THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in 東原仁知城市運營服務集團股份有限公司 (Dowell Service Group Co. Limited*) , you should at once hand this circular with the form of proxy to the purchaser or transferee or to the bank manager, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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DOWELL SERVICE GROUP CO. LIMITED* 東原仁知城市運營服務集團股份有限公司

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

(Stock Code: 2352)

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE EQUITY TRANSFER AGREEMENT AND THE SUPPLEMENTAL AGREEMENT; AND (2) NOTICE OF EGM

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

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Capitalised terms used in this cover page shall have the same meanings as those defined in the section headed “Definitions” in this circular.

The letter from the Board is set out on pages 4 to 15 of this circular. A letter of recommendation from the Independent Board Committee to the Independent Shareholders is set out on pages 16 to 17 of this circular. A letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 18 to 38 of this circular.

A notice convening the EGM to be held at 5th Floor, Building 2, Ping An Wealth Center, Shenchang Road, Minhang District, Shanghai, the PRC on Wednesday, 19 June 2024 at 11:00 a.m., or immediately after the conclusion of the annual general meeting of the Company, is set out in this circular. Whether or not you intend to attend the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to Computershare Hong Kong Investor Services Limited, the H share registrar of the Company in Hong Kong, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 24 hours before the time appointed for holding the EGM (i.e. no later than 11:00 a.m. on Tuesday, 18 June 2024 (Hong Kong time)) or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

This circular together with the form of proxy are also published on the website of the Stock Exchange (http://www. hkexnews.hk) and the Company (http://www.dowellservice.com). Reference to dates and times in this circular are to Hong Kong dates and times.

* For identification purposes only

3 June 2024

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . .	16
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . . . . . . . . . .	18
APPENDIX I – VALUATION REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
APPENDIX II – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
NOTICE OF EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

— i —

DEFINITIONS

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

“associate”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
"Chengdu Changlai"	Chengdu Changlai Health Management Co., Ltd.*（成都市常萊健康管
	理有限公司）, a company established in the PRC and a subsidiary of
	Dima as at the Latest Practicable Date
“Chongqing Doyen”	Chongqing Doyen Holdings Group Co., Ltd.*（重慶東銀控股集團有限
	公司）, a limited liability company established in the PRC and a
	connected person of the Company
“Chongqing Shuorun”	Chongqing Shuorun Petrochemical Company Limited*（重慶碩潤石化
	有限責任公司）, a limited liability company established in the PRC and
	a connected person of the Company
“Company”	東原仁知城市運營服務集團股份有限公司(DOWELL SERVICE
	GROUP CO. LIMITED*), a joint stock company incorporated in the
	PRC with limited liability, the H Shares of which are listed on the Main
	Board of the Stock Exchange
“connected person”	has the meaning ascribed to it under the Listing Rules
“controlling shareholder”	has the meaning ascribed to it under the Listing Rules
“Director(s)”	the director(s) of the Company
“Dima”	Dima Holdings Co., Ltd.*（重慶市迪馬實業股份有限公司）, a limited
	liability company established in the PRC on 9 October 1997 and its
	shares are listed on the Shanghai Stock Exchange (stock code: 600565.
	SH), one of the controlling shareholders of the Company and a
	connected person of the Company for the purpose of the Listing Rules
“Dima Group”	Dima and companies formed by Dima and/or its subsidiary(ies) with
	other Independent Third Parties which Dima held a controlling interests
“EGM”	the extraordinary general meeting to be held at 5th Floor, Building 2,
	Ping An Wealth Center, Shenchang Road, Minhang District, Shanghai,
	the PRC on Wednesday, 19 June 2024 at 11:00 a.m., or immediately
	after the conclusion of the annual general meeting of the Company, to
	consider and, if appropriate, to approve the resolution contained in the
	notice of the meeting which is set out on pages EGM-1 to EGM-2 of this
	circular, or any adjournment thereof

— 1 —

DEFINITIONS

“Enlarged Group”

the Group and the Target Group upon completion of the Equity Transfer

“Equity Transfer”

the equity transfer of approximately 90.73% of the Target Company from Shanghai Dixuan (as vendor) to the Company (as purchaser)

“Equity Transfer Agreement” the conditional equity transfer agreement dated 19 April 2024 and entered into among Shanghai Dixuan (as vendor), the Company (as purchaser) and the Target Company in relation to the Equity Transfer

“Group” collectively, the Company and its subsidiaries
“H Share(s)” share(s) in the share capital of the Company with a nominal value of RMB1.00 each, which are listed on the Stock Exchange
“Independent Board the independent board committee, comprising all independent Committee” non-executive Directors, formed to advise the Independent Shareholders in respect of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder
“Independent Financial Pelican Financial Limited, a corporation licensed to carry on type 6 Adviser” (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), being the independent financial adviser of the Company to advise the Independent Board Committee and the Independent Shareholders in respect of, among other matters, the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder
“Independent Shareholders” the Shareholders who are not required to abstain from voting at the EGM for the resolution in respect of, among other matters, the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder
“Independent Third Party(ies)” a person, persons, company or companies which is or are independent of, and not connected with (within the meaning under the Listing Rules), any directors, chief executive or substantial shareholders of the Company, any of its subsidiaries or any of their respective associate(s)
“Independent Valuer” Peak Vision Appraisals Limited, an independent qualified valuer
“Latest Practicable Date” 29 May 2024, being the latest practicable date prior to the publication of this circular for the purpose of ascertaining certain information contained in this circular
“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

— 2 —

DEFINITIONS

“Mr. Lo” Mr. Lo Siu Yu, who owned approximately 77.78% of the equity interest in Chongqing Doyen as at the Latest Practicable Date and a connected person of the Company
“Ms. Chiu” Ms. Chiu Kit Hung, the spouse of Mr. Lo “PRC” the People’s Republic of China (and for the purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan)
“RMB” Renminbi, the lawful currency of the PRC “Shanghai Evergreen Group” the Target Company and its subsidiaries immediately prior to completion of the disposal of Chengdu Changlai
“Shanghai Dixuan” Shanghai Dixuan Industrial Co., Ltd.*（上海迪眩實業有限公司）, a company established in the PRC and a wholly-owned subsidiary of Dima as at the Latest Practicable Date
“Shareholder(s)” the holder(s) of H Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited
“Supplemental Agreement” the supplemental agreement dated 29 April 2024 and entered into among Shanghai Dixuan (as vendor), the Company (as purchaser) and the Target Company which is supplemental to the Equity Transfer Agreement
“Target Company” Shanghai Evergreen Social Care Enterprise Development Co., Ltd.*（上海常青社康養企業發展有限公司）, a company established in the PRC with limited liability
“Target Group” the Target Company and its subsidiaries (except Chengdu Changlai)
“Tianjin Chengfang” Tianjin Chengfang Corporate Management Consultant Company Limited*（天津澄方企業管理諮詢有限公司）, which hold 25,520,000 H Shares, representing approximately 38.09% of the issued H Shares as at the Latest Practicable Date and a connected person of the Company
“Valuation Report” the valuation report issued by the Independent Valuer in respect of the Target Group as at 31 March 2024, the text of which is set out in Appendix I to this circular

“%”

per cent.

* For identification purposes only

— 3 —

LETTER FROM THE BOARD

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DOWELL SERVICE GROUP CO. LIMITED* 東原仁知城市運營服務集團股份有限公司

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

(Stock Code: 2352)

Non-executive Directors: Registered office and headquarters: Ms. Luo Shaoying (Chairman) Room 206, B1/F Ms. Yi Lin No. 108 Baihe Road Nanping Town Executive Directors: Nan’an District, Chongqing The PRC

Mr. Zhang Aiming (Vice chairman, Co-chief executive officer, employee Director)

Mr. Fan Dong (Co-chief executive officer, employee Director)

Principal place of business in Hong Kong

40/F, Dah Sing Financial Centre No. 248 Queen’s Road East Wanchai Hong Kong

Independent non-executive Directors:

Ms. Cai Ying Mr. Wang Susheng Mr. Song Deliang

3 June 2024

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE EQUITY TRANSFER AGREEMENT AND THE SUPPLEMENTAL AGREEMENT

I. INTRODUCTION

References are made to the announcements of the Company dated 19 April 2024 and 29 April 2024.

The purpose of this circular is to provide you with, among other things, (i) details of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder; (ii) a letter from the Independent Board Committee to the Independent Shareholders in relation to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder; (iii) a letter from the Independent Financial Adviser in relation to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder; and (iv) a notice convening the EGM, as well as any other information required to be disclosed under the Listing Rules.

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LETTER FROM THE BOARD

II. T H E E Q U I T Y T R A N S F E R A G R E E M E N T (A S S U P P L E M E N T E D B Y T H E SUPPLEMENTAL AGREEMENT)

On (i) 19 April 2024 (after trading hours), the Company (as purchaser), Shanghai Dixuan (as vendor) and the Target Company entered into the Equity Transfer Agreement; and (ii) 29 April 2024 (after trading hours), the Company (as purchaser), Shanghai Dixuan (as vendor) and the Target Company entered into the Supplemental Agreement, pursuant to which the Company has conditionally agreed to acquire, and Shanghai Dixuan has conditionally agreed to sell, approximately 90.73% of equity interests in the Target Company at the consideration of RMB28.0 million.

Details of the major terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) are as follows:

Date: 19 April 2024 Parties: 1. the Company, as purchaser; 2. Shanghai Dixuan, as vendor; and 3. the Target Company, as target company.

As at the Latest Practicable Date, Shanghai Dixuan is a wholly-owned subsidiary of Dima, which is one of the Company’s controlling shareholders. Therefore, Shanghai Dixuan is a connected person of the Company.

Subject matter

Pursuant to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), the Company (as purchaser) has conditionally agreed to acquire, and Shanghai Dixuan (as vendor) has conditionally agreed to sell, approximately 90.73% of equity interests in the Target Company. As at the Latest Practicable Date and immediately prior to the completion of the Equity Transfer, the Target Company was owned as to approximately 90.73% by Shanghai Dixuan, a wholly-owned subsidiary of Dima, and approximately 9.27% by Chongqing Qingyuan Medical Nursing Service Co., Ltd.*（重慶青元醫養服務有限公司）, which was beneficially owned by Ms. Zeng Jiguo, an Independent Third Party.

The Target Company was established by Shanghai Dixuan. Accordingly, there was no original acquisition cost of approximately 90.73% of equity interests in the Target Company by Shanghai Dixuan.

Consideration

The consideration of RMB28.0 million shall be payable in two tranches.

The first tranche of RMB14.0 million shall be payable within five business days of:

(a) the fulfilment of all of the conditions precedent as set out in the paragraph headed “The Equity Transfer Agreement (as supplemented by the Supplemental Agreement) – Conditions precedent” below; and
(b) Shanghai Dixuan having prepared all application documents relating to the industrial and commercial modification registration（工商變更登記）in the name of the Company and having obtained the pre-approval from the competent department of the industrial and commercial registration（工商登記主管）confirming that all application documents have been completed without omission or supplement.

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LETTER FROM THE BOARD

The second tranche of RMB14.0 million shall be payable within five business days after completion of the relevant industrial and commercial registration modification formalities（工商變更登記手續）(and the Target Company obtaining a new business license renewed by the industrial and commercial registration authority（工商登記機關）).

Basis of consideration

The consideration of RMB28.0 million was determined after arm’s length negotiations between the parties to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) on normal commercial terms, taking into consideration of, among other things, (i) the consolidated net asset value of the Target Group; (ii) the market position of the Target Group in the medical care and elderly care services industry in the PRC; (iii) the Valuation Report prepared by the Independent Valuer on the consolidated market value of the Target Group based on market approach, the text of which is set out in Appendix I to this circular; and (iv) other reasons for and benefits of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) as set out in the section headed “Reasons for and benefits of the Equity Transfer and reorganisation of Shanghai Evergreen Group” below.

Market position of the Target Group

The Target Group is well recognised in the medical care and elderly care services industry in the PRC due to the awards and recognitions it has received, including, among others:

(i) recognition as the Top 25 Chinese Healthcare Industry Operator in terms of Comprehensive Strength* (TOP 25綜合實力中國康養產業營運商）in 2023;
(ii) recognition as a National Advanced Unit for Elderly Care Services*（全國養老服務先進單位）by the Ministry of Civil Affairs of the PRC in 2022;
(iii) the honourary titles of Five-leaf rating（五葉級）and Four star/leaf rating（四星/葉級）by Chongqing Elderly Care Service Association*（重慶市養老服務協會）in 2022; and
(iv) recognition as a 2021 Smart Healthy Elderly Care Application Pilot Demonstration Enterprise* (2021年智慧健康養老應用試點示範企業）by each of the Ministry of Finance of the PRC, Publicity Department of the Central Committee of the Communist Party of China and Ministry of Education of the PRC in 2022.

Valuation Report

The Valuation Report prepared by the Independent Valuer indicated the appraised consolidated value of 100% equity interests of the Target Group to be RMB31,007,000. Since it is one of the conditions precedent to dispose of Chengdu Changlai by the Target Company, resulting Chengdu Changlai not being part of the Target Group to be acquired by the Company pursuant to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), the Board is of the view that it is fair and reasonable to not take into account of the valuation of Chengdu Changlai in the Valuation Report.

— 6 —

LETTER FROM THE BOARD

The Board noted that the Independent Valuer adopted the market approach method taking into account the price to book ratio of selected comparable companies that (i) are actively traded and publicly listed in the Greater China Region (including the PRC, Hong Kong, Taiwan and Macau); and (ii) derived over 80% revenue from the provision of elderly care services, with adjustment made to reflect the features of the Target Company relative to the comparable listed companies.

Valuation methodology

The Board understands that there are three commonly used approaches in valuing a company, namely the market approach, the asset approach and the income approach. The Board discussed with the Independent Valuer with regards to its rationale for adopting the market approach, and based on the following reasons, the Board concurs with the Independent Valuer that the market approach is the most suitable approach to reflect a fair and reasonable value of the Target Group:

(i) asset approach is usually adopted for appraising a company which primarily derive income from its existing assets, and when the value assets, such as property, plant and equipment, can be easily replaced. As the valuation of the Target Group is conducted on a going concern basis, if asset approach is adopted, it would ignore the future economic benefits of the business of the Target Group and the market sentiment in relation to the elderly care business as a whole;
(ii) income approach focuses on the economic benefits generated by the income producing capability of a business entity. Having considered that the Target Group have been loss making for the two years ended 31 December 2023 (for further details, please refer to the sub-paragraph headed “Financial information of the Target Group” below) and based on the information currently available to the Company, the Target Group was also loss making during the trailing 12 months ended 31 March 2024. Therefore, the preparation of financial projection of the Target Group under such circumstances would involve subjective judgement and uncertainties, resulting in unfair and unreasonable determination of the value of the Target Group if income approach is to be adopted; and
(iii) market approach is considered a common method to adopt when market comparables are available. In the valuation process, the Board noted that comparable companies were selected based on various criteria, including, among others, principal activities and principal place of operation. Despite there is insufficient comparable transactions in private equity market, resulting the insufficient information available from the private equity market to perform analysis in appraising the value of the Target Group, the Directors noted that the Independent Valuer selected comparable companies based on (a) public companies in the Greater China Region (including the PRC, Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan) of whose shares are actively trading; and (b) whose primary business is similar to the Target Group (i.e. over 80% of revenue derive from the provision of elderly care services in the Greater China Region). The Board is of the view that such selection criteria to be fair and reasonable as public listed companies that conduct similar business as the Target Group in the Greater Region China should provide less biased data. Since there is no public companies listed in the PRC that engage in similar business of the Target Group, the Directors noted that the Independent Valuer have been able to identify a total of two public companies in Hong Kong and one public company in Taiwan, both of

— 7 —

LETTER FROM THE BOARD

which principally engage in provision of elderly care services. The Directors reviewed the latest published financial information of the identified comparable companies and it is confirmed that over 90% of the respective total revenue of such comparable companies derive from the provision of elderly care services. Even though the Board is aware that such public companies are not of exact same financial scale and risk profile as the Target Group, since they primarily conduct similar business as the Target Group, the Independent Valuer advised, which the Directors concur, that such comparable companies have industry and economic risks and rewards that are similar to the Target Group. Thus, the Directors are of the view that the adoption of market approach based on the data obtained with respect to the three comparable companies that the Independent Valuer make reference to enable the production of less biased valuation with fewer subjective inputs to permit meaningful comparison in order to appraise the price levels that buyers are willing to buy for companies conducting similar businesses in the market.

Comparison multiple

The Directors consider commonly adopted multiples, such as price to book ratio, price to earnings ratio, enterprise value to earnings before interests and taxes ratio, enterprise value to sales ratio and price to sales ratios, which the Independent Valuer can adopt in its valuation of the Target Group. After having discussion with the Independent Valuer, the Directors concur with the Independent Valuer that price to book ratio is more representative, fair and reasonable comparison multiples to adopt, in comparison with the other abovementioned commonly adopted multiples based on the following reasons:

(i) book value of the equity provides a relatively stable and intuitive metric that can be easily compared to the market price;
(ii) elderly care business is capital intensive and the value of the business is reflected in the balance sheet as they do not operate as a company that merely outsourcing provision of healthcare staffing solutions;
(iii) the Target Group requires substantial investments in a wide variety of medical and elderly care-related equipment and facilities, such as elderly bed accommodations, rehabilitation and check-up facilities etc. to operate successfully;
(iv) (a) enterprise value to sales ratio; and (b) price to sales ratios fail to take into account of the invested capital, and are usually adopted for appraisal of technology companies or high growth companies, therefore not suitable for the Target Group; and
(v) the Target Group is loss making resulting earnings-related multiples, e.g. price to earnings ratio and enterprise value to earnings before interests and taxes ratio, to be not applicable.

— 8 —

LETTER FROM THE BOARD

Control premium

After discussing with the Independent Valuer, the Board understands that a control premium is the premium an investor is willing to pay in addition to a marketable minority equity value to obtain controlling interest in a business subject. The Directors understand that control premium is a commonly adopted adjustment factor in valuation exercise on unlisted companies. Since the data obtained relates to public listed companies, therefore the Board concur to the Independent Valuer that it is fair and reasonable to apply control premium to reflect the degree of control associated with a 100% equity interest of the Target Group.

Marketability discount

From the discussion with the Independent Valuer, the Board understands that the concept of marketability deals with the liquidity of an ownership interest, that is how quickly and easily it can be converted into cash if the owner chooses to sell. The lack of marketability discount reflects the fact that there is no ready market for shares in the privately held companies which are typically not readily marketable as compared to similar interest 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. Similar to the adoption of the control premium as an adjustment factor, the Directors understand that lack of marketability discount is also a commonly adopted to adjust the value of a privately held company when appraising it. Thus, the Board concurs with the Independent Valuer that it is fair and reasonable provide a lack of marketability discount to adjust the valuation of the Target Group. Please refer to the text of the Valuation Report set out in Appendix I to this circular for details.

Based on the aforesaid, the Directors consider that the consideration of RMB28.0 million for the acquisition of 90.73% of the Target Company is fair and reasonable, on normal commercial terms and in the interest of the Company and the Shareholders as a whole.

Conditions precedent

The Equity Transfer Agreement (as supplemented by the Supplemental Agreement) is conditional upon:

(a) the Company obtaining the necessary consents or approvals for the entering into of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder, including but not limited to the approval by the Stock Exchange, the approval of the Securities and Futures Commission, any relevant governmental or regulatory authority and requirements under the laws of the PRC, or obtaining the applicable waivers from the Stock Exchange;
(b) the Company obtaining the approval from the Independent Shareholders of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder at the EGM;
(c) the parties to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) completing all relevant internal approval procedures;

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LETTER FROM THE BOARD

(d) the current equity holder of the Target Company passing a written resolution to waive its pre-emptive rights and agreeing to the Equity Transfer;
(e) Shanghai Dixuan and the Target Company not breaching any terms under the Equity Transfer Agreement (as supplemented by the Supplemental Agreement);
(f) there being no material adverse change in respect of information regarding the Shanghai Evergreen Group and its project(s) as disclosed by Shanghai Dixuan in the Equity Transfer Agreement;
(g) completion of the equity transfer of Chengdu Changlai from Shanghai Evergreen Group to Dima Group; and
(h) the Company (i) completing its due diligence on the Target Company, the Shanghai Evergreen Group and projects of the Shanghai Evergreen Group; and (ii) being satisfied with the results of such due diligence.

If the conditions precedent have not been fulfilled on or before 30 June 2024 (or such later date as the parties agree in writing), the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) shall cease to have effect, and no party shall have any claim against the other party except for any antecedent breach of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement).

Pursuant to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), none of the abovementioned conditions precedent can be waived.

Save for the conditions precedent (c), (d), (g) and (h) mentioned above, as at the Latest Practicable Date, none of the other conditions precedent have been fulfilled.

Completion

Completion shall take place within three days after completion of the relevant industrial and commercial registration modification formalities（工商變更登記手續）, reflecting the change of equity holder of the Target Company from Shanghai Dixuan to the Company.

Upon completion, Shanghai Dixuan shall ensure that various documents and assets of the Target Group, as agreed under the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), are delivered to a person designated by the Company.

Pursuant to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), completion shall be deemed to take place upon:

(a) completion of all industrial and commercial registration modification formalities（工商變更登記手續）in relation to the Equity Transfer;

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LETTER FROM THE BOARD

(b) the articles of association of the Target Company having been amended according to the terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), and the legal representatives, directors, supervisors and senior management personnel having all been changed to the persons designated by the Company, and the corresponding procedures for registration and filing of the industrial and commercial modification（工商變更）having been completed;
(c) Shanghai Dixuan having completed the relevant alteration, repealing and remodelling of the company seal of the Target Company in accordance with the requirements of the Company, and such remodelled seal has been activated after the relevant alteration and repealing procedures have been completed; and
(d) any other matters in relation to completion of the Equity Transfer.

Immediately upon completion of the Equity Transfer, the Target Company shall be a direct non-wholly owned subsidiary of the Company. The Target Company will be held as to approximately 90.73% by the Group and approximately 9.27% by Chongqing Qingyuan Medical Nursing Service Co., Ltd.*（重慶青元醫養服務有限公司）and the financial results of the Target Group will be consolidated into the consolidated financial statements of the Group.

Financial information of the Target Group

The net asset value of the Target Group as at 31 December 2023 was estimated to be approximately RMB24,540,000.

The audited consolidated financial information of the Target Group for the two years ended 31 December 2023 is set out below:

	For the year ended 31 December	For the year ended 31 December
	2022	2023
	RMB’000	RMB’000
Net loss (before taxation)	11,144	13,871
Net loss (after taxation)	9,144	14,824

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LETTER FROM THE BOARD

Reasons for and benefits of the Equity Transfer and reorganisation of Shanghai Evergreen Group

As disclosed in the annual results announcement of the Company dated 20 March 2024, the Group has been exploring opportunities to expand its business portfolio and scale. As the PRC’s aging population is continuously increasing, the demand for medical care and elderly care services is expected to continuously increase. The acquisition of the Target Company would enable the Group to take advantage of the expansion in the medical care and elderly care services industry. Leveraging the Group’s experience in the provision of services to hospitals, medical facilities and residential communities, coupled with the business line of better lifestyle services provided by the Group and the continuous increase in the Group’s property management projects (including gross floor area under management), the Directors are of the view that the Group would be able to utilise the existing market share of the Group to enhance the Target Company’s business potential. In particular, due to the Group’s provision of a wide variety of services, it would be able to obtain first-hand information on changes in customer needs on a timely basis, which would enable the Group to expand on the services provided by the Target Group, including in relation to community elderly care services, institutional elderly care services and provision of healthy foods services, in order to work towards potential growth of the Target Group’s business. Moreover, the Group would be able to rely on the Target Company’s medical care services capabilities, including by integrating the medical resources of the Target Group with that of the Group, to further enhance its strategic cooperation with, among others, the Department of Civil Affairs and Health Commission（民政及衛生健康委部門）of the PRC by utilising the Target Company’s existing business relationships to broaden the scope of the Group’s provision of services to them. The Directors are of the view that the acquisition of the Target Company will contribute to the Enlarged Group’s long-term steady growth and create better returns for the Shareholders.

Furthermore, the Board believes that the reorganisation of Shanghai Evergreen Group (i.e. the equity transfer of Chengdu Changlai from Shanghai Evergreen Group to Dima Group) is beneficial to the Group. This is because although Chengdu Changlai also provides elderly care services, it (i) recorded net loss for the year ended 31 December 2023; (ii) recorded net liabilities as at 31 December 2023 with minimal fixed assets and cash and cash equivalents; and (iii) assumes a substantial amount of debt obligation as at the date of the Latest Practicable Date which the Director believe it could not be released within a short period of time. With such adverse financial performance, the Directors are of the view that, should Chengdu Changlai be part of the Target Group, it would impose higher risk to the operation of the Enlarged Group. By not including Chengdu Changlai as part of the Target Group to be acquired, the integration of the Target Group with the Company would be more efficient, impose relatively less financial liabilities to the Enlarged Group, and the Company would reach optimal operational efficiency in less time.

In light of the reasons stated above, the Directors (excluding the independent non-executive Directors who’s views will be formed after taking into account of the advice of the Independent Financial Adviser) are of the view that, despite the entering into the Equity Transfer Agreement and the Supplemental Agreement were not in the ordinary and usual course of business of the Group, the terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder are on normal commercial terms after arm’s length negotiations, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Since Ms. Luo Shaoying, being a non-executive Director, is a director and chief executive officer of Dima, and Ms. Yi Lin, being a non-executive Director, is a director, vice chief executive officer and the head of finance department of Dima, for good corporate governance practice, each of Ms. Luo and Ms. Yi has abstained from voting on the relevant resolutions of the Board approving the Equity Transfer Agreement and the Supplemental Agreement and the transaction contemplated thereunder. Save as disclosed, none of the other Directors had or may be regarded as having a material interest in the Equity Transfer Agreement and the Supplemental Agreement and the transaction contemplated thereunder and therefore none of the other Directors had abstained from voting on the relevant Board resolutions approving the Equity Transfer Agreement and the Supplemental Agreement and the transaction contemplated thereunder.

Information on the Group

The Group is a property management service provider that offers comprehensive services for a wide range of property projects in the PRC.

Information on Dima Group and Shanghai Dixuan

Dima Group is principally engaged in (i) development and investment of residential and commercial properties in the PRC; and (ii) manufacturing of vehicles with various types of use.

As at the Latest Practicable Date, Dima was an A-share company listed on the Shanghai Stock Exchange and was owned by Chongqing Doyen and Chongqing Shuorun as to approximately 35.55% and 3.01% respectively. Chongqing Shuorun was owned by Chongqing Doyen and Ms. Chiu as to approximately 98.96% and 1.04% respectively, while Chongqing Doyen was owned by Mr. Lo and Ms. Chiu as to approximately 77.78% and 22.22% respectively.

Shanghai Dixuan was established in May 2019. It is principally engaged in, among others, health consulting services and elderly care services.

Information on the Target Group and the Target Company

The Target Group is principally engaged in the medical care and elderly care services industry in the PRC. Relying on the four main elderly care products of residential community, institutional elderly care, nursing and rehabilitation institutions and specialised institutions, the Target Group focuses on the layout of high-end institutional elderly care and community home elderly care projects. Currently, it operates more than 11 elderly care institutional projects, manages more than 20 community service stations and operates more than 1,800 beds.

The Target Company was established in April 2020. It is principally engaged in, among others, health consulting services and cleaning and disinfection services.

Listing Rules implications

As at the Latest Practicable Date, Shanghai Dixuan is wholly-owned by Dima, which is one of the Company’s controlling shareholders. Therefore, Shanghai Dixuan is a connected person of the Company for the purpose of Chapter 14A of the Listing Rules. Accordingly, the transaction contemplated under the Equity Transfer Agreement and the Supplemental Agreement constitutes connected transaction for the Company under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

As one or more of the applicable percentage ratios under the Listing Rules in respect of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) exceed 5% but is less than 25%, the transaction contemplated under the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) constitutes (i) a discloseable transaction for the Company that is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules; and (ii) a connected transaction for the Company that is subject to the reporting, announcement, circular and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

III. EGM

Whether or not you intend to attend the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to Computershare Hong Kong Investor Services Limited, the H Share Registrar of the Company in Hong Kong, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 24 hours before the time appointed for holding the EGM (i.e. no later than 11:00 a.m. on Tuesday, 18 June 2024) or any adjournment thereof. Completion and return of the forms of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

Pursuant to the Articles of Association, for the purpose of holding the EGM, the record date for determining the entitlement of members of the H Shares to attend and vote at the EGM will be fixed at the close of business on Wednesday, 12 June 2024. In order to be eligible to attend and vote at the EGM, all transfer documents accompanied by the relevant share certificate must be lodged with Computershare Hong Kong Investor Services Limited, the H Share Registrar of the Company in Hong Kong, at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m. on Wednesday, 12 June 2024.

Pursuant to Rule 13.39(4) of the Listing Rules, all votes in respect of the resolution to be proposed at the EGM will be conducted by way of a poll except where the chairperson, in good faith, decides to allow a resolution relating to a procedural or administrative matter to be voted on by a show of hands. Therefore, the resolution proposed at the EGM will be voted by way of a poll.

As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, associate of Dima, namely Tianjin Chengfang, who hold 25,520,000 H Shares, representing approximately 38.09% of the issued H Shares as at the Latest Practicable Date, shall abstain from voting on the resolution approving the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder at the EGM. Save as disclosed above, as at the Latest Practicable Date, none of the other Shareholders are required to abstain from voting on the resolution in respect of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder at the EGM.

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LETTER FROM THE BOARD

IV. BAD WEATHER ARRANGEMENTS

Where gale warning (orange typhoon warning or above), rainstorm warning (orange rainstorm warning or above), extreme weather conditions or other similar event is or are in force at 8:00 a.m. on the date of the EGM, the EGM will be postponed. The Company will post an announcement on its website (www.dowellservice.com) and on the website of the Stock Exchange (www.hkexnews.hk) to notify the Shareholders of the date, time and place of the rescheduled meeting.

V. RECOMMENDATION

The Directors consider that all matters proposed to be approved at the EGM are in the interests of the Group and the Shareholders as a whole and accordingly recommend the Shareholders to vote in favour of the resolution to be proposed at the EGM.

VI. WARNING NOTICE

Completion of the transaction contemplated under the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) is subject to the satisfaction of the conditions precedent. Therefore, the transactions contemplated under the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) may or may not proceed. Shareholders and potential investors of the Company are advised to exercise caution when dealing in securities of the Company, and are recommended to consult their professional advisers if they are in any doubt about their position and as to actions that they should take.

Yours faithfully, By order of the Board

DOWELL SERVICE GROUP CO. LIMITED * 東原仁知城市運營服務集團股份有限公司

Ms. Luo Shaoying

Chairman and non-executive Director

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Agreement and the transactions contemplated thereunder:

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DOWELL SERVICE GROUP CO. LIMITED* 東原仁知城市運營服務集團股份有限公司

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

(Stock Code: 2352)

To the Independent Shareholders

Dear Sirs or Madams,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE EQUITY TRANSFER AGREEMENT AND THE SUPPLEMENTAL AGREEMENT

We refer to the circular dated 3 June 2024 (the “ Circular ”) to the Shareholders of which this letter forms part. Unless otherwise specified, terms defined in the Circular shall have the same meanings in this letter.

We have been appointed to form the Independent Board Committee to advise the Independent Shareholders in respect of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder, details of which are set out in the “Letter from the Board” contained in the Circular. The Independent Financial Adviser has been appointed to advise the Independent Shareholders and us in this regard.

Details of the advice and the principal factors and reasons that the Independent Financial Adviser has taken into consideration in giving such advice are set out in the “Letter from the Independent Financial Adviser” in the Circular. Your attention is also drawn to the “Letter from the Board” in the Circular and the additional information set out in the appendices thereto.

Having taken into account the (i) terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder; and (ii) the factors referred to in the “Letter from the Independent Financial Adviser” in the Circular, we are of the opinion that despite the entering into of the Equity Transfer Agreement and the Supplemental Agreement was not in the ordinary and usual course of business of the Group, the terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder are (a) fair and reasonable so far as the Shareholders (including the Independent Shareholders) are concerned; (b) on normal commercial terms; and (c) in the interests of the Group and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we would recommend you to approve the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder at the EGM.

Yours faithfully, For and on behalf of The Independent Board Committee

Ms. Cai Ying

Independent non-executive Director

Mr. Wang Susheng Independent non-executive Director

Mr. Song Deliang

Independent non-executive Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from the Independent Financial Adviser setting out the advice to the Independent Board Committee and the Independent Shareholders in respect of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder, which has been prepared for the purpose of inclusion in this circular.

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PELICAN FINANCIAL LIMITED

28/F, Lee Garden Two, 28 Yun Ping Road, Causeway Bay, Hong Kong

3 June 2024

To the Independent Board Committee and the Independent Shareholders of Dowell Service Group Co. Limited

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE EQUITY TRANSFER AGREEMENT AND THE SUPPLEMENTAL AGREEMENT

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular of the Company dated 3 June 2024 (the “ Circular ”), of which this letter forms a part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

On 19 April 2024 and 29 April 2024, the Company (as purchaser), Shanghai Dixuan (as vendor) and the Target Company entered into the Equity Transfer Agreement and the Supplemental Agreement respectively, pursuant to which the Company has conditionally agreed to acquire, and Shanghai Dixuan has conditionally agreed to sell, approximately 90.73% of equity interests in the Target Company at the consideration of RMB28.0 million.

LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, Shanghai Dixuan is wholly-owned by Dima, which is one of the Company’s controlling shareholders. Therefore, Shanghai Dixuan is a connected person of the Company for the purpose of Chapter 14A of the Listing Rules. Accordingly, the transaction contemplated under the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) constitute connected transaction for the Company under Chapter 14A of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

THE INDEPENDENT BOARD COMMITTEE

The Company has established the Independent Board Committee comprising all independent non-executive Directors, namely Ms. Cai Ying, Mr. Wang Susheng and Mr. Song Deliang to advise the Independent Shareholders in respect of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder. We have been appointed by the Company as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this respect and such appointment has been approved by the Independent Board Committee.

OUR INDEPENDENCE

Pelican Financial Limited (“ Pelican ”) is not connected with the Directors, chief executive or substantial Shareholders of the Company or any of their respective associates and therefore is considered suitable to give independent advice to the Independent Board Committee and the Independent Shareholders. As at the Latest Practicable Date, there were no relationships or interests between us and the Group, Dima Group or any of their respective substantial shareholders, directors or chief executives, or their respective associates that could reasonably be regarded as a hindrance to our independence as defined under Rule 13.84 of the Listing Rules to act as the Independent Financial Adviser.

In the last two years, other than our engagements by the Company to act as its independent financial advisor in respect of its continued connected transactions in relation to the New Dima Group Master Agreements and the proposed annual caps contemplated thereunder as disclosed in its circulars dated 21 November 2023, there was no other engagement between the Company and us.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Apart from normal professional fees payable to us in connection with our current appointment, no arrangement exists whereby Pelican will receive any fees or benefits from the Company or the Directors, chief executive or substantial Shareholders of the Company or any of their respective associates, and we are not aware of the existence of or change in any circumstances that would affect our independence. Accordingly, we consider that we are eligible to give independent advice on the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder.

Our role is to provide you with our independent opinion and recommendation as to (i) whether the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) is carried out in the ordinary and usual course of business of the Group and is on normal commercial terms; (ii) whether the terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned and whether they are in the interests of the Company and the Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the relevant resolution(s) to approve the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder at the EGM.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have performed relevant procedures and those steps which we deemed necessary in forming our opinions which include, among other things, review of relevant agreements, documents as well as information provided by the Company and verified them, to an extent, with the relevant public information, statistics and market data, the relevant industry guidelines and rules and regulations as well as information, facts and representations provided, and the opinions expressed, by the Company and/or the Directors and/or the management of the Group (including those related to the Dima Group). The documents reviewed include the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) (together with the relevant announcements of the Company dated 19 April 2024 and 29 April 2024), the valuation report prepared by Peak Vision Appraisals Limited in respect of the valuation of the 100% equity interest in Target Group (the “ Valuation Report ”), the annual report of the Company for the financial year ended 31 December 2023 (the “ 2023 Annual Report ”), and the Circular. We have assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its management and/or the Directors, which have been provided to us.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular 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 been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent verification of the information included in the Circular and provided to us by the Directors and the management of the Group nor have we conducted any form of in-depth investigation into the business and affairs or the future prospects of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS TAKEN INTO CONSIDERATION

In formulating our opinion in respect of the Equity Transfer Agreement and the transaction contemplated thereunder, we have considered the following principal factors and reasons.

1. Information of the Company and the Group

The Company was incorporated in the PRC on 13 January 2015 as a limited liability company, and was converted into a joint stock company with limited liability under the Company Law of the PRC on 30 December 2020. The Group is a property management service provider that offers comprehensive services for a wide range of property projects in the PRC.

Set out below is a summary of the financial information of the Group for the two years ended 31 December 2023 as extracted from the 2023 Annual Report.

Table 1: Summarised financial results of the Group

	For the year ended 31 December	For the year ended 31 December
	2023	2022
	RMB’000	RMB’000
	(Audited)	(Audited)
		(Restated)
Revenue
City Operations Services	872,773	656,213
Lifestyle Services	222,028	259,455
FATH and Other Comprehensive Services	389,033	433,744
Total Revenue	1,483,834	1,349,412
Gross profit	211,777	278,512
Profit for the year	21,922	91,953

According to the 2023 Annual Report, the Group recorded a revenue of approximately RMB1,483.8 million for the year ended 31 December 2023, representing an increase of approximately RMB134.4 million or 10.0% as compared with approximately RMB1,349.4 million for the year ended 31 December 2022. The increase in revenue was mainly attributable to the Group’s expansion in its City Operations Services segment by approximately 33.0% from approximately RMB656.2 million to approximately RMB872.8 million between the two years ended 31 December 2023. Despite the revenue growth, the Group recorded a decline in gross profit of approximately RMB66.7 million or 24.0% for the year ended 31 December 2023 from approximately RMB278.5 million to approximately RMB211.8 million. The Group’s cost of sales increased by approximately RMB201.2 million or approximately 18.8% to approximately RMB1,272.1 million from approximately RMB1,070.9 million for the year ended 31 December 2022. The increase was mainly attributable to (i) the continuous expansion in the Group’s property management projects and GFA under management, resulting in an increase in the number of

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

employees and corresponding employee costs; and (ii) the increase in the Group’s subcontracting costs as a result of the increased outsourcing of labour intensive services, such as cleaning and security services. Consequently, the overall gross profit margin decreased from approximately 20.6% to 14.3% between the two years ending 31 December 2023.

As a result, the Group’s profit after tax decreased by approximately RMB70.1 million or 76.2%, from approximately RMB92.0 million for the year ended 31 December 2022 to approximately RMB21.9 million for the year ended 31 December 2023.

The consolidated assets and liabilities of the Group as at 31 December 2022 and 31 December 2023 as extracted from the 2023 Annual Report are summarized as follows:

Table 2: Summarised financial position of the Group

	As at	As at
	31 December	31 December
	2023	2022
	RMB’000	RMB’000
	(Audited)	(Audited)
		(Restated)
Total assets
– non-current assets	378,535	371,882
– current assets	1,016,596	898,892
	1,395,131	1,270,774
Total liabilities
– non-current liabilities	27,131	21,218
– current liabilities	874,561	765,895
	901,692	787,113
Net current assets	142,035	132,997
Net assets	493,439	483,661

The Group’s total assets were approximately RMB1,270.8 million and RMB1,395.1 million as at 31 December 2022 and 31 December 2023, respectively. As at 31 December 2023, the non-current assets of the Group amounted to approximately RMB378.5 million, mainly comprised of (i) intangible assets of approximately RMB273.5 million; (ii) property, plant and equipment of approximately RMB31.0 million; (iii) investments accounted for using the equity method of approximately RMB20.7 million; and (iv) deferred income tax assets of approximately RMB19.6 million. Meanwhile, the Group’s current assets amounted to approximately RMB1,016.6 million as at 31 December 2023, mainly consisted of (i) trade, bills and other receivables of approximately RMB674.5 million; (ii) cash and cash equivalents (including restricted cash balance) of approximately RMB255.7 million; (iii) inventories of approximately RMB43.0 million; (iv) prepayments of approximately RMB30.6 million; and (v) dividend receivables of approximately RMB9.9 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On the other hand, the Group recorded total liabilities of approximately RMB787.1 million and RMB901.7 million as at 31 December 2022 and 31 December 2023, respectively. The non-current liabilities of the Group as at 31 December 2023 amounted to approximately RMB27.1 million, comprised of (i) deferred income tax liabilities of approximately RMB16.6 million; (ii) lease liabilities of approximately RMB9.5 million; and (iii) financial liabilities at fair value through profit or loss of approximately RMB1.0 million. As at 31 December 2023, the current liabilities of the Group amounted to approximately RMB874.6 million, which mainly comprised of (i) trade payables of approximately RMB292.7 million; (ii) accruals and other payables of approximately RMB280.6 million; (iii) contract liabilities of approximately RMB280.6 million; and (iv) borrowings of approximately RMB9.3 million.

As such, the consolidated net current assets and net assets of the Group as at 31 December 2023 amounted to approximately RMB142.0 million and RMB493.4 million respectively, which was increased by 6.8% and 2.0% from approximately RMB133.0 million and RMB483.7 million as at 31 December 2022 respectively. The change was due to the combined effect of increased current assets and decreased current liabilities, reflecting a slight strengthening of the Group’s overall financial position.

2. Information on the Vendor and the Target Group

2.1. Dima Group and Shanghai Dixuan

Dima Group, one of the controlling shareholders of the Company, is principally engaged in (i) development and investment of residential and commercial properties in the PRC; and (ii) manufacturing of vehicles with various types of use.

The vendor, Shanghai Dixuan, is wholly-owned by Dima and was established in May 2019. It is principally engaged in, among others, health consulting services and elderly care services.

2.2. Target Group and Target Company

The Target Company was established in April 2020. It is principally engaged in, among others, health consulting services and cleaning and disinfection services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the audited consolidated financial information of the Target Group for the two years ended 31 December 2023 (carving out the financial information of Chengdu Changlai):

Table 3: Financial information of the Target Group

	For the year ended 31 December	For the year ended 31 December
	2023	2022
	RMB’000	RMB’000
	(Audited)	(Audited)
Net loss (before taxation)	13,871	11,144
Net loss (after taxation)	14,824	9,144

The net asset value of the Target Group (carving out the financial information of Chengdu Changlai) as at 31 December 2023 was approximately RMB24,540,000.

3. Industry Overview

As the Shanghai Evergreen Group is principally engaged in the medical care and elderly care services industry in the PRC, we have conducted an independent research to analyse the prospect of the medical care and elderly care industry.

3.1. China’s greying society

With the rapidly aging population in the PRC, the demand for medical care and elderly care services has significantly increased. Contrary to the common belief, the one-child policy was introduced in 1979, affecting those born in the 1980s and later. However, the cultural expectation for single children to care for their aging parents remains a challenge, as many are unable to provide the necessary care. Consequently, there is a growing reliance on the social elderly care system. The medical and elderly care market in the PRC has expanded rapidly, leading to the development of a comprehensive industry chain, various aspects of the elderly care sector, including planning, packaging, design and construction of elderly care facilities, along with the provision of elderly care products and services. Each component of this industry chain is experiencing rapid growth, reflecting the increasing need for structured elder care solutions.

According to the statistics from the National Bureau of Statistics, the population aged over 60 reached approximately 296.97 million in 2023, accounting for 21.1% of the total population, which was increased from appropriately 280.04 million (representing 18.9% of the population) in 2022. Similarly, the population aged over 65 increased from approximately 200 million in 2021, representing 14.16% of the population, to approximately 216.76 million in 2023, accounting for 15.4% of the total population. This trend shows that there is a growing demographic shift towards an older population, reflecting a sustained increase in both the number and proportion of elderly residents year over year.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.2. Policy support for the elderly care service

Under China’s 14th Five-Year Plan (2021-2025), the development of an efficient long-term care system is a government priority. The plan specifies major goals and tasks for the five years, including expanding the supply of elderly care services, improving the health support mechanism for the elderly, and advancing the innovative and integrated development of service models.

It lists nine major indicators, such as the number of elderly care beds and the ratio of nursing care beds in elderly care institutions, to mobilise society to actively respond to population ageing. China will step up institutional innovation and boost policy support and financial investment to enable the elderly to share in China’s development achievements.

3.3. Section conclusion

In light of the above, the overall healthcare service market in China has witnessed a steady pace of development and expansion in recent years, with the total healthcare expenditure growing from RMB5,912.2 billion in 2018 to RMB8,484.7 billion in 2022 at a CAGR of 9.5%. Moreover, the total healthcare expenditure in China is forecasted to reach RMB11,826.9 billion in 2026 with a CAGR of 8.7% from 2022 to 2026, and further increase to RMB15,116.3 billion in 2030 with a CAGR of 6.3% from 2026 to 2030, according to Frost & Sullivan. The demand for healthcare services in China has been on the rise due to a combination of factors including, among others, a growing aging population as mentioned, the prevalence of chronic diseases, rising public health awareness and improved medical affordability. This trend highlights the increasing significance of the medical care and elderly care sectors, which are integral to the healthcare system. Given the ongoing demographic shift towards an aging population, these sectors are anticipated to experience substantial growth and heightened demand.

4. Reasons for and benefits of the Equity Transfer and reorganisation of the Shanghai Evergreen Group

The Group has been exploring opportunities to expand its business portfolio and scale. As the PRC’s aging population is continuously increasing, the demand for medical care and elderly care services is expected to continuously increase. The acquisition of the Target Company would enable the Group to take advantage of the expansion in the medical care and elderly care services industry. Leveraging the Group’s experience in the provision of services to hospitals, medical facilities and residential communities, coupled with the Group’s provision of lifestyle services and the continuous increase in the Group’s property management projects (including gross floor area under management), the Directors are of the view that the Group would be able to utilise the existing market share of the Group to enhance the Target Company’s business potential. In particular, due to the Group’s provision of a wide variety of services, it would be able to obtain first-hand information on changes in customer needs on a timely basis, which would enable the Group to expand on the services provided by the Target Group, including in relation to community elderly care services, institutional elderly care services and provision of healthy foods services in order to work towards potential growth of the Target Group’s business. Moreover, the Group would be able to rely on the Target Company’s medical care services capabilities, including by integrating the medical resources of the Target Group with that of the Group, to further enhance its strategic cooperation with, among others, the Department of Civil Affairs and Health Commission（民政及衛生健康委部門）of the PRC by utilising the Target Company’s existing business relationships to broaden the scope of the Group’s provision of services to them. The Directors are of the view that the acquisition of the Target Company will contribute to the Group’s long-term steady growth and create better returns for the Shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Upon reviewing the reorganisation of Shanghai Evergreen Group, specifically the equity transfer of Chengdu Changlai to Dima Group, we have carefully considered the rationale behind this decision. After discussions with the Company and thorough review of the relevant documents, we have reached the following conclusions: (i) Chengdu Changlai serves as a financial guarantor for a wholly-owned subsidiary of the Vendor under a bank loan agreement, with an outstanding debt of RMB34 million as at 31 March 2024, posing a potential high-risk exposure in case of default in the future; (ii) Chengdu Changlai’s financial performance is not promising, as evidenced by a net deficit in net asset value exceeding RMB2 million (inclusive of current liabilities surpassing RMB4.5 million, minimal fixed assets, and cash and cash equivalents) and a net loss exceeding RMB2 million in the fiscal year 2023. In light of these findings, we concur with the Board’s perspective that the reorganisation is just, reasonable, and advantageous for the Group.

In light of above, the Directors are of the view that, despite the entering into the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) was not in the ordinary and usual course of business of the Group, the terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder are on normal commercial terms after arm’s length negotiations, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Taking into account (i) the acquisition represents an opportunity for the Group to expand its business portfolio and scale; (ii) the positive outlook and trends of the medical care and elderly care services market in the PRC as set out in the section headed “3. Industry overview” of this letter; (iii) the acquisition enables the Group to leverage its experience in the provision of services to hospitals, medical facilities and residential communities, coupled with the continuous increase in the Group’s property management projects; and (iv) utilize the market presence of the Group to enhance the Target Company’s business potential through synergistic benefits and integrated service offerings, we concur with the Directors that the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder is in the interests of the Company and the Shareholders as a whole.

5. The Equity Transfer Agreement (as supplemented by the Supplemental Agreement)

Set out below are the principal terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement).

5.1. Subject matter

Pursuant to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), the Company (as purchaser) has conditionally agreed to acquire, and Shanghai Dixuan (as vendor) has conditionally agreed to sell, approximately 90.73% of equity interests in the Target Company. As at the Latest Practicable Date and immediately prior to the completion of the Equity Transfer, the Target Company was owned as to approximately 90.73% by Shanghai Dixuan, a wholly-owned subsidiary of Dima, and approximately 9.27% by Chongqing Qingyuan Medical Nursing Service Co., Ltd.（重慶青元醫養服務有限公司）[#] , which was beneficially owned by Ms. Zeng Jiguo, an Independent Third Party.

The Target Company was established by Shanghai Dixuan. Accordingly, there was no original acquisition cost of approximately 90.73% of equity interests in the Target Company by Shanghai Dixuan.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5.2. Consideration

The consideration of RMB28.0 million shall be payable in two tranches.

The first tranche of RMB14.0 million shall be payable within five business days of:

(a) the fulfilment of all of the conditions precedent as set out in the paragraph headed “The Equity Transfer Agreement (as supplemented by the Supplemental Agreement) – Conditions precedent” below; and
(b) Shanghai Dixuan having prepared all application documents relating to the industrial and commercial modification registration（工商變更登記）in the name of the Company and having obtained the pre-approval from the competent department of the industrial and commercial registration（工商登記主管）confirming that all application documents have been completed without omission or supplement.

Market position of the Target Group

As far as the Directors are aware, the Target Group is well recognised in the medical care and elderly care services industry in the PRC due to the awards and recognitions it has received, including, among others:

(i) recognition as the Top 25 Chinese Healthcare Industry Operator in terms of Comprehensive Strength（[#] TOP 25綜合實力中國康養產業營運商）in 2023;
(ii) recognition as a National Advanced Unit for Elderly Care Services（全國養老[#] 服務先進單位）by the Ministry of Civil Affairs of the PRC in 2022;
(iii) the honourary titles of Five-leaf rating（五葉級）[#] and Four star/leaf rating（四[#] 星/葉級 by Chongqing Elderly Care Service Association（重慶市養老服務協會）in 2022; and
(iv) recognition as a 2021 Smart Healthy Elderly Care Application Pilot Demonstration Enterprise（[#] 2021年智慧健康養老應用試點示範企業）by each of the Ministry of Finance of the PRC, Publicity Department of the Central Committee of the Communist Party of China and Ministry of Education of the PRC in 2022.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The consideration of RMB28.0 million was determined after arm’s length negotiations between the parties to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) on normal commercial terms, taking into consideration of, among other things, (i) the consolidated net asset value of the Target Group; (ii) the market position of the Target Group in the medical care and elderly care services industry in the PRC; (iii) the Valuation Report prepared by an independent valuer on the consolidated market value of the Target Group based on market approach, the text of which is set out in Appendix I to the Circular; and (iv) other reasons for and benefits of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) as set out in the section headed “Reasons for and benefits of the Equity Transfer and reorganisation of the Shanghai Evergreen Group” above.

5.3. Conditions precedent

The Equity Transfer Agreement (as supplemented by the Supplemental Agreement) is conditional upon:

(a) the Company obtaining the necessary consents or approvals for the entering into the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder, including but not limited to the approval by the Stock Exchange, the approval of the Securities and Futures Commission, any relevant governmental or regulatory authority and requirements under the laws of the PRC, or obtaining the applicable waivers from the Stock Exchange;
(b) the Company obtaining the approval from the Independent Shareholders of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder at the EGM;
(c) the parties to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) completing all relevant internal approval procedures;
(d) the current equity holder of the Target Company passing a written resolution to waive its pre-emptive rights and agreeing to the Equity Transfer;
(e) Shanghai Dixuan and the Target Company not breaching any terms under the Equity Transfer Agreement (as supplemented by the Supplemental Agreement);
(f) there being no material adverse change in respect of information regarding the Shanghai Evergreen Group and its project(s) as disclosed by Shanghai Dixuan in the Equity Transfer Agreement;
(g) completion of the equity transfer of Chengdu Changlai from the Shanghai Evergreen Group to Dima Group; and
(h) the Company (i) completing its due diligence on the Target Company, the Shanghai Evergreen Group and projects of the Shanghai Evergreen Group; and (ii) being satisfied with the results of such due diligence.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), none of the abovementioned conditions precedent can be waived.

Save for the conditions precedent (c), (d), (g) and (h) mentioned above, as at the Latest Practicable Date, none of the other conditions precedent have been fulfilled.

5.4. Completion

Pursuant to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), completion shall be deemed to take place upon:

(a) completion of all industrial and commercial registration modification formalities（工商變更登記手續）in relation to the Equity Transfer;
(b) the articles of association of the Target Company having been amended according to the terms of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement), and the legal representatives, directors, supervisors and senior management personnel having all been changed to the persons designated by the Company, and the corresponding procedures for registration and filing of the industrial and commercial modification（工商變更）having been completed;
(c) Shanghai Dixuan having completed the relevant alteration, repealing and remodelling of the company seal of the Target Company in accordance with the requirements of the Company, and such remodelled seal has been activated after the relevant alteration and repealing procedures have been completed; and
(d) any other matters in relation to completion of the Equity Transfer.

Immediately upon completion of the Equity Transfer, the Target Company shall be a direct non-wholly owned subsidiary of the Company. The Target Company will be held as to approximately 90.73% by the Group and approximately 9.27% by Chongqing Qingyuan Medical Nursing Service Co., Ltd.（重慶青元醫養服務有限公司）[#] and the financial results of the Target Group will be consolidated into the consolidated financial statements of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6. Assessment of the Consideration

In assessing the fairness and reasonableness of the consideration, we have in particular considered the Valuation Report in relation to the equity interest in the Target Group. In this respect, we noted that Peak Vision Appraisals Limited (the “ Valuer ”), has been engaged to issue the Valuation Report. According to the Valuation Report, the appraised value of 100% equity interest in the Target Group (i.e. excluding Chengdu Changlai) as at 31 March 2024 was RMB31,007,000 (pro-rata equal to approximately RMB28,133,000 for 90.73% equity interest).

For our due diligence purpose, we have reviewed the supporting documents and considered the following factors in assessing the fairness and reasonableness of the appraised value.

6.1. Valuer’s qualification

We have conducted an independent interview with the Valuer whom we have enquired, and the Valuer has confirmed, its independence from the Company, Shanghai Dixuan and Dima. In addition to the Valuer’s firm wide experience and expertise, we have obtained relevant qualifications and credentials of the specific team members involved in this valuation exercise.

In particular, we noted that the person signing the Valuation Report, being the director of the Valuer, is a RICS Registered Valuer and a Registered Professional Surveyor who has over 20 years of experience in handling business valuation in Hong Kong and the PRC. We are satisfied with the competence of the independent Valuer in respect of the preparation of the Valuation Report.

We have also obtained and reviewed the Valuer’s terms of engagement and discussed with the Valuer its work performed in connection with this valuation. We are not aware of any limitation on the scope of work which might have an adverse impact on the degree of assurance given by the Valuation Report.

6.2. Valuation methodology

We noted that the Valuer, having considered the suitability of three valuation methodologies, being market approach, asset approach and income approach, has adopted the market approach in conducting valuation of the Target Group. We have discussed with the Valuer with regards to its rationale for adopting the market approach as follows:

Market Approach

The market approach values a business entity by comparison of the prices at which other similar business nature companies or interests changed hands in arm’s length transactions. The underlying theory of this approach is that one would not pay more than one would have to pay for an equally desirable alternative. By adopting this approach, the Valuer will first look for an indication of value from the prices of other similar companies or equity interest in companies that were sold recently.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The right transactions employed in analyzing for indications of value need to be sold at an arm’s length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell.

The derived multiples (most commonly used are: price to earnings, price to sales and price to book multiple) based on the analysis of those transactions are then applied to the fundamental financial variables of the subject business entity to arrive an indication of value.

Asset Approach

The asset approach is based on the general concept that the earning power of a business entity is derived primarily from its existing assets. The assumption of this approach is that when each of the elements of working capital, tangible and intangible assets is individually valued, their sum represents the value of a business entity and equals the value of its invested capital (equity and debt capital). In other words, the value of the business entity is represented by the fund that has been made available to purchase the business assets needed.

This fund comes from investors who buy stocks of the business entity (equity) and investors who lend fund to the business entity (debt). After collecting the total amounts of fund from equity and debt and converted into various types of assets of the business entity for its operation, the sum of such assets equals the value of the business entity.

From a valuation perspective, the Valuer will restate the values of all types of assets of a business entity from book values, i.e. historical cost minus depreciation to appropriate standards of value. After the restatement, the Valuer can identify the indicated value of the business entity, or, by applying the accounting principle “assets minus liabilities”, to arrive at the value of the equity interest of the business entity.

Income Approach

The income approach focuses on the economic benefits generated by the income producing capability of a business entity. The underlying theory of this approach is that the value of a business entity can be measured by the present worth of the economic benefits to be received over the life of the business entity.

Based on this valuation principle, the income approach estimates the future economic benefits and discounts these benefits to its present value using a discount rate appropriate for the risks associated with realizing those benefits.

Alternatively, this can be calculated by capitalizing the economic benefits to be received in the next period at an appropriate capitalization rate. This is subject to the assumption that the business entity will continue to maintain stable economic benefits and growth rates.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered the above and from our experience, it is common for valuers to adopt a single methodology in valuation, and the Valuer’s rationale for not adopting the asset and income approaches has been explained in the Valuation Report, we concur with the Valuer that the market approach is appropriate and reasonable for valuing the Target Group, which takes into account (i) the income approach is not applicable as the Target Group was loss making and preparing the financial projection of the Target Group involves subjective judgment and uncertaintie; (ii) the asset approach is not applicable as the valuation of the Target Group is conducted on a going concern basis, and the summation of its assets is inappropriate as such method ignores the future economic benefits of the business and the market sentiment in relation to the elderly care business as a whole. Although the elderly care business is capital intensive, requiring substantial initial investments in medical and elderly care-related equipment and facilities, it is also labor-intensive. This industry relies heavily on a dedicated workforce, including caretakers, doctors and other medical staff, to provide high-quality care. Therefore, it is crucial to consider the ongoing operations and the potential future earnings of the Target Group; (iii) the market approach is appropriate for the nature of the Target Group, given the specialty of its operations, its current condition, and the industry in which it is participating. It is better suited to capturing market sentiment and producing a less biased valuation of the Target Group as it requires fewer subjective inputs.

6.3. Basis and assumptions

The Valuer’s valuation is conducted in accordance with the HKIS Valuation Standards 2020 published by the Hong Kong Institute of Surveyors, the RICS Valuation – Global Standards published by the Royal Institution of Chartered Surveyors and the International Valuation Standards published by the International Valuation Standards Council and with reference to the Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards. We understand that the appraised value was determined subject to certain valuation assumptions, including no major change in the existing political, legal, economic or financial conditions and taxation laws which would adversely affect the business of the Target Group, etc. We also noted that the Valuer relied on the financial and operational information provided by the Company. Based on our interview conducted with the Valuer, we noted that these assumptions adopted in the Valuation Report are commonly adopted and nothing has come to our attention that would lead us to doubt the fairness and reasonableness of the assumptions adopted in the Valuation Report.

For the market approach, the Valuer first conducted research to select a group of comparable companies (the “ Comparable Companies ”) and a suitable comparison multiple, which in this case, being the price-to-book (“ P/B ”) ratio. The Valuer then calculated the P/B ratio for each of the Comparable Companies using publicly available information. Then, the mean P/B ratio, excluding any outliers, was applied to the net asset value of the Target Group as at 31 March 2024 to estimate the preliminary equity value. This value was subsequently adjusted by applying a market liquidity discount of 15.4% and a control premium of 23.3% to derive the 100% equity value of Target Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6.4. Selection of Comparable Companies

We understand that the Valuer has adopted the following criteria in selecting Comparable Companies: (i) the Comparable Companies that are actively traded and publicly listed in Greater China Region (including the PRC, Hong Kong, Taiwan and Macau) and (ii) over 80% of the revenue of the companies are derived from the provision of elderly care services. As a result of the above, three Comparable Companies have been identified by the Valuer which has been selected in accordance with the Valuer’s abovementioned selection criteria as below:

		Market	Total
		capitalization	equity
		(as at 31 March	attributable
Stock Code	Company Name	2024)	to the owners	Revenue	Net income
		*(HK$’000)*	*(HK$’000)*	*(HK$’000)*	*(HK$’000)*
8405.HK	Hang Chi Holdings Limited	260,000	188,389_(1)_	211,214_(1)_	23,408_(1)_
2189.HK	Kato (Hong Kong) Holdings Limited	550,000	371,335_(2)_	335,175_(2)_	88,913_(2)_
6931.TWO	Qing Song Health Company Limited	1,392,445	143,845_(3)_	191,160_(3)_	9,495_(3)_

Notes:

(1) As at 31 December 2023 or for trailing twelve months ended 31 December 2023

(2) As at 30 September 2023 or for trailing twelve months ended 30 September 2023

(3) As at 30 June 2023 or for trailing twelve months ended 30 June 2023

In evaluating the fairness and reasonableness of the consideration, we have, based on our search on public domain and the website of the Stock Exchange, identified an exhaustive list of listed companies in Greater China Region with criteria of (i) the Comparable Companies that are actively traded and publicly listed in Greater China Region (including the PRC, Hong Kong, Taiwan and Macau) and (ii) over 80% of the revenue of the companies are derived from the provision of elderly care services. By excluding Pine Care Group Limited (1989.HK) which has withdrawn its listing in Hong Kong on 29 February 2024, our search results are in line with the search results that Valuer identified.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Upon our review, we confirm that Hang Chi Holdings Limited (8405.HK) primarily focuses on providing (i) elderly home care services in Hong Kong including accommodation with dietician-managed meal plans, 24-hour nursing and caretaking assistance and professional services such as regular medical consultation, physiotherapy, occupational therapy, psychological and social care services, (ii) selling elderly related goods in Hong Kong, and (iii) offering customisable add-on healthcare services to the elderly residents in Hong Kong. According to Hang Chi Holdings Limited (8405.HK)’s latest annual report, all of the revenue was derived from elderly home care services and sales of elderly related goods and provision of healthcare services in Hong Kong during the year ended 31 December 2023. Kato (Hong Kong) Holdings Limited (2189.HK) specializes in (i) providing residential care services for the elderly in Hong Kong, which includes accommodation, professional nursing and care-taking services, nutritional management, medical services, physiotherapy and occupational therapy services, psychological and social care services, individual care plans, recreational services, as well as (ii) sale of healthcare and medical goods and add-on healthcare services in Hong Kong. According to Kato (Hong Kong) Holdings Limited (2189.HK)’s latest interim report, approximately 94% of the revenue was derived from rendering elderly home care services, elderly community care services and sales of elderly home related goods in Hong Kong for the six months ended 30 September 2023. Qing Song Health Company Limited (6931.TWO) is predominantly involved in residential long-term care services, offering 24hour self-funded residential institutional services, community-style long-term care services such as daycare centers, small-scale multi-functional group homes, and home-based in-home services in Taiwan. According to Qing Song Health Company Limited (6931.TWO)’s latest interim report, approximately 90% of the revenue was derived from elderly home care services and sales of elderly related goods and provision of healthcare services in Taiwan during the six months period ended 30 June 2023. The operations of these three comparable companies closely resemble those of the Target Group, all operating within the Greater China Region and facing similar business, industry, and economic risks and rewards. Therefore, although the limited number of identified comparable companies, it is important to highlight that all of them specialise in providing elderly care services and operate within the Greater China Region and we believe that these selected comparable companies are appropriate, finest option available and serve as representative choices.

Given that mainland China, Hong Kong, and Taiwan are predominantly populated by Chinese individuals (one-China principle), and that the elderly in these areas typically share similar lifestyles, it is anticipated that the operations of elderly care centers in these regions would resemble those of the Target Group. Additionally, it has come to our attention that there are no other suitable comparable companies listed in the PRC that possess a similar business nature to the Target Group and account for more than 10% of their total revenue. We are of the view that the three Comparable Companies selected by the Valuer are the most representative.

We also note that the three Comparable Companies are generating profits and seem to have a larger operational scale compared to the Target Group, the Valuer has made downward adjustments to the P/B multiples of these companies based on their cost of equities (as discussed below). This adjustment allows the multiples to accurately reflect the risks associated with the Target Group, including country risk, business risk, credit risk, size premium, and other relevant specific risks. In light of this, we consider that the Comparable Companies are representative comparables and the valuation adjustments are reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Moreover, after conducting a thorough analysis of the aforementioned Comparable Companies, in addition to the Target Group, it is evident that they are all influenced by similar economic fluctuations and the overall performance of the elderly care services industry, among other relevant factors. Consequently, we believe that these companies face comparable risks and rewards. The selection criteria employed in this process are deemed fair, reasonable, and comprehensive as they encompass companies whose primary operations and characteristics closely resemble those of the Target Group. Furthermore, the availability of publicly accessible market data further supports the validity of these criteria.

6.5. Selection of multiple

We noted from the Valuation Report that the mean P/B ratio of the Comparable Companies (after adjustment based on the cost of equity of each company and excluding outliner which is sample value outside one standard deviation of the mean) of 1.35 times is being adopted to multiply the Target Group’s net asset value as at 31 March 2024 of approximately RMB21,957,000 to derive at 100% equity value of the Target Group.

The P/B ratio of each of the Comparable Companies are shown as follows:

				Adjustment	Adjusted P/B
		P/B Ratio		Factor(2)	Ratio
Stock Code	Company Name	(A)	Cost of Equity(1)	(B)	(A) X (B)
8405.HK	Hang Chi Holdings Limited	1.38	11.8%	92%	1.28
2189.HK	Kato (Hong Kong)	1.48	12.4%	97%	1.43
	Holdings Limited
6931.TWO	Qing Song Health	9.68	9.8%	77%	7.42_(3)_
	Company Limited
	Mean				3.38
	Median				1.43
	Standard deviation				3.50
	Mean excluding outlier_(3)_				1.35
	Applied ratio				1.35

Notes:

(1) The cost of equity of the Target Group and the Comparable Companies were determined based on the capital asset pricing model (“CAPM”). Cost of equity of the Target Group after considering specific risk premium was approximately 12.8% as at the Valuation Date. For details of the calculation, please refer to the the Valuation Report in Appendix I.
(2) Adjustment based on cost of equity of each Comparable Company is calculated as follow: (1/cost of equity of the Target Group) ÷ (1/cost of equity of the Comparable Company).
(3) Sample value outside one standard deviation of the mean are determined as outlier.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the Valuer, multiple outside one standard deviation of the mean is considered as an outlier. Thus, the multiple of 6931.TWO is considered to be an outlier.

Based on the above, the adjusted P/B ratios of the Comparable Companies ranged from the minimum of 1.28 times to the maximum of 7.42 times, resulting in a mean of approximately 3.38 times and mean excluding outliers of approximately 1.35 times.

The calculation is tabulated as follows:

Applied P/B ratio Multiplication factor (equity attributable to shareholders of the Target Group) Adjustment: _Add:_Control premium _Less:_Lack of marketability discount Market Value of 100% Equity Interest of the Target Group	(RMB) 1.35 21,957,000 29,721,000 6,925,000 36,646,000 (5,639,000) 31,007,000

We have discussed with the Valuer with regards to the selection of multiple and noted that the Valuer has considered P/B ratio, price to earnings (“ P/E ”) ratio, enterprise value to earning before interests and taxes (“ EV/EBIT ”) ratio, enterprise value to sales (“ EV/S ”) ratio and price to sales (“ P/S ”) ratio. We concur with the value that P/B ratio is more representative due to (i) book value of the equity provides a relatively stable and intuitive metric that can be easily compared to the market price; (ii) elderly care business is capital intensive and value of the business is reflected in its balance sheet as they does not function as a mere outsourcing company offering healthcare staffing solutions. It requires substantial investments in elderly bed accommodations, rehabilitation and check-up facilities, medical equipment, relevant licenses, a skilled medical workforce, and other resources to successfully operate; (iii) the Target Group is loss making and earnings multiples like P/E and EV/EBIT ratios cannot be adopted in valuation analysis; and (iv) given that the Target Group focused on capital invested on the bed available for serving the elderly, the suitability of EV/S and P/S options (which are more commonly adopted in valuing technology companies or high growth companies) are often limited as they typically do not fully consider the high invested capital.

We have discussed with the Valuer for adopting the mean excluding outliers as the valuation multiple due to the following reasons: (1) mean is commonly adopted and takes into account of all the values of the comparable companies; (2) unlike mean, median is not taking into account of the value of each observation (i.e. not all values derived from comparable companies are reflected in median), hence it is less representative when compared to mean excluding outliers; and (3) mean excluding outliers is not influenced by extreme values.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Control premium is an amount that a buyer is willing to pay over the minority equity value of the company in order to acquire a controlling interest in that company. Since the P/B ratio adopted in the valuation was calculated from publicly listed companies and the market value calculated using such P/B ratio represents the minority ownership interest. Control premium was adopted to adjust such minority interest market value to controlling interest market value. Based on our discussion with the Valuer, we noted that a control premium of 23.3% is being adopted with reference to a research report named “Factset/BVR Control Premium Study” published by FactSet, a multinational financial data and software company and data of Factset was used by AP Associated Press, Barrons’s, CNNMoney.com, The Wall Street Journal, MarketWatch from DowJones, etc. We noted that this research report is a commonly adopted reference for control premium, which suggested a median control premium of 23.3% based on a list of 15,907 cases of acquisitions globally.

As such, we consider the control premium being applied, which is equivalent to the median control premium according to the aforementioned research report, is fair and reasonable.

Lack of Marketability Discount (“ LOMD ”) – Marketability is defined as the ability to convert the business interest into cash quickly at a known price with minimum transaction costs. For privately held company, there is usually a cost and a time lag associated with locating interested and capable buyers as there is no established market of readily-available buyers and sellers. All other factors being constant, an interest in a privately held company is worth less than an interest in a publicly traded company because no established market exists. We understand that LOMD is a downward adjustment to the value of the business interest to reflect its reduced level of marketability. Based on our discussion with the Valuer, we noted that a LOMD of 15.4% is being adopted by an option pricing model, which is also a similar median data as published by a research report named “Stout Restricted Stock Study Companion Guide” published by Stout Risius Ross, LLC. We noted that the LOMD can be estimated by a put option since the holder can purchase an at-the-money put option of similar stock to hedge the current value of the underlying stock. As such we consider the LOMD being applied is fair and reasonable.

As such, we consider that the LOMD being applied, which is equivalent to the median marketability discount according to the aforementioned research report, is fair and reasonable.

6.6. Section summary

Taking into account the above, we are of the view that the valuation of 100% equity of the Target Group as at 31 March 2024 is fair and reasonable. As such, in light of the fact that the consideration of RMB28.0 million represents 90.73% of the Target Group’s preliminary valuation of approximately RMB28.1 million as assessed in the Valuation Report as at 31 March 2024, we are of the view that the consideration of the Equity Transfer is fair and reasonable.

7. Financial effects of the Transaction

Upon completion of the Equity Transfer, the Company will hold approximately 90.73% of the issued share capital of the Target Company. The Target Company will become a direct non-wholly owned subsidiary of the Company and the financial results of the Target Group will be consolidated into the consolidated financial statements of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As the total consideration under the Equity Transfer of RMB28.0 million will be funded by the Group’s internal resources, the Group’s cash and bank balances are expected to decrease by the same amount which represents approximately 10.96% of the Group’s cash and cash equivalents balance as at 31 December 2023 of approximately HK$255.37 million. Further, it was noted that (i) the Group had net cash (being cash and bank balances less total borrowings) of approximately HK$246.11 million and hence a zero net gearing ratio (being net debt divided by total equity) as at 31 December 2023. Therefore, it is expected that the Equity Transfer would not have any material adverse impact on the working capital and gearing ratio of the Group upon its completion.

RECOMMENDATION

Having considered the principal factors and reasons referred set above, we are of the opinion that, the entering into of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder are on normal commercial terms, 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. We further consider that although entering into the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) is not in the ordinary and usual course of business of the Group, the acquisition of the Target Group is nevertheless in the interests of the Company and the Shareholder as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolution(s) approving the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder at the EGM. We also recommend the Independent Shareholders to vote in favour of the resolution(s) relating to the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder at the EGM.

Yours faithfully, For and on behalf of Pelican Financial Limited Charles Li * Managing Director

Charles Li is a responsible person registered under the SFO to carry out Type 6 (advising on corporate finance) regulated activity for Pelican Financial Limited and has over 30 years of experience in the accounting and financial services industry.
For identification purposes only

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VALUATION REPORT

APPENDIX I

The following is the text of a valuation report prepared for the purpose of incorporation in this circular received from Peak Vision Appraisals Limited, the Independent Valuer, in connection with its valuation of the Target Group.

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3 June 2024

The Board of Directors Dowell Service Group Co. Limited Room 206, B1 Floor No. 108 Baihe Road Nanping Town, Nan’an District Chongqing The People’s Republic of China

Dear Sirs,

Re: Valuation of 100% equity interest in 上海常青社康養企業發展有限公司 and its subsidiaries (except 成都市常萊健康管理有限公司)

In accordance with your instruction, we have conducted a valuation of the market value of 100% equity interest in 上海常青社康養企業發展有限公司 (the “ Business Enterprise ”) and its subsidiaries (except 成都市常萊健康管理有限公司) (together, the “ Group ”). It is our understanding that the Group is principally engaged in the provision of elderly care and related services in the People’s Republic of China (the “ PRC ” or “ China ”). We confirm that we have 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 100% equity interest in the Group as at 31 March 2024 (the “ Valuation Date ”).

This report states the purpose of valuation and basis of value, sources of information, identifies the business valued, describes the methodology of our valuation, investigation and analysis, assumptions and limiting conditions, and presents our opinion of value.

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VALUATION REPORT

APPENDIX I

1.0 PURPOSE OF VALUATION

This report is being prepared solely for the use of the directors and management (together, the “ Management ”) of Dowell Service Group Co. Limited (the “ Company ”) for internal reference and incorporation into the circular of the Company in connection with proposed acquisition of the Group. The Company is listed on the Main Board of The Stock Exchange of Hong Kong Limited. As advised, the Company intends to acquire 90.73% equity interest in the Group.

Peak Vision Appraisals Limited (“ Peak Vision Appraisals ”) acknowledges that this report may be used by the Management as one of the sources of information for the proposed acquisition of the Group and may also be made available to the auditors of the Company for auditing reference only. The proposed acquisition, if materialised, and the corresponding transaction price would be the result of negotiations between the transacting parties. The Management should be solely responsible for determining the consideration of the proposed acquisition, in which Peak Vision Appraisals is not involved in the negotiation and has no comment on the agreed consideration. Peak Vision Appraisals assumes no responsibility whatsoever to any person other than the Management in respect of, or arising out of, the contents of this report. If others choose to rely in any way on the contents of this report they do so entirely on their own risk.

2.0 BASIS OF VALUE

Our valuation has been prepared in accordance with the HKIS Valuation Standards 2020 published by the Hong Kong Institute of Surveyors (the “ HKIS ”), the RICS Valuation – Global Standards (Effective from 31 January 2022) published by the Royal Institution of Chartered Surveyors (the “ RICS ”) and the International Valuation Standards (Effective 31 January 2022) (the “ IVS ”) published by the International Valuation Standards Council, where applicable, and with reference to the Hong Kong Financial Reporting Standards (“ HKFRS ”) and Hong Kong Accounting Standards (“ HKAS ”).

Our valuation of the Group is based on the going concern premise and conducted on market value basis. Market Value is defined as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently, and without compulsion”.

In the course of our valuation, 成都市常萊健康管理有限公司 (“ Chengdu Changlai ”) has been excluded from the Group since it is one of the conditions precedent to dispose of Chengdu Changlai from the Group, resulting Chengdu Changlai not being part of the Group to be acquired by the Company.

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VALUATION REPORT

APPENDIX I

3.0 SOURCES OF INFORMATION

In the course of our valuation, we have performed site visits of three of the elderly care centers (including Cixi, Xinhong and Bashu) held by the Group and had discussion with the Management on the development of the Group and the prospect of the elderly care industry in the PRC. We have also relied on the following major documents and information in the valuation analysis. Some of the information and materials are furnished by the Management. Other information is extracted from public sources such as government sources, Refinitiv, Kroll Cost of Capital Navigator*, etc.

Kroll Cost of Capital Navigator is a global cost of capital tool and data delivery platform developed by Kroll Inc. (rebranded from Duff & Phelps LLC in 2022), which is a leading independent corporate investigation, risk consulting and financial advisory solutions provider established in 1972.

The major documents and information include the following:

Copies of certificate(s) or license(s) and other relevant information of the Group as provided by the Management or extracted from public sources;
PowerPoint presentation of the Group as provided by the Management;
Historical financial information such as income statements and balance sheets of the Group as provided by the Management;
Operational information of the Group as discussed with the Management; and
Industry and economic data.

We consider that we have obtained adequate information from the sources described above to provide a reliable opinion of the market value.

4.0 LIMITATIONS AND RELIANCE ON INFORMATION

We have no reason to believe that any material facts have been withheld from us, however, we do not warrant that our investigations have revealed all of the matters which an audit or more extensive examination might disclose.

This report is based upon business, financial and other information provided by the Management. We have made reference to or reviewed the above information and data and assumed such information and data are true and accurate without independent verification except as expressly described herein. We have made reasonable enquiries and exercised our judgment on the reasonable use of such information and found no reason to doubt the accuracy or reliability of the information.

Preparation of this report does not imply that Peak Vision Appraisals has audited in any way the financial information or other records of the Group. It is understood that the financial information provided is prepared in accordance with generally accepted accounting principles and has been prepared in a manner which truly and accurately reflects the financial performances and positions of the Group as at the respective financial statement dates.

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VALUATION REPORT

APPENDIX I

5.0 BUSINESS ENTERPRISE

上海常青社康養企業發展有限公司(the Business Enterprise) is a limited liability company incorporated in the PRC on 28 April 2020. The following table summarizes the business registration details of the Business Enterprise, according to National Enterprise Credit Information Publicity System （國家企業信用信息公示系統）.

Unified social credit code : 91310120MA1HWM7464

Name : 上海常青社康養企業發展有限公司 (the Business Enterprise) Incorporation type : Other limited liability company （其他有限責任公司） Registered address : Room 2599, Building 11, No. 6055 Jinhai Road, Fengxian District, Shanghai, the People's Republic of China（中華人民共和國上海市奉賢區金海公路6055號11幢2599室） Incorporation date : 28 April 2020 Confined business scope : General items: corporate management; health consulting services (excluding diagnosis and treatment services); organizing cultural and artistic exchange activities; sports competition organization; conference and exhibition services; etiquette services; professional cleaning, cleaning, and disinfection services; parking lot services; fitness and leisure activities; sale of Class I medical devices; advertising production; advertisement release; advertising design and agency; machinery and equipment leasing; property management; leasing services (excluding licensed leasing services); leasing of Class I medical devices; computer and communication equipment leasing; transportation equipment rental services; office equipment rental services; mechanical parts and component processing (branch operations) (Except for items that require approval according to law, business activities can be carried out independently with a business license and in accordance with the law)

Licensed items: road cargo transportation (excluding dangerous goods) (For items that require approval according to law, business activities can only be carried out after obtaining approval from the relevant departments, the actual business items as approved under the approval documents or license documents granted by the relevant departments shall prevail)

Table 1: Business Registration Details of the Business Enterprise Source: National Enterprise Credit Information Publicity System

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VALUATION REPORT

APPENDIX I

6.0 BUSINESS OVERVIEW

The Group is principally engaged in the provision of elderly care and related services in the PRC. As advised by the Management, the scope of services provided by the Group are shown as follows:

6.1 Elderly Care Services

The Group was operating 11 elderly care centers in the PRC as at the Valuation Date. The Group offers companion and personal care service, comprehensively taking care of the hygienic, personal treatment and food preparation need for the elderly. The services include the followings:

i) Daily care services (e.g. meal preparing; room cleaning and disinfection; laundry cleaning; assisting for meals, dressing, bathing and toileting; haircut, nail cut and shaving, etc.);
ii) Nutritious meal services (e.g. preparing appropriate meal for the elderly including diabetic meal, birthday meal, etc.);
iii) Disability care services (e.g. one to one personal care; oral care; diaper changing; assisting for defecation; joint care; Parkinson’s disease nursing; vegetative care, etc.); and
iv) Rehabilitation services (e.g. postoperative recovery; stroke/cerebral infarction rehabilitation; cognitive training; fracture rehabilitation, etc.).

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APPENDIX I

In addition to the above nursing services, the Group also seeks to facilitate a higher quality of life for all its elderly clients. As such, the Group would occasionally organize cultural and entertainment activities like calligraphy, painting, crafting, volunteering activities, art show, film screening, social work services, etc. for the elderly. Details of the elderly care centers operated by the Group are shown as follows:

				Gross
				Floor	No. of	No. of	No. of	Average
	Elderly		No. of	Area	total	medical	elderly	age of
No.	center name	Address	beds	(m2)	staff	professional	residents	the elderly
1	Cihuai	No. 27 Liyuchi Second	168	3,634.80	49	6	132	82
	（慈懷）	Village, Guanyinqiao
		Subdistrict, Jiangbei
		District, Chongqing, the
		People’s Republic of
		China（中華人民共和國
		重慶市江北區觀音橋街
		道鯉魚池二村27號）
2	Ciyou	53-1 Meizhuanxiao Street,	65	1,710.00	20	3	49	85
	（慈佑）	Yuzhong District,
		Chongqing, the People’s
		Republic of China（中華
		人民共和國重慶市渝中
		區美專校街53-1)
3	Cixi	No. 169 Huangnibang	135	4,448.00	45	7	135	84
	（慈喜）	Zijing Branch Road,
		Yubei District,
		Chongqing, the People’s
		Republic of China（中華
		人民共和國重慶市渝北
		區黃泥磅紫荊支路169
		號）

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APPENDIX I

VALUATION REPORT

				Gross
				Floor	No. of	No. of	No. of	Average
	Elderly		No. of	Area	total	medical	elderly	age of
No.	center name	Address	beds	(m2)	staff	professional	residents	the elderly
4	Cicheng	No. 1195 Zhandong Road,	112	3,399.00	16	4	55	81
	（慈誠）	Changshou District,
		Chongqing, the People’s
		Republic of China（中華
		人民共和國重慶市長壽
		區站東路1195號）
5	Cihang	Shuangfeng Elderly Care	233	6,820.16	53	6	213	80
	（慈航）	Service Centre, No. 777
		Taoyuan Avenue, Yubei
		District, Chongqing, the
		People’s Republic of
		China（中華人民共和國
		重慶市渝北區桃源大道
		777號雙鳳養老服務中
		心）
6	Yiju	Building 2, No. 6 Kaige	80	1,602.49	15	2	72	81
	（宜居）	First Branch Road,
		Shuanglonghu
		Subdistrict, Yubei
		District, Chongqing, the
		People’s Republic of
		China（中華人民共和國
		重慶市渝北區雙龍湖街
		道凱歌一支路6號2幢）
7	Xinyi	No. 227-1-1 Wenti Branch	48	834.00	17	/	47	87
	（心怡）	Road, Dadukou District,
		Chongqing, the People’s
		Republic of China（中華
		人民共和國重慶市大渡
		口區文體支路227號附
		1-1)
8	Fengan	No. 220-9 Shaoling Road,	150	4,300.00	22	/	60	82
	（奉安）	Yong’an Subdistrict,
		Fengjie County,
		Chongqing, the People’s
		Republic of China（中華
		人民共和國重慶市奉節
		縣永安街道少陵路220號
		附9號）

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APPENDIX I

VALUATION REPORT

				Gross
				Floor	No. of	No. of	No. of	Average
	Elderly		No. of	Area	total	medical	elderly	age of
No.	center name	Address	beds	(m2)	staff	professional	residents	the elderly
9	Fengyi	Group 2, Changling Village,	350	14,230.00	26	/	104	83
	（奉頤）	Kuimen Subdistrict,
		Fengjie County,
		Chongqing, the People’s
		Republic of China（中華
		人民共和國重慶市奉節
		縣夔門街道長嶺村2組）
10	Xinhong	No. 4 Xinhong North	298	10,352.47	61	6	223	85
	（新鴻）	Branch Road, Chenghua
		District, Chengdu City,
		Sichuan Province, the
		People’s Republic of
		China（中華人民共和國
		四川省成都市成華區新
		鴻北支路4號）
11	Bashu	No. 41 Hetang Road, Yubei	130	3,644.00	39	15	40	90
	（巴蜀）	District, Chongqing, the
		People’s Republic of
		China（中華人民共和國
		重慶市渝北區荷塘路41
		號）

Table 2: Details of the elderly care center Source: Management

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VALUATION REPORT

APPENDIX I

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Figure 1: External appearance (left) and internal appearance (right) of some of the elderly care centers Source: Management

6.2 Vocational Skill Training

The Group operates an elderly care training center providing vocational skills for the trainee. The training center has a gross floor area of 2,100 sq.m., with 3 professional training rooms and 4 theoretical classrooms. As advised, the training center has become the training base and appraisal base of the National Vocational Skills Appraisal Institute of the Health Commission of Chongqing Municipal. The training center cooperates with well recognized experts from domestic tertiary hospitals and famous doctors to emphasize its courses on professional training in relation to the fields of traditional Chinese medicine, nursing, nutrition health, etc.

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Figure 2: Vocational skill training center operated by the Group Source: Management

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APPENDIX I

6.3 Smart Elderly Care Service Platform

The Group has also taken the needs of the elderly as the guide, used the internet of things and other technologies to develop a smart elderly care service platform. Through the WeChat application “常青到家”, the elderly can enjoy bathing assistance, dining, physiotherapy, health consultation and other services without leaving home. The rapid response and flexible management mechanism of the platform can also help to reduce operating costs of the Group and at the same time improves the Group’s service quality through the real-time, fast and efficient, interconnected and intelligent elderly care services. The core purpose of such platform is to integrate service supply resources so that the elderly care service can be provided in a much more convenient, seamless and instant channel.

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Figure 3: Smart elderly care service platform developed by the Group Source: Management

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VALUATION REPORT

APPENDIX I

6.4 Historical Financial Performances of the Group

Based on financial information provided by the Management, revenue of the Group for the year ended 31 December 2023 was approximately RMB45,051,000 and three months ended 31 March 2024 was approximately RMB12,158,000. The Group recorded net loss of approximately RMB14,824,000 during the year ended 31 December 2023 and net loss of approximately RMB2,583,000 during the three months period ended 31 March 2024.

(RMB’000) Revenue Operating expenses Operating profit/(loss) Interest income/(expenses) Other gain/(loss) Profit tax Net profit/(loss)	Year ended 31 December 2023 45,051 (56,359) (11,308) (2,987) 424 (953) (14,824)	3 months ended 31 March 2024 12,158 (14,734) (2,576) (31) 24 – (2,583)

* Figures above are subject to rounding

Table 3: Historical financial performances of the Group Source: Management

7.0 INVESTIGATION AND ANALYSIS

Our investigation included discussion with the Management in relation to the elderly care service industry in the PRC, and the development, operations and other relevant information of the Group. In addition, we have made relevant inquiries and obtained such further information including financial and business information, and statistical figures from other sources as we consider necessary for the purpose of this valuation. As part of our analysis, we have made reference to the financial information and other pertinent data concerning the Group provided to us by the Management.

The valuation of the Group requires consideration of all pertinent factors, which affect the operations of the business and its ability to generate future investment returns. The factors considered in this valuation include the following:

Nature and operations of the Group;
Historical information of the Group;

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VALUATION REPORT

APPENDIX I

Financial performances and positions of the Group;
Proposed business development of the Group;
Regulations and rules of the elderly care service industry in the PRC;
Economic and industry data affecting the elderly care service industry and other dependent industries;
Market-derived investment return(s) of similar business; and
Industry and economic data.

8.0 GENERAL VALUATION APPROACHES AND METHODS

There are three generally accepted approaches to obtain the market value of the business subject, namely the Market Approach, the Asset Approach and the Income Approach. Under each approach, a number of methods are available which can be used to assess the value of a business subject. Each method uses a specific procedure to determine the business value.

Each of these approaches is appropriate in one or more circumstances, and sometimes, two or more approaches may be used together. Whether to adopt a particular approach will be determined by the specific characteristics of the subject of the valuation. It is also common practice to employ a number of valuation methods under each approach. Therefore, no single business valuation approach or method is definitive.

8.1 Market Approach

The Market Approach values a business entity by comparison of the prices at which other similar business nature companies or interests changed hands in arm’s length transactions. The underlying theory of this approach is that one would not pay more than one would have to pay for an equally desirable alternative. By adopting this approach, we will first look for an indication of value from the prices of other similar companies or equity interest in companies that were sold recently.

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APPENDIX I

8.2 Asset Approach

The Asset Approach is based on the general concept that the earning power of a business entity is derived primarily from its existing assets. The assumption of this approach is that when each of the elements of working capital, tangible and intangible assets is individually valued, their sum represents the value of a business entity and equals the value of its invested capital (equity and debt capital). In other words, the value of the business entity is represented by the fund that has been made available to purchase the business assets needed.

This fund comes from investors who buy stocks of the business entity (equity) and investors who lend fund to the business entity (debt). After collecting the total amounts of fund from equity and debt, and converted into various types of assets of the business entity for its operation, the sum of such assets equals the value of the business entity.

From a valuation perspective, we will restate the values of all types of assets of a business entity from book values, i.e. historical cost minus depreciation to appropriate standards of value. After the restatement, we can identify the indicated value of the business entity, or, by applying the accounting principle “assets minus liabilities”, to arrive at the value of the equity interest of the business entity.

8.3 Income Approach

The Income Approach focuses on the economic benefits generated by the income producing capability of a business entity. The underlying theory of this approach is that the value of a business entity can be measured by the present worth of the economic benefits to be received over the life of the business entity.

Based on this valuation principle, the Income Approach estimates the future economic benefits and discounts these benefits to its present value using a discount rate appropriate for the risks associated with realizing those benefits.

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VALUATION REPORT

APPENDIX I

9.0 VALUATION ANALYSIS

9.1 Valuation Approaches

In the process of valuing the business subject, we have considered the nature of the Group, specialty of its operations, its current condition, and the industry it is participating. Having considered the three general valuation approaches, we consider that the Market Approach would be appropriate and reasonable in the valuation of the market value of the Group.

In this valuation, the Income Approach is not adopted as long-term forecasts are unavailable. As advised by the Management, the Group was in its development stage as at the Valuation Date and according to the latest financial information provided by the Management, the Group was loss making during the trailing twelve months ended 31 March 2024. Therefore, preparing the financial projection of the Group involves subjective judgement and uncertainties. In contrast, the Market Approach is better suited to capturing market sentiment and producing a less biased valuation of the Group as it requires fewer subjective inputs.

The Asset Approach is not applied as the valuation of the Group is conducted on a going concern basis, and the summation of its assets is inappropriate as such method ignores the future economic benefits of the business as a whole. We have therefore solely relied on the Market Approach in determining our opinion of value.

Under the Market Approach, we have considered two commonly used methods of valuation, the Guideline Public Company Method and the Comparable Transaction Method. The Guideline Public Company Method is applied as there are a certain number of public traded companies engaged in the same or similar line of business as the Group that can be identified. The shares of these publicly traded companies are actively traded in free and open markets and provide valid indicators of value to permit meaningful comparison. The application of Comparable Transaction Method is limited as there are insufficient comparable transactions with sufficient information disclosed for analysis to form a reliable opinion of value.

For the valuation of the Group, we have employed the price to book (“ P/B ”) ratio. We consider P/B ratio is more representative than other commonly adopted multiples like price to earnings (“ P/E ”) ratio, enterprise value to earnings before interests and taxes (“ EV/EBIT ”) ratio, enterprise value to sales (“ EV/S ”) ratio and price to sales (“ P/S ”) ratio due to the following reasons:

Book value of the equity provides a relatively stable and intuitive metric that can be easily compared to the market price;
Given that operating elderly care business requires substantial initial investments (i.e. capital intensive) in a wide variety of medical and elderly care-related equipment and facilities, such as leasehold improvements, elderly bed accommodations, rehabilitation and check-up facilities, etc. to operate successfully, thus, value of the business is reflected in its balance sheet;

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APPENDIX I

The Group is loss making and earnings multiples like P/E and EV/EBIT ratios cannot be adopted in valuation analysis; and
Given that (1) the Group mainly depends on capital invested on the bed accommodations and ancillary facilities available for serving the elderly and EV/S and P/S ratios fail to take into account of the invested capital; and (2) EV/S and P/S ratios are more commonly adopted in valuing technology companies or high growth companies, EV/S and P/S ratios are therefore not adopted in our valuation.

9.2 Comparable Companies

In the course of our valuation, we have identified a total of 3 guideline public companies for our analysis. Since the Group is principally engaged in the provision of elderly care and its related services in the PRC, there are no perfect match of comparable companies with exactly the same financial performance, business operations and risk profile as the business subject. However, the comparable companies we identified are also engaged in the businesses of elderly care services and solutions and therefore we consider they are subject to similar business, industry and economic risks and rewards as the Group. Selection criteria of comparable companies are listed as follows:

a. Companies that are actively traded and publicly listed in the Greater China Region (including the PRC, Hong Kong, Taiwan and Macau); and
b. Over 80% of the revenue of the companies are derived from the provision of elderly care services.

Based on our exhaustive search of the Refinitiv database using the criteria above, the 3 guideline public companies are set out below:

			Total equity
		Market	attributable
		capitalization	to the
		(as at	owners
		31 March	of the
Refinitiv Ticker	Company Name	2024)	company	Revenue	Net income
		(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)
8405.HK	Hang Chi Holdings Ltd	260,000	188,389_(1)_	211,214_(1)_	23,408_(1)_
2189.HK	Kato (Hong Kong)	550,000	371,335_(2)_	335,175_(2)_	88,913_(2)_
	Holdings Ltd
6931.TWO	Qing Song Health Co Ltd	1,392,445	143,845_(3)_	191,160_(3)_	9,495_(3)_

Figures above are subject to rounding

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APPENDIX I

Notes:

(1) As at 31 December 2023 or for trailing twelve months ended 31 December 2023 (2) As at 30 September 2023 or for trailing twelve months ended 30 September 2023 (3) As at 30 June 2023 or for trailing twelve months ended 30 June 2023

Table 4: Comparable guideline public companies Source: Refinitiv, Peak Vision Appraisals

The above comparable companies, together with the Group, are subject to similar fluctuations in the economy and performance of the elderly care services industry, among other factors. Thus, we consider they are confronted with similar risks and rewards.

9.3 Multiple Ratios

In order to form a meaningful and fair valuation, we have adjusted the differences in characteristics between the Group and the comparable companies.

Different companies are exposed to different levels of risk, in terms of country risk, business risk, credit risk, size premium, and other relevant specific risk, etc. Therefore, the multiples of comparable companies should be adjusted so that they reflect the risk of the Group. In the course of our valuation, we have assessed the risk relative to the guideline public companies by making reference with their cost of equity, and accordingly adjusted the multiples upward or downward where appropriate based on the differences.

The unadjusted and adjusted multiples are presented as follows:

Refinitiv			Cost of	Adjustment	Adjusted
Ticker	Company Name	P/B Ratio	Equity(1)	Factor(2)	P/B Ratio
		(A)		(B)	(A) x (B)
8405.HK	Hang Chi Holdings Ltd	1.38	11.8%	92%	1.28
2189.HK	Kato (Hong Kong)
	Holdings Ltd	1.48	12.4%	97%	1.43
6931.TWO	Qing Song
	Health Co Ltd	9.68	9.8%	77%	7.42_(3)_
	Mean				3.38
	Median				1.43
	Standard deviation				3.50
	Mean excluding outlier_(3)_				1.35
	Applied ratio				1.35

* Figures above are subject to rounding

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APPENDIX I

Notes:

(1) The cost of equity of the Group and the comparable companies were determined based on the capital asset pricing model (“CAPM”). Cost of equity of the Group after considering specific risk premium was approximately 12.8% as at the Valuation Date. For details of the calculation, please refer to the Appendix D.
(2) Adjustment based on cost of equity of each comparable company, calculated as follows: (1/cost of equity of the Group) ÷ (1/cost of equity of the comparable company).
(3) Sample value outside one standard deviation of the mean are determined as outlier.

Based on the above, the adjusted P/B ratios of the comparable companies ranged from the minimum of 1.28x to the maximum of 7.42x, resulting in a mean of approximately 3.38x and mean excluding outlier of approximately 1.35x.

We have adopted the mean excluding outlier as our multiple due to the following reasons: (1) mean is commonly adopted and takes into account of all the values of the comparable companies; (2) unlike mean, median is not taking into account of the value of each observation (i.e. not all values derived from comparable companies are reflected in median), hence it is less representative when compared to mean excluding outlier; and (3) mean excluding outlier is not influenced by extreme value. We then applied the multiple to the corresponding measurement base, which is based on the latest available consolidated financial information of the Group.

Based on the financial information provided by the Management, the equity attributable to shareholders of the Group as at the Valuation Date was approximately RMB21,957,000.

9.4 Control Premium

A control premium is the premium an investor is willing to pay in addition to a marketable minority equity value to obtain controlling interest in a business subject. The published market price of the identified comparable companies represents the market transaction of minority interests, therefore adjustment has been made to reflect the degree of control associated with a 100% equity interest of the Business Enterprise. Based on research published by Factset/BVR Control Premium Study [(1)] , the overall median control premium as at the Valuation Date was approximately 23.3%.

Note:

(1) Factset/BVR Control Premium Study is a study examining transactions whereby 50.01% or more of a company was acquired. Factset/BVR Control Premium Study is published by Factset, a multinational financial data and software company founded in 1978, went public in 1996 and currently dual listed on the New York Stock Exchange and the NASDAQ. Factset provides financial information and analytic software for investment professionals. According to Factset website, data of Factset was used by AP Associated Press, Barrons’s, CNNMoney.com, The Wall Street Journal, MarketWatch from DowJones, etc.

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APPENDIX I

9.5 Lack of Marketability Discount

We have adopted a lack of marketability discount of approximately 15.4% as ownership interest in closely held companies are typically not readily marketable compared to similar interest in publicly listed 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.

In our valuation, we applied an option pricing model to estimate the lack of marketability discount. A lack of marketability discount can be estimated by a put option since the holder can purchase an at-the-money put option of similar stock to hedge the current value of the underlying stock.

9.6 Valuation Summary

Based on our analysis, the mean excluding outlier of the adjusted P/B ratio of the comparable companies was approximately 1.35x. By applying the equity attributable to shareholders of the Group of approximately RMB21,957,000, and adjusting for control premium (in accordance with Section 9.4), lack of marketability discount (in accordance with Section 9.5), we are of the opinion that the market value of 100% equity interest in the Group as at the Valuation Date was in the sum of RMB31,007,000 (RENMINBI THIRTY ONE MILLION SEVEN THOUSAND ONLY) . Our calculation is tabulated as follows:

Applied P/B ratio Multiplication factor (equity attributable to shareholders of the Group (excluding Chengdu Changlai)) Adjustment: Add: Control premium Less: Lack of marketability discount Market Value of 100% Equity Interest of the Group	(RMB) 1.35 21,957,000 29,721,000 6,925,000 36,646,000 (5,639,000) 31,007,000

* Figures above are subject to rounding

— I-18 —

VALUATION REPORT

APPENDIX I

10.0 VALUATION ASSUMPTIONS

For the Group to continue as a going concern, the Group will successfully carry out all necessary activities for the development of its business;
Key management, competent personnel, professional and technical staff will all be retained to support the ongoing operations of the Group;
The availability of finance will not be a constraint on the forecast growth of the Group’s operations in accordance with the business plans;
Market trends and conditions where the Group operates will not deviate significantly from the economic forecasts in general;
The financial information of the Group as supplied to us has been prepared in a manner which truly and accurately reflects the financial performances and positions of the Group as at the respective financial statement dates;
There will be no material changes in the business strategy of the Group and its operating structure;
Interest rates and exchange rates in the localities for the operations of the Group will not differ materially from those presently prevailing;
All relevant approvals, business certificates, licences or other legislative or administrative authority from any local, provincial or national government, or private entity or organization required to operate in the localities where the Group operates or intends to operate will be officially obtained and renewable upon expiry unless otherwise stated; and
There will be no major changes in the political, legal, economic or financial conditions and taxation laws in the localities in which the Group operates or intends to operate, which would adversely affect the revenues and profits attributable to the Group.

11.0 LIMITING CONDITIONS

Our conclusion of the market value is derived from generally accepted valuation procedures and practices that rely substantially on the use of various assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained. This valuation reflects facts and conditions existing as at the Valuation Date. Subsequent events have not been considered and we are not required to update our report for such events and conditions.

To the best of our knowledge, all data set forth in this report is reasonable and accurately determined. The data, opinions, or estimates identified as being furnished by others, which have been used in formulating this analysis, are gathered from reliable sources, however, no guarantee is made nor liability assumed for the accuracies.

— I-19 —

VALUATION REPORT

APPENDIX I

We have relied to a considerable extent on the information provided by the Management in arriving at our opinion of value. We are not in the position to verify the accuracy of all information provided to us. However, we have had no reason to doubt the truth and accuracy of the information provided to us and to doubt that any material facts have been omitted from the information provided. No responsibility for operational and financial information that has not been provided to us is accepted.

Certain facts, information, statistics and data relating to the economic and industry overview that are presented in this report are derived from publicly available official government sources as well as industry reports prepared by external independent market researchers. We are of the view that the sources of this information are appropriate sources for such information and have exercised reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The information has not been independently verified by us, and thus no representation is given as to its accuracy or correctness, and accordingly, it should not be unduly relied on.

We have not investigated the title to or any legal liabilities against the Group and have assumed no responsibility for the title to or any legal liabilities against the Group. In forming our opinion, we have assumed that matters such as title, compliance with laws and regulations and contracts in place are in good standing and will remain so and that there are no material legal proceedings, other than as publicly disclosed.

To the extent that there are legal issues relating to financial instruments, assets, properties, or business interests or issues relating to compliance with applicable laws, regulations, and policies, Peak Vision Appraisals assumes no responsibility and offers no legal opinion or interpretation on any issue.

In accordance with our standard practices, we must state that this report is for the exclusive use of the party to whom it is addressed and for the specific purpose stated above. Furthermore, the report and conclusion of value are not intended by the author, and should not be construed by the reader, to be investment advice in any manner whatsoever. The conclusion of value represents the consideration based on information furnished by the Company/engagement parties and other sources. No responsibility is accepted to any third party for the whole or any part of its contents.

Actual transactions involving the subject assets/business might be concluded at a higher or lower value, depending upon the circumstances of the transaction and the business, and the knowledge and motivation of the buyers and sellers at that time.

12.0 REMARKS

Unless otherwise stated, all monetary amounts stated in this valuation report are in Renminbi (RMB).

The Management has reviewed and confirmed the factual content and has agreed to the assumptions and limiting conditions of this report.

— I-20 —

VALUATION REPORT

APPENDIX I

We hereby confirm that we have no material connection or involvement with the Group, the Company and its subsidiaries and associated companies, or the value reported herein and that we are in a position to provide an objective and unbiased valuation.

In accordance with the RICS Valuation – Global Standards (Effective from 31 January 2022), we are also required to draw your attention to the possibility that this assessment may be investigated by the RICS for compliance with such standards.

13.0 OPINION OF VALUE

Based on the investigation and analysis stated above and on the valuation method employed and key assumptions appended above, we are of the opinion that the market value of 100% equity interest in the Group as at the Valuation Date was in the sum of RMB31,007,000 (RENMINBI THIRTY ONE MILLION SEVEN THOUSAND ONLY) .

Yours faithfully, For and on behalf of Peak Vision Appraisals Limited

Nick C. L. Kung Chern Sung Lee MRICS, MHKIS, RPS (G.P.), RICS Registered Valuer, MCIREA CFA, CPA, MRICS Director Director Corporate Valuations Corporate Valuations

— I-21 —

VALUATION REPORT

APPENDIX I

Notes:

(a) Mr. Nick C. L. Kung is a member of the Royal Institution of Chartered Surveyors and member of the Hong Kong Institute of Surveyors, Registered Professional Surveyor, RICS Registered Valuer and Registered Business Valuer of the Hong Kong Business Valuation Forum (HKBVF) and has more than 10 years of experience in the valuation of business assets and business enterprises in Hong Kong and overseas.
(b) Mr. Chern Sung Lee is a CFA Charterholder, a member of the Hong Kong Institute of Certified Public Accountants and a member of the Royal Institution of Chartered Surveyors and has more than 10 years of experience in the valuation of business assets and business enterprises in Hong Kong and overseas.

— I-22 —

VALUATION REPORT

APPENDIX I

Appendix A

Industry Overview

— I-23 —

VALUATION REPORT

APPENDIX I

China’s Elderly Care Industry Overview

According to a research published by Ping An Insurance (Group) Company of China, Ltd. (“ Ping An ”), China has the largest and fastest-growing pool of elderly on the planet, creating challenges for society, the economy and policymakers. China was officially labeled an aging country in 2000, when the population aged 60 and over reached 10% of the total. According to the Renmin University of China, this rapid-aging phenomenon is being driven by a low birth rate and increasing longevity. The World Bank reports the average life expectancy in China has risen from 44 in 1960 to roughly 76 today, fueling China’s aging demographics. The number of people aged 60 and over is forecast to reach nearly 500 million by 2050. Those aged 65 and over are expected to reach 370 million, roughly a third of the total population, or nearly double the 191 million adults aged 65 and over today. By comparison, the population of the United States is 330 million, and that of the European Union is 447 million.

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Figure 4: China’s aging population (2000 – 2030)

Source: Ping An

To tackle the aging population challenge, China committed to a new policy: Healthy China 2030. Aging is associated with a rising prevalence of illness and medical conditions. The Healthy China policy is aimed at promoting a healthy society through the integration of health and elderly-care services. Another policy commitment, 9073, aims to provide for 90% of the growing elderly population to be looked after at home, 7% in community care and just 3% in institutions. The aging population also presents the private sector with a new opportunity to participate in China’s burgeoning silver economy.

— I-24 —

VALUATION REPORT

APPENDIX I

Ping An’s Co-CEO Jessica Tan says: “The entire senior care industry is expected to exceed 22 trillion yuan ($3.25 trillion). So this demographic evolution raises both opportunities and challenges.” The country’s aim is to allow its citizens to easily access affordable treatment, and preventive, rehabilitative and long-term care services. Analysts say an aging Chinese population presents a huge opportunity for the private sector to turn longer life spans into an advantage that will help people live independently for much longer and mitigate the notion of seniors becoming a burden on society.

==> picture [305 x 207] intentionally omitted <==

Figure 5: China senior care industry scale Source: Ping An

— I-25 —

VALUATION REPORT

APPENDIX I

Appendix B

Economic Overview

— I-26 —

VALUATION REPORT

APPENDIX I

China Economic Overview

According to the research conducted by Hong Kong Trade Development Council (“ HKTDC ”), After growing by 4.9% and 5.2% in Q3 and Q4 of 2023, respectively, China’s GDP grew by 5.2% in 2023. During 2023, added-value industrial output rose 4.6%, fixed-assets investment increased 3.0%, retail sales climbed 7.2%, and inflation was up by 0.2%. During 2023, exports and imports in US-dollar terms fell 4.6% and 5.5%, respectively, resulting in a trade surplus of US$823.2 billion in the period. The Manufacturing Purchasing Managers’ Index declined from 49.4 in November to 49.0 in December.

According to the World Bank, China is the second-largest economy in the world, behind the United States, ahead of Japan. According to United Nations Conference on Trade and Development (“ UNCTAD ”) World Investment Report 2023, China was the world’s second-largest recipient of foreign direct investment (“ FDI ”) inflows (US$189 billion) for the sixth consecutive year in 2022, second only to the US (US$285 billion). According to the 2022 Statistical Bulletin of China's Outward Foreign Direct Investment, China was the world’s second-largest source of outward FDI flows (US$163 billion), behind only the US (US$373 billion). According to the World Trade Organisation (“ WTO ”), China was the world’s largest exporter of merchandise trade in 2022, reaching US$3,594 billion. According to WTO, China was the world’s third largest exporter of commercial services in 2022, reaching US$422 billion. According to China’s official statistics, Shanghai’s container throughput has ranked first in the world since 2010. According to the Hong Kong Securities and Futures Commission, citing information from the Global Federation of Stock Exchanges and Bloomberg, the market capitalisation of the Shanghai Stock Exchange at the end of September 2023 was the largest in Asia and the third-largest in the world.

In January 2024, The National Business Work Conference stated that the national commercial system had been urged to expedite the construction of a new development pattern. This includes co-ordinating the expansion of domestic demand and deepening supply-side structural reform, as well as co-ordinating new urbanization and comprehensive rural revitalization. In December 2023, the National Development and Reform Commission released a three-year action plan to deepen Guangdong-Hong Kong-Macao co-operation, foster a market-oriented and world-class business environment governed by a sound legal framework, and enhance market integration and international competitiveness in the Greater Bay Area. Eight major initiatives designed to bolster co-operation among the Belt and Road Initiative (“ BRI ”) nations have been announced by Xi Jinping, the President of China. These are set to include the establishment of a new trans-Eurasia logistics corridor and the introduction of a series of e-commerce co-operation pilot zones. These new commitments formed part of the President’s opening address at the third Belt and Road Forum for International Co-operation, which concluded in Beijing in October 2023. The Government Work Report 2023 stated that the government will increase the efficiency of utilising resources through a proactive fiscal policy; help enterprises overcome the difficult period, stabilise employment, ensure the provision of basic needs, stimulate consumption and expand demand, and prioritise employment to create 12 million urban jobs.

— I-27 —

VALUATION REPORT

APPENDIX I

==> picture [275 x 182] intentionally omitted <==

Figure 6: Real GDP growth (Year-on-year % change) Source: HKTDC

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Figure 7: China fixed assets investment growth, 2019 – 2023 Source: HKTDC

— I-28 —

VALUATION REPORT

APPENDIX I

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Figure 8: China’s change in CPI, December 2022 – December 2023 Source: HKTDC

==> picture [311 x 201] intentionally omitted <==

Figure 9: China’s manufacturing PMI, December 2022 – December 2023 Source: HKTDC

— I-29 —

VALUATION REPORT

APPENDIX I

Appendix C

Description of Guideline Public Companies

— I-30 —

VALUATION REPORT

APPENDIX I

Hang Chi Holdings Ltd is an investment holding company. The company’s subsidiaries are principally engaged in the operation of elderly residential care homes in Hong Kong. The company’s main businesses are primarily involved in the provision of rendering of elderly home care services, sale of elderly related goods and provision of healthcare services. According to the annual report for the year ended 31 December 2023 published by the company, 100% of the revenue was derived from elderly home care services and sales of elderly related goods and provision of healthcare services in Hong Kong during the year ended 31 December 2023.

Kato (Hong Kong) Holdings Ltd is an investment company engaged in the provision of elderly residential care services in Hong Kong. The company provides residential care services for the elderly including the provision of accommodation, professional nursing and care-taking services, nutritional management, medical services, physiotherapy and occupational therapy services, psychological and social care services, individual care plans and recreational services, as well as the sale of healthcare and medical goods and the provision of add-on healthcare services. According to the interim report for the six months period ended 30 September 2023 published by the company, approximately 94% of the revenue was derived from rendering of elderly home care services, elderly community care services and sales of elderly home related goods in Hong Kong during the six months period ended 30 September 2023.

Qing Song Health Co Ltd is a Taiwan-based company mainly engaged in the housing industry for the elderly. The company is mainly engaged in residential long-term care services that provide 24-hour self-funded residential institutional services, community-style long-term care services such as day care centers, small-scale multi-functional, group homes, and home-based in-home services. The company is also engaged in the provision of long-term care facility management consulting services, leasing of real estate services, sale of care consumables and design of interior decoration services. According to the interim report for the six months period ended 30 June 2023 published by the company, approximately 90% of the revenue was derived from elderly home care services and sales of elderly related goods and provision of healthcare services in Taiwan during the six months period ended 30 June 2023.

— I-31 —

VALUATION REPORT

APPENDIX I

Appendix D

Cost of Equity Calculation

— I-32 —

VALUATION REPORT

APPENDIX I

From a modern portfolio management perspective, typical investors are risk-averse and rational. They make all investment decisions based on risk and return of an investment opportunity. The cost of equity, therefore, should account for the risk premium, which is the required additional return over the risk free rate. Additional risk premiums such as country risk premium and size premium are added to reflect other risk factors. All the estimates are supported by public data sources such as Refinitiv and Kroll Cost of Capital Navigator. We have used the capital asset pricing model (CAPM) to determine the appropriate cost of equity of the Group and the comparable companies.

Cost of equity = risk free rate + equity beta x market risk premium + size premium + country risk premium + specific risk premium

Cost of equity calculation:

	The Group	8405.HK	2189.HK	6931.TWO
(1) Risk free rate	2.3%	3.8%	3.8%	1.5%
(2) Equity beta	0.4	0.4	0.4	0.4
(3) Market risk premium	7.2%	7.2%	7.2%	7.2%
(4) Size premium	4.7%	4.7%	4.7%	4.7%
(5) Country risk premium	1.0%	0.9%	0.9%	0.9%
(6) Specific risk premium	2.0%	–	–	–
Cost of equity	12.8%	11.8%	12.4%	9.8%

Figures above are subject to rounding

Notes:

(1) This is the risk free rate based on 10-year yield of the relevant Government Bond Benchmark Yield Curve, which is a mature market risk free rate.
(2) This is the beta sourced from Refinitiv.
(3) Market risk premium = market rate of return – risk free rate. To derive a long-term, equity risk premium, we refer to the long-horizon expected equity risk premium for the United States (based on historical data), published by Kroll Cost of Capital Navigator. A mature market equity risk premium is used since we derive a stable, long-term cost of equity adopted in the valuation; therefore we have adopted the average market return of the United States instead of one from developing equity markets. The country risk premium (in Note 5 below) reflects the expected operating location of the companies.
(4) Based on the research published by Kroll Cost of Capital Navigator, the CAPM does not fully account for the higher returns of smaller company stocks. According to their research data as at 31 December 2023, the size premium (return in excess of those predicted by CAPM) for companies with market capitalization in the range of US$1.58 million to US$212.64 million was approximately 4.70%.
(5) This is the increased risk with the operating location of the companies, where the risk profile is different to the market premium applied in our analysis, including business risk, financial risk, liquidity risk, exchange rate risk & country risk. We refer to the data and methodology derived on Damodaran Online (http://pages.stern.nyu. edu/~adamodar/), updated for 2024, in determining the country risk premium.
Damodaran Online is prepared by Aswath Damodaran, who is currently a Professor of Finance at the Stern School of Business at New York University. Mr. Damodaran has published several books, including four books on equity valuation and two on corporate finance. He has also published papers in the Journal of Financial and Quantitative Analysis, the Journal of Finance, the Journal of Financial Economics and the Review of Financial Studies.
(6) Considering the loss-making status of the Group as compared to the profit-making status of the comparable companies, we have applied an additional 2% specific risk premium.

— I-33 —

GENERAL INFORMATION

APPENDIX II

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) Directors’ and chief executives’ interests in the Company or its associated corporations

Save as disclosed below, as at the Latest Practicable Date, no Directors or chief executive of the Company had any interests and short positions in the H Shares, underlying H Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO or required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by the Directors (the “ Model Code ”) set out in Appendix C3 to the Listing Rules:

(i) Long positions in Shares and underlying Shares

			Approximate
			percentage
			of issued
			share capital
			of the Company
			as at the Latest
Name of	Capacity/	Number of H	Practicable Date
Shareholder	Nature of interest	Shares held	(Note 1)
Fan Dong	Interest in a controlled	4,990,000	7.45%
	corporation	(Note 2)

Notes:

The calculation is based on 66,990,867 H Shares in issue as at the Latest Practicable Date.
Mr. Fan Dong is interested in approximately 52.74% of the equity interest in Tianjin Shengyihe Management Consulting Partnership Enterprise (Limited Partnership)（天津盛益合企業管理諮詢合夥企業（有限合夥）) (“ Tianjin Partnership* ”) and is therefore deemed to be interested in all H Shares held by Tianjin Partnership by virtue of the SFO.

— II-1 —

GENERAL INFORMATION

APPENDIX II

(ii) Interest in Tianjin Partnership

			Approximate
			percentage of the
			equity holding
Name of	Capacity/		as at the Latest
Director	Nature of interest	Equity interest	Practicable Date
Fan Dong	Beneficial owner	RMB1.05 million	52.74%

(b) Substantial Shareholders and other persons’ interests in H Shares and underlying H Shares

As at the Latest Practicable Date, substantial Shareholders and other persons (other than Directors or chief executive of the Company) who had interests or short positions in the H Shares or underlying H Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO were as follow:

Long positions in Shares and underlying Shares

			Approximate
			percentage
			of issued
			share capital
			of the Company
			as at the Latest
Name of	Capacity/	Number of	Practicable Date
Shareholder	Nature of interest	Shares held	(Note 2)
Tianjin Chengfang	Beneficial owner	25,520,000 (L)	38.09%
	(Note 11)
Chongqing Dima	Interest in a controlled	25,520,000 (L)	38.09%
Ruisheng Co. Ltd.*	corporation
（重慶迪馬睿升實業	(Notes 3 & 11)
有限公司）(“Dima
Ruisheng”)
Dima	Interest in a controlled	25,520,000 (L)	38.09%
	corporation
	(Notes 3 & 11)

— II-2 —

GENERAL INFORMATION

APPENDIX II

			Approximate
			percentage
			of issued
			share capital
			of the Company
			as at the Latest
Name of	Capacity/	Number of	Practicable Date
Shareholder	Nature of interest	Shares held	(Note 2)
Chongqing Doyen	Interest in a controlled	25,520,000 (L)	38.09%
Holdings Group Co.,	corporation
Ltd.*（重慶東銀控	(Notes 3 & 11)
股集團有限公司）
(previously known as
Chongqing Doyen
Industry (Group)
Company Limited*
（重慶東銀實業（集
團）有限公司）)
(“Chongqing
Doyen“)
Mr. Lo	Interest in a controlled	25,520,000 (L)	38.09%
	corporation
	(Notes 3 & 11)
Ms. Chiu	Interest of spouse	25,520,000 (L)	38.09%
	(Notes 4 & 11)
Chongqing	Person having a security	12,058,357 (L)	18.0%
Chaofenglian	interest in shares
Materials Co., Ltd.*	(Note 11)
（重慶潮豐聯物資
有限公司）
Lin Ziyao（林子堯）	Interest in a controlled	12,058,357 (L)	18.0%
	corporation
	(Note 11)
Tianjin Partnership	Beneficial owner	4,990,000 (L)	7.45%
Ms. Xia Qing	Interest of spouse	4,990,000 (L)	7.45%
	(Note 5)

— II-3 —

GENERAL INFORMATION

APPENDIX II

			Approximate
			percentage
			of issued
			share capital
			of the Company
			as at the Latest
Name of	Capacity/	Number of	Practicable Date
Shareholder	Nature of interest	Shares held	(Note 2)
Mr. Liu Xing	Interest in a controlled	4,990,000 (L)	7.45%
	corporation_(Note 6)_
Ms. Ma Xuemei	Interest of spouse	4,990,000 (L)	7.45%
	(Note 7)
Kingdom Vast Limited	Beneficial owner	12,705,000 (L)	18.97%
RAF Capital Group	Interest in a controlled	12,705,000 (L)	18.97%
Limited	corporation_(Note 8)_
Mr. Wong Hao	Interest in a controlled	12,705,000 (L)	18.97%
	corporation_(Note 8)_
Ms. Zhang Xiangnong	Interest of spouse	12,705,000 (L)	18.97%
	(Note 9)
Harvest Fund	Interest in a controlled	6,685,000 (L)	9.98%
Management Co.,	corporation_(Note 10)_
Ltd.
China Credit Trust Co.,	Interest in a controlled	6,685,000 (L)	9.98%
Ltd.	corporation_(Note 10)_

Notes:

The letter “L” denotes the person’s long position in such securities.
The calculation is based on 66,990,867 H Shares in issue as at the Latest Practicable Date.
Tianjin Chengfang was wholly-owned by Dima Ruisheng which was in turn wholly-owned by Dima. As at the Latest Practicable Date, Dima was an A-share company listed on the Shanghai Stock Exchange and was owned by Chongqing Doyen and Chongqing Shuorun as to approximately 35.55% and 3.01% respectively. Chongqing Shuorun was owned by Chongqing Doyen and Ms. Chiu as to approximately 98.96% and 1.04% respectively, while Chongqing Doyen was owned by Mr. Lo and Ms. Chiu as to approximately 77.78% and 22.22% respectively. By virtue of the SFO, each of Mr. Lo, Chongqing Doyen, Dima and Dima Ruisheng are deemed to be interested in all the H Shares held by Tianjin Chengfang.
Ms. Chiu is the spouse of Mr. Lo. By virtue of the SFO, Ms. Chiu is deemed to be interested in all the H Shares held by Mr. Lo.

— II-4 —

GENERAL INFORMATION

APPENDIX II

Ms. Xia Qing is the spouse of Mr. Fan Dong. By virtue of the SFO, Mr. Xia Qing is deemed to be interested in all the H Shares held by Mr. Fan Dong.
Tianjin Partnership’s equity interests were owned by Mr. Fan Dong and Mr. Liu Xing as to approximately 52.74% and 37.18% respectively. By virtue of the SFO, Mr. Liu Xing is deemed to be interested in all the H Shares held by Tianjin Partnership.
Ms. Ma Xuemei is the spouse of Mr. Liu Xing. By virtue of the SFO, Ms. Ma Xuemei is deemed to be interested in all the H Shares held by Mr. Liu Xing.
Kingdom Vast Limited was wholly-owned by RAF Capital Group Limited, which was in turn was wholly-owned by Mr. Wang Hao. By virtue of the SFO, each of RAF Capital Group Limited and Mr. Wang Hao is deemed to be interested in all the H Shares held by Kingdom Vast Limited.
Ms. Zhang Xiangnong is the spouse of Mr. Wang Hao. By virtue of the SFO, Ms. Zhang Xiangnong is deemed to be interested in all the H Shares held by Mr. Wang Hao.
Each of (i) Harvest International Premium Value (Alternative Investments) Fund SPC on behalf of Property Management Investment SP (being the sole shareholder of Harvest Property Management Investment Limited); (ii) Harvest Global Investments Limited (being the shareholder holding as to approximately 91% of Harvest International Premium Value (Alternative Investments) Fund SPC on behalf of Property Management Investment SP); (iii) Harvest Fund Management Co., Ltd.（嘉實基金管理有限公司）(being the sole shareholder of Harvest Global Investments Limited); and (iv) China Credit Trust Co., Ltd. (being the equity holder of 40% of equity interest in Harvest Fund Management Co., Ltd.（嘉實基金管理有限公司）) is deemed to be interested in all the H Shares held by Harvest Property Management Investment Limited by virtue of the SFO.
Tianjin Chengfang pledged 12,058,357 H Shares to Chongqing Chaofenglian Materials Co., Ltd.*（重慶潮豐聯物資有限公司）, a company owned as to approximately 90% by Lin Ziyao, which is a person other than a qualified lender, on 6 May 2024.

Save as disclosed above, as at the Latest Practicable Date, the Company was not notified by any persons (other than Directors or chief executive of the Company as discussed above) who had interests or short positions in the H Shares or underlying H Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO.

3. COMPETING INTEREST

So far as the Directors are aware, none of the Directors or their respective associates had interest in any business which compete or is likely to compete, either directly or indirectly, with the businesses of the Group as at the Latest Practicable Date.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any existing or proposed service contract with any member of the Enlarged Group or associated companies which was not determinable by the employer within one year without payment of compensation (other than statutory compensation).

— II-5 —

GENERAL INFORMATION

APPENDIX II

5. DIRECTORS’ INTERESTS IN CONTRACTS OR ASSETS

As at the Latest Practicable Date,

(i) there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to any business of the Enlarged Group; and
(ii) none of the Directors had any direct or indirect interest in any assets which had been since 31 December 2023 (being the date to which the latest published audited financial statements of the Enlarged Group were made up) acquired or disposed of by or leased to any member of the Enlarged Group, or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

6. LITIGATION

As at the Latest Practicable Date, to the best of the Directors’ knowledge information and belief, no member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened against any member of the Group that would have a material adverse effect on the results of operations or financial conditions of the Group.

7. QUALIFICATION AND CONSENTS OF EXPERT

(a) The following sets out the qualifications of the experts who have given its opinions or advice or statements as contained in this circular:

Name Qualification

Pelican Financial Limited

A corporation licensed to carry out type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

Peak Vision Appraisals Limited Independent valuer

(b) As at the Latest Practicable Date, the above experts had no shareholding in the Company or any other member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Company or any other member of the Group.
(c) As at the Latest Practicable Date, the above experts had no direct or indirect interests in any assets which has been acquired or disposed of by or leased to any member of the Group since 31 December 2023 (the date to which the latest published audited consolidated financial statements of the Group were made up) or proposed to be so acquired, disposed of or leased to any member of the Group.

— II-6 —

GENERAL INFORMATION

APPENDIX II

(d) As at the Latest Practicable Date, the above experts had given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its reports or letters or its name and logo in the form and context in which they respectively appear.

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2023, being the date to which the latest published audited financial statements of the Group were made up.

9. DOCUMENTS ON DISPLAY

Copies of the following documents will be published and displayed on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.dowellservice.com) for a period of 14 days from the date of this circular (both days inclusive):

(a) the Equity Transfer Agreement;
(b) the Supplemental Agreement;
(c) the letter from the Independent Financial Adviser as set out in this circular;
(d) the letter from the Independent Board Committee as set out in this circular;
(e) the written consent from the Independent Financial Adviser and the Independent Valuer referred to in the paragraph headed “7. Qualification and consents of experts” in this Appendix;
(f) the Valuation Report prepared by the Independent Valuer, the text of which is set out in Appendix I to this circular; and
(g) this circular.

— II-7 —

NOTICE OF EGM

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DOWELL SERVICE GROUP CO. LIMITED* 東原仁知城市運營服務集團股份有限公司

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

(Stock Code: 2352)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of Dowell Service Group Co. Limited東原仁知城市運營服務集團股份有限公司(the “ Company ”) will be held in physical form at 5th Floor, Building 2, Ping An Wealth Center, Shenchang Road, Minhang District, Shanghai, the People’s Republic of China (the “ PRC* ”) on Wednesday, 19 June 2024 at 11:00 a.m., or immediately after the conclusion of the annual general meeting of the Company, for the purpose of considering and, if thought fit, passing with or without amendments, the following resolution:

ORDINARY RESOLUTION

To consider and approve the following resolution:

1. “THAT:

(a) the transaction contemplated under the Equity Transfer Agreement and the Supplemental Agreement, copies of which have been produced to the meeting marked “A” and "B", respectively, and signed by the Chairman of the meeting for the purpose of identification, is hereby approved; and
(b) all acts done and things executed and all such documents or deeds entered into in connection with the implementation of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) and the transaction contemplated thereunder is hereby approved, and any one Director be and is hereby authorised to do all such acts and things and execute all such documents or deeds and to take all steps as the Director may in his/her discretion consider necessary, desirable or expedient in connection with the implementation of the Equity Transfer Agreement (as supplemented by the Supplemental Agreement) or the transaction contemplated thereunder and to make and agree to such variations, amendments or waivers of matters relating thereto, as are, in the opinion of the Director, necessary or desirable.”

Yours faithfully,

By order of the Board

DOWELL SERVICE GROUP CO. LIMITED * 東原仁知城市運營服務集團股份有限公司 Luo Shaoying

Chairman and non-executive Director

Shanghai, People’s Republic of China, 3 June 2024

— EGM-1 —

NOTICE OF EGM

Notes:

Unless the context otherwise stated, capitalised terms used in this notice shall have the meaning as those defined in the circular of the Company dated 3 June 2024.
Any Shareholder entitled to attend and vote at the EGM is entitled to appoint one or more persons (whether such person is a shareholder or not) as his/her/its proxy or proxies to attend and vote on his/her/its behalf. A proxy need not be a Shareholder. If more than one proxy is appointed, the number of H Shares in respect of which each such proxy so appointed must be specified in the relevant proxy form. Every Shareholder present in person or by proxy shall be entitled to have one vote for each H Share held by him/her/it.
In order to be valid, the form of proxy together with the notarised power of attorney and other authorisation documents, if any, must be lodged at the Company’s H share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 24 hours prior to the EGM (i.e. no later than 11:00 a.m. on Tuesday, 18 June 2024 (Hong Kong time)) or any adjournment thereof.

If the proxy is a legal person, its legal representative or any representative authorised by its board of directors or by other decision-making body shall attend the EGM on its behalf. If the Shareholder is a recognised clearing house (or its agent), the Shareholder may authorise one or more suitable persons to act as its representative at the EGM; however, if more than one person are authorised, the form of proxy shall clearly indicate the number and types of shares each person is authorised to represent. The persons after such authorisation may represent the recognised clearing house (or its agent) to exercise the rights, as if they were the individual Shareholders.

A vote made in accordance with the terms of a proxy shall be valid notwithstanding the death or loss of capacity of the appointor or revocation of the proxy or the authority under which the proxy was executed, or the transfer of the shares in respect of which the proxy is given, provided that the Company does not receive any written notice in respect of such matters before the commencement of the EGM.

The record date for determining the entitlement of members of the H Shares to attend and vote at the EGM will be fixed at the close of business on Wednesday, 12 June 2024. In order to be eligible to attend and vote at the EGM, all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s H share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Wednesday, 12 June 2024.
Completion and return of an instrument appointing a proxy will not preclude a Shareholder from attending and voting in person at the EGM and/or any adjournment thereof and in such event, the instrument appointing a proxy shall be deemed to be revoked.
As required under the Listing Rules, the above resolution will be decided by way of poll, except where the chairperson, in good faith, decides to allow a resolution relating to a procedural or administrative matter to be voted on by show of hands.
Shareholders attending the EGM shall be responsible for their own travel and accommodation expenses.
References to time and dates in this notice are to Hong Kong time.
Shareholders or their proxies shall present their identity documents when attending the EGM. If any attending Shareholder is a legal person, its legal representative or director or person authorised by other governing body shall present the copy of the resolution of the board of directors or other governing body of such Shareholder for appointing such person to attend the EGM.
Where gale warning (orange typhoon warning or above), rainstorm warning (orange rainstorm warning or above), extreme weather conditions or other similar event is or are in force at 8:00 a.m. on the date of the EGM, the EGM will be postponed. The Company will post an announcement on its website (www.dowellservice.com) and on the website of the Stock Exchange (www.hkexnews.hk) to notify the Shareholders of the date, time and place of the rescheduled meeting.

As of the date of this notice, the Board comprises Mr. Zhang Aiming and Mr. Fan Dong as executive directors whom also act as employee directors of the Company; Ms. Yi Lin and Ms. Luo Shaoying as non-executive Directors; and Ms. Cai Ying, Mr. Wang Susheng and Mr. Song Deliang as independent non-executive Directors.

— EGM-2 —

AI assistant

DOWELL SERVICE GROUP CO. LIMITED — Proxy Solicitation & Information Statement 2024

50543_rns_2024-06-03_a91198e6-13b6-4565-9b0d-14b8748bfcf4.pdf

DOWELL SERVICE GROUP CO. LIMITED* 東原仁知城市運營服務集團股份有限公司

(1) DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE EQUITY TRANSFER AGREEMENT AND THE SUPPLEMENTAL AGREEMENT; AND (2) NOTICE OF EGM

CONTENTS

DEFINITIONS

DEFINITIONS

DOWELL SERVICE GROUP CO. LIMITED* 東原仁知城市運營服務集團股份有限公司

Principal place of business in Hong Kong

Independent non-executive Directors:

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE EQUITY TRANSFER AGREEMENT AND THE SUPPLEMENTAL AGREEMENT

I. INTRODUCTION

II. T H E E Q U I T Y T R A N S F E R A G R E E M E N T (A S S U P P L E M E N T E D B Y T H E SUPPLEMENTAL AGREEMENT)

Subject matter

Consideration

Basis of consideration

Market position of the Target Group

Valuation Report

Valuation methodology

LETTER FROM THE BOARD

Comparison multiple

Control premium

Marketability discount

Conditions precedent

Completion

Financial information of the Target Group

Reasons for and benefits of the Equity Transfer and reorganisation of Shanghai Evergreen Group

LETTER FROM THE BOARD

Information on the Group

Information on Dima Group and Shanghai Dixuan

Information on the Target Group and the Target Company

Listing Rules implications

III. EGM

IV. BAD WEATHER ARRANGEMENTS

V. RECOMMENDATION

VI. WARNING NOTICE

DOWELL SERVICE GROUP CO. LIMITED * 東原仁知城市運營服務集團股份有限公司

Ms. Luo Shaoying

DOWELL SERVICE GROUP CO. LIMITED* 東原仁知城市運營服務集團股份有限公司

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE EQUITY TRANSFER AGREEMENT AND THE SUPPLEMENTAL AGREEMENT

Mr. Song Deliang

PELICAN FINANCIAL LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTION IN RELATION TO THE EQUITY TRANSFER AGREEMENT AND THE SUPPLEMENTAL AGREEMENT

INTRODUCTION

LISTING RULES IMPLICATIONS

THE INDEPENDENT BOARD COMMITTEE

OUR INDEPENDENCE

BASIS OF OUR OPINION

PRINCIPAL FACTORS TAKEN INTO CONSIDERATION

1. Information of the Company and the Group

2. Information on the Vendor and the Target Group

2.1. Dima Group and Shanghai Dixuan

2.2. Target Group and Target Company

3. Industry Overview

3.1. China’s greying society

3.2. Policy support for the elderly care service

3.3. Section conclusion

4. Reasons for and benefits of the Equity Transfer and reorganisation of the Shanghai Evergreen Group

5. The Equity Transfer Agreement (as supplemented by the Supplemental Agreement)

5.1. Subject matter

5.2. Consideration

Market position of the Target Group

5.3. Conditions precedent

5.4. Completion

6. Assessment of the Consideration

6.1. Valuer’s qualification

6.2. Valuation methodology

Market Approach

Asset Approach

Income Approach

6.3. Basis and assumptions

6.4. Selection of Comparable Companies

6.5. Selection of multiple

6.6. Section summary

7. Financial effects of the Transaction

RECOMMENDATION

For identification purposes only

1.0 PURPOSE OF VALUATION

2.0 BASIS OF VALUE

DOWELL SERVICE GROUP CO. LIMITED Proxy Solicitation & Information Statement 2024