ended 31 August 2014 RMB’000 45 (2) (480) 2,005 (192) (434) 942 (287) 655

The accompanying notes form part of the Financial Information.

– 121 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Property, plant and equipment 14 Deposits for acquisition of plant and equipment Prepaid lease payments 15 Current assets Prepaid lease payments 15 Trade and other receivables 16 Bank balances and cash 17 Current liabilities Trade and other payables 18 Amount due to a director 19 Tax payables Net current liabilities Total assets less current liabilities Non-current liabilities Deferred tax liabilities 20 Net assets Capital and reserves Share capital 21 Reserves Total equity	As at 31 December 2013 RMB’000 7,175 – 13,919 21,094 181 65 600 846 38 9,078 28 9,144 (8,298) 12,796 2,561 10,235 – 10,235 10,235	As at 31 August 2014 RMB’000 6,478 410 13,831 20,719 181 1,210 981 2,372 332 8,996 312 9,640 (7,268) 13,451 2,561 10,890 1 10,889 10,890

The accompanying notes form part of the Financial Information.

– 122 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Capital reserve on acquisition of subsidiaries_(note (a)) As at 31 December 2013 Deemed distribution arising on Group Reorganisation (note (b)) Issue of shares(note (b))_ Total profit and other comprehensive income for the period As at 31 August 2014	Share capital RMB’000 – – – 1 – 1	Share premium RMB’000 – – – 21,009 – 21,009	Capital reserve RMB’000 10,235 10,235 (21,010) – – (10,775)	Retained earnings RMB’000 – – – – 655 655	Total RMB’000 10,235 10,235 (21,010) 21,010 655 10,890

Notes:

(a) Capital reserve on acquisition of subsidiaries

The amount represented the net assets of Tianjin Hong Fu and Tianjin Yun Ze De upon the date when Dr. Mo Shikang owns the entire equity interest in Tianjin Hong Fu and Tianjin Yun Ze De as at the Acquisition Date (as explained and defined in note 22).

(b) Deemed distribution arising on Group Reorganisation/Issue of shares

As explained in note 2, as part of the Group Reorganisation, Beijing Zhong Feng acquired the entire equity interests in Tianjin Hong Fu and Tianjin Yun Ze De from Dr. Mo Shikang at a total consideration of RMB21,010,000. The consideration of RMB21,010,000 was accounted for as deemed distribution to the shareholder and was satisfied by crediting the same amount to payable to Dr. Mo Shikang. Subsequent to 25 August 2014, Beijing Zhong Feng assigned the payable to Dr. Mo Shikang of RMB21,010,000 to the Target Company which was then applied as consideration in crediting as fully paid of the 100 nil paid shares of the Target Company.

The accompanying notes form part of the Financial Information.

– 123 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

CONSOLIDATED STATEMENT OF CASH FLOWS

OPERATING ACTIVITIES Profit before tax Adjustments for: Interest income Depreciation of property, plant and equipment Loss on disposals of property, plant and equipment Write-down of inventories Amortisation of prepaid lease payments Operating cash flows before movements in working capital Increase in inventories Increase in trade and other receivables Increase in trade and other payables CASH GENERATED FROM OPERATING ACTIVITIES PRC Enterprises Income Tax paid NET CASH GENERATED FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Payments to acquisition of property, plant and equipment Proceed from disposal of property, plant and equipment Deposits paid for acquisition of plant and equipment Net cash inflow on acquisition of subsidiaries_(note 22)_ Interest received NET CASH GENERATED FROM (USED IN) INVESTING ACTIVITIES	Period from 21 November 2013 (Acquisition Date) to 31 December 2013 RMB’000 – – – – – – – – – – – – – – – – 600 – 600	Eight months ended 31 August 2014 RMB’000 942 (1) 289 164 480 88 1,962 (480) (1,145) 294 631 (2) 629 (6) 250 (410) – 1 (165)

– 124 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

FINANCING ACTIVITIES Repayment to a director NET CASH USED IN FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS BANK BALANCE AND CASH	Period from 21 November 2013 (Acquisition Date) to 31 December 2013 RMB’000 – – 600 – 600 600	Eight months ended 31 August 2014 RMB’000 (83) (83) 381 600 981 981

The accompanying notes form part of the Financial Information.

– 125 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

True Vanguard Holdings Limited was incorporated in the BVI on 15 April 2014 as a company with limited liability.

The registered office of the Target Company is located at NovaSage Chambers, P.O. Box 4389, Road Town, Tortola, BVI.

True Vanguard Holdings Limited is engaged in investments holdings. During the Relevant Periods, the Target Group is mainly engaged in the business of production of medicine in the form of capsule, tablet, granule and mixture.

The Financial Information of the Target Group is presented in Renminbi (“ RMB ”), which is also the functional currency of the Target Group.

2. BASIS OF PRESENTATION OF THE FINANCIAL INFORMATION

Group Reorganisation

As explained in note 22, prior to 21 November 2013, Dr. Mo Shikang owned 23.5% and 25.0% equity interests in Tianjin Hong Fu and Tianjin Yun Ze De respectively. Dr. Mo Shikang inherited the remaining equity interests in Tianjin Hong Fu and Tianjin Yun Ze De from his mother on the Acquisition Date (as explained in note 22) and subsequently, Dr. Mo Shikang owns the entire equity interests Tianjin Hong Fu and Tianjin Yun Ze De.

To streamline the group structure of the Target Group, the entities in the Target Group underwent a group reorganisation (the “ Group Reorganisation ”) and the principal steps are as follows:

• (a) The Target Company was incorporated in the BVI on 15 April 2014 with an initial authorised share capital of US$50,000 divided into 50,000 shares of US$1 each. On the same day, 100 shares of US$1 each of the Target Company were issued to Dr. Mo Shikang.

• (b) Beijing Zhong Feng was incorporated in the PRC with the registered capital of RMB50,000,000 and the Target Company agreed to contribute the said registered capital of RMB50,000,000 to Beijing Zhong Feng and thus, as at 14 August 2014, Beijing Zhong Feng became a wholly-owned subsidiary of the Target Company.

• (c) Pursuant to the sale and purchase agreements between Dr. Mo Shikang and Beijing Zhong Feng on 25 August 2014, Dr. Mo Shikang agreed to transfer his entire equity interests in Tianjin Hong Fu and Tianjin Yun Ze De to Beijing Zhong Feng at a total consideration of RMB21,010,000 and subsequently, Tianjin Hong Fu and Tianjin Yun Ze De became wholly owned subsidiaries of Beijing Zhong Feng. The amount of RMB21,010,000 was satisfied by crediting the same amount to payable to Dr. Mo Shikang.

– 126 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

• (d) Pursuant to an agreement between the Target Company, Beijing Zhong Feng and Dr. Mo Shikang at the same date, (i) the payable by Beijing Zhong Feng to Dr. Mo Shikang of RMB21,010,000 was assigned to the Target Company; and (ii) the payable by the Target Company to Dr. Mo Shikang of RMB21,010,000 was then applied as consideration in crediting as fully paid of the 100 nil paid shares.

Pursuant to the Group Reorganisation which was completed by interspersing the Target Company and Beijing Zhong Feng between Tianjin Hong Fu and Tianjin Yun Ze De and Dr. Mo Shikang at the date of Group Reorganisation, the Target Company became the holding company of the companies now comprising the Target Group on 21 November 2013. The Group Reorganisation only involved inserting new holding entities at the top of the existing companies and has not resulted in any changes of economic substances and accordingly, the Target Group resulting from the Group Reorganisation is regarded as a continuing entity and the Financial Information of the Target Group have been prepared as if the Target Company had been the holding company of Tianjin Hong Fu and Tianjin Yun Ze De throughout the Relevant Periods.

The consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows are prepared as if the current group structure had been in existence throughout the Relevant Periods, or since the respective date of establishment/incorporation of the relevant entity whether there is a shorter period. The consolidated statement of financial position as at 31 December 2013 and 31 August 2014 present the assets and liabilities of the companies now comprising the Target Group as if the current group structure had been in existence at that date, taking into account the respective date of establishment/incorporation of the relevant entity.

Going Concern

The Target Group had net current liabilities of RMB7,268,000 as at 31 August 2014. The controlling shareholder of the Target Company, Dr. Mo Shikang, has agreed to provide the Target Group adequate funds to enable the Target Group to meet in full its financial obligations as and when they fall due for a period of at least the next twelve months from the date of this report. Accordingly, the Financial Information has been prepared on a going concern basis.

3. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

For the purpose of preparing and presenting the Financial Information for the Relevant Periods, the Target Group has applied all of the HKFRSs issued by the HKICPA which are relevant and effective for the Target Group’s accounting periods begining on 1 January 2014 consistently throughout the Relevant Periods.

– 127 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

At the date of this report, the HKICPA has issued the following new and revised standards, amendments and interpretation (the “ New and Revised HKFRSs ”) which are not yet effective:

Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations[5] Amendments to HKAS 16 and Clarification of Acceptable Methods of Depreciation and HKAS 38 Amortisation[5] Amendments to HKAS 16 and Agriculture: Bearer Plants[5] HKAS 41 Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions[4] Amendments to HKAS 27 Equity Method in Separate Financial Statements[5] Amendments to HKFRSs Annual Improvements to HKFRSs 2010-2012 Cycle[6] Amendments to HKFRSs Annual Improvements to HKFRSs 2011-2013 Cycle[4] HKFRS 9 Financial Instruments[1] HKFRS 14 Regulatory Deferral Accounts[2] HKFRS 15 Revenue from Contracts with Customers[3]

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

2 Effective for first annual HKFRS financial statements beginning on or after 1 January 2016

3 Effective for annual Period beginning on or after 1 January 2017

4 Effective for annual Period beginning on or after 1 July 2014

5 Effective for annual Period beginning on or after 1 January 2016

• 6 Effective for annual Period beginning on or after 1 July 2014, with limited exceptions

The Target Group has not early adopted these New and Revised HKFRSs that have been issued but are not yet effective in the preparation of the Financial Information. The director of the Target Company anticipates that the application of these New and Revised HKFRSs will have no material impact on the Financial Information of the Target Group.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with the following accounting policies which conform to HKFRSs. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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

– 128 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

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

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity cab access at the measurement date.

• Level 2 inputs are inputs, other than quoted prices included Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

Basis of consolidation

The Financial Information incorporates the financial statements of the Target Company and its subsidiaries now comprising the Target Group. Subsidiaries are entities controlled by the Target Company. Control is achieved when the Target Company:

• has power over the investee;

• is exposed, or has rights, to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

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

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Target Group, liabilities incurred by the Target Group to the former owners of the acquiree and the equity interests issued by the Target Group in exchange for control of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

• deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 “ Income Taxes ” and HKAS 19 “ Employee Benefits ” respectively;

– 129 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Target Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 “ Share-based Payment ” at the acquisition date (see the accounting policy below); and

• assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 “ Non-current Assets Held for Sale and Discontinued Operations ” are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquire (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for goods sold in the normal course of business.

The Target Group recognises revenue when the amount of revenue, costs incurred or to be incurred in respect of the transaction can be reliably measured, it is probable that future economic benefits will flow to the Target Group and specific criteria have been met for each of the Target Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sales of goods have been resolved.

• (a) Sales of goods are recognised when the goods are delivered and the risks and rewards of ownership have passed to the customers.

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

Property, plant and equipment

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

– 130 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Depreciation is recognised so as to write off the cost of items of property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on the following basis:

Buildings	15 to 20 years
Plant and machinery	5 to 10 years
Motor vehicles	5 to 10 years
Furniture, fixture and equipment	5 to 10 years

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

Construction in progress represents property, plant and equipment under construction and equipment pending installation, and is stated at cost less impairment losses. Cost comprises direct costs of construction as well as borrowing costs. Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all of the activities necessary to prepare the assets for their intended use are complete.

No depreciation is provided in respect of construction in progress until it is substantially completed and ready for its intended use.

Leasing

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

Target Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

– 131 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

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

Leasehold land for own use

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

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

Foreign currencies

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss in the period in which they arise.

Retirement benefits costs

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

Taxation

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

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

– 132 –

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX IIA

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences 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 associated with investments in subsidiaries, associates and joint ventures, except where the Target Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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

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

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

Current and deferred tax are recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity respectively.

Impairment on tangible and intangible assets

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

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

– 133 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

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

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

Provisions

Provisions are recognised when the Target Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Target Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

When some or all the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Present obligation arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Target Group has a contact under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.

Financial instruments

Financial assets and financial liabilities are recognised in the Financial Information when a Target Group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Target Group’s financial assets are classified as loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

– 134 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Effective interest method

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

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

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

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

Impairment of financial assets

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

For all other financial assets, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• breach of contract, such as a default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial reorganisation; or

• the disappearance of an active market for that financial asset because of financial difficulties.

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

– 135 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

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

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent period.

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

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

Financial liabilities and equity instruments

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

Equity instruments

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

Effective interest method

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

Interest expense is recognised on an effective interest basis for debt instrument.

– 136 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Financial liabilities

Financial liabilities (including trade and other payables and amounts due to a director) are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method, unless the effect of discounting would be immaterial in which ease they are stated at cost.

Derecognition

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

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

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

Cash and cash equivalents

Bank balances and cash are stated in the consolidated statement of financial position comprise cash at banks and on hand and money market fund investments. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash as defined above.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined using the first-in-first-out method. The cost of finished goods and work in progress comprises raw materials, direct labour and an appropriate proportion of all production overhead expenditure. Net realisable value represents the estimated selling price for inventories less estimated costs of completion and cost necessary to make the sale.

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 when the write-down or loss occurs. The amount of any reversal of any writedown of inventories is recognised as a reduction the amount of inventories recognised as an expense in the period in which the reversal occurs.

– 137 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Related parties

• (1) A person, or a close member of that person’s family, is related to the Target Group if that person:

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

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

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

• (2) An entity is related to the Target Group if any of the following conditions applies:

• (i) the entity and the Target Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

• (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a Target Group of which the other entity is a member);

• (iii) both entities are joint ventures of the same third party;

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

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

• (vi) the entity is controlled or jointly controlled by a person identified in (1); or

• (vii) a person identified in (1)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

5. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Target Group’s accounting policies, which are described in Note 4, the director of the Target Company is required to make judgement, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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

– 138 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Key sources of estimation uncertainty

The followings are 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 from the end of each reporting period.

• (i) Useful lives of property, plant and equipment and prepaid lease payments

The director of the Target Company determines the estimated useful lives and related depreciation charges for its property, plant and equipment and prepaid lease payments. This estimate is based on the historical experience of the actual useful lives of the property, plant and equipment and prepaid lease payments of similar nature and functions. The directors of the Target Company will change the depreciation charge where useful lives are different from the previously estimated lives. It will also write-off or write down technically obsolete or nonstrategic assets that have been abandoned or sold.

• (ii) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated selling expenses. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could be changed significantly as a result of competitors’ actions in response to changes in market condition. Management reassesses these estimates at the end of the reporting period. The director of the Target Company is satisfied that write-down of inventories recognised during the period from 21 November 2013 (Acquisition Date) to 31 December 2013 and eight months ended 31 August 2014 were nil and RMB480,000 respectively. As at 31 December 2013 and 31 August 2014, the respective carrying amounts of inventories were nil.

6. CAPITAL RISK MANAGEMENT

The Target Group manages its capital to ensure that entities in the Target Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Target Group’s overall strategy remains unchanged during the Relevant Periods.

The capital structure of the Target Group consists of equity attributable to the owners of the Target Company, comprising issued share capital, reserves and retained earnings.

The director of the Target Company reviews the capital structure regularly. As part of this review, the director of the Target Company considers the cost of capital and the risks associated with each class of capital. Based on the recommendation of the director of the Target Company, the Target Group will balance its overall capital structure through the payment of dividends, issue of new shares as well as the issue of new debts or the redemption of existing debts.

– 139 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

7. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loan and receivables: – Trade and other receivables – Bank balances and cash Financial liabilities Financial liabilities at amortised costs – Trade and other payables – Amount due to a director	As at 31 December 2013 RMB’000 65 600 665 38 9,078 9,116	As at 31 August 2014 RMB’000 1,210 981
		2,191
		19 8,996
		9,015

(b) Financial risk management objectives and policies

The Target Group’s major financial instruments are stated in Note 7(a). Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (foreign currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(c) Market risk

The Target Group’s activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates.

There has been no change to the Target Group’s exposures to market risks or the manner in which it manages and measures the risks during the Relevant Periods.

– 140 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(i) Interest rate risk management

The Target Group has limited exposure to interest rate risk because the Target Group has no significant interest bearing financial assets and liabilities as at 31 December 2013 and 31 August 2014. The future variations in interest rates will not have a significant impact on the results of the Target Group, as the Target Group’s variable rates bank balances are all short-term in nature and at the prevailing market interest rates. The Target Group currently does not have an interest rate hedging policy. However, the director of the Target Company monitors interest rate exposure and will consider hedging significant interest rate risk should the need arise. The director of the Target Company considered the Target Group’s exposure to interest rate risk is not material. Hence, no interest rate risks sensitively analysis is presented.

(ii) Foreign currency risk management

The Target Group incurs most of its expenditures as well as capital expenditures in RMB. At the end of reporting period, certain of the Target Group’s bank balances and cash are denominated in foreign currencies, which expose the Target Group to foreign currency risk. The Target Group currently does not use any derivative contracts to hedge against its exposure to foreign currency risk. However the Target Group manages its foreign currency risk by closely monitoring the movement of the foreign currency rate. As the director of the Target Company considers that the Target Group’s financial assets that are denominated in foreign currencies are insignificant as at the end of reporting period and accordingly, no sensitivity analysis of foreign currencies against RMB has been presented.

(d) Credit risk

The Target Group’s credit risk is primarily attributable to trade and other receivables and bank balances. At the end of each reporting period, the Target Group’s maximum exposure to credit risk which will cause a financial loss to the Target Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position.

The Target Group reviews the recoverable amount of each individual trade debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the director of the Target Company considers that the Target Group’s credit risk is significantly reduced.

The Target Group has concentration of credit risk by geographical locations as wholly in the PRC accounted for the trade receivable as at 31 December 2013 and 31 August 2014.

The credit risk on bank balances is limited because the counterparties are financial institutions with good reputation in the PRC.

– 141 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

(e) Liquidity risk

In management of liquidity risk, the Target Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Target Group’s operations and mitigate the effects of fluctuations in cash flows.

The following table details the Target Group’s remaining contractual maturity for its nonderivative financial liabilities based on the agreed repayment terms. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Target Group can be required to pay.

The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curve at the end of each reporting period.

As at 31 December 2013 Trade and other payables Amount due to a director As at 31 August 2014 Trade and other payables Amount due to a director	On demand or less than 1 year RMB’000 38 9,078 9,116 19 8,996 9,015	Total undiscounted cash flows RMB’000 38 9,078 9,116 19 8,996 9,015	Carrying amount RMB’000 38 9,078
			9,116
			19 8,996
			9,015

(f) Fair value

The fair values of the Target Group’s financial assets and financial liabilities have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The director of the Target Company considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

– 142 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

8. REVENUE

Revenue represents the amounts received and receivable for sales of goods in the normal course of business, net of discount, sales taxes and related expenses.

9. OTHER INCOME AND GAINS

Period from 21 November 2013 (Acquisition Date) to 31 December 2013 RMB’000 Other income and gains comprise of: Bank interest income – Other income – – 10. PROFIT BEFORE TAX Period from 21 November 2013 (Acquisition Date) to 31 December 2013 RMB’000 Profit before tax has been arrived at after charging: Directors’ emoluments_(Note 11) – Other staff costs: – Salaries, wages and other benefits(note a) – – Contribution to defined contribution retirement plans – Total staff costs – Auditor’s remuneration – Cost of inventories recognised as expense – Depreciation of property, plant and equipment(note b)_ – Loss on disposals of property, plant and equipment – Amortisation of prepaid leases payments –	Eight months ended 31 August 2014 RMB’000 1 2,004
	2,005
	Eight months ended 31 August 2014 RMB’000 – 184 19
	203
	– 2 289 164 88

– 143 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

Notes:

• (a) The amount of salaries, wages and other benefits included in write-down of inventories and staff costs are as follows:

	Period from
	21 November 2013
(Acquisition Date) to		Eight months ended
	31 December 2013		31 August 2014
	RMB’000		RMB’000
Salaries, wages and other benefits included in:
– Write-down of inventories	–		11
– Staff costs	–		173
	–		184
The amount of depreciation of property, plant and equipment included in write-down of inventories
and administrative expenses are as follows:
	Period from
	21 November 2013
(Acquisition Date) to		Eight months ended
	31 December 2013		31 August 2014
	RMB’000		RMB’000
Depreciation of property, plant and equipment
included in:
– Write-down of inventories	–		286
– Administrative expenses	–		3
	–		289

• (b) The amount of depreciation of property, plant and equipment included in write-down of inventories and administrative expenses are as follows:

11. DIRECTORS AND EMPLOYEES EMOLUMATION

(a) Director emoluments

The emoluments paid or payable to the sole director of the Target Company during the Relevant Periods were as follows:

For the period from 21 November 2013 (Acquisition Date) to 31 December 2013

			Retirement
		Salaries	benefits
	Director’s	and other	scheme
Name of the Director	fee	benefits	contributions	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Executive director:
Mo Shikang_(Note i)_	–	–	–	–

– 144 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

For the eight months ended 31 August 2014

Name of the Director Director’s fee RMB’000 Executive director: Mo Shikang_(Note i) – _Note (i) : Appointed on 12 May 2014	Salaries and other benefits Retirement benefits scheme contributions RMB’000 RMB’000 – –	Total RMB’000 –

During the period from 21 November 2013 (Acquisition Date) to 31 December 2013 and eight months ended 31 August 2014, no emoluments have been paid by Target Group to the director of Target Group as an inducement to join, or upon joining Target Group or as compensation for loss of office.

None of director has waived or agreed to waive any emoluments for the period from 21 November 2013 (Acquisition Date) to 31 December 2013 and eight months ended 31 August 2014.

(b) Employees’ emoluments

Of the five individuals with the highest emoluments in the Target Group, there are nil director of the Target Company for the period from 21 November 2013 (Acquisition Date) to 31 December 2013 and eight months ended 31 August 2014 and details of whose emoluments are included in the disclosures in note 11(a) above.

The emoluments of the remaining individuals were as follows:

Period from 21 November 2013 (Acquisition Date) to 31 December 2013 RMB’000 Salaries, wages and other benefits – Contribution to defined contributions retirement plans – –	Eight months ended 31 August 2014 RMB’000 158 19
	177

During the Relevant Periods, the emoluments of the five highest paid individuals were within the band of nil to RMB1,000,000.

– 145 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

During the Relevant Periods, no emoluments were paid by the Target Group to the director of the Target Group, any of five highest paid employees as an inducement to join or upon joining the Target Group, or as compensation for loss of office.

12. INCOME TAX EXPENSE

	Period from
	21 November 2013
	(Acquisition Date)	Eight months
	to 31 December	ended 31 August
	2013	2014
	RMB’000	RMB’000
Current income tax
– PRC Enterprise Income Tax (“PRC EIT”)	–	287

Under the Law of the People’s Republic of China on Enterprise Income Tax (the “ EIT Law ”) and Implementation Regulation of the EIT Law, the tax rate of the Target Group is 25% from 1 January 2008.

The income tax expense for the Relevant Periods is reconciled to profit before tax per consolidated statement of profit or loss and other comprehensive income as follows:

Period from 21 November 2013 (Acquisition Date) to 31 December 2013 RMB’000 Profit before tax – Tax at PRC EIT rate of 25% – Tax effect of tax losses not recognised – Tax charge for the period –	Eight months ended 31 August 2014 RMB’000 942
	236 51
	287

The Target Group did not have any significant unprovided deferred taxation arising during the Relevant Periods. No deferred tax has been recognised in the Financial Information as there is no material temporay difference which would result in a liability or an asset being payable or reasonable in the foreseeable future.

13. DIVIDEND

No dividend was paid or declared by the Target Company since its incorporation or by any Target Group entities during the Relevant Periods.

– 146 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

14. PROPERTY, PLANT AND EQUIPMENT

COST Acquisition of subsidiaries_(note 22)_ At 31 December 2013 Additions Disposals At 31 August 2014 ACCUMULATED DEPRECIATION At 31 December 2013 Charges for the period At 31 August 2014 NET CARRYING AMOUNTS At 31 August 2014 At 31 December 2013	Buildings RMB’000 900 900 – – 900 – 26 26 874 900	Plant, R&D machinery RMB’000 1,130 1,130 – (396) 734 – 243 243 491 1,130	Motor vehicles RMB’000 113 113 – (9) 104 – 17 17 87 113	Furniture, fixture and equipment RMB’000 32 32 6 (9) 29 – 3 3 26 32	Construction in progress RMB’000 5,000 5,000 – – 5,000 – – – 5,000 5,000	Total RMB’000 7,175
						7,175 6 (414)
						6,767
						– 289
						289
						6,478
						7,175

In the opinion of the director of the Target Company, the construction in progress had not been completed and no depreciation is provided for the Relevant Periods.

As at 31 August 2014, the fair value of the buildings and construction in progress is RMB800,000 and RMB4,900,000 respectively.

15. PREPAID LEASE PAYMENTS

Analysis for reporting purpose as:– – Current assets – Non-current assets	As at 31 December 2013 RMB’000 181 13,919 14,100	As at 31 August 2014 RMB’000 181 13,831
		14,012

– 147 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

The prepaid lease payments are held under medium term land use right in the PRC and the amount was amortised to profit or loss on a straight-line basis over the term lease.

16. TRADE AND OTHER RECEIVABLES

Trade receivables Less: impairment Trade receivables, net Other receivables	As at 31 December 2013 RMB’000 520 (520) – 65 65	As at 31 August 2014 RMB’000 520 (520) – 1,210 1,210

Trade receivables at the end of the reporting period comprise amounts receivable from the sales of goods. No interest is charged and no collateral is held on the trade receivables.

17. BANK BALANCES AND CASH

As at 31 December 2013 and 31 August 2014, the Target Group’s bank balances carry interest at market rates ranged from 0.35% to 2.6% and 0.35% to 5.58% per annum respectively.

The Target Group’s bank balances and cash denominated in currencies other than RMB, the functional currency of the Target Group, were as follows:

		As at	As at
	31	December	31 August
		2013	2014
		RMB’000	RMB’000
Hong Kong Dollars		2	63

The Target Group’s cash and cash equivalents denominated in RMB are not a freely convertible currency in the international market. The remittance of RMB out of the PRC is subject to exchange restrictions imposed by the Government of the PRC.

– 148 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

18. TRADE AND OTHER PAYABLES

Other payables Recevied in advance	As at 31 December 2013 RMB’000 38 – 38	As at 31 August 2014 RMB’000 19 313
		332

19. AMOUNT DUE TO A DIRECTOR

Amount due to a director is unsecured, non-interest bearing and has no fixed terms of repayment.

20. DEFERRED TAX LIABILITIES

Deferred tax liabilities are calculated in full on temporary differences under the liabilities method using principal taxation rate of 25%.

Movement on deferred tax liabilities during the Relevant Periods is as follows:

Acquisition of subsidiaries_(note 22)_ At 31 December 2013 and 31 August 2014	Fair value adjustments on assets arising from business combination RMB’000 2,561
	2,561

– 149 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

21. SHARE CAPITAL

Authorised: 50,000 shares of USD1 each Issued and fully paid: 100 shares were alloted and issued at USD1 each Shown in the consolidated statement of financial position	Amount USD 50,000 100 RMB’000 1

• Note: As further explained in note 2, the Target Company was incorporated on 15 April 2014 with an authorised share capital of USD50,000 divided into 50,000 shares of US$1 each and 100 shares were issued.

22. ACQUISITION OF SUBSIDIARIES

Prior to 21 November 2013, Dr. Mo Shikang owned 23.5% and 25.0% equity interests in Tianjin Hong Fu and Tianjin Yun Ze De respectively. On 21 November 2013, Dr. Mo Shikang inherited the remaining equity interests in Tianjin Hong Fu and Tianjin Yun Ze De from his mother (i.e. the date upon the completion on the acquisition of entire equity interest in Tianjin Hong Fu and Tianjin Yun Ze De, the “Acquisition Date”) and subsequently, Dr. Mo Shikang owns the entire equity interests Tianjin Hong Fu and Tianjin Yun Ze De.

i. Net assets acquired and liabilities recognised relating to the acquisition of the subsidiaries:

Net assets of Tianjin Hong Fu and Tianjin Yun Ze De upon the date when Dr. Mo Shikang owns the entire equity interest in Tianjin Hong Fu and Tianjin Yun Ze De as at the Acquisition Date are as follows:

Property, plant and equipment Prepaid lease payments Trade and other receivables Bank balances and cash Trade and other payables Amount due from (to) a related party Amount due from (to) a director Tax payables Deferred tax liabilities	Tianjin Hung Fu RMB’000 7,161 14,100 65 86 (34) (144) (10,898) (28) (2,561) 7,747	Tianjin Yun Ze De RMB’000 14 – – 514 (4) 144 1,820 – – 2,488	Total RMB’000 7,175 14,100 65 600 (38) – (9,078) (28) (2,561)
			10,235

– 150 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

As part of the Group Reorganisation which was explained in note 2, pursuant to the sale and purchase agreement between Dr. Mo Shikang and Beijing Zhong Feng on 25 August 2014, Dr. Mo Shikang agreed to transfer his entire equity interests in Tianjin Hong Fu and Tianjin Yun Ze De to Beijing Zhong Feng and subsequently, Tianjin Hong Fu and Tianjin Yun Ze De became wholly owned subsidiaries of Beijing Zhong Feng. As such, the net assets of Tianjin Hong Fu and Tianjin Yun Ze De upon the date when Dr. Mo Shikang owns the entire equity interest in Tianjin Hong Fu and Tianjin Yun Ze De as at the Acquisition Date of approximately RMB10,235,000 was credited to the capital reserve of the Target Group during the Relevant Periods.

The trade and other receivables with a fair value of approximately RMB65,000, approximated to their gross contractual amounts. There is no contracted amount considered uncollectable.

ii. Net cash outflow arising on acquisition:

Consideration paid in cash Less: Bank balances and cash acquired Net cash inflow arising on acquisition	RMB’000 – 600
	600

iii. Impact of acquisition on the result of the Target Group

The financial results of Tianjin Hung Fu and Tianjin Yun Ze De during the year ended 31 December 2013 are set out in the Appendix IIB and Appendix IIC respectively.

23. COMMITMENTS

Capital commitments

	As at	As at
	31 December	31 August
	2013	2014
	RMB’000	RMB’000
Capital expenditure contracted for but not provided in the
Financial Information in respect of property plant and
equipment	–	66

– 151 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

24. RETIREMENT BENEFIT SCHEME

The employees of the Target Group are members of a state-managed retirement benefits scheme operated by the PRC government. The Target Group is required to contribute a specified percentage of its payroll costs to the retirement benefits scheme to fund the benefits. The only obligation of the Target Group with respect to the retirement benefits scheme is to make the specified contributions under the scheme.

The amounts of contributions made by the Target Group in respect of the retirement benefit scheme during each period over the Relevant Periods are disclosed in note 11.

25. RELATED PARTY TRANSACTIONS AND BALANCES

(a) Compensation of key management personnel

During the Relevant Periods, the Target Company had remuneration paid to the director of the Target Company and key management personnel of the Target Company as follows:

Period from 21 November 2013 (Acquisition Date) to 31 December 2013 RMB’000 Salaries, wages and other benefits – Performance related incentive payments – Contribution to defined contributions retirement plans – –	Eight months ended 31 August 2014 RMB’000 – – –
	–

The remuneration of the key management personnel is determined by the Target Company with reference to the operating results, individual performance and comparable market trends during the Relevant Periods.

26. EVENT AFTER THE RELEVANT PERIODS

There were no material events affecting the Target Group subsequent to 31 August 2014 and at the date of approval of the Financial Information.

– 152 –

APPENDIX IIA ACCOUNTANTS’ REPORT OF THE TARGET GROUP

II. DIRECTORS EMOLUMENTS

Saved as disclosed in this report, no other remuneration has been paid or is payable by the Target Company or any of its subsidiaries to the Target Company’s directors in respect of the Relevant Periods.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Target Company or any of the companies now comprising the Target Group have been prepared in respect of any period subsequent to 31 August 2014.

Yours faithfully,

Pan-China (H.K.) CPA Limited

Certified Public Accountants Wong Ho Yuen, Gary Practising Certificate Number: P01316

Hong Kong

– 153 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

The following is the text of a report received from the Company’s reporting accountant, Pan-China (H.K.) CPA Limited, Certified Public Accountants, Hong Kong for the purpose of incorporation in this circular.

25 November 2014

The Directors

Chinese People Holdings Company Limited

Unit 1101, 11th Floor Tung Ning Building 2 Hillier Street Central, Hong Kong

Dear Sirs,

We set out below our report on the financial information relating to Tianjin Hong Fu Pharmaceutical Limited (the “ Tianjin Hong Fu ”) which comprises the statement of financial position of Tianjin Hong Fu as at 31 December 2011, 2012 and 2013, and 31 August 2014, the statement of profit or loss and other comprehensive income, the statement of changes in equity and statement of cash flows for the three years ended 31 December 2013 and the eight months ended 31 August 2014 (the “ Relevant Periods ”), and notes thereto (the “ Financial Information ”), for inclusion in the circular dated 25 November 2014 (the “ Circular ”) in connection with the proposed acquisition of the entire interests of True Vanguard Holdings Limited (the “ Acquisition ”). Details of the Acquisition are set out in the Circular.

Tianjin Hong Fu was established in the People’s Republic of China (the “ PRC ”) on 5 July 1999 as a company with limited liability.

Tianjin Hong Fu has adopted 31 December as its financial year end date. No statutory audited financial statements have been prepared for Tianjin Hong Fu since its date of incorporation as there are no statutory audit requirements for it to prepare the audited financial statements.

For the purposes of this report, the director of Tianjin Hong Fu has prepared the financial statements of Tianjin Hong Fu for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”) (the “ Underlying Financial Statements ”). We have undertaken an independent audit on the Underlying Financial Statements in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

– 154 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

The Financial Information of the Tianjin Hong Fu for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments are considered necessary to the Underlying Financial Information in preparing our report for inclusion in the Circular.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the director of the Tianjin Hong Fu who approved their issue. The director of the Tianjin Hong Fu is also responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information, and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Tianjin Hong Fu as at 31 December 2011, 2012 and 2013, and 31 August 2014, and of the results and cash flows of Tianjin Hong Fu for the Relevant Periods.

The comparative statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows of Tianjin Hong Fu for the eight months ended 31 August 2013 together with the notes thereon (the “ 31 August 2013 Financial Information ”) have been extracted from Tianjin Hong Fu’s unaudited financial information for the same period, which was prepared by the director of Tianjin Hong Fu solely for the purpose of this report. We have reviewed the 31 August 2013 Financial Information in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the 31 August 2013 Financial Information consists of making enquiries, 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 on the 31 August 2013 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the 31 August 2013 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information which conform with HKFRSs.

– 155 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

I. FINANCIAL INFORMATION

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Revenue 7 Cost of sales Gross profit Other income and gains 8 Staff costs Administrative expenses Finance costs 9 (Loss)/profit before tax 10 Income tax expense 12 (Loss)/profit for the year/period Other comprehensive income, net of income tax Total comprehensive (loss)/ income for the year/period Total comprehensive (loss)/ income attributable to: – Owners of the Tianjin Hong Fu

Year ended 31 December Eight months ended 31 August 2011 2012 2013 2013 2014 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 1,717 1,636 514 401 45 (1,181) (1,177) (253) (230) (2) 536 459 261 171 43 1 – 100 67 2,071 (242) (285) (158) (100) (101) (2,243) (2,565) (1,191) (684) (863) (171) (106) – – – (2,119) (2,497) (988) (546) 1,150 (8) (5) (29) (18) (287) (2,127) (2,502) (1,017) (564) 863 – – – – – (2,127) (2,502) (1,017) (564) 863 (2,127) (2,502) (1,017) (564) 863

The accompanying notes form an integral part of the Financial Information.

– 156 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Property, plant and equipment 14 Deposits for acquisition of property, plant and equipment Prepaid lease payments 15 Current assets Prepaid lease payments 15 Inventories 16 Trade and other receivables 17 Amount due from a related party 18 Bank balances and cash 19 Current liabilities Bank loan – secured 20 Trade and other payables 21 Amount due to a related party 22 Amount due to a director 23 Tax payables Net current liabilities Net assets Capital and reserves Share capital 24 Accumulated losses Equity attributable to owners of Tianjin Hong Fu	As at 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 5,367 5,334 5,074 203 – – 6,075 5,943 5,811 11,645 11,277 10,885 132 132 132 183 23 – 1,523 56 65 – – – 157 202 86 1,995 413 283 800 – – 6,758 7,643 34 – – 144 2,494 2,965 10,898 5 1 28 10,057 10,609 11,104 (8,062) (10,196) (10,821) 3,583 1,081 64 18,000 18,000 18,000 (14,417) (16,919) (17,936) 3,583 1,081 64	As at 31 August 2014 RMB’000 4,374 – 5,723 10,097 132 – 1,209 54 816 2,211 – 325 – 10,744 312 11,381 (9,170) 927 18,000 (17,073) 927

The accompanying notes form an integral part of the Financial Information.

– 157 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

STATEMENT OF CHANGES IN EQUITY

Share capital RMB’000 As at 1 January 2011 18,000 Total comprehensive loss for the year – As at 31 December 2011 and 1 January 2012 18,000 Total comprehensive loss for the year – As at 31 December 2012 and 1 January 2013 18,000 Total comprehensive loss for the year – As at 31 December 2013 and 1 January 2014 18,000 Total comprehensive profit for the period – As at 31 August 2014 18,000 For the period ended 31 August 2013 (unaudited) Share capital RMB’000 As at 1 January 2013 18,000 Total comprehensive loss for the period – As at 31 August 2013 18,000	Accumulated losses RMB’000 (12,290) (2,127) (14,417) (2,502) (16,919) (1,017) (17,936) 863 (17,073) Accumulated losses RMB’000 (16,919) (564) (17,483)	Total RMB’000 5,710 (2,127) 3,583 (2,502) 1,081 (1,017) 64 863 927 Total RMB’000 1,081 (564) 517

– 158 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

STATEMENT OF CASH FLOWS

OPERATING ACTIVITIES (Loss)/profit before tax Adjustments for: Interest paid Bank interest income Depreciation of property, plant and equipment Loss on disposals of property, plant and equipment Impairment on trade receivables Impairment on other receivables Impairment on inventories Amortisation on prepaid lease payments Operating cash flows before movements in working capital Increase in inventories (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash generated from/(used in) operations PRC Enterprise Income Tax paid NET CASH GENERATED FROM/(USED IN) OPERATING ACTIVITIES

Year ended 31 December Eight months ended 31 August 2011 2012 2013 2013 2014 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) (2,119) (2,497) (988) (546) 1,150 171 106 – – – (1) – – – – 499 400 398 212 286 – – – – 164 – – 34 – – – 996 – – – 1,735 1,210 845 432 480 132 132 132 88 88 417 347 421 186 2,168 (1,347) (1,050) (822) (425) (480) (1,377) 471 (43) (89) (1,144) 2,904 885 (7,609) (47) 291 597 653 (8,053) (375) 835 (4) (9) (2) (1) (2) 593 644 (8,055) (376) 833

– 159 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

INVESTING ACTIVITIES Payment on acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Bank interest income Deposit paid for acquisition of property, plant and equipment NET CASH (USED IN)/GENERATED FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Proceeds from new of bank loan Repayment of bank loan Advances from/(repaid to) a director Advances from/(repaid to) a related party Interest paid NET CASH (USED IN)/GENERATED FROM FINANCING ACTIVITIES NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/ PERIOD CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS BANK BALANCE AND CASH

Year ended 31 December Eight months ended 31 August 2011 2012 2013 2013 2014 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) (9) (164) (138) (138) – – – – – 250 1 – – – – (203) – – – – (211) (164) (138) (138) 250 1,800 – – – – (3,800) (800) – – – 1,294 471 7,933 320 (155) – – 144 63 (198) (171) (106) – – – (877) (435) 8,077 383 (353) (495) 45 (116) (131) 730 652 157 202 202 86 157 202 86 71 816 157 202 86 71 816

– 160 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

Tianjin Hong Fu was established in the People’s Republic of China (the “ PRC ”) on 5 July 1999 as a company with limited liability.

At the date of this report, in the opinion of the director of Tianjin Hong Fu, its ultimate holding company is True Vanguard Holdings Limited, a company established in British Virgin Islands.

The registered office of Tianjin Hong Fu is located at the North Side, Fuyuan Road, Wuqing Development District, Tianjin City, the PRC (中國天津市武清開發區福源道北側).

Tianjin Hong Fu was engaged in the business of production of medicine in the form of capsule, tablet, granule and mixture and the production of Sheng Xuan Pai capsule (聖宣牌彼德膠囊) and Sheng Feng Pai Xue Yang Tong Li capsule (聖峰牌雪氧通力膠囊). Recently, Tianjin Hong Fu has discontinued its medicine business and it has planned to pursue in the filling and sale of LPG business in Tianjin City, the PRC.

The Financial Information of Tianjin Hong Fu is presented in Renminbi (“ RMB ”), which is also the functional currency of Tianjin Hong Fu.

2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

Throughout the Relevant Periods, Tianjin Hong Fu has applied all of the HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”) that are relevant to its operations and effective for the Relevant Periods.

At the date of this report, the HKICPA has issued the following new and revised standards, amendments and interpretation (the “ New and Revised HKFRSs ”) which are not yet effective:

Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations[5] Amendments to HKAS 16 and Clarification of Acceptable Methods of Depreciation and HKAS 38 Amortisation[5] Amendments to HKAS 16 and Agriculture: Bearer Plants[5] HKAS 41 Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions[4] Amendments to HKAS 27 Equity Method in Separate Financial Statements[5] Amendments to HKFRSs Annual Improvements to HKFRSs 2010-2012 Cycle[6] Amendments to HKFRSs Annual Improvements to HKFRSs 2011-2013 Cycle[4] HKFRS 9 Financial Instruments[1] HKFRS 14 Regulatory Deferral Accounts[2] HKFRS 15 Revenue from Contracts with Customers[3]

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

• 2 Effective for first annual HKFRS financial statements beginning on or after 1 January 2016

• 3 Effective for annual periods beginning on or after 1 January 2017 4 Effective for annual periods beginning on or after 1 July 2014

• 5 Effective for annual periods beginning on or after 1 January 2016

• 6 Effective for annual periods beginning on or after 1 July 2014, with limited exceptions

– 161 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

Tianjin Hong Fu has not early adopted these New and Revised HKFRSs that have been issued but are not yet effective in the preparation of the Financial Information. The director of Tianjin Hong Fu anticipates, that the application of these New and Revised HKFRSs will have no material impact on the Financial Information of Tianjin Hong Fu.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with the following accounting policies which conform to HKFRSs. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance, and are materially consistent with the accounting policies adopted by the Company.

As at 31 August 2014, Tianjin Hong Fu had net current liabilities of RMB9,170,000. The controlling shareholder of Tianjin Hong Fu, Dr. Mo Shikang, has agreed to provide Tianjin Hong Fu adequate funds to enable Tianjin Hong Fu to meet in full its financial obligations as and when they fall due for a period of at least the next twelve months from the date of this report. Accordingly, the Financial Information has been prepared on a going concern basis.

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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

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

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity cab access at the measurement date.

• Level 2 inputs are inputs, other than quoted prices included Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

– 162 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the goods sold in the normal course of business.

Tianjin Hong Fu recognises revenue when the amount of revenue, costs incurred or to be incurred in respect of the transaction can be reliably measured, it is probable that future economic benefits will flow to Tianjin Hong Fu and specific criteria have been met for each of Tianjin Hong Fu’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sales of goods have been resolved.

• (a) Sales of goods are recognised when the goods are delivered and the risks and rewards of ownership have passed to the customers.

• (b) Other services income is recognised on an accrual basis when the relevant services are provided.

• (c) Rental income from operating lease is recognised on a straight-line basis over the lease term.

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

Leasing

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

Tianjin Hong Fu as lessor

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

Leasehold land for own use

When a lease includes both land and building elements, Tianjin Hong Fu assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to Tianjin Hong Fu, unless it is clear that both elements are operating leases in which case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including any lumpsum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

– 163 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

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

Property, plant and equipment

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

Depreciation is recognised so as to write off the cost of items of property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on the following basis:

Prepaid land lease	Over the terms of the leases
Buildings	15 to 20 years
Plant and machinery	5 to 10 years
Motor vehicles	5 to 10 years
Furniture, fixture and equipment	5 to 10 years

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

Construction in progress represents property, plant and equipment under construction and equipment pending installation, and is stated at cost less impairment losses. Cost comprises direct costs of construction as well as borrowing costs. Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all of the activities necessary to prepare the assets for their intended use are complete.

No depreciation is provided in respect of construction in progress until it is substantially completed and ready for its intended use.

Borrowing costs

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

Retirement benefits costs

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

– 164 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

Taxation

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

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from ‘profit before tax’ as reported in the statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. Tianjin Hong Fu’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

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

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

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

Current or deferred tax are recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity respectively.

Impairment on tangible and intangible assets

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

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

– 165 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

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

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

Provisions

Provisions are recognised when Tianjin Hong Fu has a present obligation (legal or constructive) as a result of a past event, it is probable that Tianjin Hong Fu will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

When some or all the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Present obligation arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where Tianjin Hong Fu has a contact under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.

Financial instruments

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

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

Tianjin Hong Fu’s financial assets are classified as loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

– 166 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

Effective interest method

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

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

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, amounts due from a related party and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

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

Impairment of financial assets

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

For all other financial assets, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• breach of contract, such as a default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial reorganisation; or

• the disappearance of an active market for that financial assets because of difficulties.

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

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

– 167 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

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

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

Financial liabilities and equity instruments

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

Equity instruments

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

Effective interest method

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

Interest expense is recognised on an effective interest basis for debt instrument.

Financial liabilities

Financial liabilities (including other payables and accruals and amounts due to a related party) are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method, unless the effect of discounting would be immediately in which case they are stated at cost.

– 168 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

Derecognition

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

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

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

Cash and cash equivalents

Bank balances and cash are stated in the statement of financial position comprise cash at banks and on hand and money market fund investments. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash as defined above.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined using the first-in-first-out method. The cost of finished goods and work in progress comprises raw materials, direct labour and an appropriate proportion of all production overhead expenditure. Net realisable value represents the estimated selling price for inventories less estimated costs of completion and cost necessary to make the sale.

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 when the write-down or loss occurs. The amount of any reversal of any writedown of inventories is recognised as a reduction the amount of inventories recognised as an expense in the period in which the reversal occurs.

Related parties

• (1) A person, or a close member of that person’s family, is related to Tianjin Hong Fu if that person:

• (i) has control or joint control over Tianjin Hong Fu; or

• (ii) has significant influence over Tianjin Hong Fu; or

• (iii) is a member of the key management personnel of Tianjin Hong Fu or a parent of Tianjin Hong Fu.

– 169 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

• (2) An entity is related to Tianjin Hong Fu if any of the following conditions applies:

• (i) the entity and Tianjin Hong Fu are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

• (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of group of which the other entity is a member);

• (iii) both entities are joint ventures of the same third party;

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

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

• (vi) the entity is controlled or jointly controlled by a person identified in (1); or

• (vii) a person identified in (1)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

4. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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

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

Key sources of estimation uncertainty

The followings are 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 from the end of each reporting period.

– 170 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

(i) Useful lives of property, plant and equipment and prepaid lease payments

The director of Tianjin Hong Fu determines the estimated useful lives and related depreciation charges for its property, plant and equipment and prepaid lease payments. This estimate is based on the historical experience of the actual useful lives of the property, plant and equipment and prepaid lease payments of similar nature and functions. The director of Tianjin Hong Fu will change the depreciation charge where useful lives are different from the previously estimated lives. It will also write-off or write down technically obsolete or non-strategic assets that have been abandoned or sold.

(ii) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated selling expenses. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could be changed significantly as a result of competitors’ actions in response to changes in market condition. Management reassesses these estimates at the end of the reporting period. The director of Tianjin Hong Fu is satisfied that impairment loss recognised during the years ended 31 December 2011, 2012 and 2013 and eight months ended 31 August 2014 are RMB1,735,000, RMB1,210,000, RMB845,000 and RMB480,000 respectively. As at 31 December 2011, 2012 and 2013 and 31 August 2014, the carrying amounts of inventories are RMB183,000, RMB23,000, nil and nil respectively.

5. CAPITAL RISK MANAGEMENT

Tianjin Hong Fu manages its capital to ensure that entities in Tianjin Hong Fu will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. Tianjin Hong Fu’s overall strategy remains unchanged during the Relevant Periods.

The capital structure of Tianjin Hong Fu consists of equity attributable to the owners of Tianjin Hong Fu, comprising issued share capital and accumulated losses.

The director of Tianjin Hong Fu reviews the capital structure regularly. As part of this review, the director of Tianjin Hong Fu considers the cost of capital and the risks associated with each class of capital. Based on the recommendation of the director of Tianjin Hong Fu, Tianjin Hong Fu will balance its overall capital structure through the payment of dividends, issue of new shares as well as the issue of new debts or the redemption of existing debts.

– 171 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

6. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loan and receivables: – Trade and other receivables – Amount due from a related party – Bank balances and cash Financial liabilities Other financial liabilities: – Bank loan – secured – Trade and other payables – Amount due to a director – Amount due to a related party	As at 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 144 4 65 – – – 157 202 86 301 206 151 800 – – 6,758 7,623 34 2,494 2,965 10,898 – – 144 10,052 10,588 11,076	As at 31 August 2014 RMB’000 1,209 54 816
		2,079
		– 12 10,744 –
		10,756

(b) Financial risk management objectives and policies

Tianjin Hong Fu’s major financial instruments are stated in Note 6(a). Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (foreign currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(c) Market risk

Tianjin Hong Fu’s activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates.

– 172 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

There has been no change to Tianjin Hong Fu’s exposures to market risks or the manner in which it manages and measures the risks during the Relevant Periods.

(i) Interest rate risk management

Tianjin Hong Fu has limited exposure to interest rate risk because Tianjin Hong Fu has no significant interest bearing financial assets and liabilities as at 31 December 2011, 2012 and 2013, and 31 August 2014, except for the interest bearing on bank loan at the floating rate as at 31 December 2011. The future variations in interest rates will not have a significant impact on the results of Tianjin Hong Fu, as Tianjin Hong Fu’s variable rates bank balances are all short-term in nature and at the prevailing market interest rates. Tianjin Hong Fu currently does not have an interest rate hedging policy. However, the director of Tianjin Hong Fu monitors interest rate exposure and will consider hedging significant interest rate risk should the need arise. The director of Tianjin Hong Fu considered Tianjin Hong Fu’s exposure to interest rate risk is not material. Hence, no interest rate risks sensitively analysis is presented.

Except for year ended 31 December 2011, there are no bank borrowings during the Relevant Periods. The future increase in interest rates will have an impact in the interest expenses if Tianjin Hong Fu makes a bank borrowing in the future, but the director of Tianjin Hong Fu will consider to implement a hedging policy to manage the interest rate risk according to the market situation.

(ii) Foreign currency risk management

Tianjin Hong Fu collected most of its revenue in RMB and incurred most of its expenditures as well as capital expenditures in RMB. At the end of reporting periods, certain of Tianjin Hong Fu’s bank balances and cash are denominated in foreign currencies, which expose Tianjin Hong Fu to foreign currency risk. Tianjin Hong Fu currently does not use any derivative contracts to hedge against its exposure to foreign currency risk. However Tianjin Hong Fu manages its foreign currency risk by closely monitoring the movement of the foreign currency rate. As the director of Tianjin Hong Fu considers that Tianjin Hong Fu’s financial assets that are denominated in foreign currencies are insignificant as at the end of reporting period and accordingly, no sensitivity analysis of foreign currencies against RMB has been presented.

(d) Credit risk

Tianjin Hong Fu’s credit risk is primarily attributable to trade and other receivables, amount due from a related party and bank balances. At the end of each reporting period, Tianjin Hong Fu’s maximum exposure to credit risk which will cause a financial loss to Tianjin Hong Fu due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the statement of financial position.

– 173 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

Tianjin Hong Fu reviews the recoverable amount of each individual trade debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the director of Tianjin Hong Fu considers that Tianjin Hong Fu’s credit risk is significantly reduced.

Tianjin Hong Fu has concentration of credit risk by geographical locations as wholly in the PRC accounted for the entire total trade receivable as at 31 December 2011, 2012 and 2013, and 31 August 2014.

Tianjin Hong Fu has concentration of credit risk on 100% of total trade receivables at 31 December 2011, were due from Tianjin Hong Fu’s largest customer. Tianjin Hong Fu keeps exploring new customers to diversify and strengthen its customer base to reduce the concentration of credit risk.

The credit risk on bank balances is limited because the counterparties are financial institutions with good reputation in the PRC.

(e) Liquidity risk

In management of liquidity risk, Tianjin Hong Fu monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance Tianjin Hong Fu’s operations and mitigate the effects of fluctuations in cash flows.

The following table details Tianjin Hong Fu’s remaining contractual maturity for its nonderivative financial liabilities based on the agreed repayment terms. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Tianjin Hong Fu can be required to pay.

– 174 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curve at the end of each reporting period.

On demand or less than 1 year RMB’000 As at 31 December 2011 Bank loan – secured 906 Trade and other payables 6,758 Amount due to a director 2,494 10,158 As at 31 December 2012 Trade and other payables 7,623 Amount due to a director 2,965 10,588 As at 31 December 2013 Trade and other payables 34 Amount due to a related party 144 Amount due to a director 10,898 11,076 As at 31 August 2014 Trade and other payables 12 Amount due to a director 10,744 10,756	Total undiscounted cash flows RMB’000 906 6,758 2,494 10,158 7,623 2,965 10,588 34 144 10,898 11,076 12 10,744 10,756	Carrying amount RMB’000 800 6,758 2,494
		10,052
		7,623 2,965
		10,588
		34 144 10,898
		11,076
		12 10,744
		10,756

(f) Fair value

The fair values of Tianjin Hong Fu’s financial assets and financial liabilities have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The director of Tianjin Hong Fu considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

– 175 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

7. REVENUE ANG SEGMENT INFORMATION

Revenue

Revenue represents the amounts received and receivable for sales of goods in the normal course of business, net of discount, sales taxes and related expenses.

				Eight months ended	Eight months ended
	Year	ended 31 December		31 August
	2011	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Sales of Medicine	1,717	1,636	514	401	45

8. OTHER INCOME AND GAINS

Other income and gains comprise of: Bank interest income Rental income Other income FINANCE COSTS Finance costs comprise of: Interest on borrowings wholly repayable within one year: – Banks	Year ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 1 – – – – 100 – – – 1 – 100 Year ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 171 106 –	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) – – 67 67 – 2,004 67 2,071 Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) – –

9. FINANCE COSTS

– 176 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

10. (LOSS)/PROFIT BEFORE TAX

(Loss)/profit before tax has been arrived at after charging:

Directors’ emoluments (Note 11) Other staff costs: – Salaries, allowances and other benefits included in – cost of inventories – staff costs – Retirement benefit schemes contributions Total staff costs Auditor’s remuneration Cost of inventories recognised as expenses Depreciation of property, plant and equipment_(Note)_ Loss on disposals of property, plant and equipment Impairment on inventories Impairment on trade receivables Impairment on other receivable Amortisation of prepaid lease payments	Year ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 – – – – – – 592 886 323 242 285 158 834 1,171 481 – – – 834 1,171 481 – – – 1,181 1,177 253 499 400 398 – – – 1,735 1,210 845 – – 34 – 996 – 132 132 132	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) – – – – 260 11 100 101 360 112 – – 360 112 – – 230 2 212 286 – 164 432 480 – – – – 88 88	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) – – – – 260 11 100 101 360 112 – – 360 112 – – 230 2 212 286 – 164 432 480 – – – – 88 88
			112 –
			112
			– 2 286 164 480 – – 88

Note: The amount of depreciation of property, plant and equipment included in cost of inventories and administrative expenses are as follows:

Depreciation of property, plant and equipment included in:

– cost of inventories – administrative expenses	480 19 499	400 – 400	398 – 398	212 – 212	286 – 286

– 177 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

11. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

• (a) The emoluments paid or payable to each of the directors of Tianjin Hong Fu during the Relevant Periods were as follows:

For the year ended 31 December 2011

==> picture [370 x 128] intentionally omitted <==

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

Retirement
Name of the Salaries and benefits scheme
Directors Fee other benefits contributions Total
RMB’000 RMB’000 RMB’000 RMB’000
Executive directors:
– – – –
Jiang Manna
– – – –
Mo Shikang
– – – –
----- End of picture text -----

For the year ended 31 December 2012

Name of the Directors Executive directors: Jiang Manna Mo Shikang	Fee RMB’000 – – –	Salaries and other benefits Retirement benefits scheme contributions RMB’000 RMB’000 – – – – – –	Total RMB’000 – –
			–

For the year ended 31 December 2013

Name of the Directors Executive directors: Jiang Manna_(Note (i))_ Mo Shikang	Fee RMB’000 – – –	Salaries and other benefits Retirement benefits scheme contributions RMB’000 RMB’000 – – – – – –	Total RMB’000 – –
			–

Note (i): Deceased during the year ended 31 December 2013

– 178 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

For the 8 months ended 31 August 2013 (unaudited)

Name of the Directors Executive directors: Jiang Manna Mo Shikang	Fee RMB’000 – – –	Salaries and other benefits Retirement benefits scheme contributions RMB’000 RMB’000 – – – – – –	Total RMB’000 – –
			–

For the 8 months ended 31 August 2014

			Retirement
		Salaries and	benefits scheme
Name of the Director	Fee	other benefits	contributions	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Executive director:
Mo Shikang	–	–	–	–

(b) Employees’ emoluments

Of the five individuals with the highest emoluments in Tianjin Hong Fu, none of directors of Tianjin Hong Fu for the years ended 31 December 2011, 2012 and 2013, and the eight months ended 31 August 2013 (unaudited) and 31 August 2014, respectively, and details of whose emoluments are included in the disclosures in Note 11(a) above.

The emoluments of the remaining individuals were as follows:

Salaries, allowances and other benefits included in: – cost of inventories – staff costs Retirement benefit schemes contributions	Year ended 31 December Eight months ended 31 August 2011 2012 2013 2013 2014 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 63 119 112 72 – 105 87 91 59 86 168 206 203 131 86 – – – – – 168 206 203 131 86	Year ended 31 December Eight months ended 31 August 2011 2012 2013 2013 2014 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 63 119 112 72 – 105 87 91 59 86 168 206 203 131 86 – – – – – 168 206 203 131 86
		86 –
		86

During the Relevant Periods, the emoluments of the five highest paid individuals were within the band of nil to RMB1,000,000.

– 179 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

During the Relevant Periods, no emoluments were paid or payable by Tianjin Hong Fu to the directors or the five highest paid individuals (including the directors and employees) as an inducement to join or upon joining Tianjin Hong Fu or as compensation for loss of office.

12. INCOME TAX EXPENSE

				Eight months ended	Eight months ended
	Year	ended 31 December		31 August
	2011	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Current income tax
– PRC Enterprise Income
Tax (“PRC EIT”)	8	5	29	18	287

Under the Law of the People’s Republic of China on Enterprise Income Tax (the “ EIT Law ”) and Implementation Regulation of the EIT Law, the tax rate of Tianjin Hong Fu is 25% from 1 January 2008.

The income tax expense for the Relevant Periods is reconciled to (loss)/profit before tax per the statement of profit or loss and other comprehensive income as follows:

(Loss)/profit before tax Tax at PRC EIT rate of 25% Tax effect of income not taxable for tax purposes Tax effect of expenses not deductible for tax purposes Tax charge for the year/ period	Year ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 (2,119) (2,497) (988) (529) (624) (247) 2 1 1 535 628 275 8 5 29	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) (546) 1,150 (136) 287 – – 154 – 18 287	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) (546) 1,150 (136) 287 – – 154 – 18 287
			287 – –
			287

Tianjin Hong Fu did not have any significant unprovided deferred tax assets and liabilities arising during the Relevant Periods.

13. DIVIDEND

No dividend was paid or declared by Tianjin Hong Fu since its incorporation during the Relevant Periods.

– 180 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

14. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2011 Additions At 31 December 2011 and 1 January 2012 Additions At 31 December 2012 and 1 January 2013 Additions At 31 December 2013 and 1 January 2014 Disposals At 31 August 2014 ACCUMULATED DEPRECIATION At 1 January 2011 Charge for the year At 31 December 2011 and 1 January 2012 Charge for the year At 31 December 2012 and 1 January 2013 Charge for the year At 31 December 2013 and 1 January 2014 Charge for the period Written back on disposal At 31 August 2014 NET CARRYING AMOUNT At 31 August 2014 At 31 December 2013 At 31 December 2012 At 31 December 2011	Buildings RMB’000 707 – 707 – 707 – 707 – 707 335 38 373 39 412 38 450 26 – 476 231 257 295 334	Plants and machinery RMB’000 3,930 9 3,939 237 4,176 138 4,314 (2,311) 2,003 2,047 442 2,489 348 2,837 347 3,184 243 (1,915) 1,512 491 1,130 1,339 1,450	Motor vehicles RMB’000 104 – 104 130 234 – 234 (104) 130 89 6 95 13 108 13 121 17 (95) 43 87 113 126 9	Furniture, fixture and equipment RMB’000 180 – 180 – 180 – 180 (90) 90 149 13 162 – 162 – 162 – (81) 81 9 18 18 18	Construction in progress RMB’000 3,556 – 3,556 – 3,556 – 3,556 – 3,556 – – – – – – – – – – 3,556 3,556 3,556 3,556	Total RMB’000 8,477 9
						8,486 367
						8,853 138
						8,991 (2,505)
						6,486
						2,620 499
						3,119 400
						3,519 398
						3,917 286 (2,091)
						2,112
						4,374
						5,074
						5,334
						5,367

As at 31 August 2014, the fair value of the buildings and construction in progress is RMB800,000 and RMB4,900,000 respectively.

– 181 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

15. PREPAID LEASE PAYMENTS

Cost Balance at the beginning of year/period and the end of year/period Accumulated amortisation Balance at the beginning of year/period Charge for the year/period Balance at the end of year/period Net carrying amount At the end of year/period Tianjin Hong Fu’s prepaid lease payments comprise:– Leasehold lands in the PRC under medium term lease Analysed for reporting purpose as:– Current portion Non-current portion	As at 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 6,603 6,603 6,603 264 396 528 132 132 132 396 528 660 6,207 6,075 5,943 6,207 6,075 5,943 132 132 132 6,075 5,943 5,811 6,207 6,075 5,943	As at 31 August 2014 RMB’000 6,603
		660 88
		748
		5,855
		5,855
		132 5,723
		5,855

The prepaid lease payments are amortised to profit or loss on the straight-line basis over the term lease.

– 182 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

16. INVENTORIES

Raw material Work in progress Finished goods Less: Accumulated impairment	As at 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 616 790 879 1,735 2,696 3,438 207 122 113 2,558 3,608 4,430 (2,375) (3,585) (4,430) 183 23 –	As at 31 August 2014 RMB’000 892 3,918 100 4,910 (4,910) –

17. TRADE AND OTHER RECEIVABLES

Trade receivables Other receivables Prepayments	As at 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 144 – – – 4 65 1,379 52 – 1,523 56 65	As at 31 August 2014 RMB’000 – 1,209 – 1,209

As at 31 December 2011, 2012, 2013 and 31 August 2014, the ageing analysis of trade receivables presented based on the invoice date is as follows:–

0 – 60 days 60 – 120 days 120 – 180 days Over 180 days Total trade receivables Less: Accumulated impairment losses Total trade receivables, net of impairment loss	As at 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 144 – 34 – – – – – – 486 486 486 630 486 520 (486) (486) (520) 144 – –	As at 31 August 2014 RMB’000 – – – 520 520 (520) –

No interest is charged and no collateral is held on the trade and other receivables.

– 183 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

18. AMOUNT DUE FROM A RELATED PARTY

The amount due from a related party is mainly due from rental receivables. It is unsecured, noninterest bearing and has no fixed term of repayment.

19. BANK BALANCES AND CASH

As at 31 December 2011, 2012, 2013 and 31 August 2014, Tianjin Hong Fu’s bank balances carry interest at market rates ranged from 0.5% to 3.1%, 0.35% to 0.50%, 0.35% to 2.60% and 0.35% to 5.58% per annum, respectively.

Tianjin Hong Fu’s bank balances and cash denominated in currencies other than RMB, the functional currency of the relevant Company, were as follows:

				As at
		As at 31 December		31 August
	2011	2012	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000
Hong Kong Dollars	2	2	2	2

Tianjin Hong Fu’s cash and cash equivalents denominated in RMB are not a freely convertible currency in the international market. The remittance of RMB out of the PRC is subject to exchange restrictions imposed by the Government of the PRC.

20. BANK LOAN

				As at
		As at 31 December		31 August
	2011	2012	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000
Bank loan – secured	800	–	–	–

The bank loan was secured, interest bearing at the rate of 8.203% per annum and fully repaid on 24 February 2012. Upon the fully repaid, Tianjin Hong Fu’s buildings and prepaid lease payments have been released from bank.

As at 31 December 2011, the Tianjin Hong Fu’s buildings and prepaid lease payments with the carrying amount of RMB334,000 and RMB6,207,000 respectively had been pledged for secured bank loan.

– 184 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

21. TRADE AND OTHER PAYABLES

Salaries payables Other tax payables Received in advance Other payables	As at 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 116 90 – 16 5 – – 20 – 6,626 7,528 34 6,758 7,643 34	As at 31 August 2014 RMB’000 12 – 313 –
		325

22. AMOUNT DUE TO A RELATED PARTY

The amount due to a related party is unsecured, non-interest bearing and has no fixed term of repayment.

23. AMOUNT DUE TO A DIRECTOR

The amount due to a director is unsecured, non-interest bearing and has no fixed term of repayment.

24. SHARE CAPITAL

				As at
		As at 31 December		31 August
	2011	2012	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000
Registered capital:
At the beginning of year/period and the
end of year/period	18,000	18,000	18,000	18,000

– 185 –

ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

APPENDIX IIB

25. COMMITMENTS

Operating lease commitments

Tianjin Hong Fu as lessor

				Eight months ended	Eight months ended
	Year	ended 31 December		31 August
	2011	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Minimum lease receivables
under operating leases on
office premises	–	–	200	233	133

At the end of each reporting period, Tianjin Hong Fu had commitments for future minimum lease receivable under non-cancellable operating lease which fall due as follows:

Within one year In the second to fifth years, inclusive	As at 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 – – 100 – – 100 – – 200	As at 31 August 2014 RMB’000 100 33
		133

Operating lease receivables represent rentals receivables from a related party for Tianjin Hong Fu’s office premises. Lease is negotiated for lease terms ranging from one to three years at inception, with an option to renew the lease at the expiry date or at dates mutually agreed between Tianjin Hong Fu and the related party.

26. RETIREMENT BENEFIT SCHEME

The employees of Tianjin Hong Fu in the PRC are members of a state-managed retirement benefits scheme operated by the PRC government. Tianjin Hong Fu is required to contribute a specified percentage of its payroll costs to the retirement benefits scheme to fund the benefits. The only obligation of Tianjin Hong Fu with respect to the retirement benefits scheme is to make the specified contributions under the scheme.

The amounts of contributions made by Tianjin Hong Fu in respect of the retirement benefit scheme during each year/period over the Relevant Periods are disclosed in Note 11.

– 186 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

27. RELATED PARTY TRANSACTIONS AND BALANCES

(a) Related party of Tianjin Hong Fu

The director of Tianjin Hong Fu considers that the following entity is related party of Tianjin Hong Fu:

Name Relationship Tianjin Yun Ze De Biotechnology Limited Fellow subsidiary (the “Tianjin Yun Ze De”)

(b) Significant related party transactions

Saved as disclosed in this report, Tianjin Hong Fu had the following transaction with related party during the Relevant Periods:

				Eight months ended	Eight months ended
	Year	ended 31 December		31 August
	2011	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Rental income from:
– Tianjin Yun Ze
De	–	–	100	67	67

The terms of the above transactions were determined and agreed between Tianjin Hong Fu and the related party.

(c) Compensation of key management personnel

During the Relevant Periods, Tianjin Hong Fu had remuneration paid to the directors of Tianjin Hong Fu and key management personnel of Tianjin Hong Fu as follows:

Salaries, allowances and other benefits Performance related incentive payments Retirement benefit schemes contributions	Year ended 31 December 2011 2012 2013 RMB’000 RMB’000 RMB’000 – – – – – – – – – – – –	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) – – – – – – – –	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) – – – – – – – –
			–

The remuneration of the directors of Tianjin Hong Fu and key management personnel is determined by the directors of Tianjin Hong Fu with reference to the operating results, individual performance and comparable market trends during the Relevant Periods.

– 187 –

APPENDIX IIB ACCOUNTANTS’ REPORT OF TIANJIN HONG FU

II. DIRECTORS EMOLUMENTS

Saved as disclosed in this report, no other remuneration has been paid or is payable by Tianjin Hong Fu to Tianjin Hong Fu’s directors in respect of the Relevant Periods.

III. SUBSEQUENT FINANCIAL INFORMATION

No audited financial statements of Tianjin Hong Fu have been prepared in respect of any period subsequent to 31 August 2014.

Yours faithfully,

Pan-China (H.K.) CPA Limited Certified Public Accountants Wong Ho Yuen, Gary Practising Certificate Number: P01316

Hong Kong

– 188 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

The following is the text of a report received from the Company’s reporting accountant, Pan-China (H.K.) CPA Limited, Certified Public Accountants, Hong Kong for the purpose of incorporation in this circular.

25 November 2014

The Directors

Chinese People Holdings Company Limited

Unit 1101, 11th Floor Tung Ning Building 2 Hillier Street Central, Hong Kong

Dear Sirs,

We set out below our report on the financial information relating to Tianjin Yun Ze De Biotechnology Limited (the “ Tianjin Yun Ze De ”) which comprises the statement of financial position of Tianjin Yun Ze De as at 31 December 2012 and 2013, and 31 August 2014, the statement of profit or loss and other comprehensive income, the statement of changes in equity and statement of cash flows for the period from 27 November 2012 (date of incorporation) to 31 December 2012, year ended 31 December 2013 and the eight months ended 31 August 2014 (the “ Relevant Periods ”), and notes thereto (the “ Financial Information ”), for inclusion in the circular dated 25 November 2014 (the “ Circular ”) in connection with the proposed acquisition of the entire interests of True Vanguard Holdings Limited (the “ Acquisition ”). Details of the Acquisition are set out in the Circular.

Tianjin Yun Ze De was established in the People’s Republic of China (the “ PRC ”) on 27 November 2012 as a company with limited liability.

Tianjin Yun Ze De has adopted 31 December as its financial year end date. No statutory audited financial statements have been prepared for Tianjin Yun Ze De, since its date of incorporation as there are no statutory audit requirements for it to prepare the audited financial statements.

For the purposes of this report, the director of Tianjin Yun Ze De has prepared the financial statements of Tianjin Yun Ze De for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”) (the “ Underlying Financial Statements ”). We have undertaken an independent audit on the Underlying Financial Statements in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

– 189 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

The Financial Information of the Tianjin Yun Ze De for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements. No adjustments are considered necessary to the Underlying Financial Information in preparing our report for inclusion in the Circular.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the director of the Tianjin Yun Ze De who approved their issue. The director of the Tianjin Yun Ze De is also responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information, and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Tianjin Yun Ze De as at 31 December 2012 and 2013, and 31 August 2014, and of the results and cash flows of Tianjin Yun Ze De for the Relevant Periods.

The comparative statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows of Tianjin Yun Ze De for the eight months ended 31 August 2013 together with the notes thereon (the “ 31 August 2013 Financial Information ”) have been extracted from Tianjin Yun Ze De’s unaudited financial information for the same period, which was prepared by the director of Tianjin Yun Ze De solely for the purpose of this report. We have reviewed the 31 August 2013 Financial Information in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the 31 August 2013 Financial Information consists of making enquiries, 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 on the 31 August 2013 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the 31 August 2013 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information which conform with HKFRSs.

– 190 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

I. FINANCIAL INFORMATION

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Period from 27 November 2012 (date of incorporation) to 31 December 2012 Notes RMB’000 Bank interest income – Staff costs – Administrative expenses – Loss before tax 7 – Income tax expense 9 – Loss for the year/period – Other comprehensive income, net of income tax – Total comprehensive loss for the year/ period – Total comprehensive loss attributable to: – Owners of Tianjin Yun Ze De –	Year ended 31 December 2013 RMB’000 3 (196) (329) (522) – (522) – (522) (522)	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) 2 1 (113) (91) (109) (104) (220) (194) – – (220) (194) – – (220) (194) (220) (194)

The accompanying notes form an integral part of the Financial Information.

– 191 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Plant and equipment 11 Deposits for acquisition of plant and equipment Current assets Other receivables Amount due from a director 12 Amount due from a related party 12 Bank balances and cash 13 Current liabilities Salaries payables Amount due to a related party 14 Net current assets Net assets Capital and reserves Share capital 15 Accumulated losses Equity attributable to owners of Tianjin Yun Ze De	As at 2012 RMB’000 – – – – 2,000 – 1,000 3,000 – – – 3,000 3,000 3,000 – 3,000	31 December 2013 RMB’000 14 – 14 – 1,820 144 514 2,478 4 – 4 2,474 2,488 3,010 (522) 2,488	As at 31 August 2014 RMB’000 17 410 427 1 1,823 – 104 1,928 7 54 61 1,867 2,294 3,010 (716) 2,294

The accompanying notes form an integral part of the Financial Information.

– 192 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

STATEMENT OF CHANGES IN EQUITY

Share capital RMB’000 Capital injection on 27 November 2012 3,000 Total comprehensive loss for the period – As at 31 December 2012 and 1 January 2013 3,000 Capital injection 10 Total comprehensive loss for the year – As at 31 December 2013 and 1 January 2014 3,010 Total comprehensive loss for the period – As at 31 August 2014 3,010 For the period ended 31 August 2013 (unaudited) Share capital RMB’000 As at 1 January 2013 3,000 Total comprehensive loss for the period – As at 31 August 2013 3,000	Accumulated losses RMB’000 – – – – (522) (522) (194) (716) Accumulated losses RMB’000 – (220) (220)	Total RMB’000 3,000 – 3,000 10 (522) 2,488 (194) 2,294 Total RMB’000 3,000 (220) 2,780

– 193 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

STATEMENT OF CASH FLOWS

Period from 27 November 2012 (date of incorporation) to 31 December 2012 RMB’000 OPERATING ACTIVITIES Loss before tax – Adjustments for: Bank interest income – Depreciation of plant and equipment – Operating cash flows before movements in working capital – Increase in other receivables – (Increase)/decrease in amount due from a related party – Increase in salaries payables – NET CASH GENERATED FROM/(USED IN) OPERATING ACTIVITIES – INVESTING ACTIVITIES Payment on acquisition of plant and equipment – Deposits paid for acquisition of plant and equipment – Bank interest income – NET CASH USED IN INVESTING ACTIVITIES –	Year ended 31 December 2013 RMB’000 (522) (3) 1 (524) – (144) 4 (664) (15) – 3 (12)	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (Unaudited) (220) (194) (2) (1) – 3 (222) (192) – (1) (63) 198 1 3 (284) 8 (15) (6) – (410) 2 1 (13) (415)

– 194 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

Period from 27 November 2012 (date of incorporation) to 31 December 2012 RMB’000 FINANCING ACTIVITIES Cash (advance to)/repayment from a director (2,000) Capital injection 3,000 NET CASH GENERATED FROM/(USED IN) FINANCING ACTIVITIES 1,000 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD/YEAR – CASH AND CASH EQUIVALENTS AT END OF THE PERIOD/YEAR 1,000 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENT BANK BALANCES AND CASH 1,000	Year ended 31 December 2013 RMB’000 180 10 190 (486) 1,000 514 514	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (Unaudited) – (3) – – – (3) (297) (410) 1,000 514 703 104 703 104

– 195 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

Tianjin Yun Ze De was established in the People’s Republic of China (the “ PRC ”) on 27 November 2012 as a company with limited liability.

At the date of this report, in the opinion of the director of Tianjin Yun Ze De, its ultimate holding company is True Vanguard Holdings Limited, a company established in British Virgin Islands.

The registered office of Tianjin Yun Ze De is located at the eastern side of complex office building 204-17 (centralised office area), Xianghuacheng Middle Road, Cao Zi Li, Wuqing District, Tianjin City (天津市武清區曹子里鄉花城中路東側綜合辦公樓204-17（集中辦公區）).

Tianjin Yun Ze De is inactive during the Relevant Periods.

The Financial Information of Tianjin Yun Ze De is presented in Renminbi (“ RMB ”), which is also the functional currency of Tianjin Yun Ze De.

2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

Throughout the Relevant Periods, Tianjin Yun Ze De has applied all of the HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”) that are relevant to its operations and effective for the Relevant Periods.

At the date of this report, the HKICPA has issued the following new and revised standards, amendments and interpretation (the “ New and Revised HKFRSs ”) which are not yet effective:

Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations[5] Amendments to HKAS 16 and Clarification of Acceptable Methods of Depreciation and HKAS 38 Amortisation[5] Amendments to HKAS 16 and Agriculture: Bearer Plants[5] HKAS 41 Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions[4] Amendments to HKAS 27 Equity Method in Separate Financial Statements[5] Amendments to HKFRSs Annual Improvements to HKFRSs 2010-2012 Cycle[6] Amendments to HKFRSs Annual Improvements to HKFRSs 2011-2013 Cycle[4] HKFRS 9 Financial Instruments[1] HKFRS 14 Regulatory Deferral Accounts[2] HKFRS 15 Revenue from Contracts with Customers[3]

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

• 2 Effective for first annual HKFRS financial statements beginning on or after 1 January 2016

• 3 Effective for annual periods beginning on or after 1 January 2017

• 4 Effective for annual periods beginning on or after 1 July 2014

• 5 Effective for annual periods beginning on or after 1 January 2016

• 6 Effective for annual periods beginning on or after 1 July 2014, with limited exceptions

Tianjin Yun Ze De has not early adopted these New and Revised HKFRSs that have been issued but are not yet effective in the preparation of the Financial Information. The director of Tianjin Yun Ze De anticipates that the application of these New and Revised HKFRSs will have no material impact on the Financial Information of Tianjin Yun Ze De.

– 196 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared in accordance with the following accounting policies which conform to HKFRSs. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance, and are materially consistent with the accounting policies adopted by the Tianjin Yun Ze De.

The Financial Information has been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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

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

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity cab access at the measurement date.

• Level 2 inputs are inputs, other than quoted prices included Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the goods sold in the normal course of business.

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

– 197 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

Leasing

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

Tianjin Yun Ze De as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis.

Plant and equipment

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

Depreciation is recognised so as to write off the cost of items of plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on the following basis:

Furniture, fixture and equipment 5 years

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

Retirement benefits costs

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

Taxation

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

The tax currently payable is based on taxable profit for the period/year. Taxable profit differs from ‘loss before tax’ as reported in the statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. Tianjin Yun Ze De’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

– 198 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

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

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

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

Current or deferred tax are recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity respectively.

Impairment on tangible and intangible assets

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

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

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

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

– 199 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

Provisions

Provisions are recognised when Tianjin Yun Ze De has a present obligation (legal or constructive) as a result of a past event, it is probable that Tianjin Yun Ze De will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

When some or all the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Present obligation arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where Tianjin Yun Ze De has a contact under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.

Financial instruments

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

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

Tianjin Yun Ze De’s financial assets are classified as loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

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

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

– 200 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including other receivables, amount due from a director/related party and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

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

Impairment of financial assets

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

For all other financial assets, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• breach of contract, such as a default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial reorganisation; or

• the disapperance of an active market for that financial assets because of difficulties.

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

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

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

– 201 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

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

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

Financial liabilities and equity instruments

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

Equity instruments

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

Effective interest method

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

Interest expense is recognised on an effective interest basis for debt instrument.

Financial liabilities

Financial liabilities (including salaries payables and amount due to a related party) are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method, unless the effect of discounting would be immaterial in which case they are stated at cost.

Derecognition

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

– 202 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

Tianjin Yun Ze De derecognises financial liabilities when, and only when, Tianjin Yun Ze De’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Cash and cash equivalents

Bank balances and cash are stated in the statement of financial position comprise cash at banks and on hand and money market fund investments. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash as defined above.

Related parties

• (1) A person, or a close member of that person’s family, is related to Tianjin Yun Ze De if that person:

• (i) has control or joint control over Tianjin Yun Ze De; or

• (ii) has significant influence over Tianjin Yun Ze De; or

• (iii) is a member of the key management personnel of Tianjin Yun Ze De or a parent of Tianjin Yun Ze De.

• (2) An entity is related to Tianjin Yun Ze De if any of the following conditions applies:

• (i) the entity and Tianjin Yun Ze De are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

• (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member);

• (iii) both entities are joint ventures of the same third party;

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

• (v) the entity is a post-employment benefit plan for the benefit of employees of either Tianjin Yun Ze De or an entity related to Tianjin Yun Ze De;

• (vi) the entity is controlled or jointly controlled by a person identified in (1); or

– 203 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

(vii) a person identified in (1)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

4. CRITICAL ACCOUNTING JUDGEMENT AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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

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

Key sources of estimation uncertainty

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

Useful lives of plant and equipment

The director of Tianjin Yun Ze De determines the estimated useful lives and related depreciation charges for its plant and equipment. This estimate is based on the historical experience of the actual useful lives of the plant and equipment of similar nature and functions. The director of Tianjin Yun Ze De will change the depreciation charge where useful lives are different from the previously estimated lives. It will also write-off or write down technically obsolete or non-strategic assets that have been abandoned or sold.

5. CAPITAL RISK MANAGEMENT

Tianjin Yun Ze De manages its capital to ensure that entities in Tianjin Yun Ze De will be able to continue as a going concern while maximising the return to shareholder through the optimisation of the debt and equity balance. Tianjin Yun Ze De’s overall strategy remains unchanged during the Relevant Periods.

The capital structure of Tianjin Yun Ze De consists of equity attributable to the owners of Tianjin Yun Ze De, comprising issued share capital and accumulated losses.

– 204 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

The director of Tianjin Yun Ze De reviews the capital structure regularly. As part of this review, the director of Tianjin Yun Ze De considers the cost of capital and the risks associated with each class of capital. Based on the recommendation of the director of Tianjin Yun Ze De, Tianjin Yun Ze De will balance its overall capital structure through the payment of dividends, issue of new shares as well as the issue of new debts or the redemption of existing debts.

6. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Loan and receivables: – Other receivables – Amount due from a director – Amount due from a related party – Bank balances and cash Financial liabilities Other financial liabilities: – Salaries payables – Amount due to a related party	As at 31 December As at 31 August 2012 2013 2014 RMB’000 RMB’000 RMB’000 – – 1 2,000 1,820 1,823 – 144 – 1,000 514 104 3,000 2,478 1,928 – 4 7 – – 54 – 4 61	As at 31 December As at 31 August 2012 2013 2014 RMB’000 RMB’000 RMB’000 – – 1 2,000 1,820 1,823 – 144 – 1,000 514 104 3,000 2,478 1,928 – 4 7 – – 54 – 4 61
		1,928
		7 54
		61

(b) Financial risk management objectives and policies

Tianjin Yun Ze De’s major financial instruments are stated in Note 6(a). Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

(c) Market risk

Tianjin Yun Ze De’s activities expose it primarily to the financial risks of changes in interest rates and foreign currency exchange rates.

There has been no change to Tianjin Yun Ze De’s exposures to market risks or the manner in which it manages and measures the risks during the Relevant Periods.

– 205 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

(i) Interest rate risk management

Tianjin Yun Ze De has limited exposure to interest rate risk because Tianjin Yun Ze De has no significant interest bearing financial assets and liabilities as at 31 December 2012, 2013 and 31 August 2014. The future variations in interest rates will not have a significant impact on the results of Tianjin Yun Ze De, as Tianjin Yun Ze De’s variable rates bank balances are all short-term in nature and at the prevailing market interest rates. Tianjin Yun Ze De currently does not have an interest rate hedging policy. However, the director of Tianjin Yun Ze De monitors interest rate exposure and will consider hedging significant interest rate risk should the need arise. The director of Tianjin Yun Ze De considers Tianjin Yun Ze De’s exposure to interest rate risk is not material. Hence, no interest rate risks sensitively analysis is presented.

(d) Credit risk

The credit risk on bank balances is limited because the counterparties are financial institutions with good reputation in the PRC.

(e) Liquidity risk

In management of liquidity risk, Tianjin Yun Ze De monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance Tianjin Yun Ze De’s operations and mitigate the effects of fluctuations in cash flows.

The following table details Tianjin Yun Ze De’s remaining contractual maturity for its non-derivative financial liabilities based on the agreed repayment terms. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Tianjin Yun Ze De can be required to pay.

The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curve at the end of each reporting period.

On demand or less than 1 year RMB’000 As at 31 December 2013 Salaries payables 4 As at 31 August 2014 Salaries payables 7 Amount due to a related party 54 61	Total undiscounted cash flows RMB’000 4 7 54 61	Carrying amount RMB’000 4
		7 54
		61

– 206 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

(f) Fair value

The fair values of Tianjin Yun Ze De’s financial assets and financial liabilities have been determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

The director of Tianjin Yun Ze De considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

7. LOSS BEFORE TAX

Loss before tax has been arrived at after charging:

Period from 27 November 2012 (date of incorporation) to 31 December 2012 RMB’000 Director’s emoluments (Note 8) – Other staff costs: – Salaries, allowances and other benefits – – Retirement benefit schemes contributions – Total staff costs – Auditor’s remuneration – Depreciation of plant and equipment –	Year ended 31 December 2013 RMB’000 – 175 21 196 – 1	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) – – 103 72 10 19 113 91 – – – 3	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) – – 103 72 10 19 113 91 – – – 3
			91
			– 3

– 207 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

8. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

The emoluments paid or payable to each of the directors of Tianjin Yun Ze De during the Relevant Periods were as follows:

For the period from 27 November 2012 (date of incorporation) to 31 December 2012

Name of the Directors Executive directors: Jiang Manna_(Note (i)) Mo Shikang(Note (ii))_	Fee RMB’000 – – –	Salaries and other benefits Retirement benefits scheme contributions RMB’000 RMB’000 – – – – – –	Total RMB’000 – –
			–

Note (i): Appointed on 27 November 2012 and Deceased during the year ended 31 December 2013 Note (ii): Appointed on 27 November 2012

For the year ended 31 December 2013

Name of the Directors Executive directors: Jiang Manna Mo Shikang	Fee RMB’000 – – –	Salaries and other benefits Retirement benefits scheme contributions RMB’000 RMB’000 – – – – – –	Total RMB’000 – –
			–

For the 8 months ended 31 August 2013 (unaudited)

Name of the Directors Executive directors: Jiang Manna Mo Shikang	Fee RMB’000 – – –	Salaries and other benefits Retirement benefits scheme contributions RMB’000 RMB’000 – – – – – –	Total RMB’000 – –
			–

– 208 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

For the 8 months ended 31 August 2014

			Retirement
		Salaries and	benefits scheme
Name of the Director	Fee	other benefits	contributions	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Executive director:
Mo Shikang	–	–	–	–

(b) Employees’ emoluments

Of the five individuals with the highest emoluments in Tianjin Yun Ze De, none of directors of Tianjin Yun Ze De for the period ended 31 December 2012 and year ended 31 December 2013 and the eight months ended 31 August 2013 (unaudited) and 31 August 2014 and details of whose emoluments are included in the disclosures in Note 8(a) above.

The emoluments of the remaining individuals were as follows:

Period from 27 November 2012 (date of incorporation) to 31 December 2012 RMB’000 Salaries, allowances and other benefits – Retirement benefit schemes contributions – –	Year ended 31 December 2013 RMB’000 122 13 135	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) 73 72 6 19 79 91	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) 73 72 6 19 79 91
			91

During the Relevant Periods, the emoluments of the five highest paid individuals were within the band of nil to RMB1,000,000.

During the Relevant Periods, no emoluments were paid or payable by Tianjin Yun Ze De to the directors or the five highest paid individuals (including the directors and employees) as an inducement to join or upon joining Tianjin Yun Ze De or as compensation for loss of office.

– 209 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

9. INCOME TAX EXPENSE

	Period from
	27 November
	2012 (Date of
	incorporation)	Year ended 31
	to 31 December	December	Eight months ended 31 August
	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000
			(unaudited)
Current income tax
– PRC Enterprise
Income Tax
(“PRC EIT”)	–	–	–	–

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

The income tax expense for the Relevant Periods is reconciled to loss before tax per the statement of profit or loss and other comprehensive income as follows:

Period from 27 November 2012 (date of incorporation) to 31 December 2012 RMB’000 Loss before tax – Tax at PRC EIT rate of 25% – Tax effect of tax losses not recognised – Tax charge for the period/ year –	Year ended 31 December 2013 RMB’000 (522) 130 (130) –	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) (220) (194) 55 48 (55) (48) – –	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 (unaudited) (220) (194) 55 48 (55) (48) – –
			48 (48)
			–

Tianjin Yun Ze De did not have any significant unprovided deferred taxation arising during the Relevant Periods.

10. DIVIDEND

No dividend was paid or declared by Tianjin Yun Ze De since its incorporation during the Relevant Periods.

– 210 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

11. PLANT AND EQUIPMENT

COST Additions At 31 December 2013 and 1 January 2014 Additions At 31 August 2014 ACCUMULATED DEPRECIATION Charge for the year At 31 December 2013 and 1 January 2014 Charge for the period At 31 August 2014 NET CARRYING AMOUNT At 31 August 2014 At 31 December 2013 At 31 December 2012	Furniture, fixture and equipment RMB’000 15
	15 6
	21
	1
	1 3
	4
	17
	14
	–

– 211 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

12. RELEVANT LOANS

Particular of advance made by the Company to a director disclosed pursuant to section 161B of the Hong Kong Companies Ordinance (Cap.32) is as follows:

As at 31 December 2012

Name of director Balance at 31 December 2012 RMB’000 Mo Shikang 2,000 As at 31 December 2013 Name of director Balance at 31 December 2013 RMB’000 Mo Shikang 1,820 As at 31 August 2014 Name of director Balance at 31 August 2014 RMB’000 Mo Shikang 1,823	Balance at 27 November 2012 (date of incorporation) RMB’000 – Balance at 1 January 2013 RMB’000 2,000 Balance at 1 January 2014 RMB’000 1,820	Maximum amount outstanding during the period RMB’000 2,000
		Maximum amount outstanding during the year RMB’000 2,000
		Maximum amount outstanding during the period RMB’000 1,823

The amount due from a director is unsecured, non-interest bearing and has no fixed term of repayment.

13. BANK BALANCES AND CASH

As at 31 December 2012, 2013 and 31 August 2014, Tianjin Yun Ze De’s bank balances carry interest at market rates ranged from 0.35% to 0.50%, 0.35% to 2.60% and 0.35% to 5.58% per annum, respectively.

Tianjin Yun Ze De’s cash and cash equivalents denominated in RMB are not a freely convertible currency in the international market. The remittance of RMB out of the PRC is subject to exchange restrictions imposed by the Government of the PRC.

– 212 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

14. AMOUNT DUE TO A RELATED PARTY

The amount due to a related party is mainly due to rental payable. It is unsecured, non-interest bearing and has no fixed term of repayment.

15. SHARE CAPITAL

Registered capital: Injection during the period At 31 December 2012 and 1 January 2013 Injection during the year At 31 December 2013, 1 January 2014 and 31 August 2014	RMB’000 3,000
	3,000 10
	3,010

Note: Tianjin Yun Ze De was incorporated on 27 November 2012 with registered capital of RMB3,000,000. On 27 November 2013, the registered capital of Tianjin Yun Ze De was increased from RMB3,000,000 to RMB3,010,000 by the creation of RMB10,000 new capital. On the same day, registered capital of RMB10,000 were injected by a shareholder for cash to provide additional working capital to Tianjin Yun Ze De.

16. COMMITMENTS

(a) Operating lease commitments

Tianjin Yun Ze De as lessee

	Period from
	27 November
	2012 (date of
	incorporation)	Year ended 31
	to 31 December	December	Eight months ended 31 August
	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000
			(unaudited)
Minimum lease payments
paid under operating
leases on office premises	–	200	233	133

At the end of each reporting period, Tianjin Yun Ze De had commitments for future minimum lease payments under non-cancellable operating lease which fall due as follows:

– 213 –

ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

APPENDIX IIC

Within one year In the second to fifth years, inclusive	As at 31 December As at 31 August 2012 2013 2014 RMB’000 RMB’000 RMB’000 – 100 100 – 100 33 – 200 133	As at 31 December As at 31 August 2012 2013 2014 RMB’000 RMB’000 RMB’000 – 100 100 – 100 33 – 200 133
		133

Operating lease payments represent rentals payable by Tianjin Yun Ze De for Tianjin Yun Ze De’s office premises. Lease is negotiated for lease terms ranging from one to three years at inception, with an option to renew the lease at the expiry date or at dates mutually agreed between Tianjin Yun Ze De and the landlord.

(b) Capital commitments

	As at 31	December	As at 31 August
	2012	2013	2014
	RMB’000	RMB’000	RMB’000
Capital expenditure contracted for
but not provided in the Financial
Information in respect of plant and
equipment	–	–	66

17. RETIREMENT BENEFIT SCHEME

The employees of Tianjin Yun Ze De in the PRC are members of a state-managed retirement benefits scheme operated by the PRC government. Tianjin Yun Ze De is required to contribute a specified percentage of its payroll costs to the retirement benefits scheme to fund the benefits. The only obligation of Tianjin Yun Ze De with respect to the retirement benefits scheme is to make the specified contributions under the scheme.

The amounts of contributions made by Tianjin Yun Ze De in respect of the retirement benefit scheme during each year/period over the Relevant Periods are disclosed in Note 8.

18. RELATED PARTY TRANSACTIONS

(a) Related party of Tianjin Yun Ze De

The director of Tianjin Yun Ze De considers that the following entity is the related party of Tianjin Yun Ze De:

Name		Relationship
Tianjin	Hong Fu Pharmaceutical Limited	Fellow subsidiary
(the	“Tianjin Hong Fu”)

– 214 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

(b) Significant related party transactions

In addition to balances and transactions disclosed elsewhere in this report, Tianjin Yun Ze De had the following transaction with related party during the Relevant Periods:

	Year ended 31 December	Year ended 31 December	Eight months ended 31 August	Eight months ended 31 August
	2012	2013	2013	2014
	RMB’000	RMB’000	RMB’000	RMB’000
			(unaudited)
Rental expenses to:
– Tianjin Hong Fu	–	100	67	67

The terms of the above transaction were determined and agreed between Tianjin Yun Ze De and the related party.

(c) Compensation of key management personnel

During the Relevant Periods, Tianjin Yun Ze De had remuneration paid to the directors of Tianjin Yun Ze De and key management personnel of Tianjin Yun Ze De as follows:

Period from 27 November 2012 (date of incorporation) to 31 December 2012 RMB’000 Salaries, allowances and other benefits – Performance related incentive payments – Retirement benefit schemes contributions – –	Year ended 31 December 2013 RMB’000 – – – –	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 – – – – – – – –	Eight months ended 31 August 2013 2014 RMB’000 RMB’000 – – – – – – – –
			–

The remuneration of the directors of Tianjin Yun Ze De and key management personnel are determined by the directors of Tianjin Yun Ze De with reference to the operating results, individual performance and comparable market trends during the Relevant Periods.

– 215 –

APPENDIX IIC ACCOUNTANTS’ REPORT OF TIANJIN YUN ZE DE

II. DIRECTORS EMOLUMENTS

Saved as disclosed in this report, no other remuneration has been paid or is payable by Tianjin Yun Ze De to Tianjin Yun Ze De’s directors in respect of the Relevant Periods.

III. SUBSEQUENT FINANCIAL INFORMATION

No audited financial statements of Tianjin Yun Ze De have been prepared in respect of any period subsequent to 31 August 2014.

Yours faithfully,

Pan-China (H.K.) CPA Limited Certified Public Accountants Wong Ho Yuen, Gary Practising Certificate Number: P01316

Hong Kong

– 216 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

A. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Set out below is the management discussion and analysis of the Target Group for the period from 21 November 2013 (the Acquisition Date, as defined in note 22 to the accountants’ report of the Target Group as set out in Appendix IIA to this circular) to 31 December 2013 and the eight months ended 31 August 2014. As at 31 August 2014, the Target Group comprised the Target Company, Beijing Zhong Feng, Tianjin Hong Fu and Tianjin Yun Ze De.

The following financial information is based on the audited financial information of the Target Group as set out in Appendix IIA to this circular.

Business review

For the period from 15 April 2014 (i.e. the date of incorporation of the Target Company) to 31 August 2014, the principal activity of the Target Company was investment holding. The major asset of the Target Company is the entire registered capital of Beijing Zhong Feng.

For the period from 14 August 2014 (i.e. the date of incorporation of Beijing Zhong Feng) to 31 August 2014, Beijing Zhong Feng is inactive. The business scope of Beijing Zhong Feng was consultancy in social economy (excluding projects subject to administrative approval), investment and corporate management. The major assets of Beijing Zhong Feng are the entire registered capital of Tianjin Hong Fu and Tianjin Yun Ze De, all being acquired on 25 August 2014.

Please refer to the paragraphs headed “B. Management Discussion and Analysis of Tianjin Hong Fu” and “C. Management Discussion and Analysis of Tianjin Yun Ze De” in this appendix for further details of business operation of Tianjin Hong Fu and Tianjin Yun Ze De, respectively.

Financial review

Pursuant to the Group Reorganisation which was completed by interspersing the Target Company and Beijing Zhong Feng between the Vendor and Tianjin Hong Fu as well as Tianjin Yun Ze De (details of which were disclosed in note 2 to the accountants’ report of the Target Group as set out in Appendix IIA to this circular), the Target Company became the holding company of the companies now comprising the Target Group on 21 November 2013. Accordingly, the consolidated statement of profit or loss and other comprehensive income of the Target Group for the period from 21 November 2013 (the Acquisition Date) to 31 December 2013 and the eight months ended 31 August 2014 mainly represented the financial results of Tianjin Hong Fu and Tianjin Yun Ze De.

– 217 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Please refer to the paragraphs headed “B. Management Discussion and Analysis of Tianjin Hong Fu” and “C. Management Discussion and Analysis of Tianjin Yun Ze De” in this appendix for further details of financial performance of Tianjin Hong Fu and Tianjin Yun Ze De, respectively.

Liquidity and financial resources

As at 31 December 2013 and 31 August 2014, the Target Group had bank balances and cash of approximately RMB600,000 and RMB981,000, respectively. Director’s loan was the core financial resources of the Target Group amounted to approximately RMB9.1 million and RMB9.0 million as at 31 December 2013 and 31 August 2014, respectively.

Capital structure

As at 31 August 2014, the issued share capital of the Target Company was US$100 comprising 100 issued and fully paid ordinary shares of US$1.00 each. The Target Group financed itself through director’s loan. As at 31 August 2014, the amount of loan from director was approximately RMB9.0 million, which was unsecured, non-interest bearing and has no fixed term of repayment.

Gearing ratio

As at 31 December 2013 and 31 August 2014, the Target Group’s gearing ratio represented by total debt as a percentage of total assets was approximately 41% and 39%, respectively.

Pledge of assets

As at 31 December 2013 and 31 August 2014, the Target Group did not pledge any assets to secure any general bank facilities or borrowing.

Significant investment, material acquisition and disposals

Apart from the disposal of pharmaceutical production technologies and plant and machineries in relation to medicine business, the Target Group did not have any significant investments, material acquisition or disposal for the period from 21 November 2013 (the Acquisition Date) to 31 December 2013 and the eight months ended 31 August 2014.

– 218 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Contingent liabilities and capital commitment

Save as the capital commitment in respect of the purchase of plant and equipment for the production of barreled drinking water of approximately RMB66,000, as at 31 August 2014, the Target Group did not have any significant contingent liabilities or capital commitment.

Employee information

As at 31 December 2013, the Target Group had 24 employees of which 17 were being employed by Tianjin Hong Fu and 7 were being employed by Tianjin Yun Ze De respectively. As at 31 August 2014, the Target Group had 7 employees of which 4 were being employed by Tianjin Hong Fu and 3 were being employed by Tianjin Yun Ze De respectively. For details of employees’ remunerations, please refer to the sub-paragraph headed “ Employee information ” under the paragraph headed “ B. Management Discussion And Analysis Of Tianjin Hong Fu ” and “ C. Management Discussion And Analysis Of Tianjin Yun Ze De ”, respectively.

Foreign exchange management

The Target Company is an investment holding company and most of its monetary assets and liabilities were denominated in RMB. As at 31 December 2013 and 31 August 2014, certain of the Target Group’s bank balances and cash are denominated in foreign currencies, which expose the Target Group to foreign currency risk. Although the Target Group did not use any derivative financial instruments for hedging purposes, the Target Group managed its foreign currency risk by closely monitoring the movement of the foreign currency rate.

Prospect

The Target Group plans to pursue in the LPG business and barreled drinking water business in Tianjin. Please refer to the sub-paragraphs headed “ The LPG Business ” and “ The Barreled Drinking Water Business ” under the paragraph headed “ INFORMATION OF THE TARGET GROUP ” in the Letter from the Board of this circular.

Future plans for material investments and capital assets

In respect of the LPG business, the expected capital expenditure for the first phase expansion and the second phase expansion are approximately RMB14.7 million and approximately RMB11.4 million, respectively, which will be financed by internal resources. In respect of the barreled drinking water business, the capital expenditure for production of the Water Factory of RMB500,000 has incurred.

– 219 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

B. MANAGEMENT DISCUSSION AND ANALYSIS OF TIANJIN HONG FU

Set out below is the management discussion and analysis of Tianjin Hong Fu for the three years ended 31 December 2011, 2012 and 2013 and the eight months ended 31 August 2014 (the “ Relevant Periods ”), which are based on the audited financial information of Tianjin Hong Fu as set out in Appendix IIB to this circular.

				For the eight months	For the eight months
	For the year ended 31 December			ended 31 August
	2011	2012	2013	2013	2014
	_(RMB’000) (RMB’000) (RMB’000) _			_(RMB’000) _	(RMB’000)
	(audited) (audited) (audited)			(unaudited)	(audited)
Revenue	1,717	1,636	514	401	45
Gross profit	536	459	261	171	43
Net profit/(loss) (before taxation
and extraordinary items)	(2,119)	(2,497)	(988)	(546)	1,150
Net profit/(loss) (after taxation
and extraordinary items)	(2,127)	(2,502)	(1,017)	(564)	863
					As at
	As	at 31 December			31 August
	2011	2012		2013	2014
	(RMB’000)	(RMB’000)	(RMB’000)		(RMB’000)
	(audited)	(audited)	(audited)		(audited)
Total assets	13,640	11,690		11,168	12,308
Total liabilities	10,057	10,609		11,104	11,381
Net assets	3,583	1,081		64	927

Business and financial review

Comparison of the eight months ended 31 August 2014 (“PE2014”) to the eight months ended 31 August 2013 (“PE2013”)

Revenue

For PE2014, Tianjin Hong Fu recorded a revenue of approximately RMB45,000, representing a substantial decrease of approximately 88.8% as compared with approximately RMB401,000 for PE2013. Such decrease was primarily due to the discontinuation of pharmaceutical business as the Vendor planned to transform Tianjin Hong Fu into other prospective business.

– 220 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Cost of sales

Cost of sales included mainly raw materials, direct labour costs and manufacturing overhead. For PE2014, Tianjin Hong Fu recorded cost of sales of approximately RMB2,000, representing a decrease of approximately 99.1% as compared with approximately RMB230,000 for PE2013. Such decrease was due to the decrease in revenue as a result of the discontinuation of pharmaceutical business.

Gross profit

Gross profit of Tianjin Hong Fu was approximately RMB43,000 for PE2014, representing an decrease of approximately 74.9% as compared with approximately RMB171,000 for the PE2013. The decrease in gross profit is due to the costs such as depreciation and repair and maintenance incurred where they were not adequate to be compensated by the revenue generated from sales of medicine.

Other income and gains

Tianjin Hong Fu recorded other income and gains of approximately RMB2,071,000 for PE2014, representing a substantial increase of approximately 30 times as compared with approximately RMB67,000 for PE2013. Such increase was mainly due to the gain of approximately RMB1,650,000 recorded from the disposal of the pharmaceutical production technologies.

Staff costs and administrative expenses

Staff cost mainly included salary and related expenses and administrative expenses mainly included office maintenance expenses, loss on disposal of property, plant and equipment and amortisation of prepaid lease payments. For PE2014, Tianjin Hong Fu incurred staff costs and administrative expenses of approximately RMB964,000, representing an increase of approximately 23.0% as compared with approximately RMB784,000 of PE2013. Such increase was due to the loss on disposal of property, plant and equipment and write-down of on inventories recorded in PE2014 as a result of the disposal of machineries in related to medicine business.

Profit/(loss) before tax

Profit before tax of Tianjin Hong Fu for PE2014 was approximately RMB1,150,000, comparing with the loss before tax of approximately RMB546,000 for PE2013. Such turnaround was primarily due to the gain recorded from the disposal of the pharmaceutical production technologies.

– 221 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Income tax expense

Tianjin Hong Fu was subject to the PRC Enterprise Income Tax with tax rate of 25% for PE2014 and PE2013. Tianjin Hong Fu recorded income tax expense of approximately RMB287,000 for PE2014 and RMB18,000 for PE2013, respectively.

Net profit/(loss)

The net profit of Tianjin Hong Fu for PE2014 was approximately RMB863,000, comparing with the net loss of approximately RMB564,000 for PE2013. Such turnaround was primarily due to the gain recorded from the disposal of the pharmaceutical production technologies.

Comparison of the year ended 31 December 2013 (“FY2013”) to the year ended 31 December 2012 (“FY2012”)

Revenue

For FY2013, Tianjin Hong Fu recorded a revenue of approximately RMB514,000, representing a substantial decrease of approximately 68.6% as compared with approximately RMB1,636,000 for FY2012. Such decrease was primarily due to keen market competition and the decrease in demand for the pharmaceutical products.

Cost of sales

Cost of sales mainly included raw materials, direct labour costs and manufacturing overhead. For FY2013, Tianjin Hong Fu recorded cost of sales of approximately RMB253,000, representing a substantial decrease of approximately 78.5% compared with approximately RMB1,177,000 for FY2012. Such decrease was in line with the decrease in revenue.

Gross profit

Gross profit of Tianjin Hong Fu was approximately RMB261,000 for FY2013, representing a decrease of approximately 43.1% as compared with approximately RMB459,000 for FY2012. Such decrease was primarily due to the sunk cost and the decrease in sales.

Other income and gains

Tianjin Hong Fu recorded rental income from Tianjin Yun Ze De of approximately RMB100,000 for FY2013. No other income was recorded for FY2012.

– 222 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Staff costs and administrative expenses

Staff costs included salaries and related expenses and administrative expenses mainly included office maintenance expenses, amortisation of prepaid lease payments and impairment on inventories and trade receivables. For FY2013, Tianjin Hong Fu incurred staff costs and administrative expenses of approximately RMB1,349,000, representing an decrease of approximately 52.7% as compared with approximately RMB2,850,000 for FY2012. Such decrease was due to the decrease in the write-down of inventories recognised.

Loss before tax

The loss before tax of Tianjin Hong Fu for FY2013 was approximately RMB988,000, comparing with approximately RMB2,497,000 for FY2012. Such decrease in the loss before tax was primarily due to the decrease in the write-down of inventories.

Income tax expense

Tianjin Hong Fu was subject to the PRC Enterprise Income Tax with tax rate of 25% for FY2012 and FY2013. Tianjin Hong Fu recorded income tax expense of approximately RMB29,000 for FY2013 as compared with approximately RMB5,000 for FY2012.

Net loss

The net loss of Tianjin Hong Fu for FY2013 was approximately RMB1,017,000, representing a decrease of approximately 59.4% as compared with approximately RMB2,502,000 for FY2012. Such decrease in net loss was primarily due to the decrease in the write-down of inventories recognised.

Comparison of the year ended 31 December 2012 (“FY2012”) to the year ended 31 December 2011 (“FY2011”)

Revenue

For FY2012, Tianjin Hong Fu recorded a revenue of approximately RMB1,636,000, representing a decrease of approximately 4.7% as compared with approximately RMB1,717,000 for FY2011. Such decrease was due to the keen competition and decrease in demand for the pharmaceutical products.

– 223 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Cost of sales

Cost of sales mainly included raw materials, direct labour costs and manufacturing overhead. For FY2012, Tianjin Hong Fu recorded cost of sales of approximately RMB1,177,000, representing a slight decrease of approximately 0.3% as compared with approximately RMB1,181,000 for FY2011.

Gross profit

Gross profit of Tianjin Hong Fu was approximately RMB459,000 for FY2012, representing an decrease of approximately 14.4% as compared with approximately RMB536,000 for FY2011. Such decrease was primarily due to the sunk cost and the decrease in sales.

Staff costs and administrative expenses

Staff costs included salaries and related expenses and administrative expenses mainly included office maintenance expenses; amortisation of prepaid lease payments and impairment of inventories and other receivables During FY2012, Tianjin Hong Fu incurred staff cost and administrative expenses of approximately RMB2,850,000, representing an increase of approximately 14.7% as compared with approximately RMB2,485,000 for FY2011. Such increase was due to the increase in administrative expenses as a result of impairment recognised on other receivables of approximately RMB996,000 and the decrease in impairment on inventories.

Loss before tax

The loss before tax of Tianjin Hong Fu for FY2012 was approximately RMB2,497,000, representing an increase of approximately 17.8% comparing with approximately RMB2,119,000 for FY2011. Such increase in loss before tax was primarily due to the impairment loss recognised on other receivables.

Income tax expense

Tianjin Hong Fu was subject to the PRC Enterprise Income Tax with tax rate of 25% during FY2012 and FY2011. Tianjin Hong Fu recorded income tax expense of approximately RMB5,000 for FY2012 as compared with approximately RMB8,000 for FY2011.

– 224 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Net loss

The net loss of Tianjin Hong Fu for FY2012 was approximately RMB2,502,000, representing an increase of approximately 17.6% compared with approximately RMB2,127,000 for FY2011. Such increase was primarily due to the increase in administrative expenses.

Analysis on Financial Position

Non-current assets

The non-current assets of Tianjin Hong Fu amounted to approximately RMB11.65 million, RMB11.28 million, RMB10.89 million as at 31 December 2011, 31 December 2012, and 31 December 2013, respectively. Such gradual decrease was mainly due to depreciation of machineries and equipment and amortisation of prepaid lease payments. Subsequent to the disposal of machineries and equipment in relation to the medicine business, the non-current assets of Tianjin Hong Fu dropped to approximately RMB10.10 million as at 31 August 2014.

Current assets

The current assets of Tianjin Hong Fu amounted to approximately RMB2.00 million, RMB413,000, RMB283,000 and RMB2.21 million as at 31 December 2011, 31 December 2012, 31 December 2013, and 31 August 2014, respectively. As at 31 December 2011, there was a prepayment of approximately RMB1.38 million as a result of the advance to a supplier for the purchase of raw material. As at 31 August 2014, increase in current assets was due to increase in other receivables as a result of other receivables for the disposal of medicine production technologies and plant and machineries.

Current liabilities

The current liabilities of Tianjin Hong Fu amounted to approximately RMB10.06 million, RMB10.61 million, RMB11.10 million and RMB11.38 million as at 31 December 2011, 31 December 2012, 31 December 2013, and 31 August 2014, respectively. The current liabilities increased relatively mild over the years.

– 225 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Liquidity and financial resources

As at 31 December 2011, 2012 and 2013 and 31 August 2014, the bank balances and cash of Tianjin Hong Fu amounted to approximately RMB157,000, RMB202,000, RMB86,000 and RMB816,000, respectively, and the trade and other receivables of Tianjin Hong Fu amounted to approximately RMB1.52 million, RMB56,000, RMB65,000 and RMB1.21 million, respectively.

As at 31 December 2011, 2012 and 2013 and 31 August 2014, trade and other payables of Tianjin Hong Fu amounted to approximately RMB6.76 million, RMB7.64 million, RMB34,000 and RMB325,000, respectively.

As at 31 December 2011, Tianjin Hong Fu had a bank borrowing of RMB800,000, which had interest rate of 8.203% per annum and was fully repaid on 24 February 2012. During the Relevant Periods, director’s loan was the core financial resources of Tianjin Hong Fu. As at 31 December 2011, 2012 and 2013 and 31 August 2014, amount due to a director amounted to approximately RMB2.49 million, RMB2.97 million, RMB10.90 million and RMB10.74 million, respectively.

Capital structure

Tianjin Hong Fu financed itself through director’s loan. As at 31 August 2014, the amount of loan from director was approximately RMB10.7 million, which was unsecured, non-interest bearing and has no fixed term of repayment.

Gearing ratio

As at 31 December 2011, 2012, 2013 and 31 August 2014, the gearing ratio represented by total debt as a percentage of total assets were 24.1%, 25.4%, 98.9% and 87.3%, respectively. Since Tianjin Hong Fu could not generate internal resources from ordinary business and financed itself through director’s loan from 2013, the gearing ratio deteriorated significantly as at 31 December 2013 and 31 August 2014.

Pledge of assets

Save and except for the pledge of the buildings and prepaid lease payments with carrying amount of approximately RMB334,000 and RMB6.21 million for a bank loan of RMB800,000 as at 31 December 2011, Tianjin Hong Fu did not pledge other assets as at 31 December 2012, 31 December 2013 and 31 August 2014, respectively.

– 226 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Significant investments, material acquisitions and disposals

Tianjin Hong Fu disposed of all pharmaceutical production technologies in April 2014 and machineries and equipment for production of pharmaceutical products in July 2014. Subsequently, Tianjin Hong Fu submitted its application to the Development and Reform Commission of Wuqing District in Tianjin City for the development of the LPG Station on the Land Parcel and the Site Expansion Approval was granted on 1 August 2014.

Contingent liabilities and capital commitments

As at 31 December 2011, 2012, 2013 and 31 August 2014, Tianjin Hong Fu did not have any contingent liabilities and capital commitments.

Foreign exchange management

Since most of the transactions of Tianjin Hong Fu were denominated in RMB, Tianjin Hong Fu is not exposed to significant foreign currency risk. During the Relevant Periods, Tianjin Hong Fu did not hedge any exposure to foreign exchange risk.

Employee Information

Tianjin Hong Fu had a total of 48, 34, 17, and 4 employees as of 31 December 2011, 2012, 2013 and 31 August 2014, respectively. The total staff costs for the Relevant Periods were approximately RMB834,000, RMB1,171,000, RMB481,000 and RMB112,000, respectively.

Prospect

Tianjin Hong Fu plans to pursue in the LPG business in Tianjin. Please refer to the sub-paragraph headed “ The LPG Business ” under the paragraph headed “ INFORMATION OF THE TARGET GROUP ” in the Letter from the Board of this circular.

Future plans for material investments and capital assets

In respect of the LPG business, the expected capital expenditure for the first phase expansion and the second phase expansion are approximately RMB14.7 million and approximately RMB11.4 million, respectively, which will be financed by internal resources.

– 227 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

C. MANAGEMENT DISCUSSION AND ANALYSIS OF TIANJIN YUN ZE DE

Set out below is the management discussion and analysis of Tianjin Yun Ze De for the period from 27 November 2012 (i.e. the date of incorporation of Tianjin Yun Ze De) to 31 August 2014.

The following financial information is based on the audited financial information of Tianjin Yun Ze De as set out in Appendix IIC to this circular.

Business review

Tianjin Yun Ze De was inactive during the period from 27 November 2012 (i.e. the date of incorporation of Tianjin Yun Ze De) to 31 August 2014.

Financial review

For the period from 27 November 2012 (i.e. the date of incorporation of Tianjin Yun Ze De) to 31 August 2014, Tianjin Yun Ze De had no business operation. Tianjin Yun Ze De recorded a net loss before and after taxation for the period from 27 November 2012 (i.e. the date of incorporation) to 31 December 2012, year ended 31 December 2013 and eight months ended 31 August 2014 of nil, approximately RMB522,000 and approximately RMB194,000, respectively. The loss was mainly attributable to staff costs and administrative expenses such as professional fee and rental.

Liquidity and financial resources

Given the inactive status and the recurring administrative expenses, the audited net assets of Tianjin Yun Ze De decreased from approximately RMB3.0 million as at 31 December 2012 to approximately RMB2.49 million as at 31 December 2013, and to approximately RMB2.29 million as at 31 August 2014. As at 31 August 2014, Tianjin Yun Ze De had current assets of approximately RMB1.93 million, which mainly comprised (i) bank balances and cash of approximately RMB104,000; and (ii) amount due from a director of approximately RMB1.82 million.

Capital structure

Tianjin Yun Ze De financed itself through injected capital.

– 228 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Gearing ratio

The gearing ratio (represented by total debt as a percentage of total assets) of Tianjin Yun Ze De was nil, nil and approximately 2.29% as at 31 December 2012, 31 December 2013 and 31 August 2014, respectively.

Pledge of assets

As at 31 August 2014, Tianjin Yun Ze De did not pledge any assets to secure any general bank facilities or borrowing.

Significant investment, material acquisition and disposals

Tianjin Yun Ze De purchased machineries and equipment for production of barreled drinking water in June 2014 and entered into contract with third party contractor for the establishment of the Water Factory in August 2014. Deposits amounted to approximately RMB410,000 is recorded as deposits for acquisition of plant and equipment as at 31 August 2014.

Other than the above, Tianjin Yun Ze De did not have other significant investment, material acquisition and disposal for the period from 27 November 2012 (i.e. the date of incorporation) to 31 August 2014.

Contingent liabilities and capital commitment

Save as the capital commitment in respect of the purchase of plant and equipment for the production of barreled drinking water of approximately RMB66,000, as at 31 August 2014, Tianjin Yun Ze De did not have any significant contingent liabilities or capital commitment.

Foreign exchange management

All of Tianjin Yun Ze De’s bank balances and cash and liabilities were denominated in RMB. Tianjin Yun Ze De is not exposed to significant foreign currency risk. During For the period from 27 November 2012 (i.e. the date of incorporation of Tianjin Yun Ze De) to 31 August 2014, Tianjin Yun Ze De did not hedge any exposure to foreign exchange risk.

– 229 –

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP, TIANJIN HONG FU AND TIANJIN YUN ZE DE

Employee information

Tianjin Yun Ze De had a total of nil, 7, and 3 employees as of 31 December 2012, 31 December 2013 and 31 August 2014, respectively. The total staff costs were nil, approximately RMB196,000 and approximately RMB91,000, respectively, for the period from 27 November 2012 (date of incorporation) to 31 December 2012, year ended 31 December 2013 and eight months period ended 31 August 2014.

Prospect

Tianjin Yun Ze De plans to pursue in the barreled drinking water business in Tianjin. Please refer to the sub-paragraph headed “ The Barreled Drinking Water Business ” under the paragraph headed “ INFORMATION OF THE TARGET GROUP ” in the Letter from the Board of this circular.

Future plans for material investments and capital assets

In respect of the barreled drinking water business, the capital expenditure for production of the Water Factory of RMB500,000 has incurred.

– 230 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

I. INTRODUCTION

The unaudited pro forma statement of assets and liabilities of the Enlarged Group (the “Statement”) set out below has been prepared by the Directors in accordance with paragraph 14.67 of the Listing Rules, for illustrative purpose only, to provide information about how the proposed Acquisition might have affected the financial position of the Group as if the Acquisition had been completed on 31 March 2014.

The Statement has been prepared based on the audited consolidated statement of financial position of the Group as at 31 March 2014 as set out in the Company’s annual report dated 27 June 2014 and the audited consolidated statement of financial position of the Target Group as at 31 August 2014 as set out in the respective Accountants’ Reports included in Appendices IIA to IIC in this circular, after making certain pro forma adjustments that are (i) directly attributable to the Acquisition and (ii) factually supportable, as further described in the accompanying notes.

The Statement is prepared based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes only. Accordingly, as a result of the nature of the Statement, it may not give a true picture of the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 31 March 2014. Furthermore, the Statement does not purport to predict the Enlarged Group’s future financial position.

The Statement should be read in conjunction with the financial information of the Group and the Target Group as set out in Appendices I, IIA, IIB and IIC to this circular and other financial information included elsewhere in this circular.

– 231 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX IV

Non-current assets Property, plant and equipment Investment properties Prepaid lease payments Goodwill Intangible assets Interests in associates Interests in joint ventures Available-for-sale investments Deposit paid for acquisition of property, plant and equipment and prepaid lease payments Current assets Inventories Trade and other receivables Amount due from an associate Prepaid lease payments Bank balances and cash	Target Group 31.8.2014 RMB’000 Note 1 6,478 – 13,831 – – – – – 410 20,719 – 1,210 – 181 981 2,372	The Group Pro forma adjustment 31.3.2014 31.3.2014 RMB’000 RMB’000 RMB’000 Note 2 Note 3 Note 4 431,216 (174) 13,980 34,812 (12) 7,065 339,657 20,317 26,124 99,389 504,711 9,736 49,390 1,170,616 14,629 94,101 18 916 274,099 383,763	Enlarged Group as if the Acquisition has been completed 31.3.2014 RMB’000 437,520 13,980 48,631 346,722 46,441 99,389 504,711 9,736 49,800 1,556,930 14,629 95,311 18 1,097 275,080 386,135

– 232 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX IV

Current liabilities Trade and other payables Tax liabilities Amount due to a non- controlling interest of a subsidiary Amount due to a former director Amount due to a director Bank borrowings Net current (liabilities) assets Total assets less current liabilities Non-current liabilities Amount due to a former director Amount due to a director Deferred tax liabilities Net assets	Target Group 31.8.2014 RMB’000 Note 1 332 312 – – 8,996 – 9,640 (7,268) 13,451 – – 2,561 2,561 10,890	The Group Pro forma adjustment 31.3.2014 31.3.2014 RMB’000 RMB’000 RMB’000 Note 2 Note 3 Note 4 175,220 1,800 33,595 1,658 8,397 – (8,996) 25,000 243,870 139,893 1,310,509 23,131 – 185,501 4,588 6,485 27,719 1,282,790	Enlarged Group as if the Acquisition has been completed 31.3.2014 RMB’000 177,352 33,907 1,658 8,397 – 25,000 246,314 139,821 1,696,751 23,131 185,501 13,634 222,266 1,474,485

– 233 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX IV

II. NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

1. The audited consolidated statement of financial position of Target Group is extracted from the accountants’ report as set out in Appendix IIA to this Circular.

2. For the preparation of unaudited pro forma consolidated statement of assets and liabilities, the amounts are extracted from the audited consolidated statement of financial position of the Group for the year ended 31 March 2014 as set out in the latest published annual report of the Group.

3. As described in the section headed “Letter from the Board” of this circular, the Company entered into the Agreement with the Vendor, pursuant to which the Company has conditionally agreed to purchase and the Vendor has conditionally agreed to sell the Sale Shares and the Sale Loan at the Aggregated Consideration of RMB370,000,000 (equivalent to HK$466,612,550), subject to adjustment according to the details as set out in the paragraph headed “Profit Guarantee” in “Letter from the Board”. The Aggregated Consideration shall be settled (i) at Completion, as to HK$232,675,000 (equivalent to RMB184,499,431), by offsetting the subscription proceeds to be paid by Ping Da Development upon the exercise of the subscription rights attached to the 1,135,000,000 Warrants at the subscription price of HK$0.205 per Subscription Share; and (ii) as to the balance of HK$233,937,550 (equivalent to RMB185,500,569), to be paid by the Company to the Vendor by a banker’s cashier order in the amount of HK$233,937,550 issued by any licensed bank in Hong Kong on the sixth Business Day after the issue of the Profit Certificate (or such other time as may be agreed between the Company and the Vendor).

Upon the completion of the Acquisition, the Target Group will be accounted for as subsidiaries of the Group. Under Hong Kong Financial Reporting Standards 3 (the “HKFRS 3”) (Revised) “Business Combinations” issued by the Hong Kong Institute of Certified Public Accountants, the Group will apply the acquisition method to account for the acquisition of the Target Group. In applying the acquisition method, the identifiable assets, liabilities and contingent liabilities of the Target Group as at 31 August 2014 are recorded in the Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged Group at their fair values as if the Acquisition was completed on 31 March 2014.

The consideration transferred in the Acquisition is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred to the Group, liabilities incurred by the Group to the former owner of the Target Group and the equity interests issued by the Group in exchange for control of the Target Group. Where the consideration the Group transfers in the Acquisition includes assets or liabilities resulting from a contingent consideration arrangement (including the profit guarantee arrangement described below), the contingent consideration is measured at its acquisition date fair value and considered as part of the consideration transferred in the Acquisition.

Any goodwill arising on the Acquisition will be determined as the excess of the sum of the consideration transferred and over its interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the Target Group.

– 234 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX IV

Since the fair value of the consideration transferred by the Group (including contingent consideration) and the fair values of net identifiable assets, liabilities and contingent liabilities of the Target Group at the date of Completion may be substantially different from the estimated fair values used in the preparation of this Unaudited Pro Forma Consolidated Statement of Assets and Liabilities, the amount of goodwill on Acquisition at the date of Completion may be different from that estimated amount presented.

An impairment testing conducted in accordance with Hong Kong Accounting Standard 36 (“HKAS 36”) “Impairment of Assets” involves the determination of the recoverable amount of the cash generating units to which the goodwill has been allocated, being the higher of the cash generating unit’s fair value less costs to sell and its value in use.

For the purpose of the preparation of the Unaudited Pro Forma Consolidated Statement of Assets and Liabilities, the Directors have estimated the value in use of Target Group and assessed that there was no indication of impairment of goodwill arising from the Acquisition and hence no impairment was required.

The directors of the Company conducted a review of the Target Group’s goodwill and appointed an independent professional valuer to assist them to determine the recoverable amount, details of the fair value assessment please refer to App V “Business Valuation Report of The Target Group” section.

Details of the identifiable assets and liabilities of the Target Group and the calculation of goodwill are as follows:

Note Property, plant and equipment Prepaid lease payments i Intangible asset ii Deposit paid for acquisition of property, plant and equipment and prepaid lease payments Trade and other receivables Bank balances and cash Trade and other payables Amount due to a director Tax payables Deferred tax liabilities Goodwill Total consideration	Carrying amount RMB’000 6,478 14,012 – 410 1,210 981 (332) (8,996) (312) (2,561) 10,890	Fair value adjustments RMB’000 (174) (12) 26,124 – – – – – – (6,485) 19,453	Fair value RMB’000 6,304 14,000 26,124 410 1,210 981 (332) (8,996) (312) (9,046) 30,343 339,657 370,000

– 235 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX IV

Note Satisfied by: Offsetting the subscription proceeds upon the exercise of the warrants iii Cash consideration iv	RMB’000 184,499 185,501
	370,000

Notes:

• (i) The adjustment on prepaid lease payments of approximately RMB12,000 represents decrement of fair value of land use right in Tianjin, the PRC, over its carrying amounts as at 31 August 2014.

• (ii) The adjustment on intangible asset of approximately RMB26,124,000 represents excess of fair value of intangible asset of the license of water drawing permit of barreled water business in Tianjin, the PRC, over its carrying amounts as at 31 August 2014. The fair value of the intangible asset as at 31 August 2014 are determined based on the valuation carried out by an independent valuer where the basis of valuation adoption is the income approach with discounted cash flow modeling.

• (iii) Pursuant to the S&P Agreement (as supplemented by the Supplemental Agreement), the amount of HK$232,675,000 (equivalent to approximately RMB184,499,000) will be paid to the Vendor by offsetting the subscription proceeds to be paid by Ping Da Development upon the exercise of the subscription rights attached to the 1,135,000,000 Warrants at the subscription price of HK$0.205 per Subscription Share; and

• (iv) RMB185,500,569 will be paid after the issue of Profit Certificate, which the Vendor warranted the 2017 EBITDA of the Target Group will not be less than RMB30 million. In the opinion of the directors of the Company, the fair value of the Consideration Adjustment, determined on a provisional basis, is insignificant at 31 August 2014 and accordingly, no value has been recognised in this Statement.

Since the carrying values of the identifiable assets and liabilities of the Target Group used in the preparation of this Pro forma Financial Information may be different from their fair values on the Completion Date, the goodwill, additional property, plant and equipment, prepaid lease payments or intangible assets, if any, and relevant deferred tax impact to be recognised in connection with the Acquisition on Completion Date could be different from the estimated amounts stated herein and is subject to change upon the finalisation of the valuation.

• 4 The adjustment represents the estimated amount of legal and professional fees and other expenses payable by the Group relating to the Acquisition for approximately RMB1.8 million.

– 236 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX IV

• 5 An impairment testing conducted in accordance with HKAS 36 “Impairment of Assets” involves the determination of the recoverable amount of the fair value of the intangible asset, and property, plant and equipment, being the higher of its fair value costs to sell and its value in use. For the purpose of the preparation of the Unaudited Pro Forma Consolidated Statement of Assets and Liabilities, the directors of the Company have estimated the value in use of the intangible asset, and property, plant and equipment, and assessed that there was no indication of impairment arising from the acquisition and hence no impairment was required. In addition, the directors of the Company will adopt consistent accounting policies, principal assumptions and valuation methods in preparation of consolidated financial statements of the Group after the Completion.

• 6 No other adjustments have been made to reflect any trading result or other transactions of the Group and Target Group entered into subsequent to 31 March 2014. Unless otherwise stated, the adjustments above do not have a recurring effect.

There is no event or transaction subsequent to 31 March 2014 which may have significant effect to the pro forma financial information presented.

– 237 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the text of a report received from the reporting accountants, Pan-China (H.K.) CPA Limited, Certified Public Accountants, Hong Kong for the purpose of incorporation in this circular.

25 November 2014

The Board of Directors Chinese People Holdings Company Limited Unit 1101, 11th Floor Tung Ning Building 2 Hillier Street Central, Hong Kong

Dear Sirs,

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION INCLUDED IN AN INVESTMENT CIRCULAR

We have completed our assurance engagement to report on the compilation of the pro forma financial information of Chinese People Holdings Company Limited (the “ Company ”) and its subsidiaries (hereinafter collectively referred to as the “Group”) and True Vanguard Holdings Limited and its subsidiaries (together with the Group collectively referred to as the “Enlarged Group”) by the directors of the Company for illustrative purposes only.

The pro forma financial information (the “ Pro Forma Financial Information ”) consists of the pro forma consolidated statement of financial position as at 31 March 2014 and related notes as set out in the Appendix IV of the circular issued by the Company dated 25 November 2014 (the “ Circular ”) in connection with the proposed acquisition of the entire equity interest in True Vanguard Holdings Limited and the debt, loan or liability due from True Vanguard Holdings Limited to Dr. Mo Shikang (the “ Proposed Acquisition ”). The applicable criteria on the basis of which the Directors have compiled the Pro Forma Financial Information are described in the Appendix IV of the Circular.

The Pro Forma Financial Information has been compiled by the directors of the Company to illustrate the impact of the Proposed Acquisition on the Group’s financial position as at 31 March 2014. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s consolidated financial statements as at and for the year ended 31 March 2014, on which audit report has been published.

– 238 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

DIRECTORS’ RESPONSIBILITY FOR THE PRO FORMA FINANCIAL INFORMATION

The directors of the Company are responsible for compiling 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 (“AG”) 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

REPORTING ACCOUNTANT’S RESPONSIBILITIES

Our responsibility is to express an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, about whether the Pro Forma Financial Information has been compiled, in all material respects, by the Directors on the basis of the applicable criteria and to report our opinion to you.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountant comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the directors have compiled, in all material respects, the pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Listing Rules and with reference to AG 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the HKICPA.

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

The purpose of the Unaudited Pro Forma Financial Information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier dates selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 31 March 2014 would have been as presented.

– 239 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX IV

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

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

• The 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 judgment, having regard to the reporting accountant’s understanding of the nature of the Group, the event or transaction in respect of which the Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

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

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

OPINION

In our opinion:

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

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

• (c) the adjustments are appropriate for the purposes of the Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours Faithfully

PAN-CHINA (H.K.) CPA LIMITED

Certified Public Accountants

Wong Ho Yuen, Gary

Practising Certificate Number: P01316

Hong Kong

– 240 –

APPENDIX V BUSINESS VALUATION REPORT OF THE TARGET GROUP

The following is the text of a valuation report, prepared for the purpose of incorporation in this circular, received from Grant Sherman Appraisal Limited, an independent valuer, in connection with its valuation as at 31 August 2014 of the fair market value of a 100% equity interest in the Target Company.

==> picture [48 x 54] intentionally omitted <==

Unit 1005, 10/F., AXA Centre, 151 Gloucester Road, Wanchai, Hong Kong

25 November 2014

Chinese People Holdings Company Limited

Unit 1101, 11th Floor, Tung Ning Building, 2 Hillier Street, Central, Hong Kong

Dear Sir/Madam,

In accordance with your instructions, we have made an appraisal of the fair market value of a 100% equity interest in the business enterprise of True Vanguard Holdings Limited (the “Target Company”). Chinese People Holdings Company Limited (the “Company”) entered into the sale and purchase agreement (the “Agreement”) with Dr. Mo Shikang (the “Vendor”), pursuant to which the Vendor has conditionally agreed to sell and the Company has conditionally agreed to purchase the entire issued share capital of the Target Company and the debt, loan or liability due from the Target Company to the Vendor (if any) at a consideration of RMB370,000,000 (the “Acquisition”), subject to adjustment.

The Target Company is an investment holding company holding the entire equity interest in Beijing Civigas Zhong Feng Investment Consultancy Limited (“Beijing Zhong Feng”), whose major assets are its entire equity interest in each of Tianjin Hong Fu Pharmaceutical Limited (“Tianjin Hong Fu”) and Tianjin Yun Ze De Biotechnology Limited (“Tianjin Yun Ze De”) (the Target Company and its subsidiaries are collectively referred to as the “Target Group”). Tianjin Hong Fu planned to pursue in the filling and sale of liquefied petroleum gas (“LPG”) in Tianjin City (the “LPG Business”). Tianjin Yun Ze De planned to pursue in the production and sale of barreled drinking water and sale of electrical appliances such as water dispenser and water purification systems in Tianjin City (the “Barreled Drinking Water Business” and collectively with the LPG Business the “Target Businesses”).

– 241 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

This letter identifies the business appraised, describes the basis of valuation and assumptions, explains the valuation methodology utilized, and presents our conclusion of value.

Fair market value is defined as the estimated amount at which the business enterprise might be expected to exchange between a willing buyer and a willing seller, neither being under compulsion, each having reasonable knowledge of all relevant facts, and with the buyer and seller contemplating retention of the business at its present location for continuation of current operations unless the break-up of the business or the sale of its assets would yield greater investment returns.

Business enterprise value is defined for this appraisal as the total invested capital, excluding debts but including shareholders’ loans, and is equivalent to shareholders’ equity plus shareholders’ loans. The fair market value of the equity interest in the Target Group is developed through the application of the income approach.

The purpose of this appraisal is to express an independent opinion on the fair market value of a 100% equity interest in the business enterprise of the Target Company as at 31 August 2014 (the “Appraisal Date”). It is our understanding that this appraisal will be used by the Company for acquisition purposes and our report might be used in connection with public documents.

INTRODUCTION

Background Information

On 5 September 2014, the Company entered into the Agreement with the Vendor, pursuant to which the Vendor has conditionally agreed to sell and the Company has conditionally agreed to purchase the entire issued share capital of the Target Company and the debt, loan or liability due from the Target Company to the Vendor (if any) at a consideration of RMB370,000,000, subject to adjustment. Upon completion of the Acquisition, the Target Company will become a wholly-owned subsidiary of the Company and all the results and assets and liabilities of the Target Group will be consolidated to the financial statements of the Company.

The Company

The Company is an investment holding company incorporated in the Bermuda with limited liabilities whose shares was listed (Stock code: 0681) on the Main Board of the Stock Exchange of Hong Kong Limited. The Company is principally engaged in the sales and distribution of natural gas and LPG in the People’s Republic of China (the “PRC”) including the provision of piped gas, transportation, distribution and retail of LPG and lottery agency.

– 242 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

The Target Group

The Target Company

The Target Company is an investment holding company incorporated in the British Virgin Islands on 15 April 2014 with limited liability and wholly-owned by the Vendor.

Beijing Zhong Feng

Beijing Zhong Feng is a wholly foreign owned enterprise established in the PRC on 14 August 2014 and wholly-owned by the Target Company. The business scope of Beijing Zhong Feng is consultancy in social economy (excluding projects subject to administrative approval), investment and corporate management. The major assets of Beijing Zhong Feng is the entire interest in Tianjin Hong Fu and Tianjin Yun Ze De.

Tianjin Hong Fu

Tianjin Hong Fu is a domestic enterprise established in the PRC on 5 July 1999 and whollyowned by Beijing Zhong Feng. Tianjin Hong Fu was previously engaged in the business of production of medicine in the form of capsule, tablet, granule and mixture and the production of Sheng Xuan Pai capsule (聖宣牌彼德膠囊) and Sheng Feng Pai Xue Yang Tong Da capsule (聖 峰牌雪氧通大膠囊). Tianjin Hong Fu has discontinued its medicine business and has planned to pursue in the filling and sale of LPG business in Tianjin City, the PRC.

Tianjin Yun Ze De

Tianjin Yun Ze De is a domestic enterprise established in the PRC on 27 November 2012 and wholly-owned by Beijing Zhong Feng. Tianjin Yun Ze De is inactive and it has planned to pursue in the production and sale of barreled drinking water and sale of electrical appliances such as water dispenser and water purification systems in Tianjin City, the PRC.

INDUSTRY OVERVIEW

LPG Business

China has the highest population in the world and is also the world’s biggest LPG consumer and importer. Its domestic output extended from 14.17 million tonnes in 2004 to 25.00 million tonnes in 2013, with a CAGR of 6.5% according to National Bureau of Statistics of China. Based on the 2013 provincial LPG production data from icandata, an advisory institution in the PRC, Shandong was the province with the largest LPG output, followed by Guangdong, Liaoning, Heilongjiang and Jiangsu. Nearly half of the national LPG output was attributed to these top five provinces.

– 243 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

The self-sufficiency rate of LPG in 2012 was 91.4% but with swelling demand of LPG, the import of LPG from other countries to fill in the gap between supply and demand was rising. The Middle East retains a dominant share in the PRC’s imports while volumes from new suppliers such as West Africa and the US are increasing. In 2013, 4.2 million tonnes of LPG were imported to the PRC according to the research report from www.315.com.cn, an e-commerce solution provider. The net import of LPG in 2014 was expected to be 5 million tonnes.

Adding the self-production and net import, the supply of LPG in the PRC in 2013 was 27.91 million tonnes, with a year on year growth of 11.82%, as shown in Chart 1.

Chart 1: Supply of LPG of the PRC (2004 – 2013)

==> picture [342 x 204] intentionally omitted <==

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

million tonnes
30
27.91
24.84 24.96
25 22.53 23.20 23.37
20.51 20.52 21.14 21.58
20
15
10
5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Production Net import
----- End of picture text -----

Source: National Bureau of Statistics of China

The biggest LPG consumer was the chemical industry accounting for 39.3% of the total fuel use in the first half of 2014, with a 6.9% year on year growth, and the second largest user is civil use from residents as shown in Chart 2.

– 244 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

Chart 2: Use of LPG in the PRC (Jan-Jun 2014)

==> picture [334 x 200] intentionally omitted <==

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

Vehicle
3%
Industrial
18%
Civil
31%
Commercial
Chemical
9%
39%
----- End of picture text -----

Source: www.315.com.cn

Among the gases (including natural gas, artificial coal gas and LPG) for residential/ commercial use, the share of LPG was around 60% of total consumption in 2012. Despite the rapid growth of natural gas consumption, LPG still enjoys a large market share in the rural areas and city borders where the development of natural gas is restricted by transmission pipelines and resource supply amount. Rapid economic growth, accelerated urbanization, higher living standard of urban and rural household led to an increasing demand for more environmental friendly energy, it is expected that the total consumption and demand for the LPG would further be enlarged.

Another driver force of LPG demand is from chemical industry. LPG is likely to become more widely used in the petrochemical industry, such as in Propane Dehydrogenation (“PDH”) plants. China’s first PDH plant operated in 2013, and 14 further plants are under construction or planned to be set up by 2017. All 15 PDH plants could potentially create an annual propane demand of 11.5mt based on existing construction and capacity plans when completed according to Clarkson, an integrated shipping services provider. The import of LPG is expected to increase 1 million tonnes annually in the coming three to five years. Moreover, the amount of LPG consumed by the chemical industry in the PRC was below the global consumption level which represented a potential in demand in LPG. The usage of LPG in the chemical area will become more and the market demand for LPG as chemical raw material will increase significantly.

In conclusion, LPG is still an important fuel for residential use in the PRC market. More extensive use in chemical industry also increases the demand for LPG.

– 245 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

Barreled Drinking Water Business

Bottled water production industry in the PRC including companies involved in collecting and packaging of water which sourced from underground mineral water reserves, uncontaminated reservoirs, lakes and glaciers that have not yet been processed in public water supply system as well as other water supplies in accordance with the PRC government’s Standards for Drinking Water Quality. It is then sealed in plastic bottles, cans, glass bottles, barrels or other containers, with additive or removal of minerals, for sale.

From 2010 to 2013, the annual consumption of bottled water in the country has increased from 39.82 million tons to 65.79 million tons, with an annual growth rate of about 18.2%. According to the market research of IBISWorld, a global publishers of business intelligence, revenue for the bottled water production industry in the PRC has been escalating with an annual growth of 15.0% in the five years through 2014, to total US$18.2 billion. Euromonitor, a global market research company, also predicted that sales of bottled water in the PRC would climb to US$16 billion by 2017, up from US$9 billion in 2012 and US$1 billion in 2000. Askci, a Shenzhen-based consulting firm, projected that the bottled water industry will exceed US$24.1 billion in sales in 2018.

This strong growth has been driven by strong domestic demand as income increased in both rural and urban households due to high economic growth. As shown in Chart 3, the annual per capita disposable income of urban households and annual per capita net income of rural households both have a significant improvement in these years. The annual per capita disposable income of urban households increased from RMB17,175 in 2009 to RMB26,955 in 2013 and the annual per capita net income of rural households rose to RMB8,896 in 2013. Rapid urbanization also means that more people are on the move and leading busier lifestyles.

Chart 3: Annual per capita disposable income of urban households and net income of rural households (2009-2013)

==> picture [311 x 187] intentionally omitted <==

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

RMB
30,000
26,955
25,000 24,565
21,810
20,000 19,109
17,175
15,000
10,000 8,896
7,917
6,977
5,919
5,153
5,000
2009 2010 2011 2012 2013
Disposable income of urban households Net income of rural households
----- End of picture text -----

Source: National Bureau of Statistics of the PRC

– 246 –

APPENDIX V

BUSINESS VALUATION REPORT OF THE TARGET GROUP

Poor tap-water quality and scarcity in safe water source are fuelling the demand for bottled water. The news of contaminated water sources across the country has been persisting since 2012 which aroused media attention and public concerns. For example, in early 2013, 7,500 rotting pig carcasses were found floating in the Huangpu River of Shanghai and in April 2014, officials in Lanzhou, a city of three million people in Gansu province, advised residents not to drink the city water because of contamination. Economic growth outpaced fresh water supplies. About 70% of China’s lakes and rivers have been polluted by power plants and chemical, paper, and textile factories, reported by Worldwatch Institute, an environmental research group. About 14% of the country’s drinking water sources did not meet national standards, according to a report issued by the National Development and Reform Commission in 2012. Drinking water for almost 300 million people in rural areas is not safe, according to a State Council report. Water is often contaminated again en route to homes after purification at treatment plants as about half of tap water suppliers provide substandard water because of the deteriorating pipes according to China’s Ministry of Housing and Urban-Rural Development. Environmental pollution has caused people to eschew tap water for bottled water for hygiene and safety.

Increasing health awareness has an impact on people’s choice of drink. Over a decade, the market share of bottled water in the Chinese soft drink sector accelerated to 42% according to Canadean, a beverage industry market research firm. A remarkable shift to bottled water is emerging as Chinese consumers become aware of the health benefits of drinking water.

China’s bottled water market is highly fragmented and localized. There were over 1,500 local brands in different PRC cities. The national-wide leading brands are Master Kong, Nongfu Spring, Wahaha and C’estbon which took up a majority of the market share. Apart from local brands, international bottled water brands which targeted high-end market are presented in the PRC and experienced growth.

Nevertheless, the contamination and counterfeit scandals of bottled water call for safety concerns while the regulatory regime is weak. The information regarding water source or filtration method is not required to be disclosed to the public. Also, local bottled water is not required to be tested for a number of indicators, such as acidity, or for compounds like mercury and silver. Selling of falsely branded bottled water, which produced by illegal water factories that bottled tap water and sold them under the guise of popular brand names, are rampant as the officials rarely verify the serial numbers of water products. These factors lower people’s confidence towards bottled water in the PRC.

After all, bottled water industry in the PRC is boosted by the strong demand due to rising living standard, low tap water quality and higher health consciences. However, there are questions about the ability of regulators to ensure quality.

– 247 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

BASIS OF VALUATION AND ASSUMPTIONS

We have appraised the business enterprise of the Target Group on the basis of fair market value. Fair market value is defined as the estimated amount at which the business enterprise might be expected to exchange between a willing buyer and a willing seller, neither being under compulsion, each having reasonable knowledge of all relevant facts, and with the buyer and seller contemplating retention of the business at its present location for continuation of current operations unless the break-up of the business or the sale of its assets would yield greater investment returns. Business enterprise value is defined for this appraisal as shareholders’ equity plus shareholders’ loans.

Our investigation included discussions with management of the Target Group and the Company (the “Management”) in relation to the history and nature of the business, operations and prospects of the Target Group, a review of its statutory documents, historical financial information and the financial projections (the “Projections”), its underlying assumptions (the “Projection Assumptions”) as well as other relevant documents. We have assumed that the data, information, opinions and representation provided to us by the Management in the course of the valuation are true and accurate. In addition, a study of market conditions and an analysis of published information concerning the industry are used to evaluate the performance of the Target Businesses and to assess its ability and capacity to generate future investment returns.

Before arriving at our opinion of value, we have considered some principal factors that include, but are not limited to, the following:

• Nature of the Target Businesses of the Target Group;

• Economic outlook in general and the condition and outlook of the specific industry in particular;

• Stage of development of the Target Group;

• Business and financial risks of the Target Group;

• Extent, condition, utility and capacity of the facilities and equipment utilized by the businesses;

• Potential of the markets served; and

• Investment market’s attitude toward securities with similar characteristics, as measured by market performance, and alternative investment opportunities available to an investor.

– 248 –

APPENDIX V BUSINESS VALUATION REPORT OF THE TARGET GROUP

Due to the changing environment in which the Target Group is operating, a number of assumptions have to be established in order to sufficiently support our concluded value of the business enterprises of the Target Group. The major assumptions adopted in this appraisal are:

• The Target Group will successfully obtain and renew all the necessary licenses for the on-going operation of the Target Businesses;

• All approvals, licenses and contractual agreements with respect to the Target Group and its operations are legal, valid and will be enforceable in accordance with the legal terms;

• There will be no major changes in the existing political, legal, fiscal and economic conditions in the PRC in which the Target Group carries on its businesses;

• There will be no major changes in the current taxation law in the PRC, that the rates of tax payable will remain unchanged and that all applicable laws and regulations will be complied with;

• Exchange rates, inflation rates and interest rates will not differ materially from those presently prevailing;

• The availability of finance will not be a constraint on the forecast growth of the Target Group’s operations and the repayment of its debts when they fall due;

• The Target Group will successfully maintain its competitiveness and market shares through optimizing the utilization of its production capacities and expanding its customer bases;

• The Target Group can keep abreast of the latest development of the industry such that its competitiveness and profitability can be sustained;

• The Target Group will retain and have competent management, key personnel, and technical staff to support their ongoing operations;

• Any management changes or changes in ownership of the Target Group in the future will not have adverse effects on the long term profitability of its operations;

• Industry trends and market conditions for LPG and barreled drinking water industries will not deviate materially from economic forecasts;

• The labor market conditions will not differ materially from those presently prevailing; and

– 249 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

• The Projections have been prepared on a reasonable basis, reflecting estimates which have been arrived at after due and careful consideration by the Management.

For the purpose of this valuation, we were furnished with projected financial information, and records and documents by the Management. We have reviewed and examined the said information and have no reason to doubt the authenticity and accuracy of the information contained therein. We have also consulted sources of financial and business information to supplement the information provided by the Management. In arriving at our opinion of value, we have relied to a very considerable extent upon such data, records, documents, financial and business information from other sources, as well as a number of assumptions that are subjective and uncertain in nature. Any variation to these assumptions could seriously affect the fair market value of the appraised business enterprises.

VALUATION METHODOLOGY

To develop our opinion of values for Tianjin Hong Fu and Tianjin Yun Ze De, we considered the three generally accepted approaches to value: the Cost Approach, the Market Approach and the Income Approach. In this appraisal, the values of Tianjin Hong Fu and Tianjin Yun Ze De represent the value of the Target Group as they are the principal assets held by the Target Company.

We consider that Cost Approach is not applicable to this appraisal as it cannot reflect the fair market values of Tianjin Hong Fu and Tianjin Yun Ze De which are driven by the future revenue generated. For the Market Approach, we consider that it is not appropriate and accurate to arrive at a conclusion of the fair market values of Tianjin Hong Fu and Tianjin Yun Ze De without any historical earnings record. On the other hand, income approach explicitly recognizes that the current value of an investment is premised upon the expected receipt of future economic benefits such as cost savings, periodic income, or sale proceeds. We have applied the discounted cash flow method (“DCF”) in appraising the economic benefits of the asset being appraised. In practice, the discounted cash flow approach consists of estimating future annual cash flows and individually discounting them to present value.

Discount Rate Development

A discount rate represents the total expected rate of return that an investor would demand on the purchase price of an ownership interest in an asset given the level of risk inherent in that ownership interest. When developing discount rates to apply to the cash flow streams attributable to the business enterprises of Tianjin Hong Fu and Tianjin Yun Ze De, the discount rates are the cost of equity.

– 250 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

Capital Asset Pricing Model

The cost of equity was developed through the application of the Capital Asset Pricing Model (“CAPM”). The CAPM states that an investor requires excess returns to compensate for any risk that is correlated to the risk in the return from the stock market as a whole but requires no excess return for other risks. Risks that are correlated to the risk in the return from the stock market as a whole are referred to as systematic and measured by a parameter called beta, whereas other risks are referred to as nonsystematic.

The cost of equity was the sum of the risk-free rate return, equity risk premium, small capitalization risk premium and company specific risk premium. The risk-free rate associated with each comparable company is the yield on bonds issued by the government of the country in which the comparable company locates. Several listed companies with similar business nature are selected as comparable companies in developing the equity risk premium for Tianjin Hong Fu and Tianjin Yun Ze De. In our valuation model, we have based on the following relevant factors: (1) products, (2) markets, (3) earnings and growth, (4) capital structure, (5) nature of competition and (6) the characteristics of driving underlying investment risk and expected rate of return, to select comparable companies so as to derive the discount rate to reflect the investment risks involved in the future cash flows of Tianjin Hong Fu and Tianjin Yun Ze De. The following are the comparable companies selected for Tianjin Hong Fu and Tianjin Yun Ze De.

Tianjin Hong Fu

The business nature, leveraged beta and relevered beta of the comparable companies selected for Tianjin Hong Fu are as following.

Newocean Energy Hldgs Ltd

Newocean Energy Hldgs Ltd was listed (Stock code: 0342.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It is principally engaged in selling and distributing of LPG.

China Oil And Gas Group Ltd

China Oil And Gas Group Ltd was listed (Stock code: 0603.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It is engaged in the investments in, and the operation and management of the natural gas and energy related business.

– 251 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

Towngas China Co Ltd

Towngas China Co Ltd was listed (Stock code: 1083.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It is principally engaged in distributing and marketing gas. It sells LPG in bulk and in cylinder, provides piped LPG and natural gas, constructs gas pipelines, operates city gas-pipeline networks and gas stations, and sells LPG and natural gas household appliances.

China Resources Gas Group Ltd.

China Resources Gas Group Ltd. was listed (Stock code: 1193.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It distributes natural gas and petroleum gas as well as operates compressed natural gas filling stations in several cities in the PRC. The group also is involved in bottled LPG distribution in cities of Fuyang, Suzhou and Wuxi.

Chinese People Holdings Co

The Company whose shares was listed (Stock code: 0681.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. The Company is principally engaged in the sales and distribution of natural gas and LPG in the PRC including the provision of piped gas, transportation, distribution and retail of LPG and lottery agency.

Oriental Energy Co Ltd

Oriental Energy Co Ltd was listed (Stock code: 002221.SZ) on the Shenzhen Stock Exchange. It principally engaged in manufacturing, processing and distributing LPG. It produces LPG using oilfield associated gases, mainly including propane and butane and its products are mainly used as industrial gas, as well as chemical raw materials.

		Leveraged	Relevered
		Beta as at	beta as at
Comparable Companies for Tianjin	Stock Code/Country	the Appraisal	the Appraisal
Hong Fu	of Listing	Date*	Date
1. Newocean Energy Hldgs Ltd	342, Hong Kong	0.59	0.28
2. China Oil And Gas Group Ltd	603, Hong Kong	0.90	0.60
3. Towngas China Co Ltd	1083, Hong Kong	0.56	0.44
4. China Resources Gas Group Ltd.	1193, Hong Kong	0.71	0.58
5. Chinese People Holdings Co	681, Hong Kong	0.79	0.78
6. Oriental Energy Co Ltd	002221, China	0.86	0.53
	Average:	0.74	0.53

* Data extracted from Bloomberg

– 252 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

Tianjin Yun Ze De

The business nature, leveraged beta and relevered beta of the comparable companies selected for Tianjin Yun Ze De are as following.

Tibet 5100 Water Resources

Tibet 5100 Water Resources was listed (Stock code: 1115.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It is principally engaged in the production of branded premium bottled mineral water which focused on institutional sales such as rail transport operators, commercial banks, airlines, government organizations, and other major corporations in the PRC.

China Huiyuan Juice Group

China Huiyuan Juice Group was listed (Stock code: 1886.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It produces a wide range of beverages including fruit juice, vegetable juice, mixed fruit and vegetable juices, and other beverages.

Uni-President China Holdings

Uni-President China Holdings was listed (Stock code: 0220.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It engaged in the production of drinks such as juices and bottled water and instant noodles.

Tingyi (Cayman Isln) Hldg Co

Tingyi (Cayman Isln) Hldg Co was listed (Stock code: 0322.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It is principally engaged in manufacturing and selling of instant noodles and beverages including teas, juices and bottled water in the PRC.

Vitasoy Intl Holdings Ltd

Vitasoy Intl Holdings Ltd was listed (Stock code: 0345.HK) on the Main Board of the Stock Exchange of Hong Kong Limited. It manufactures and distributes food and beverages mainly in Hong Kong, Macau and the PRC.

Mount Everest Mineral Water

Mount Everest Mineral Water was listed (Stock code: 531096.IN) on the Bombay Stock Exchange Limited. It is engaged in sales and production of natural mineral water under the brand name HIMALAYAN.

– 253 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

		Leveraged	Relevered
		Beta as at	beta as at
Comparable Companies for Tianjin	Stock Code/Country	the Appraisal	the Appraisal
Yun Ze De	of Listing	Date*	Date
1. Tibet 5100 Water Resources	1115, Hong Kong	0.60	0.58
2. China Huiyuan Juice Group	1886, Hong Kong	0.77	0.55
3. Uni-President China Holdings	220, Hong Kong	0.57	0.48
4. Tingyi (Cayman Isln) Hldg Co	322, Hong Kong	0.72	0.66
5. Vitasoy Intl Holdings Ltd	345, Hong Kong	0.56	0.56
6. Mount Everest Mineral Water	531096, India	1.19	1.19
	Average:	0.73	0.67

• Data extracted from Bloomberg

We concluded that the discount rates for Tianjin Hong Fu and Tianjin Yun Ze De are 15.83% and 19.39% respectively as at the Appraisal Date.

Small Capitalization Risk Premium

Small capitalization risk premium is the excess return that an investor would demand in order to compensate for the additional risk over that of the entire stock market when investing in a small size company. This premium reflects the fact that the cost of capital increases with decreasing size of the company. A number of studies were conducted in the U.S. which concludes that the risk premium associated with a small company is over and above the amount that would be warranted just as a result of the company’s systematic risk derived from the CAPM. We concluded that small capitalization risk premium of 3.87% and 5.99% are appropriate for Tianjin Hong Fu and Tianjin Yun Ze De respectively as at the Appraisal Date.

Start-up Risk Premium

Tianjin Hong Fu and Tianjin Yun Ze De are start-up companies with no track record for their performances. They require time to implement their business plans and promote their brands. Therefore, start-up risk premium of 2.00% are appropriate for both Tianjin Hong Fu and Tianjin Yun Ze De.

Terminal growth rate

The terminal growth rate is 3% for both Tianjin Hong Fu and Tianjin Yun Ze De. It reflects the long-term growth rate of Tianjin Hong Fu and Tianjin Yun Ze De and inflation rate in the PRC.

– 254 –

BUSINESS VALUATION REPORT OF THE TARGET GROUP

APPENDIX V

Discount for Lack of Marketability

The concept of marketability deals with the liquidity of an ownership interest, that is, how quickly and easily it can be converted to cash if the owner chooses to sell. The lack of marketability discount reflects the fact that there is no ready market for shares in a closely held corporation. Ownership interests in closely held companies are typically not readily marketable compared to similar interests in public companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly held company.

A number of studies were conducted in the U.S. in an attempt to determine average levels of discount for lack of marketability. These studies all fall into one of two basic categories, depending on the type of market transaction data on which they are based:

• Restricted (“letter”) stock studies.

• Studies of transactions in closely held stocks prior to initial public offerings (IPOs).

Since the shares of the Target Group is not publicly traded and an active market for its shares does not exist, with reference to statistics published in the Mergerstat(r) Review 2013 by FactSet Mergerstat, LLC., a lack of marketability discount of 30% is considered as reasonable for the valuation of Tianjin Hong Fu and Tianjin Yun Ze De respectively. We believe that such a discount is reasonable for potential investors who are looking for similar kind of investments like Tianjin Hong Fu and Tianjin Yun Ze De.

SENSITIVITY ANALYSIS

The following tables set out the effect on the fair market value of the 100% equity interest in Tianjin Hong Fu and Tianjin Yun Ze De for changes to (i) the discount rate and (ii) the terminal growth rate, assuming all other assumptions contained in the Projections remain the same except where consequential amendments are required.

Tianjin Hong Fu

Scenario A: Sensitivity of fair market value for changes in the discount rate

Indicated Fair Market Value of 100% Equity Interest in Tianjin Discount Rate Hong Fu (After Marketability Discount) 13.83% RMB266,254,000 14.83% RMB234,818,000 15.83% (Base case) RMB208,620,000 16.83% RMB186,508,000 17.83% RMB167,640,000

– 255 –

APPENDIX V BUSINESS VALUATION REPORT OF THE TARGET GROUP

Scenario B: Sensitivity of fair market value for changes in the terminal growth rate

Indicated Fair Market Value of 100% Equity Interest in Tianjin Growth Rate Hong Fu (After Marketability Discount) 0% RMB184,706,000 1% RMB191,602,000 2% RMB199,496,000 3% (Base case) RMB208,620,000 4% RMB219,286,000 5% RMB231,920,000 6% RMB247,125,000

Tianjin Yun Ze De

Scenario A: Sensitivity of fair market value for changes in the discount rate

	Indicated Fair Market Value of 100% Equity Interest in Tianjin	Indicated Fair Market Value of 100% Equity Interest in Tianjin
Discount Rate		Yun Ze De (After Marketability Discount)
17.39%		RMB206,210,000
18.39%		RMB187,709,000
19.39% (Base case)		RMB171,686,000
20.39%		RMB157,700,000
21.39%		RMB145,409,000

Scenario B: Sensitivity of fair market value for changes in the terminal growth rate

Indicated Fair Market Value of 100% Equity Interest in Tianjin Growth Rate Yun Ze De (After Marketability Discount) 0% RMB159,080,000 1% RMB162,825,000 2% RMB167,001,000 3% (Base case) RMB171,686,000 4% RMB176,980,000 5% RMB183,010,000 6% RMB189,941,000

– 256 –

APPENDIX V BUSINESS VALUATION REPORT OF THE TARGET GROUP

CONCLUSION OF VALUE

Based upon the investigation and analysis outlined above and on the appraisal method employed, it is our opinion that the fair market value of a 100% equity interest in the business enterprise of the Target Company as at 31 August 2014 is reasonably stated as following:

	Fair market value as at the
	Appraisal Date
	(RMB)
Tianjin Hong Fu	208,620,000
Tianjin Yun Ze De	171,686,000
Target Company	380,306,000

This conclusion of value was based on generally accepted valuation procedures and practices that rely extensively on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

We hereby certify that we have neither present nor prospective interests in the Company and its subsidiaries and associates, the Target Group, the Vendor and his associates, or the value reported.

Respectfully submitted, For and on behalf of

GRANT SHERMAN APPRAISAL LIMITED

Keith C.C. Yan, ASA Kelvin C.H. Chan, FCCA, CFA Managing Director Director

Note: Mr. Keith C.C. Yan is an Accredited Senior Appraiser (Business Valuation/Intangible Assets) and he has been conducting business valuation of various industries and intangible assets valuation in Hong Kong, the PRC and the Asian region for various purposes since 1988. Mr. Kelvin C.H. Chan is a CFA Charterholder and a fellow member of the Association of Chartered Certified Accountants. He has been working in the financial industry since 1996, with experiences covering the area of corporate banking, equity analysis and business valuation.

– 257 –

REPORTS ON FORECASTS UNDERLYING THE VALUATION ON THE TARGET GROUP

APPENDIX VI

The following is the text of a report received from the reporting accountant, Pan-China (H.K.) CPA Limited, Certified Public Accountants, Hong Kong for the purpose of incorporation in this circular.

25 November 2014

Board of Directors Chinese People Holdings Company Limited Unit 1101, 11th Floor Tung Ning Building 2 Hillier Street Central, Hong Kong

Dear Sirs,

ACCOUNTANTS’ REPORT ON CALCULATIONS OF DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE VALUATION OF TRUE VANGUARD HOLDINGS LIMITED

We have examined the calculations of the discounted future estimated cash flows (the “ Underlying Forecast ”) on which the valuation prepared by Grant Sherman Appraisal Limited (the “ Valuer ”) dated 25 November 2014 in respect of the business value (the “ Valuation ”) on True Vanguard Holdings Limited (the “ Target Company ”) and its subsidiaries (collectively the “ Target Group ”) as of 31 August 2014 in connection with the proposed acquisition of 100% equity interest in the Target Company by Chinese People Holdings Company Limited, (the “ Company ”) as set out in Appendix V of the circular of the Company dated 25 November 2014 (the “ Circular ”).

Responsibilities

The directors of the Company and the Target Company (the “ Directors ”) are solely responsible for the preparation of the Underlying Forecast based on a set of reasonable and valid assumptions (the “ Assumptions ”), based on which the discounted future estimated cash flows and the business valuation of the Target Group are prepared. The Directors are responsible for the reasonableness and validity of the Assumptions.

It is our responsibility to form an opinion, based on our work on the Underlying Forecast based on which the Valuation is based and to report solely to you, as a body, for the purpose of your reporting under Rule 14.62(2) of Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and for no other purpose. We accept no responsibility to any other person in respect of, arising out of or in connection with our work.

– 258 –

REPORTS ON FORECASTS UNDERLYING THE VALUATION ON THE TARGET GROUP

APPENDIX VI

Basis of Opinion

We conducted our work in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”). This standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain reasonable assurance as to whether the Underlying Forecast, so far as the calculations are concerned, have been properly compiled in accordance with the Assumptions. Our work does not constitute any valuation of the Target Group.

Because the Valuation relates to discounted future estimated cash flows, no accounting policies of the Company have been adopted in its preparation. The Assumptions include hypothetical assumptions about future events and management actions which cannot be confirmed and verified in the same way as past results and these may or may not occur. Even if the events and actions anticipated do occur, actual results are still likely to be different from the Valuation and the variation may be material. Accordingly, we have not reviewed, considered or conducted any work on the reasonableness and validity of the Assumptions and do not express an audit opinion.

Opinion

In our opinion, based on the foregoing, the Underlying Forecast so far as the calculations are concerned, have been properly compiled, in all material respects, in accordance with the Assumptions adopted by the Directors as set out in Appendix V of the Circular.

Yours faithfully,

PAN-CHINA (H.K.) CPA Limited

Certified Public Accountants

WONG HO YUEN, GARY

Practising Certificate Number: P01316 Hong Kong

– 259 –

REPORTS ON FORECASTS UNDERLYING THE VALUATION ON THE TARGET GROUP

APPENDIX VI

The following is the text of a report received from Astrum Capital Management Limited for the purpose of incorporation in this circular.

==> picture [59 x 33] intentionally omitted <==

Astrum Capital Management Limited 阿仕特朗資本管理有限公司

25 November 2014

The Board of Directors Chinese People Holdings Company Limited Unit 1101, 11th Floor Tung Ning Building 2 Hillier Street, Central Hong Kong

Dear Sirs,

We refer to the discounted cash flow forecasts (the “ Forecast ”) underlying the valuation prepared by Grant Sherman Appraisal Limited (the “ Independent Valuer ”) in relation to the fair market value of 100% equity interest in the business enterprise of True Vanguard Holdings Limited and its subsidiaries (the “ Target Group ”) as at 31 August 2014 (the “ Valuation ”). The Valuation is regarded as a profit forecast under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

We have reviewed the Forecast and have discussed with you as the directors of the Company (the “ Directors ”) and the Independent Valuer the bases and assumptions upon which the Forecast has been made. We have also considered the letter addressed to you from Pan-China (H.K.) CPA Limited dated 25 November 2014 regarding the accounting policies and calculations upon which the Forecast has been made.

On the basis that (i) the assumptions and calculations adopted by the Independent Valuer in respect of the Forecast have been properly reviewed by the Directors; and (ii) the Directors are satisfied that no further matters should be brought to our attention, we are of the opinion that the Forecast, for which the Directors and the Independent Valuer are responsible, has been made by the Directors after due and careful enquiry. However, as the relevant bases and assumptions are about future events which may or may not occur, the actual financial performance of the businesses of the Target Group may or may not achieve as expected. We express no opinion on how closely the actual cash flow will eventually correspond with the Forecast.

– 260 –

REPORTS ON FORECASTS UNDERLYING THE VALUATION ON THE TARGET GROUP

APPENDIX VI

Our work in connection with the Forecast has been undertaken solely for the strict compliance under Rule 14.62(3) of the Listing Rules and for no other purpose.

Yours faithfully, For and on behalf of Astrum Capital Management Limited Hidulf Kwan

Executive Director

– 261 –

PROPERTY VALUATION REPORT

APPENDIX VII

The following is the text of letter and valuation certificate, prepared for the purpose of incorporation in this circular, received from Grant Sherman Appraisal Limited, an independent property valuer, in connection with their valuation as at 31 August 2014 of the property interest to be held by the Group in the People’s Republic of China.

==> picture [48 x 53] intentionally omitted <==

Unit 1005, 10/F., AXA Centre, 151 Gloucester Road, Wanchai, Hong Kong

25 November 2014

The Directors Chinese People Holdings Limited Unit 1101, 11th Floor, Tung Ning Building, 2 Hillier Road, Central, Hong Kong

Dear Sirs,

In accordance with your instructions to value the property interest to be held by Chinese People Holdings Limited (“the Company”) and its subsidiaries (together referred to as “the Group”) located in the People’s Republic of China (“the PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of such property interest as at 31 August 2014 (the “Valuation Date”) for purpose of incorporation into the circular issued by the Company on the date hereof.

Our valuation is our opinion of market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

Market value is understood as the value of a property estimated without regard to costs of sale or purchase (or transaction) and without offset for any associated taxes or potential taxes.

– 262 –

APPENDIX VII

PROPERTY VALUATION REPORT

In valuing the property interest which is held by the Group for self-occupation in the PRC, we have adopted a combination of the market and depreciated replacement cost approach in assessing the land portion of the properties and the buildings and structures standing on the lands respectively. Hence, the sum of the two results represents the market values of the properties as a whole. In the valuation of the land portion, reference has been made to the standard land price in Wuqing County, Tianjin City and the sales evidence as available to us in the locality. As the nature of the buildings and structures cannot be valued on the basis of market value, they have therefore been valued on the basis of their depreciated replacement costs. The depreciated replacement cost approach considers the current cost of replacement (reproduction) of the buildings and improvements less deductions for physical deterioration and all relevant forms of obsolescence and optimisation. The depreciated replacement cost approach generally furnishes the most reliable indication of value for property in the absence of a known market based on comparables sales. The approach is subject to adequate potential profitability of the business.

Our valuation has been made on the assumption that the owner sells the property interest on the market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to increase the value of the property interest. In addition, no forced sale situation in any manner is assumed in our valuation.

No allowance has been made in our valuation for any charge, mortgage or amount owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

In valuing the property interest, we have fully complied with the HKIS Valuation Standards (2012 Edition) published by The Hong Kong Institute of Surveyors (HKIS) and the requirements set out in Chapter 5 of and Practice Note 12 to the Rule Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited.

We have assumed that all consents, approvals and licenses from relevant government authorities for the property have been granted without any onerous conditions or undue time delay which might affect its value. It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless nonconformity has been stated, defined, and considered in the valuation certificate. Moreover, we have assumed that the utilization of the property and improvements is within the boundaries of the property described and that no encroachment or trespass exists, unless noted in the valuation certificate.

– 263 –

PROPERTY VALUATION REPORT

APPENDIX VII

We have been provided with copies of extracts of title documents relating to the property. However, we have not conducted land searches on the property and we have not inspected the original documents to verify ownership or to verify any amendments which may not appear on the copies handed to us. In undertaking our valuation for the property interest in the PRC, we have relied on the legal opinion (“the PRC legal opinion”) provided by the Group’s PRC legal adviser, Li & Partners (Beijing).

We have relied to a considerable extent on the information provided by the Company and have accepted advice given to us by the Company on matters such as statutory notices, easements, tenure, occupancy, floor areas, identification of the property and all other relevant matters. We have no reason to doubt the truth and accuracy of the information provided to us by the Company. We have relied on the Company’s confirmation that no material fact has been omitted from the information so supplied. All documents have been used as reference only. All dimensions, measurements and areas are approximations. No on-site measurement has been taken.

No environmental impact study has been ordered or made. Full compliance with applicable national, provincial and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the valuation certificate. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, provincial, or national government private entity or organization either have been or can be obtained or renewed for any use which the valuation certificate covers.

We have inspected the exteriors and, where possible, the interiors of the property in respect of which we have been provided with such information as we have required for the purpose of our valuation. However, no structural survey has been carried out and it was not possible to inspect the wood work and other parts of the structures which were covered, unexposed or inaccessible. We are therefore, unable to report that the property is free of rot, infestation or any structural defect. No tests have been carried out on any of the building services.

– 264 –

PROPERTY VALUATION REPORT

APPENDIX VII

Unless otherwise stated, all sums in our valuation are in Renminbi (RMB). The exchange rate adopted in valuing the property interests in the PRC as at 31 August 2014 was HK$1: RMB0.7913. There has been no significant fluctuation in the exchange rate for this currency against Hong Kong Dollars between that date and the date of this letter.

We enclose herewith the valuation certificate.

Respectfully submitted, For and on behalf of GRANT SHERMAN APPRAISAL LIMTIED

Lawrence Chan Ka Wah MRICS MHKIS RPS(GP)MHIREA Director

Real Estate Group

Note:

Mr. Lawrence Chan Ka Wah is a member of the Royal Institution of Chartered Surveyors, a member of the Hong Kong institute of Surveyors and Registered Professional Surveyors in the General Practice Section, who has over 10 years’ experience in the valuation of properties in Hong Kong, Macau, the PRC and the Asian Rim.

– 265 –

PROPERTY VALUATION REPORT

APPENDIX VII

VALUATION CERTIFICATE

Property interest to be held by the Group in the PRC for self-occupation purpose

Property

The land and buildings situated at the South of Dagaokou Village, Caozili County, Wuqing District, Tianjin City, the PRC

Description and Tenure

The property comprises a parcel of land together with 8 single to 2-storey buildings completed in between 1990 and 2012 erected thereon.

The site area and total gross floor area of the property are approximately 52,030 sq.m. and 5,971.7 sq.m. respectively.

Market Value in Particulars of existing state as at Occupancy 31 August 2014 The property was RMB14,800,000 occupied by the Group (equivalent to for industrial and approximately ancillary uses as at the HK$18,700,000) Valuation Date. Interest attributable to the Group 100%

The land use rights of the property were granted for a term of 50 years expiring on 1 February 2058 for industrial use.

Market Value in existing state attributable to the Group as at 31 August 2014 RMB14,800,000 (equivalent to approximately HK$18,700,000)

Notes:

1. Pursuant to a Real Estate Ownership Certificate (Document No.: Fang Di Zheng Jin Zi No. 122030908625), the land use rights of the property with a site area of approximately 52,030 sq.m. were granted to Tianjin Hong Fu Pharmaceutical Limited for a term of 50 years expiring on 1 February 2058 for industrial use.

As stipulated in the aforesaid Real Estate Ownership Certificate, the ownership of three buildings of the property with a total gross floor area of approximately 2,731.7 sq.m. is vested in Tianjin Hong Fu Pharmaceutical Limited.

1. According to the information provided by the Company, there are 5 buildings with a total gross floor area of approximately 3,240 sq.m. erected on the land parcel of the property without Real Estate Ownership Certificate.

– 266 –

PROPERTY VALUATION REPORT

APPENDIX VII

1. The particulars of the building portion of the property is summarized as below:

Building Name	Approximate Gross Floor Area (sq.m.)	No. of storey	Year of completion	Real Estate Ownership Certificate (Document No.)
Office Building	1,673.81	2	1990	Fang Di Zheng Jin Zi No. 122030908625
Workshop	827.89	1	1990
Dormitory	230	1	1998
Dormitory	238	1	2002	Nil
Production Workshop	2,056	1	2005	Nil
Medicine Workshop	100	1	2005	Nil
Management Dormitory	680	2	2008	Nil
Production Workshop	166	1	2012	Nil
Total	5,971.7

1. We have ascribed no commercial value to the buildings stated in Note 2 due to the absence of the Real Estate Ownership Certificate, hence they are not entitled to be transferred, leased and mortgaged.

However, for indicative purpose, the depreciated replacement cost of these 5 buildings as at the Valuation Date is RMB4,900,000 (equivalent to approximately HK$6,200,000) by assuming they have obtained the relevant title documents and are freely transferrable in the market.

1. According to the information provided by the Company, Tianjin Hong Fu Pharmaceutical Limited is a domestic enterprise established in the PRC, which is wholly owned by Beijing Civigas Zhong Feng Investment Consultancy Limited.

2. The property is inspected by our Mr. Lawrence Chan Ka Wah (MRICS MHKIS RPS(GP) MHIREA) on 28 August 2014, the external condition of the property was reasonable.

3. The property is situated in Dagaokou Village, low-rise village houses are found nearby It is about 40-minute driving distance to Wuqing downtown and about 1-hour driving distance to Tianjin Binhai International Airport. The property is accessible by taxi.

4. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal adviser, Li & Partners (Beijing), which contains, inter alia, the following information:

5. (a) The current registered owner of the land parcel and buildings of the property stated in Note 1 is Tianjin Hong Fu Pharmaceutical Limited. The land parcel and the buildings stated in Note 1 are entitled to be occupied, transferred, leased and mortgaged;

6. (b) The buildings of the property stated in Note 2 are not entitled to be transferred, leased and mortgaged. However, there are no foreseeable legal impediments for the Company to obtain the Real Estate Ownership Certificates for these buildings; and

7. (c) The land and buildings state in Note 1 of the property is free from any mortgage, charges, orders and other legal encumbrances which may cause adverse effects on the ownership of the property.

– 267 –

GENERAL INFORMATION

APPENDIX VIII

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 Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Interest of Directors and chief executives of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the Shares, underlying Shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO) which (a) are 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 and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) are required to be entered in the register pursuant to section 352 of the SFO; or (c) are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”), were as follows:

Long position in Shares

				Number of
				underlying
				Shares held		Approximate
	Personal	Family	Corporate	under equity		% of
Name of Directors	interests(1)	interests	interests	derivatives	Total	shareholding
Dr. Mo Shikang
(i.e. the Vendor)	427,841,375	–	–	1,135,000,000 (3)	1,562,841,375	26.90%
Mr. Zhang Hesheng	227,138,793	–	–	–	227,138,793	3.91%
Mr. Chu Kin Wang Peleus	–	9,840,000 (2)	–	–	9,840,000	0.17%

– 268 –

GENERAL INFORMATION

APPENDIX VIII

Notes:

1. This represents interests held by the relevant Directors as beneficial owner.

2. This represents interests legally and beneficially held by his spouse.

3. This represents interest legally and beneficially held by the Vendor through Ping Da Development with respect to 1,135,000,000 Warrants issued by the Company to Ping Da Development pursuant to the warrants subscription agreement dated 8 April 2013, details of which were disclosed in the circular of the Company dated 8 July 2013. The Vendor is the sole director of Ping Da Development.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interests or short positions in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which 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 which they were taken or deemed to have under such provisions of the SFO), or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or were required, pursuant to the Model Code to be notified to the Company and the Stock Exchange.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors is a director or employee of a company which had, or was deemed to have, an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

– 269 –

GENERAL INFORMATION

APPENDIX VIII

(b) Service Contracts

Dr. Liu Junmin, Prof. Zhao Yanyun and Mr. Sin Ka Man, all being the independent non-executive Directors, have entered into a service contract with the Company for a term of 3 years but subject to retirement by rotation and re-election in accordance with the Company’s bye-laws and the Listing Rules.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any existing or proposed service agreement with any member of the Enlarged Group (excluding contracts expiring or determinable by the Company within one year without payment of compensation (other than statutory compensation)).

(c) Competing Interests

Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors and their respective associates were considered to have an interest in a business which competes or is likely to compete, either directly or indirectly, with the businesses of the Enlarged Group, other than those businesses to which the Directors were nominated and appointed as directors and/or senior management to represent the interests of the Company and/or the Enlarged Group.

(d) Interests in assets

Save as disclosed in this circular, none of the Directors or the experts as referred to in the paragraph headed “Experts and Consents” in this appendix has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group since 31 March 2014, being the date to which the latest published audited financial statements of the Company were made up or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

(e) Interests in contract or arrangement

Save for the S&P Agreement (as supplemented by the Supplemental Agreement), as at the Latest Practicable Date, none of the Directors were materially interested in any contract or arrangement subsisting, and which was significant in relation to the business of the Group.

3. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration or claims which would materially and adversely affect the operations of the Company and no litigation, arbitration or claims which would materially and adversely affect the operations of the Company is known to the Directors to be pending or threatened by or against any members of the Enlarged Group.

– 270 –

GENERAL INFORMATION

APPENDIX VIII

4. EXPERTS AND CONSENTS

The qualifications of the experts who have given opinions and advice in this circular are as follows:

Name

Qualification

Astrum Capital Management Limited A licensed corporation permitted to carry out type 1 (dealing in securities), type 2 (dealing in futures contracts), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO New Spring Capital A licensed corporation permitted to carry out type 6 (advising on corporate finance) regulated activity under the SFO Pan-China (H.K.) CPA Limited Certified Public Accountants Grant Sherman Appraisal Limited Independent valuer

Each of the experts named above 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, valuation certificate, advice, opinion and/or references to its name, in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of the experts named above was not beneficially interested in the share capital of any member of the Enlarged Group nor did it have any 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 nor did it have any interests, either direct or indirect, in any assets which have been, since the date to which the latest published audited consolidated financial statements of the Company were made up (i.e. 31 March 2014), acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

– 271 –

GENERAL INFORMATION

APPENDIX VIII

5. MATERIAL CONTRACTS

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

• (i) the equity transfer agreement dated 3 April 2013 entered into between Beijing Civigas Co., Ltd. (“ Beijing Civigas ”), a wholly-owned subsidiary of the Company, and Xi’an Yanliang District Government (“ Yanliang Government ”, the non-controlling shareholder of Xi’an Civigas Co., Limited (“ Xi’an Civigas ”), a 70.00% owned subsidiary of the Company), pursuant to which Yanliang Government agreed to transfer its 9.15% equity interests in Xi’an Civigas to Beijing Civigas at the consideration of approximately RMB9,103,000;

• (ii) the capital injection agreement dated 3 April 2013 entered into between Beijing Civigas, Yanliang Government and Shaanxi Provincial Natural Gas Co., Ltd. (“ Shaanxi Gas ”), an independent third party to the Group, pursuant to which Shaanxi Gas made a total capital injection of RMB54,902,000 into Xi’an Civigas, increasing its shareholding in Xi’an Civigas from 6.88% to 40.00% after the capital injection. Accordingly, the Group’s equity interests in Xi’an Civigas was diluted from 79.15% to 51%;

• (iii) the settlement deed dated 8 April 2013 (as supplemented by a supplemental settlement deed dated 16 May 2013) entered into between the Company and Yongheng Development Corporation Limited, pursuant to which, among others, (i) the security created by the share charge shall be discharged and released in the manner provided in the release; and (ii) the Company shall waive the compliance by Yongheng Development Corporation Limited of its obligations under the agreement dated 13 June 2011 in respect of the acquisition of the sale share in relation to the Profit Guarantee (as defined in the Company’s circular dated 8 July 2013) in the manner provided in the release; (iii) Yongheng Development and the Company shall appoint an escrow agent to hold and deal with the Consideration Shares in accordance with the terms of the escrow letter; and (iv) the Consideration Shares shall be held and dealt with by the escrow agent in accordance with the terms of the settlement deed;

• (iv) the warrants subscription agreement dated 8 April 2013 entered into between the Company and Ping Da Development, pursuant to which the Company has conditionally issued to Ping Da Development, and Ping Da Development has conditionally subscribed for, an aggregate of 1,135,000,000 Warrants conferring the rights to subscribe for an aggregate of 1,135,000,000 subscription shares at the initial subscription price of HK$0.205 per subscription share (subject to adjustment);

– 272 –

GENERAL INFORMATION

APPENDIX VIII

• (v) the natural gas supply agreement dated 22 May 2013 entered into between Xi’an Civigas and Shaanxi Gas in relation to purchase of natural gas from Shaanxi Gas by Xi’an Civigas for a term commencing from 30 June 2013 until 31 December 2013. The transaction under the aforementioned agreement will not exceed the volume of 35,000,000 m[3] and the amount of RMB58,150,000;

• (vi) the natural gas supply agreement dated 12 November 2013 entered into between Xi’an Civigas and Shaanxi Gas in relation to the further purchase of natural gas from Shaanxi Gas for a period of three years from 1 January 2014 to 31 December 2016. The annual cap for the transactions for each of the three years ending 31 December 2014, 31 December 2015 and 31 December 2016 under the said agreement will be RMB121,603,000, RMB140,015,000 and RMB162,421,000, respectively;

• (vii) the placing agreement dated 30 April 2014 entered into between the Company and Astrum Capital Management Limited (“ Astrum ”) pursuant to which Astrum agreed, on a best effort basis, to place up to 1,727,729,582 Consideration Shares;

• (viii) the equity transfer agreements dated 21 May 2014 entered into between Tianjin Civigas Technology Co., Ltd. (“ Tianjin Civigas ”) and independent third parties, pursuant to which Tianjin Civigas acquired 100% equity interest of Tianjin Binhai (which is principally engaged in the wholesale and retail LPG business in Tianjin) at a total consideration of RMB8,200,000;

• (ix) the equity transfer agreement dated 22 May 2014 entered into between Tianjin Civigas and an independent third party, pursuant to which, Tianjin Civigas acquired 100% equity interest of Ji County Civigas (which is principally engaged in the wholesale and retail LPG business in Tianjin) at a total consideration RMB2,640,000;

• (x) the S&P Agreement; and

• (xi) the Supplemental Agreement.

6. MISCELLANEOUS

• (i) The registered office of the Company is located at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.

• (ii) The principal place of business of the Company in Hong Kong is located at Unit 1101, 11th Floor, Tung Ning Building, 2 Hillier Street, Central, Hong Kong.

• (iii) The company secretary of the Company is Ms. Li Fun Replen, who is an associate member of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.

– 273 –

GENERAL INFORMATION

APPENDIX VIII

• (iv) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Tengis Limited, whose address is Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (v) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

1. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong at Unit 1101, 11th Floor, Tung Ning Building, 2 Hillier 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 SGM:

• (i) the bye-laws and articles of association of the Company;

• (ii) the annual reports of the Company for the two years ended 31 March 2013 and 2014;

• (iii) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 47 of this circular;

• (iv) the letter from New Spring Capital to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 48 to 113 of this circular;

• (v) the accountants’ report on the Target Group from Pan-China (H.K.) CPA Limited, the text of which is set out in Appendix IIA to this circular;

• (vi) the accountants’ report on Tianjin Hong Fu from Pan-China (H.K.) CPA Limited, the text of which is set out in Appendix IIB to this circular;

• (vii) the accountants’ report on Tianjin Yun Ze De from Pan-China (H.K.) CPA Limited, the text of which is set out in Appendix IIC to this circular;

• (viii) the letter from Pan-China (H.K.) CPA Limited in respect of the unaudited pro forma statement of assets and liabilities of the Enlarged Group, the text of which is set out in Appendix IV to this circular;

• (ix) the business valuation report of the Target Group prepared by Grant Sherman Appraisal Limited as set out in Appendix V to this circular;

• (x) the property valuation report of the Target Group prepared by Grant Sherman Appraisal Limited as set out in Appendix VII to this circular;

– 274 –

GENERAL INFORMATION

APPENDIX VIII

• (xi) the reports on forecasts underlying the valuation of the Target Group prepared by Astrum Capital Management Limited and Pan-China (H.K.) CPA Limited respectively, the text of which is set out in Appendix VI to this circular;

• (xii) the written consents referred to in the paragraph headed “Experts and Consents” in this appendix;

• (xiii) the service contracts referred to in the paragraph headed “Service contracts” in this appendix;

• (xiv) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix;

• (xv) the S&P Agreement;

• (xvi) the Supplemental Agreement; and

(xvii) this circular.

– 275 –

NOTICE OF SGM

==> picture [53 x 87] intentionally omitted <==

CHINESE PEOPLE HOLDINGS COMPANY LIMITED ��������������� (incorporated in Bermuda with limited liability) (stock code: 681)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “ SGM ”) of Chinese People Holdings Company Limited (the “ Company ”) will be held at the head office of the Company, Conference Room, 1st Floor, No.36 BDA International Business Park, No.2 Jingyuan North Street, Economic Technological Development Area, Beijing, China on Friday, 12 December 2014 at 1:30 p.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT

• (a) the sale and purchase agreement entered into between the Company (as purchaser) and Dr. Mo Shikang (as vendor) dated 5 September 2014 (as supplemented by a supplemental agreement dated 13 November 2014) (the “ S&P Agreement ”) in relation to the acquisition of (i) the entire issued share capital of True Vanguard Holdings Limited; and (ii) the debt, loan or liability due from True Vanguard Holdings Limited to Dr. Mo Shikang (if any) as at the date of completion of the S&P Agreement at a consideration of RMB370,000,000 (a copy of the S&P Agreement has been produced to the Meeting marked “A” and initialed by the Chairman of the Meeting for the purpose of identification) and all the transactions contemplated thereunder, be and are hereby approved, confirmed and ratified; and

• (b) any one director of the Company be and is hereby authorised to do all such things and acts of administrative nature as he may in his discretion consider necessary, expedient or desirable for the purpose of or in connection with the implementation of the S&P Agreement and the transactions contemplated thereunder, including but not limited to the execution of all such documents under seal where applicable, as he considers necessary or expedient in his opinion to implement and/or give effect to the S&P Agreement.”

By Order of the Board

Chinese People Holdings Company Limited Jin Song

Managing Director and Executive Director

Beijing, 25 November 2014

– 276 –

NOTICE OF SGM

Registered Office: Head Office: Principal Place of Canon’s Court No. 36 BDA International Business Park Business in Hong Kong: 22 Victoria Street No. 2 Jingyuan North Street Unit 1101, 11th Floor Hamilton HM 12 Economic Technological Development Area Tung Ning Building Bermuda Beijing, China 2 Hillier Street Central, Hong Kong

Notes:

1. A member of the Company entitled to attend and vote at the SGM is entitled to appoint one or, if he is the holder of two or more shares, more proxies to attend and vote instead of him. A proxy need not be a member of the Company.

2. In the case of joint holders of shares in the Company, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s), seniority being determined by the order in which names stand in the register of members.

3. In order to be valid, the form of proxy must be in writing under the hand of the appointor or of his attorney duly authorized in writing, or if the appointor is a corporation, either under seal, or under the hand of an officer or attorney or other person duly authorized, and must be deposited with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong (together with the power of attorney or other authority, if any, under which it is signed or a certified copy thereof) not less than 48 hours before the time fixed for holding of the SGM.

4. Completion and return of the form of proxy will not preclude members from attending and voting at the SGM.

– 277 –