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 or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your Shares in FIRST TRACTOR COMPANY LIMITED*, you should at once hand this circular to the purchaser or the transferee or to the bank, 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 the 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.

第一拖拉机股份有限公司

FIRST TRACTOR COMPANY LIMITED*

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

(Stock Code: 0038)

(1) CONTINUING CONNECTED TRANSACTIONS

AND

(2) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

Unless the context requires otherwise, capitalised terms used herein shall have the same meanings as those set out in the section headed "Definitions" of this circular.

A letter from the Board is set out on pages 7 to 39 of this circular and a letter from the Independent Board Committee to the Independent Shareholders is set out on pages 40 to 41 of this circular. A letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders is set out on pages 42 to 56 of this circular.

A notice convening the EGM to be held at 2:30 p.m. on 18 December 2024 (Wednesday) at the Conference Room, No. 154 Jianshe Road, Luoyang, Henan Province, the PRC is set out on pages 62 to 64 of this circular.

The form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM in person, you are requested to complete and return the accompanying forms of proxy in accordance with the instructions printed thereon. The proxy forms shall be lodged with the Company's H Share registrar, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, or at the registered address and principal place of business of the Company at No. 154 Jianshe Road, Luoyang, Henan Province, the PRC (as far as A Shareholders are concerned), as soon as possible and in any event not less than 24 hours before the time scheduled for holding the EGM (or any adjourned meetings thereof). Completion and delivery of the forms will not preclude you from attending and voting in person at the EGM or any adjourned meeting (as the case may be) should you so wish.

For identification purposes only

2 December 2024

CONTENTS

Page

Definitions 1
Letter from the Board 7
Letter from the Independent Board Committee 40
Letter from Gram Capital 42
Appendix – General Information 57
Notice of Extraordinary General Meeting 62

DEFINITIONS

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

“30%-controlled company(ies)” has the same meaning ascribed to it under the Hong Kong Listing Rules

“A Share(s)” the domestic ordinary share(s) of RMB1.00 each in the share capital of the Company, which are listed on the Shanghai Stock Exchange and subscribed for and traded in RMB

“A Shareholder(s)” holder(s) of A Share(s)

“Abstained Directors” Mr. Li Xiaoyu, Mr. Fang Xianfa, Mr. Yang Jianhui and Mr. Miao Yu, who abstained from voting on the Board resolutions in respect of the New Agreements and the respective annual caps

“annual cap(s)” the maximum aggregate annual value(s) in respect of the transactions contemplated under the New Agreements for each of the three years ending 31 December 2027

“associate(s)” has the same meaning as ascribed to this term under the Hong Kong Listing Rules

“Board” the board of Directors

“Company” First Tractor Company Limited* (第一拖拉機股份有限公司), a joint stock company with limited liability incorporated in the PRC, the H Shares and A Shares of which are listed on the main board of the Stock Exchange (stock code: 0038) and the Shanghai Stock Exchange (stock code: 601038), respectively

“Composite Services Agreement” the framework agreement dated 29 October 2024 entered into between YTO and the Company in relation to provision of services relating to production and common resources

“connected person(s)” has the same meaning as ascribed to this term under the Hong Kong Listing Rules

“connected subsidiary(ies)” has the same meaning ascribed to it under the Hong Kong Listing Rules

DEFINITIONS

"controlling shareholder" has the same meaning ascribed to it under the Hong Kong Listing Rules

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

"EGM" the extraordinary general meeting of the Company to be convened and held at 2:30 p.m. on 18 December 2024, Wednesday at the Conference Room, No. 154 Jianshe Road, Luoyang, Henan Province, the PRC, for the Independent Shareholders to consider, among other things, and, if thought fit, approve each of the New Agreements and their respective proposed annual cap amounts

"Energy Procurement Agreement" the framework agreement dated 29 October 2024 entered into between YTO and the Company in relation to supply of various sources of energy uses in production and operation of the Group

"Exempt CCT Agreements" collectively, the Sale of Goods Agreement, the Energy Procurement Agreement, the Composite Services Agreement, the Research and Development Services Agreement and the Lease Agreement for Real Estate

"Exempt CCT Transactions" collectively, the transactions contemplated under each of the Exempt CCT Agreements

DEFINITIONS

“Existing CCT Agreements”

collectively, (i) the material procurement agreement dated 25 August 2021 entered into between YTO and the Company; (ii) the sale of goods agreement dated 25 August 2021 entered into between the Company and YTO; (iii) the composite services agreement dated 25 August 2021 entered into between YTO and the Company; (iv) the energy procurement agreement dated 25 August 2021 entered into between YTO and the Company; (v) the land lease agreement and the properties lease agreement dated 25 August 2021 entered into between YTO and the Company; (vi) the common resource services agreement dated 26 December 2023 entered into between YTO and the Company; (vii) the product inspection and testing as well as technological services agreement dated 26 December 2023 entered into between Xiyuan Company and the Company; (viii) the technological services agreement dated 26 December 2023 entered into between the Company and Tractor Research Company; (ix) the research and development services agreement dated 26 December 2023 entered into between YTO and the Company; and (x) the land lease agreement and the properties lease agreement dated 26 December 2023 entered into between the Company and YTO, details of which are set out in announcements of the Company dated 25 August 2021, 3 March 2022, 29 September 2022, 9 October 2023, 13 October 2023, 26 December 2023 and 29 October 2024

“Fully Exempt CCT Agreements”

collectively, the Lease Agreement for Premises and the Technological Services Agreement

“Fully Exempt CCT Transactions”

collectively, the transactions contemplated under each of the Fully Exempt CCT Agreements

“Group”

the Company and its subsidiaries

“H Share(s)”

the overseas listed foreign share(s) having a nominal value of RMB1.00 each in the share capital of the Company, which are subscribed for and traded in Hong Kong dollars, which are listed on the Stock Exchange

“H Shareholder(s)”

holder(s) of H Share(s)

DEFINITIONS

“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Hong Kong Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange (as amended from time to time)
“Independent Board Committee”	an independent committee of the Board comprising all the independent non-executive Directors, namely Mr. Edmund Sit, Mr. Wang Shumao and Mr. Xu Liyou
“Independent Financial Adviser” or “Gram Capital”	Gram Capital Limited, a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Non-exempt CCT Transaction and the proposed annual caps thereunder
“Independent Shareholder(s)”	Shareholder(s) other than YTO and its associate(s)
“Latest Practicable Date”	28 November 2024, being the latest practicable date prior to the distribution of this circular for ascertaining certain information contained herein
“Lease Agreement for Premises”	the framework agreement dated 29 October 2024 entered into between the Company (as lessor) and YTO (as lessee) in relation to the lease of certain building, land use rights, properties and auxiliary facilities
“Lease Agreement for Real Estate”	the framework agreement dated 29 October 2024 entered into between YTO (as lessor) and the Company (as lessee) in relation to the lease of building, certain land use rights, properties and auxiliary facilities
“Material Procurement Agreement”	the framework agreement dated 29 October 2024 entered into between YTO and the Company in relation to supply of certain raw materials, machine, equipment and spare parts required for production and operation
“New Agreements”	collectively, the Non-exempt CCT Agreement, the Exempt CCT Agreements and the Fully Exempt CCT Agreements
“Non-exempt CCT Agreement”	the Material Procurement Agreement
“Non-exempt CCT Transaction”	the transaction contemplated under the Non-exempt CCT Agreement

DEFINITIONS

“PRC”	The People’s Republic of China
“PRC Accounting Standards for Business Enterprises No. 21 – Leases”	the PRC Accounting Standards for Business Enterprises No. 21 – Leases, effective on 1 January 2019
“Research and Development Services Agreement”	the framework agreement dated 29 October 2024 entered into between the Company and YTO in relation to provision of technology research and development, technology consultation, technology services and other technological services
“RMB”	Renminbi, the lawful currency of the PRC
“Sale of Goods Agreement”	the framework agreement dated 29 October 2024 entered into between the Company and YTO in relation to sale of certain production materials
“SFO”	the Securities Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended from time to time
“Shanghai Listing Rules”	Shanghai Stock Exchange Share Listing Rules
“Shareholder(s)”	shareholder(s) of the Company
“Sinomach”	China National Machinery Industry Corporation* (中國機械工業集團有限公司), a limited liability company incorporated in the PRC and a controlling shareholder of YTO holding approximately 88.22% equity interest in YTO as at the Latest Practicable Date
“Sinomach Group”	(i) Sinomach; (ii) subsidiaries of Sinomach; and (iii) 30%-controlled companies of Sinomach and their subsidiaries other than YTO Group and the Group
“sq.m.”	square metre
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Technological Services Agreement”	the framework agreement dated 29 October 2024 entered into between YTO and the Company in relation to provision of research and development services

DEFINITIONS

“Tractor Research Company”
Luoyang Tractors Research Institute Company Limited* (洛陽拖拉機研究所有限公司), a company incorporated in the PRC with limited liability, an associate of YTO and a connected subsidiary of the Company

“Xiyuan Company”
Luoyang Xiyuan Vehicle and Power Inspection Institute Co., Ltd.* (洛陽西苑車輛與動力檢驗所有限公司), a company incorporated in the PRC with limited liability and a direct wholly-owned subsidiary of YTO

“YTO”
YTO Group Corporation* (中國一拖集團有限公司), a limited liability company incorporated in the PRC and the controlling shareholder of the Company holding approximately 48.81% equity interest in the Company as at the Latest Practicable Date

“YTO Group”
(i) YTO; (ii) subsidiaries of YTO; and (iii) 30%-controlled companies of YTO and their subsidiaries, other than the Group

“%”
per cent.

For identification purposes only

Certain figures set out in this circular are subject to rounding adjustments. Accordingly, figures shown as the currency conversion or percentage equivalents may not be an arithmetic sum of such figures.

Any discrepancy in any table between totals and sums of amounts listed in this circular is due to rounding.

The English names of the Chinese nationals, companies, entities, departments, facilities, certificates, titles and the like are translation of their Chinese names and are included in this circular for identification purposes only and should not be regarded as their official English translation. In the event of any inconsistency, the Chinese names prevail.

The English text of this circular shall prevail over the Chinese text in the event of inconsistency.

LETTER FROM THE BOARD

第一拖拉机股份有限公司

FIRST TRACTOR COMPANY LIMITED*

(a joint stock company incorporated in The People's Republic of China with limited liability)
(Stock Code: 0038)

Board of Directors:
Mr. Li Xiaoyu
Mr. Wei Tao
Mr. Fang Xianfa
Mr. Yang Jianhui
Mr. Miao Yu
Mr. Edmund Sit
Mr. Wang Shumao
Mr. Xu Liyou**

Registered and principal office:
No.154 Jianshe Road
Luoyang
Henan Province
The PRC

** Independent non-executive Director

2 December 2024

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

I. INTRODUCTION

Reference is made to the announcement of the Company dated 29 October 2024 in respect of the New Agreements.

The Existing CCT Agreements will expire on 31 December 2024. In order to ensure the smooth and normal production and operation process of the Group, on 29 October 2024, the Company entered into the New Agreements, all for a term of three years commencing from 1 January 2025 to 31 December 2027 (both days inclusive).

Under the Hong Kong Listing Rules, only the Non-exempt CCT Transaction and the relevant annual caps shall require Independent Shareholders' approval. However, as the A Shares of the Company are listed on the Shanghai Stock Exchange, the Company is also required to comply with relevant requirements of the Shanghai Listing Rules. Pursuant to the relevant provisions of the Shanghai Listing Rules, the transactions contemplated under each of the New Agreements are subject to the Independent Shareholders' approval at the EGM.

LETTER FROM THE BOARD

According to the Hong Kong Listing Rules, an Independent Board Committee has been established to consider and advise the Independent Shareholders in respect of the Non-exempt CCT Transaction. Gram Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms and conditions of the Non-exempt CCT Transaction as contemplated under the Non-exempt CCT Agreement and the relevant annual caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Under the Hong Kong Listing Rules, Gram Capital is only required to opine on the Non-exempt CCT Transaction as contemplated under the Non-exempt CCT Agreement including the relevant annual caps thereunder. Gram Capital will not provide opinion on the Exempt CCT Agreements and the Fully Exempt CCT Agreements and the transactions and relevant annual caps thereunder. Notwithstanding such arrangement, details of the Exempt CCT Agreements and the Fully Exempt CCT Agreements are included in this circular so that Shareholders can have a full picture of the background regarding the resolutions to be proposed at the EGM and make an informed decision in the voting of the relevant resolutions at the EGM. The proposed resolutions regarding the New Agreements at the EGM (i.e. resolutions no. 1.01 to 1.09 (inclusive) set out in the notice of the EGM) are not inter-conditional upon each other.

The purpose of this circular is to provide you with information regarding (i) details of each of the New Agreements and the transactions contemplated thereunder (including the respective annual caps); (ii) the letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in respect of the Non-exempt CCT Transaction and the relevant annual caps; and (iii) the letter from Gram Capital to the Independent Board Committee in respect of the Non-exempt CCT Transaction and the relevant annual caps.

In relation to the proposed amendments on the articles of association of the Company, Rules of Procedures for General Meetings of the Company, Rules of Procedures for Board of Directors of the Company, and Rules of Procedures for Supervisory Committees of the Company (i.e. resolutions no. 3 to 6 (inclusive) set out in the notice of the EGM), Shareholders should refer to the Company's announcement dated 28 August 2024 and circular dated 2 December 2024 for further details.

In relation to the financial services agreement and the transactions contemplated thereunder (including the annual caps) (i.e. resolution no. 2 set out in the notice of the EGM), Shareholders should refer to the Company's announcement dated 15 November 2024 and circular dated 2 December 2024 for further details.

LETTER FROM THE BOARD

Details of each of the New Agreements and their corresponding annual caps are set out below:

II. CONTINUING CONNECTED TRANSACTIONS

(1) Non-exempt CCT Transaction

(A) Material Procurement Agreement

Details of the major terms of the Material Procurement Agreement are as follows:

Date : 29 October 2024

Parties : YTO (on behalf of YTO Group and Sinomach Group), as supplier; and

the Company (on behalf of the Group), as purchaser

Goods to be provided : Provision by YTO Group and Sinomach Group to the Group for goods required for the production and operation of the Group, including but not limited to raw materials (including steel, pig iron, waste steel, coke, nonferrous metals and lubricating oil), other industrial equipment (including machine tools), components (including clamping apparatus and moulds) and spare parts

Term : From 1 January 2025 to 31 December 2027

Payment terms : Payment terms are determined after arm's length negotiation between the parties with reference to, among others, the payment terms for transactions between the Group and independent third party suppliers. Payment shall be principally settled within three months from the date of confirmation of receiving the goods by the purchaser. In order to ensure the stability of the supply of goods, subject to negotiations between the parties, prepayments may be made by the purchaser no more than six months before the estimated date of delivery of the goods

LETTER FROM THE BOARD

Pricing Standards of the Transactions contemplated under the Material Procurement Agreement

Under the Material Procurement Agreement, the price of the goods to be provided will be determined based on the following:

(1) the market price of an independent third party obtained through prices quoted on industry websites or by market enquiries (i.e. the price of the same or similar product provided to independent third parties by suppliers other than YTO Group and Sinomach Group in the same region during the ordinary course of business on normal commercial terms);

(2) if there is no market price determined by an independent third party, the transaction price between the supplier and an independent third party for the same or similar products, or the transaction price between the purchaser and an independent third party for the same or similar products; or

(3) if none of the above is applicable, costs plus a percentage mark-up (tax-inclusive), which is not more than 30% (i.e. price = cost x (1 + percentage mark-up)). The maximum percentage mark-up is determined based on, among others, (i) the median gross profit margin of 32.20% and the average gross profit margin of 35.16% of listed companies in the special equipment manufacturing industry classified by China Securities Regulatory Commission for 2023, as obtained by the Company in public information; and (ii) the profit margins of historical transactions entered into by the parties.

Pricing standard no. (1) is generally adopted for purchase of raw materials, such as steel. Pricing standard no. (2) is adopted when (a) the Group purchases the same or similar products from both YTO Group and other independent third parties; or (b) the Group purchases products from YTO Group but not from other independent third parties, and YTO Group sells the same or similar products to independent third parties. Pricing standard no. (3) is generally adopted when the Group purchases products that are exclusively supplied by YTO Group.

YTO undertakes that the applicable price of the goods offered to the Group shall not be higher than that offered to its independent third party customers for the same goods.

10 -

LETTER FROM THE BOARD

When determining the price of the goods under Material Procurement Agreement, the Company will adopt the following assessment methods:

(1) in relation to the above pricing standard no. (1) based on the market price of an independent third party, the procurement department of the Company will obtain and make reference to one to two price quotations of the same or similar goods through relevant industry website or market enquiry;

(2) in relation to above pricing standard no. (2) based on the transaction price between the suppliers and an independent third party, the finance department of the Company will obtain and make reference to one to two signed agreement(s) entered into between the suppliers and an independent third party in relation to the procurement of the same or similar goods as provided by the suppliers. The finance department of the Company will also obtain the cost analysis of goods (including cost breakdown and gross profit margin) as provided by the suppliers to assess whether the transaction price under the Material Procurement Agreement is fair and reasonable and comparable to the price of the same or similar goods offered by the suppliers to an independent third party; and

(3) in relation to pricing standard no. (3) based on costs plus a percentage mark-up, the finance department of the Company will obtain cost analysis of goods from the suppliers to determine the price with a percentage mark-up.

11 -

LETTER FROM THE BOARD

Historical Figures and the Proposed Annual Caps for the Transactions under the Material Procurement Agreement

The following table sets out the historical transaction amounts for each of the years ended 31 December 2022 and 2023, and for the six months ended 30 June 2024, the annual caps for each of the three years ending 31 December 2024, and the proposed annual caps for each of the three years ending 31 December 2027 under the Material Procurement Agreement:

Unit: RMB0'000

	Historical transaction amounts			Annual caps
	For the year ended 31 December		For the six months ended 30 June 2024	For the year ended/ending 31 December
	2022	2023		2022	2023	2024

Material Procurement Agreement	70,764	54,279	36,111	85,000	71,000	75,000
	Proposed annual caps
For the year ending 31 December
---	---	---	---
	2025	2026	2027
Material Procurement Agreement	81,000	85,000	90,000

Basis for the Proposed Annual Caps under the Material Procurement Agreement

The proposed annual caps for each of the three years ending 31 December 2027 for the Material Procurement Agreement are determined with reference to the following factors:

(1) the historical transaction amounts;

LETTER FROM THE BOARD

(2) the Group provides complete sets of agricultural machinery to its customers by purchasing products such as harvesting machines and agricultural implements from the suppliers. According to the “National High-Standard Farmland Construction Plan (2021-2030)” issued by the Ministry of Agriculture and Rural Affairs of the PRC, China had built 800 million acres of high-standard farmland in 2020 and will build 1.075 billion and 1.2 billion acres by 2025 and 2030. The construction of high-standard farmland, combined with the advancement of agricultural modernisation and the development of rural economies, has driven an increased demand for agricultural machinery. To meet the growing need for comprehensive and full-process mechanised operations, the Company expects to expand its sales of complete sets of agricultural machinery and increase its procurement of products such as harvesting machines and agricultural implements; and

(3) with strong national support for agriculture in various aspects, it is expected that the development trend of the agricultural machinery industry is sustainable, supporting the increasing annual caps for the three years ending 31 December 2027.

(2) Exempt CCT Transactions

(A) Sale of Goods Agreement

Details of the major terms of the Sale of Goods Agreement are as follows:

Date : 29 October 2024

Parties : The Company (on behalf of the Group), as supplier; and YTO (on behalf of YTO Group and Sinomach Group), as purchaser

Goods to be provided : Provision of goods by the Group to YTO Group and Sinomach Group for goods required for the production and operation of YTO Group and Sinomach Group, including but not limited to raw materials, spare parts (including casting parts), components (including semi-finished parts and finished parts) and equipment (including diesel engines and tractors)

Term : From 1 January 2025 to 31 December 2027

LETTER FROM THE BOARD

Payment terms

Payment shall be principally settled within three months after the date of delivery of goods by the supplier. In order to ensure the stability of the supply of goods, subject to negotiations between the parties, prepayments may be made by the purchaser no more than six months before the estimated date of delivery of the goods.

Pricing Standards of the Transactions contemplated under the Sale of Goods Agreement

Under the Sale of Goods Agreement, the price of the goods to be provided will be determined based on the following:

(1) the market price of an independent third party obtained through prices quoted on industry websites or by market enquiries (i.e. the price of the same or similar product provided to independent third parties by suppliers other than the Group in the same region during the ordinary course of business on normal commercial terms);

(2) if there is no market price determined by an independent third party, the transaction price between the Group and an independent third party; or

(3) if none of the above price is applicable, costs plus a percentage mark-up (tax-inclusive), which is not more than 30% (i.e. price = cost x (1 + percentage mark-up)).

In any event, the applicable price of the goods offered to YTO by the Group shall not be lower than that offered to independent third party customers of the Group.

14 -

LETTER FROM THE BOARD

When determining the price of the goods under the Sale of Goods Agreement, the Company will adopt the following assessment methods:

(1) in relation to pricing standard no. (1) based on the market price of an independent third party, the sales department of the Company will obtain the market price from at least two independent third parties through industry website, via emails, faxes or phones or through market enquiries;

(2) in relation to pricing standard No. (2) based on the transaction price between the Group and an independent third party, the finance department of the Company will formulate unified sales prices (the "Unified Sales Prices") of general generic products of the Company according to the Company's cost and gross profit margin, which will then be adopted uniformly in transactions of the Company with the purchaser or an independent third party. The finance department of the Company will also perform quarterly update and review on the Unified Sales Prices; and

(3) in relation to pricing standard no. (3) based on costs plus a percentage mark-up, the finance department of the Company will prepare cost analysis of goods to determine the price with a percentage mark-up. The finance department of the Company will also perform quarterly update and review to assess the gross profit margin of the historical transactions of the Group and the average gross profit margin of listed companies engaged in the related industry.

15 -

LETTER FROM THE BOARD

Historical Figures and the Proposed Annual Caps for the Transactions under the Sale of Goods Agreement

Unit: RMB0'000

	Historical transaction amounts			Annual caps
	For the year ended 31 December		For the six months ended 30 June	For the year ended/ending 31 December
	2022	2023		2022	2023	2024
	24,469	20,979	12,635	24,500	24,500	26,000
Sale of Goods Agreement
	Proposed annual caps
For the year ending 31 December
	2025		2026		2027
Sale of Goods Agreement	34,000		36,000		38,000

Basis for the Proposed Annual Cap Amounts under the Sale of Goods Agreement

The proposed annual caps for each of the three years ending 31 December 2027 for the Sale of Goods Agreement are determined with reference to the following factors:

(1) the historical transaction amounts; and
(2) based on the development of the industry and the expected production needs of YTO's harvester products, the Group expects that the sales of spare parts products to the purchasers will increase.

LETTER FROM THE BOARD

(B) Composite Services Agreement

Details of the major terms of the Composite Services Agreement are as follows:

Date : 29 October 2024

Parties : YTO (on behalf of YTO Group), as supplier; and
the Company (on behalf of the Group), as purchaser

Services to be provided : Provision of services by YTO Group to the Group for services, including but not limited to transport, transport support services, processing and contracting services, plant greening services, cleaning services, security services and logistics support services

Term : From 1 January 2025 to 31 December 2027

Payment terms : Transport services

Payment shall be principally settled within three months from the date of confirmation of receiving or delivery of goods by the Group

Transport support services

Payment shall be settled once a month and made by the end of the following month

Processing and contracting services

Payment shall be settled within 60 days from the date of the completion of the processing and contracting services

Other services

Payment for the current year shall be settled by the end of such year

17 -

LETTER FROM THE BOARD

Pricing Standards of the Transactions contemplated under the Composite Services Agreement

Under the Composite Services Agreement, the service fees will be determined based on the following:

(1) the market price of an independent third party obtained through industry websites or by market enquiries (i.e. the service fee of the same or similar services provided to independent third parties by other suppliers in the same region during the ordinary course of business on normal commercial terms);

(2) if there is no market price determined by an independent third party, the transaction price between YTO Group and an independent third party, or the transaction price between the Group and an independent third party; or

(3) if none of the above is applicable, costs plus a percentage mark-up (tax-inclusive), which is not more than 10% (i.e. price = cost x (1 + percentage mark-up)).

YTO undertakes that the applicable service fee offered to the Group shall not be higher than that offered to independent third party customers for the same services.

When determining the service fees under the Composite Services Agreement, the Company will adopt the following assessment methods:

(1) in relation to pricing standard no. (1) based on the market price of an independent third party, the procurement department of the Company will obtain and make reference to one to two price quotations of the same or similar services through relevant industry website or market enquiry;

(2) in relation to pricing standard no. (2) based on the transaction price between the suppliers and an independent third party, the finance department of the Company will obtain and make reference to one to two signed agreement(s) entered into between the suppliers and an independent third party in relation to the procurement of the same or similar services to assess whether the service fee under the Composite Services Agreement is fair and reasonable and comparable to the fee of the same or similar services offered by the suppliers to an independent third party; and

18 -

LETTER FROM THE BOARD

(3) in relation to pricing standard no. (3) based on costs plus a percentage mark-up, the finance department of the Company will obtain cost analysis of services from the suppliers to determine the price with a percentage mark-up. The finance department of the Company will also perform quarterly update and review to assess the gross profit margin of the historical transactions of the Group and the average gross profit margin of listed companies engaged in the related industry.

Historical Figures and the Proposed Annual Caps for the Transactions under the Composite Services Agreement

Unit: RMB0'000

	Historical transaction amounts	Annual caps
For the year ended 31 December	For the six months ended 30 June	For the year ended/ending 31 December
2022	2023	2022
Composite Services Agreement	25,121	23,685

For the year ending 31 December

Composite Services Agreement		29,000

LETTER FROM THE BOARD

Basis for the Proposed Annual Cap Amounts under the Composite Services Agreement

The proposed annual caps for each of the three years ending 31 December 2027 for the Composite Services Agreement are determined with reference to the following factors:

(1) the historical transaction amounts;
(2) the Group leverages YTO Group's existing logistics and transportation infrastructure advantages and regional location advantages to meet the Company's needs in logistics and transportation services; and
(3) the demand for greening, security and logistics services is expected to remain stable over the next three years.

(C) Energy Procurement Agreement

Details of the major terms of the Energy Procurement Agreement are as follows:

Date : 29 October 2024

Parties : YTO, as supplier; and
the Company (on behalf of the Group), as purchaser

Energy to be provided : Provision of energy by YTO to the Group for sources of energy used in production of the Group, including but not limited to water, electricity, oxygen, nitrogen, steam, heating, natural gas and compressed air

Term : From 1 January 2025 to 31 December 2027

Payment terms : Payment shall be principally settled monthly and made by the end of the following month

Pricing Standards of the Transactions contemplated under the Energy Procurement Agreement

Under the Energy Procurement Agreement, the price of the energy sources to be provided will be determined based on the following:

(1) the government guidance price (any pricing guidelines or recommended prices set by the PRC government or any regulatory authority);

LETTER FROM THE BOARD

(2) if there is no applicable government guidance price, the market price;
(3) if there is no applicable government guidance price or market price, the transaction price for the same or similar energy sources between YTO Group and an independent third party; or
(4) if none of the above price is applicable, costs plus a percentage mark-up (tax-inclusive), which is not more than 16% (i.e. price = cost x (1 + percentage mark-up)).

YTO undertakes that the applicable price of the energy offered to the Group shall not be less favourable than that offered to independent third party customers of YTO for the same energy.

When determining the price of the energy sources under the Energy Procurement Agreement, the Company will adopt the following assessment methods:

(1) in relation to pricing standard no. (1) based on the government guidance price, the procurement department of the Company will obtain the pricing guidelines or recommended prices set by the PRC government or any regulatory authority;
(2) in relation to pricing standard no. (2) based on the market price, the procurement department of the Company will obtain and make reference to one to two price quotations of the same or similar energy source through market enquiry;
(3) in relation to pricing standard no. (3) based on the transaction price between the suppliers and an independent third party, the finance department of the Company will obtain and make reference to one to two signed agreement(s) entered into between the suppliers and an independent third party in relation to the supply of the same or similar energy to assess whether the price of the energy sources under the Energy Procurement Agreement is fair and reasonable and comparable to the price of the same or similar energy offered by the supplier to independent third party; and

21 -

LETTER FROM THE BOARD

(4) in relation to pricing standard no. (4) based on costs plus a percentage mark-up, the finance department of the Company will obtain cost analysis of energy from the suppliers to determine the price with a percentage mark-up. The finance department of the Company will also perform quarterly update and review to assess the gross profit margin of the historical transactions of the Group and the average gross profit margin of listed companies engaged in the related industry.

Historical Figures and the Proposed Annual Caps for the Transactions under the Energy Procurement Agreement

Unit: RMB0'000

	Historical transaction amounts	Annual caps
For the year ended 31 December	For the six months ended 30 June	For the year ended/ending 31 December
2022	2023	2022
Energy Procurement Agreement	19,249	19,963

For the year ending 31 December

Energy Procurement Agreement		26,500

LETTER FROM THE BOARD

Basis for the Proposed Annual Cap Amounts under the Energy Procurement Agreement

The proposed annual caps for each of the three years ending 31 December 2027 for the Energy Procurement Agreement are determined with reference to the following factors:

(1) the historical transaction amounts;
(2) with reference to the purchased energy costs as a percentage of the Group's operating costs; and
(3) taking into account the possible increase in energy price.

(D) Lease Agreement for Real Estate

Details of the major terms of the Lease Agreement for Real Estate are as follows:

Date : 29 October 2024

Parties : YTO (on behalf of YTO Group and connected subsidiaries of the Company), as lessor; and
the Company (on behalf of the Group), as lessee

Land use rights and properties to be leased : Leasing by the lessor to the Group for the building and land use rights of the land located at No. 154 Jianshe Road, Luoyang City, Henan Province, the PRC, the properties thereon, as well as the water and electricity facilities and ancillary equipment in the properties

Term : From 1 January 2025 to 31 December 2027

Payment terms : The rent shall be settled quarterly and paid in cash by the end of each quarter

23 -

LETTER FROM THE BOARD

Pricing Standards of the Transactions contemplated under the Lease Agreement for Real Estate

Under the Lease Agreement for Real Estate, the rent will be determined based on the following:

(1) the rent for lease transactions between the lessor and independent third parties for similar land use rights and properties located in similar locations; and

(2) if the above is not available or such price is not comparable, rent will be determined after arm's length negotiation between the parties with reference to the market rents for similar land use rights and properties in the nearby areas.

YTO undertakes that the rent offered to the Group shall not be higher than that offered to independent third party lessees for the same land use rights and properties.

When determining the rent under the Lease Agreement for Real Estate, the Company will adopt the following assessment methods:

(1) in relation to pricing standard no. (1) based on transaction price between the lessor and independent third parties, the Company will obtain one to two agreement(s) of the lessor to its independent third parties, to assess whether the rent of the similar land use rights and properties offered by the lessor to the Company is fair and reasonable and comparable to that offered to independent third parties; and

(2) in relation to pricing standard no. (2) based on price determined after arm's length negotiation, the Company will determine the rent taking into account one or two market rent(s) offered by the third parties on similar land use rights and properties in similar locations and nearby areas.

24 -

LETTER FROM THE BOARD

Historical Figures and the Proposed Annual Caps for the Transactions under the Lease Agreement for Real Estate

Unit: RMB0'000

	Historical transaction amounts	Annual caps
For the year ended 31 December	For the six months ended 30 June	For the year ended/ending 31 December
2022	2023	2022
Lease Agreement for Real Estate	1,850	1,906

For the year ending 31 December

Lease Agreement for Real Estate

Basis for the Proposed Annual Cap Amounts under the Lease Agreement for Real Estate

The proposed annual caps for each of the three years ending 31 December 2027 for the Lease Agreement for Real Estate are determined with reference to the following factors:

(1) the expected demand for the Group's use of leased site area and the corresponding properties and buildings from 2025 to 2027; and
(2) the market price in the neighbouring areas of YTO and/or the price charged by the lessor for leasing the properties to independent third parties, as well as taking into account the potential increase in rent of land use rights and properties.

LETTER FROM THE BOARD

Pursuant to the PRC Accounting Standards for Business Enterprises No. 21 – Leases, the lease of properties by the Company as lessee under the Lease Agreement for Real Estate will be recognised as right-of-use assets. For illustrative purpose only and with reference to the discount rate of the Company's incremental borrowing rate, the aggregate value for the right-of-use asset recognised under the Lease Agreement for Real Estate is estimated to be RMB76.2 million.

(E) Research and Development Services Agreement

Details of the major terms of the Research and Development Services Agreement are as follows:

Date : 29 October 2024

Parties : The Company (on behalf of the Group), as purchaser; and

YTO (on behalf of YTO Group and connected subsidiaries of the Company), as supplier

Services to be provided : Provision of technical research and development, technical consultation, technical services and enterprise product technical inspection and testing, patent and standardisation technical support services by the supplier to the Group in relation to tractors and other agricultural machinery and diesel engines and other power machinery-related products

Term : From 1 January 2025 to 31 December 2027

Payment terms : Payment terms will be agreed in specific contract based on the actual situation of the transaction

Pricing Standards of the Transactions contemplated under the Research and Development Services Agreement

Under the Research and Development Services Agreement, the service fees will be determined based on the following:

(1) the transaction price of the same service between the supplier and independent third parties;

26 -

LETTER FROM THE BOARD

(2) the price which consists of the reasonable cost of services provided by the supplier plus gross profit of comparable non-related transactions; or

(3) in the event that the above prices are not available or not applicable, the price shall be determined after arm's length negotiation between the parties.

YTO undertakes that the service fee offered to the Group shall not be higher than that offered to independent third party customers for the same services.

When determining the service fee under the Research and Development Services Agreement, the Company will adopt the following assessment methods:

(1) in relation to pricing standard no. (1) based on transaction price of the same service between the supplier and independent third parties, the finance department of the Company will obtain and make reference to one to two signed agreement(s) entered into between the supplier and an independent third party in relation to the supply of the same or similar services, to assess whether the transaction price under the Research and Development Services Agreement is fair and reasonable and not higher than the price of the same or similar service offered by the supplier to independent third party;

(2) in relation to pricing standard no. (2) based on reasonable cost of services plus gross profit of non-related transactions, the finance department of the Company will obtain the cost analysis of services (including cost breakdown and gross profit margin) from the supplier and one to two signed agreement(s) for the comparable non-related transactions to determine the price; and

(3) in relation to pricing standard no. (3) based on arm's length negotiation, the finance department of the Company will obtain cost analysis of services from the supplier to determine the price. The finance department of the Company will also perform quarterly update and review to assess the gross profit margin of the historical transactions of the Group and the average gross profit margin of listed companies engaged in the related industry.

27 -

LETTER FROM THE BOARD

Historical Figures and the Proposed Annual Caps for the Transactions under the Research and Development Services Agreement

Unit: RMB0'000

	Historical transaction amounts			Annual caps
	For the year ended 31 December		For the six months ended 30 June	For the year ended/ending 31 December
	2022	2023		2022	2023	2024

Research and Development Services Agreement	20,928	16,925	8,097	24,200	23,200	24,200
	Proposed annual caps
For the year ending 31 December
---	---	---	---
	2025	2026	2027
Research and Development Services Agreement	22,000	22,500	23,000

LETTER FROM THE BOARD

Basis for the Proposed Annual Cap Amounts under the Research and Development Services Agreement

The proposed annual caps for each of the three years ending 31 December 2027 for the Research and Development Services Agreement are determined with reference to the following factors:

(1) the historical transaction amounts; and
(2) the Group's actual business needs, the research and development projects expected to be entrusted to the supplier for execution, combined with the fluctuation in reasonable costs such as labour, depreciation of equipment, and the service fees paid by the supplier to independent third parties.

(3) Fully Exempt CCT Transactions

(A) Lease Agreement for Premises

Details of the major terms of the Lease Agreement for Premises are as follows:

Date : 29 October 2024

Parties : The Company (on behalf of the Group), as lessor; and YTO (on behalf of YTO Group), as lessee

Land use rights and properties to be leased : Leasing by the Group to YTO Group for the building and land use rights of the land located at No. 154 Jianshe Road, Luoyang City, Henan Province, the PRC, the properties thereon, as well as the water and electricity facilities and ancillary equipment in the properties

Term : From 1 January 2025 to 31 December 2027

Payment terms : The rent shall be settled quarterly and paid in cash by the end of each quarter

29 -

LETTER FROM THE BOARD

Pricing Standards of the Transactions contemplated under the Lease Agreement for Premises

Under the Lease Agreement for Premises, the rent will be determined based on the following:

(1) the rent for lease transactions between the Group and independent third parties for similar land use rights and properties located in similar locations; and

In any event, the rent offered to YTO Group shall not be lower than that offered to independent third party lessees of the Group for the same land use rights and properties.

When determining the rent under the Lease Agreement for Premises, the Company will adopt the following assessment methods:

(1) in relation to pricing standard no. (1) based on transaction price between the Group and independent third parties, the business department of the Company will assess whether the rent offered by the Group is fair and reasonable and comparable to that offered to independent third parties with reference to one to two agreement(s) of the Group with independent third parties; and

(2) in relation to pricing standard no. (2) based on price determined after arm's length negotiation, the business department of the Company will determine the rent taking into account one or two market rent(s) offered by the third parties on similar land use rights and properties in similar locations and nearby areas.

30 -

LETTER FROM THE BOARD

Historical Figures and the Proposed Annual Caps for the Transactions under the Lease Agreement for Premises

Unit: RMB0'000

	Historical transaction amounts	Annual caps
For the year ended 31 December	For the six months ended 30 June	For the year ended/ending 31 December
2022	2023	2022
Lease Agreement for Premises	537	473

For the year ending 31 December

Lease Agreement for Premises

Basis for the Proposed Annual Cap Amounts under the Lease Agreement for Premises

The proposed annual caps for each of the three years ending 31 December 2027 for the Lease Agreement for Premises are determined with reference to the following factors:

(1) the YTO Group's projected area of leased premises and demand for the use of buildings and structures; and
(2) the market price in the neighbouring areas of the Group and/or the price charged by the Group for leasing the properties to independent third parties, as well as taking into account the potential increase in rent of land use rights and properties.

LETTER FROM THE BOARD

(B) Technological Services Agreement

Details of the major terms of the Technological Services Agreement are as follows:

Date : 29 October 2024

Parties : YTO (on behalf of YTO Group), as purchaser; and the Company (on behalf of the Group), as supplier

Services to be provided : Provision of services by the Group to YTO Group for product research and development, production technology, process technology transformation, product quality improvement services and consulting, trial production of new products and key components, metrology services and measuring instruments testing services and other services

Term : From 1 January 2025 to 31 December 2027

Payment terms : Payment terms will be agreed in specific contract based on the actual situation of the transaction

Pricing Standards of the Transactions contemplated under the Technological Services Agreement

Under the Technological Services Agreement, the service fees will be determined based on the following:

(1) the transaction price of the same service between the Group and independent third parties;

(2) the price which consists of the reasonable cost of services provided by the Group plus gross profit of comparable non-related transactions of the same category (including but not limited to the same or similar work scope of design, research and development or testing projects, the work cycle, attribution of intellectual property rights, etc.); or

(3) in the event that the above prices are not available or not applicable, the price shall be determined after arm's length negotiation between the parties.

LETTER FROM THE BOARD

In any event, the applicable service fee offered by the Group to YTO Group shall not be lower than that offered to independent third party customers of the Group for the same services.

Historical Figures and the Proposed Annual Caps for the Transactions under the Technological Services Agreement

Unit: RMB0'000

	Historical transaction amounts	Annual caps
For the year ended 31 December	For the six months ended 30 June 2024	For the year ended/ending 31 December
2022	2023	2022
Technological Services Agreement	1,487	611

For the year ending 31 December

Technological Services Agreement

Basis for the Proposed Annual Cap Amounts under the Technological Services Agreement

The proposed annual caps for each of the three years ending 31 December 2027 for the Technological Services Agreement are determined with reference to the following factors:

(1) the historical transaction amounts;

LETTER FROM THE BOARD

(2) YTO's expected business plan and research and development projects; and
(3) the Group's inspection and testing fees, and YTO's expected demand for testing services.

(4) Condition Precedent

All the New Agreements shall be subject to the Independent Shareholders' approval at the EGM.

(5) Internal Control Measures

To ensure that the continuing connected transactions are in compliance with the pricing terms agreed in the New Agreements and do not exceed the proposed annual caps, the Group has formulated internal control measures, which are implemented and supervised by the finance department, office of the Boards, and the audit and legal department of the Company:

(1) the Company has formulated and strictly implemented the “Connected Transaction Decision-making and Daily Management System”. The Board has approved the connected transactions and agreements in accordance with the decision-making procedures for connected transactions, and the independent non-executive Directors have performed their duties conscientiously and expressed their concurring opinions on the connected transactions;
(2) the relevant business units, the office of the Board and the finance department of the Company have reviewed the terms of the New Agreements, in particular the reasonableness and fairness of the pricing terms. Each business unit will, when conducting specific business, engage the finance department and relevant departments to review and monitor the prices and relevant terms proposed for various transactions between the Company and independent third parties and connected parties by participating in the contract review process;
(3) the office of the Board and the finance department of the Company will quarterly compile and review statistics on the proportion of the actual amount of each connected transaction agreement to the approved annual cap and the projected situation for the year, and will promptly remind the business units to pay attention to the utilisation of the annual caps. If there is a need to increase the annual caps due to actual business development, the corresponding approval procedures shall be carried out in accordance with the regulations before implementation, so as to ensure that the connected transactions are carried out in a compliant manner;

34 -

LETTER FROM THE BOARD

(4) the independent non-executive Directors and the auditors of the Company will conduct annual review on the transactions under the New Agreements with report by the auditors to the audit committee of the Board and the independent non-executive Directors in accordance with the Hong Kong Listing Rules; and

(5) the Company's internal audit department and external auditing organisations regularly monitor and evaluate whether the connected transactions conducted by the Company are in compliance with the Company's internal control requirements.

The Directors are of the view that the above internal control measures can ensure that the transactions under the New Agreements will be conducted on normal commercial terms and will not be prejudicial to the interests of the Company and the Shareholders as a whole. The Company will also closely monitor the transaction amounts under the Existing CCT Agreements to ensure that the annual cap amounts for the year ending 31 December 2024 will not be exceeded.

(6) Reasons for and Benefits of the Continuing Connected Transactions Contemplated under the New Agreements

By taking advantage of the geographical convenience and the reliability of the supply of raw materials and services, the Group and YTO Group give full play to the advantages of their respective resources and carry out business related to daily operation with each other, which is conducive to the reduction of operating costs, the control of product quality, and the provision of efficient after-sale services, which in turn safeguard the Group's normal production and operation.

Accordingly, the Directors (excluding the Abstained Directors) are of the view that (i) the continuing connected transactions contemplated under the New Agreements will be carried out in the ordinary and usual course of business of the Group and in the interest of the Company and its Shareholders as a whole; (ii) the terms of the New Agreements (including the payment terms) are on normal commercial terms and on terms not less favourable than those of similar transactions with independent third parties and are fair and reasonable; and (iii) the proposed annual caps of the transactions contemplated under the New Agreements for the three years ending 31 December 2027 are fair and reasonable.

(7) Information of the Parties to the Transactions

The Group is principally engaged in the production and sales of agricultural machineries and power machineries. The principal products include tractors of high-powered and mid-powered, diesel engines and other accessories of tractors.

YTO is the immediate controlling Shareholder of the Company, holding 548,485,853 A Shares of the Company, and is principally engaged in the production and sales of agricultural machineries, specific transporting machineries, vehicles products and components, etc.

35 -

LETTER FROM THE BOARD

YTO Group is principally engaged in the production and sales of harvesting machineries, agricultural implements, transporting machineries, vehicles products, industrial equipment and components.

Sinomach Group is principally engaged in the business of research and development and manufacturing of machinery equipment, heavy machineries and engineering projects domestically and internationally, sales of automotive and parts, contracting of international projects and tendering of domestic and international projects, and import and export business. Sinomach is held as to 100% by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC.

(8) Listing Rules Implications

Connected Persons

As at the Latest Practicable Date, YTO is the controlling shareholder of the Company, holding 548,485,853 A Shares, representing 48.81% equity interest in the Company. YTO is in turn held as to approximately 88.22% by Sinomach. Pursuant to the Hong Kong Listing Rules, each of YTO and Sinomach is a connected person of the Company.

Accordingly, the transactions contemplated under the New Agreements entered into by the Company with YTO constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

Hong Kong Listing Rules Implications

(1) Non-exempt CCT Agreement

As one or more of the applicable percentage ratios in respect of the annual caps for the Material Procurement Agreement (i.e. the Non-exempt CCT Agreement) are more than 5%, the Non-exempt CCT Transaction is subject to the annual reporting, annual review, announcement and independent Shareholders' approval requirements under Chapter 14A of the Hong Kong Listing Rules.

(2) Exempt CCT Agreements

As the applicable percentage ratios in respect of the annual caps for each of the Sale of Goods Agreement, the Energy Procurement Agreement, the Composite Services Agreement, the Research and Development Agreement and the Lease Agreement for Real Estate (i.e. the Exempt CCT Agreements) are more than 0.1% but less than 5%, the Exempt CCT Transactions are subject to the annual reporting, annual review and announcement requirements, but are exempt from the independent Shareholders' approval requirement under Chapter 14A of the Hong Kong Listing Rules.

LETTER FROM THE BOARD

(3) Fully Exempt CCT Agreements

As all the applicable percentage ratios in respect of the annual caps under the Lease Agreement for Premises and the Technological Services Agreement (i.e. the Fully Exempt CCT Agreements) are less than 0.1%, the Fully Exempt CCT Transactions are exempt from the annual reporting, annual review, announcement and independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

Shanghai Listing Rules Implications

As the A Shares of the Company are listed on the Shanghai Stock Exchange, the Company is also required to comply with relevant requirements of the Shanghai Listing Rules. Pursuant to the relevant provisions of the Shanghai Listing Rules, the transactions contemplated under each of the New Agreements are subject to the Independent Shareholders’ approval at the EGM.

III. RECOMMENDATIONS

The Directors consider that the terms of the New Agreements, the transactions contemplated thereunder and their respective proposed annual caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolutions numbered 1.01 to 1.09 with respect to the New Agreements, the transactions contemplated thereunder and their respective annual caps to be proposed at the EGM.

The Independent Board Committee, having considered the terms and conditions of the Non-exempt CCT Transaction as contemplated under the Non-exempt CCT Agreement and the relevant annual caps, and taken into account the advice of Gram Capital, is of the opinion that (i) the terms of the Non-exempt CCT Transaction (including the relevant annual caps) are on normal commercial terms and are fair and reasonable; and (ii) the non-exempt CCT Transaction is conducted in the ordinary and usual course of business of the Group and is in the best interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the EGM as set out in the notice of the EGM.

LETTER FROM THE BOARD

Your attention is drawn to the letter from the Independent Board Committee which is set out on pages 40 to 41 of this circular which contains its recommendation to the Independent Shareholders in relation to the Non-exempt CCT Transaction as contemplated under the Non-exempt CCT Agreement and the relevant annual caps. Your attention is also drawn to the letter of advice from Gram Capital which is set out on pages 42 to 56 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Non-exempt CCT Transaction as contemplated under the Non-exempt CCT Agreement and the relevant annual caps. You are advised to read the said letters from the Independent Board Committee and Gram Capital before deciding how to vote at the EGM.

IV. EGM

A notice convening the EGM to be held at 2:30 p.m. on 18 December 2024, Wednesday at the Conference Room, No. 154 Jianshe Road, Luoyang, Henan Province, the PRC is set out on pages 62 to 64 of this circular. The EGM will be held for the Shareholders to consider, among other things, and, if thought fit, approve the New Agreements, the transactions contemplated thereunder and their respective annual cap amounts. Voting on the aforesaid resolutions will be taken by poll in accordance with the requirements of the Hong Kong Listing Rules.

The notice of the EGM is set out on pages 62 to 64 of this circular.

The Abstained Directors are considered to have material interests in the New Agreements and the transactions contemplated thereunder since Mr. Li Xiaoyu is the deputy general manager of Sinomach and all the Abstained Directors are directors of YTO. Accordingly, the Abstained Directors abstained from voting on the Board resolutions in respect of the New Agreements and the respective annual caps. Save for the Abstained Directors, no other Director had a material interest in the New Agreements and the transactions contemplated thereunder.

As at the Latest Practicable Date, YTO is the controlling shareholder of the Company, holding 548,485,853 A Shares, representing 48.81% equity interest in the Company. As YTO is a connected person of the Company, YTO and its associates will abstain from voting on the resolutions to approve the transactions contemplated under the New Agreements and the respective annual caps at the EGM. To the best of the Directors' knowledge, information and belief having made all reasonable enquires, other than YTO and its associates, no shareholder has a material interest in the New Agreements and the transactions contemplated thereunder and will be required to abstain from voting at the EGM on the resolutions in respect of the same.

38 -

LETTER FROM THE BOARD

Pursuant to the Hong Kong Listing Rules, any vote of Shareholders at a general meeting must be taken by poll. An announcement of the poll results of the EGM will be published by the Company in accordance with the requirements under the Hong Kong Listing Rules.

V. ADDITIONAL INFORMATION

Your attention is drawn to the additional information as set out in the appendix to this circular and the notice of the EGM.

Yours faithfully,

By order of the Board

First Tractor Company Limited*

Yu Lina

Company Secretary

For identification purposes only
39 -

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 Non-exempt CCT Agreement, the Non-exempt CCT Transaction and the relevant annual caps.

第一拖拉机股份有限公司

FIRST TRACTOR COMPANY LIMITED*

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

(Stock Code: 0038)

2 December 2024

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company dated 2 December 2024 (the "Circular"), of which this letter forms part. Unless the context requires otherwise, capitalised terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed by the Board as the members of the Independent Board Committee to consider the terms and conditions of the Non-exempt CCT Transaction as contemplated under the Non-exempt CCT Agreement and the relevant annual caps, and to advise the Independent Shareholders as to whether, in our opinion, the terms of the Non-exempt CCT Transaction and the relevant annual cap amounts are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. Gram Capital has been appointed as the independent financial adviser to advise us and the Independent Shareholders in respect of the Non-exempt CCT Agreement, the Non-exempt CCT Transaction and the relevant annual cap amounts.

We wish to draw your attention to (i) the "Letter from the Board"; (ii) the "Letter from Gram Capital" to the Independent Board Committee and the Independent Shareholders which contains its advice in respect of the Non-exempt CCT Transaction and the relevant annual cap amounts; and (iii) the additional information as set out in the appendix to the Circular.

40 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms and conditions of the Non-exempt CCT Transaction and the relevant annual cap amounts, and having taken into account the opinion of Gram Capital and, in particular, the factors, reasons and recommendations as set out in the "Letter from Gram Capital" on pages 42 to 56 of the Circular, we are of the opinion that (i) the terms of the Non-exempt CCT Transaction (including the relevant annual caps) are on normal commercial terms and are fair and reasonable; and (ii) the non-exempt CCT Transaction is conducted in the ordinary and usual course of business of the Group and is in the best interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions concerning the same to be proposed at the EGM.

Yours faithfully,

For and on behalf of the Independent Board Committee

Mr. Edmund Sit

Mr. Wang Shumao

Mr. Xu Liyou

Independent non-executive Directors

For identification purposes only
41 -

LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Procurement Transaction for the purpose of inclusion in this circular.

Gram Capital Limited
嘉林資本有限公司

Room 1209, 12/F.
Nan Fung Tower
88 Connaught Road Central/
173 Des Voeux Road Central
Hong Kong

2 December 2024

To: The independent board committee and the independent shareholders of First Tractor Company Limited*

Dear Sir/Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the transactions contemplated under the Material Procurement Agreement (the “Procurement Transaction”) (including the relevant annual caps), details of which are set out in the letter from the Board (the “Board Letter”) contained in the circular dated 2 December 2024 issued by the Company to the Shareholders (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

With reference to the Board Letter, the Existing CCT Agreements will expire on 31 December 2024. In order to ensure the smooth and normal production and operation process of the Group, on 29 October 2024, the Company entered into the New Agreements, all for a term of three years commencing from 1 January 2025 to 31 December 2027 (both days inclusive).

With reference to the Board Letter, the Procurement Transaction constitutes continuing connected transactions of the Company, and is therefore subject to the annual reporting, annual review, announcement and Independent Shareholders’ approval requirements under the Chapter 14A of the Hong Kong Listing Rules.

42 -

LETTER FROM GRAM CAPITAL

The Independent Board Committee comprising Mr. Edmund Sit, Mr. Wang Shumao and Mr. Xu Liyou (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Procurement Transaction (including the relevant annual caps) are on normal commercial terms and are fair and reasonable; (ii) whether the Procurement Transaction (including the relevant annual caps) are in the interests of the Company and the Shareholders as a whole and conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve the Procurement Transaction (including the relevant annual caps) at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

INDEPENDENCE

During the past two years immediately preceding the Latest Practicable Date, apart from our engagement as the Independent Financial Adviser in respect of the Procurement Transaction, Gram Capital is engaged as the independent financial adviser to the independent board committee and independent shareholders of the Company in relation to the Company's continuing connected transaction regarding deposit services, details of which are set out in the Company's announcement dated 15 November 2024 (the "Other IFA Engagement"). Save for the Other IFA Engagement, there was no other service provided by Gram Capital to the Company during the past two years immediately preceding the Latest Practicable Date.

Notwithstanding the Other IFA Engagement, as at the Latest Practicable Date, we were not aware of any relationships or interests between Gram Capital and the Company during the past two years immediately preceding the Latest Practicable Date, or any other parties that could be reasonably regarded as hindrance to Gram Capital's independence to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders.

Having considered the above, in particular (i) none of the circumstances as set out under Rule 13.84 of the Hong Kong Listing Rules existed as at the Latest Practicable Date; and (ii) the Other IFA Engagement is only independent financial advisory engagement, we are of the view that we are independent to act as the Independent Financial Adviser.

43 -

LETTER FROM GRAM CAPITAL

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also 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 advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors' representation and confirmation that there is no undisclosed private agreement/arrangement or implied understanding with anyone concerning the Procurement Transaction. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Hong Kong Listing Rules.

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement therein or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

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 in-depth investigation into the business and affairs of the Company, YTO or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Procurement Transaction. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

44 -

LETTER FROM GRAM CAPITAL

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Procurement Transaction, we have taken into consideration the following principal factors and reasons:

Information of the Group

With reference to the Board Letter, the Group is principally engaged in the production and sales of agricultural machineries and power machineries. The principal products include tractors of hi-powered and mid-powered, diesel engines and other accessories of tractors.

Set out below are the consolidated financial information of the Group for the two years ended 31 December 2023 and the six months ended 30 June 2024 (together with comparative figures) as extracted from the Company's annual report for the year ended 31 December 2023 (the "2023 Annual Report") and the Company's interim report for the six months ended 30 June 2024 (the "2024 Interim Report"):

	For the six months ended 30 June 2024 (unaudited) RMB	For the six months ended 30 June 2023 (unaudited) RMB	Year-on-year change %	For the year ended 31 December 2023 (audited) RMB	For the year ended 31 December 2022 (audited) RMB	Year-on-year change %
Total operating revenue	7,806,619,832.72	7,248,544,566.19	7.70	11,533,786,779.44	12,563,780,344.92	(8.20)
- Agricultural machinery	7,092,748,823.42	6,470,455,793.85	9.62	10,136,024,866.40	11,226,401,926.33	(9.71)
- Power machinery	713,871,009.30	772,462,748.76	(7.59)	1,392,135,889.46	1,229,063,188.29	13.27
- Financial services	-	5,626,023.58	(100.00)	5,626,023.58	108,315,230.30	(94.81)
Operating profit	1,077,306,515.25	818,317,831.85	31.65	996,266,250.37	588,018,899.85	69.43
Net profit attributable to owners of the parent company	905,349,574.14	754,144,938.68	20.05	997,022,699.99	681,050,957.24	46.39

As illustrated in the above table, the Group's total operating revenue was approximately RMB11.53 billion for the year ended 31 December 2023 ("FY2023"), representing a decrease of approximately 8.20% as compared to that for the year ended 31 December 2022 ("FY2022"). With reference to the 2023 Annual Report, such decrease was mainly due to decrease in sales volume of the Company's tractors. In contrast, the Group recorded significant increase of approximately 46.39% in net profit attributable to owners of the parent company for FY2023 as compared to that for FY2022. With reference to the 2023 Annual Report and as advised by the Directors, such increase was mainly due to increase in operating profit led by the Group's optimization of product mix and continuous improvement in cost effectiveness control across its value chain.

45 -

LETTER FROM GRAM CAPITAL

As illustrative in the above table, the Group's total operating revenue was approximately RMB7.81 billion for the six months ended 30 June 2024 ("1H2024"), representing an increase of approximately 7.70% as compared to that for the corresponding period in 2023. With reference to the 2024 Interim Report, such increase was mainly due to increase in the sales volume of the Company's main products. In addition, the Group recorded significant increases of approximately 20.05% in net profit attributable to owners of the parent company for 1H2024 as compared to that for the corresponding period in 2023. With reference to the 2024 Interim Report, such increase was mainly due to the aforesaid increase in total operating revenue as partially offset by increases in total operating cost and income tax expenses.

With reference to the 2024 Interim Report, the Company will seize the favourable opportunities arising from the construction of a strong agricultural country (the PRC) and the transformation and development of agricultural machinery and equipment, to consolidate and strengthen the Company's advantages in manufacturing, technology and products, so as to promote the sustainable, stable, and healthy development of the Company.

Information on YTO, YTO Group and Sinomach Group

Set out below is the information on the parties involved in the Procurement Transaction as extracted from the Board Letter:

YTO Group is principally engaged in the production and sales of harvesting machineries, agricultural implements, transporting machineries, vehicles products, industrial equipment and components.

46 -

LETTER FROM GRAM CAPITAL

Reasons for and benefits of the Procurement Transaction

With reference to the Board Letter, by taking advantage of the geographical convenience and the reliability of the supply of raw materials and services, the Group and YTO Group give full play to the advantages of their respective resources and carry out business related to daily operation with each other, which is conducive to the reduction of operating costs, the control of product quality, and the provision of efficient after-sale services, which in turn safeguard the Group's normal production and operation. The entering into of the New Agreements (including the Non-exempt CCT Agreement) can effectively lower the operation risk of both the Group and YTO Group, and is favourable to the Company's daily operation and management of production. The entering into of the New Agreements (including the Non-exempt CCT Agreement) is to renew the transaction arrangement under the Existing CCT Agreements.

As advised by the Company, with the development of large-scale and intensive management of land, large-scale agricultural business entities need agricultural machinery enterprises to provide complete sets of equipment to meet their "comprehensive, full-process mechanization" operating needs. Procurement of the Materials (as defined below) from YTO Group and Sinomach Group can help the Group actively improve its agricultural machinery product portfolio and meet the aforesaid operating needs.

Having considered the above reasons and benefits of the Procurement Transaction, we are of the view that the Procurement Transaction is in the interests of the Company and the Shareholders as a whole and is conducted in the ordinary and usual course of business of the Group.

Principal terms of the Procurement Transaction

1. Principal terms

Agreement date

29 October 2024

Parties

(1) YTO (on behalf of YTO Group and Sinomach Group), as supplier; and
(2) the Company (on behalf of the Group), as purchaser

Goods to be provided

Provision by YTO Group and Sinomach Group to the Group for goods required for the production and operation of the Group, including but not limited to raw materials (including steel, pig iron, waste steel, coke, nonferrous metals and lubricating oil), other industrial equipment (including machine tools), components (including clamping apparatus and moulds) and spare parts (the "Materials").

LETTER FROM GRAM CAPITAL

Term

From 1 January 2025 to 31 December 2027

Payment terms

Payment terms are determined after arm's length negotiation between the parties with reference to, among others, the payment terms for transactions between the Group and independent third party suppliers. Payment shall be principally settled within three months from the date of confirmation of receiving the goods by the purchaser. In order to ensure the stability of the supply of goods, subject to negotiations between the parties, prepayments may be made by the purchaser no more than six months before the estimated date of delivery of the goods.

Pricing standards

Under the Material Procurement Agreement, the price of the goods to be provided will be determined based on the following:

48 -

LETTER FROM GRAM CAPITAL

YTO undertakes that the applicable price of the goods offered to the Group shall not be higher than that offered to its independent third party customers for the same goods.

When determining the price of the goods under Material Procurement Agreement, the Company will adopt the following assessment methods:

(i) in relation to the above pricing standard no. (1) based on the market price of an independent third party, the procurement department of the Company will obtain and make reference to one to two price quotations of the same or similar goods through relevant industry website or market enquiry;

(ii) in relation to above pricing standard no. (2) based on the transaction price between the suppliers and an independent third party, the finance department of the Company will obtain and make reference to one to two signed agreement(s) entered into between the suppliers and an independent third party in relation to the procurement of the same or similar goods. The finance department of the Company will also obtain the cost analysis of goods (including cost breakdown and gross profit margin) from the suppliers to assess whether the transaction price under the Material Procurement Agreement is fair and reasonable and comparable to the price of the same or similar goods offered by the suppliers to an independent third party; and

(iii) in relation to pricing standard no. (3) based on costs plus a percentage mark-up, the finance department of the Company will obtain cost analysis of goods from the suppliers to determine the price with a percentage mark-up.

For our due diligence purpose, we obtained a list of historical Procurement Transaction for each of the two years ended 31 December 2023 and the six months ended 30 June 2024 and randomly selected one transaction for each period (three transactions in total) from the list (the "Selected Transactions"). The Company provided us with relevant transaction documents (such as internal approval records, individual agreements, invoices, and/or cost analysis) for the aforesaid selected transactions. We noted from the aforesaid documents that two of the sampled transactions (being the customised agricultural implements) followed pricing standard (3) (i.e. cost plus mark-up of less than 30%) and one of the sampled transactions (being a specific agricultural implement) followed pricing standard (2) above (purchase price per unit offered by connected person was the same with that offered by independent third party). As advised by the Directors, majority of the Materials under the Procurement Transaction were customised or specialised. Accordingly, majority of the Procurement Transaction were conducted under the pricing standards (2) and (3). Having considered that the Selected Transactions (i) were selected under random basis; and (ii) covered the period for the Purchase Transactions for each of the two years ended 31 December 2023 and the six months ended 30 June 2024, we are of the view that the Selected Transactions are adequate and representative for our analysis from the Independent Financial Adviser's perspective.

49 -

LETTER FROM GRAM CAPITAL

With reference to the Board Letter, to ensure that the continuing connected transactions contemplated under the New Agreements (including the Procurement Transaction) are in compliance with the pricing terms agreed in the New Agreements and do not exceed the proposed annual caps, the Group has formulated internal control measures (the "Internal Control Measures"), which are implemented and supervised by the finance department, office of the Boards, and the audit and legal department of the Company. Details of the Internal Control Measures are set out under the section headed "(5) Internal Control Measures" of the Board Letter. Having considered that the Internal Control Measures include, amongst others, (i) reviews/approvals by the Board, finance department and relevant departments of the Company; (ii) annual review by independent non-executive Directors; and (iii) regular monitoring and evaluation by the Company's internal audit department and external auditing organisations, we consider the Internal Control Measures to be adequate and appropriate.

With reference to the 2023 Annual Report, the independent non-executive Directors have reviewed, among other things, the continuing connected transactions (including the Procurement Transaction) for FY2023 and confirmed that the continuing connected transactions (including the Procurement Transaction) were (i) conducted in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better; and (iii) conducted in accordance with an agreement relating to the transaction on terms that are fair and reasonable and in the interests of the Shareholders as a whole (the "INED Confirmation").

The Company's auditors were also engaged to report on the Group's continuing connected transactions (including the Procurement Transaction) for FY2023 pursuant to Chapter 14A of the Hong Kong Listing Rules. Regarding the Group's continuing connected transactions (including the Procurement Transaction), the auditors of the Company confirmed to the Board that (i) they had not noticed any matters that lead them to believe that the disclosed continuing connected transactions were not approved by the Board; (ii) they had not noticed any matters that lead them to believe that the transactions involving goods or services provided by the Company did not comply with the Company's pricing policies in all material respects; (iii) they had not noticed any matters that lead them to believe that such transactions were not in compliance with the relevant agreements impacting those transactions in all material respects; and (iv) they had not noticed any matters that lead them to believe that the disclosed continuing connected transactions have exceeded the maximum annual total price disclosed in the Company's previous announcements of the disclosed continuing connected transactions. (the "Auditor Confirmation").

50 -

LETTER FROM GRAM CAPITAL

3. Proposed annual caps

Set out below are the details of (i) the historical transaction amounts of the Procurement Transaction for the two years ended 31 December 2023 and the six months ended 30 June 2024 (together with respective annual caps); and (ii) the proposed annual caps for the three years ending 31 December 2027 in respect of the Procurement Transaction (the "Procurement Cap(s)") as extracted from the Board Letter:

	For the year ended 31 December 2022 RMB0'000	For the year ended 31 December 2023 RMB0'000	For the year ending 31 December 2024 (“FY2024”) RMB0'000
Historical transaction amounts	70,764	54,279	36,111 (Note)
Annual caps	85,000	71,000	75,000
	For the year ending 31 December 2025 (“FY2025”) RMB0'000	For the year ending 31 December 2026 (“FY2026”) RMB0'000	For the year ending 31 December 2027 (“FY2027”) RMB0'000
Procurement Cap(s)	81,000	85,000	90,000

Note: The historical transaction amount was for 1H2024.

With reference to the Board Letter, the Procurement Caps were determined with reference to the following factors: (i) the historical transaction amounts; and (ii) the Group provides machinery unit sales to its customers by purchasing products such as harvesting machines and agricultural implements from YTO. Based on the current user demand and market conditions, it is expected that the scale of unit sales of the Group will increase in the future.

To assess the fairness and reasonableness of the Procurement Caps, we obtained the Procurement Caps calculation (the "Calculation") from the Company.

LETTER FROM GRAM CAPITAL

Procurement Cap for FY2025

According to the Calculation, we noted that:

(i) the historical transaction amount of the Procurement Transaction for FY2023 was approximately RMB542.8 million (the “2023 Procurement Amount”); and

(ii) the estimated annualized transaction amount of the Procurement Transaction for FY2024 (the “2024 Annualized Procurement Amount”) was approximately RMB614.8 million (such amount was calculated based on the historical transaction amount for 1H2024 and proportion between the historical amount for the first half and the second half of 2023, which we consider to be justifiable);

(iii) the 2024 Annualized Procurement Amount represents an increase of approximately 13.3% as compared to the 2023 Procurement Amount (the “2024 Increase”);

(iv) the Procurement Cap for FY2025 was formulated based on (a) the Group’s estimated demand for the Materials of approximately RMB736.4 million (the “2025 Estimated Procurement Amount”); and (b) a buffer of 10%; and

(v) the 2025 Estimated Procurement Amount represents an increase of approximately 19.8% as compared to the 2024 Annualized Procurement Amount (the “2025 Increase”).

As advised by the Directors, the 2025 Increase was mainly based on estimated increase in procurement for harvesting machinery and agricultural implement products, with anticipation on rising market demand for harvesting machinery and agricultural implements due to continuing national support for agricultural mechanization.

52 -

LETTER FROM GRAM CAPITAL

With reference to the Board Letter:

(i) The Group provides complete sets of agricultural machinery to its customers by purchasing products such as harvesting machines and agricultural implements from the suppliers. According to the “National High-Standard Farmland Construction Plan (2021-2030)*” (《全國高標準農田建設規劃(2021-2030年)》) issued by the Ministry of Agriculture and Rural Affairs of the PRC, the PRC had built 800 million acres of high-standard farmland in 2020 and will build 1.075 billion and 1.2 billion acres by 2025 and 2030, respectively. The construction of high-standard farmland, combined with the advancement of agricultural modernisation and the development of rural economies, has driven an increased demand for agricultural machinery. To meet the growing need for comprehensive and full-process mechanised operations, the Company expects to expand its sales of complete sets of agricultural machinery and increase its procurement of products such as harvesting machines and agricultural implements.

(ii) With strong national support for agriculture in various aspects, it is expected that the development trend of the agricultural machinery industry is sustainable, supporting the increasing annual caps for the three years ending 31 December 2027.

We also noticed various PRC governmental policies regarding agricultural machinery industry as set out below:

On 30 April 2024, the General Office of the Ministry of Agriculture and Rural Affairs of the PRC and the General Office of the Ministry of Finance of the PRC jointly issued an article titled “Opinions on the Implementation of Agricultural Machinery Purchase and Application Subsidies for 2024-2026*” (《2024—2026年農機購置與應用補貼實施意見》), indicated the support to farmers and agricultural production and operation organizations to purchase and use advanced and applicable agricultural machinery, accelerating development of new productive forces, and promoting the full-scale, comprehensive, and high-quality development of agricultural mechanization.

On 24 July 2024, the National Development and Reform Commission of the PRC and the Ministry of Finance of the PRC jointly issued an article titled “Several Measures to Strengthen Support for Large-scale Equipment Renewals and Trade-ins of Consumer Goods*” (《關於加力支援大規模設備更新和消費品以舊換新的若干措施》), which stated the focus on ensuring stable and secure food supply of grains and important agricultural products, increasing the enthusiasm of farmers and agricultural production and operation organizations to scrap and replace old agricultural machinery.

53 -

LETTER FROM GRAM CAPITAL

On 5 September 2024, the General Office of the Ministry of Agriculture and Rural Affairs of the PRC, the General Office of the National Development and Reform Commission of the PRC and the General Office of the Ministry of Finance of the PRC jointly issued an article titled “Supplemental Notice on Strengthening Efforts to Continuously Implement the Agricultural Machinery Scrap and Renewal Subsidy Policy*” (《關於加大工作力度持續實施好農業機械報廢更新補貼政策的補充通知》), which indicated subsidies for scrapping old agricultural machinery and replacement of the same type of machinery after scrapping, and support for effective promotion of replacement of outdated agricultural machinery.

After discussion with the Company, we understand that the above PRC governmental policies are supportive to the PRC agricultural machinery industry and may stimulate further demand of agricultural machines. Having taking into account the supportive PRC governmental policies as stated above and the 2024 Increase of approximately 13.3%, we consider the 2025 Increase and the 2025 Estimated Procurement Amount to be justifiable.

We also noted from other Hong Kong listed companies' circulars regarding continuing connected transactions that the incorporation of buffer of 10% in proposed annual caps are not uncommon among companies listed on the Stock Exchange. Accordingly, we consider incorporation of buffer of 10% in the Procurement Cap for FY2025 to be justifiable.

In light of the above, we consider that the Procurement Cap for FY2025 is fair and reasonable.

Procurement Caps for FY2026 & FY2027

According to the table above, the Procurement Cap increases by (i) approximately 4.9% from FY2025 to FY2026; and (ii) approximately 5.9% from FY2026 to FY2027.

As advised by the Directors, the aforesaid increases were mainly for catering further possible growth of the Procurement Transaction in FY2026 and FY2027 led by continuous development in agricultural machinery industry, fluctuation in raw materials price and possible inflation. We consider such moderate increases in the Procurement Caps to be reasonable.

In light of the above, we consider that the Procurement Caps for FY2026 and FY2027 are fair and reasonable.

54 -

LETTER FROM GRAM CAPITAL

Shareholders should note that as the Procurement Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2027, and they do not represent forecasts of cost to be incurred under the Procurement Transaction. Consequently, we express no opinion as to how closely the actual cost to be incurred under the Procurement Transaction will correspond with the Procurement Caps under the Material Procurement Agreement.

Having considered the principal terms of the Procurement Transaction as set out above, we are of the view that the terms of the Procurement Transaction (including the Procurement Caps) are on normal commercial terms and are fair and reasonable.

Hong Kong Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Hong Kong Listing Rules pursuant to which (i) the values of the Procurement Transaction must be restricted by their respective proposed annual caps; (ii) the terms of the Procurement Transaction (including their respective annual caps) must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors' annual review on the terms of the Procurement Transaction must be included in the Company's subsequent published annual reports. Furthermore, it is also required by the Hong Kong Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the Procurement Transaction (i) have not been approved by the Board; (ii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded their respective annual caps. In the event that the total amounts of the Procurement Transaction are anticipated to exceed their respective annual caps, or that there is any proposed material amendment to the terms of the Procurement Transaction, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Hong Kong Listing Rules governing continuing connected transaction.

Given the above stipulated requirements for continuing connected transactions pursuant to the Hong Kong Listing Rules, we are of the view that there are adequate measures in place to monitor the Procurement Transaction and thus the interest of the Independent Shareholders would be safeguarded.

LETTER FROM GRAM CAPITAL

RECOMMENDATION

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Procurement Transactionare on normal commercial terms and are fair and reasonable; and (ii) the Procurement Transaction is conducted in the ordinary and usual course of business of the Group and is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Procurement Transaction and we recommend the Independent Shareholders to vote in favour of the resolutions in this regard.

Yours faithfully,

For and on behalf of

Gram Capital Limited

Graham Lam

Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has around 30 years of experience in investment banking industry.

For identification purpose only
56 -

APPENDIX

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong 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

(i) Interests and short positions of the Directors, supervisors and chief executive in the Company and its associated corporations

As at the Latest Practicable Date, none of the Directors, supervisors or chief executives of the Company had any interest or short position in any Shares, underlying Shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director, supervisor or chief executive was taken or deemed to have under such provisions of the SFO) or which was required to be entered into the register required to be kept by the Company pursuant to section 352 of the SFO or which was otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as contained in Appendix C3 to the Hong Kong Listing Rules.

57 -

APPENDIX

GENERAL INFORMATION

(ii) Interests and short positions of substantial Shareholders

Save as disclosed below, as at the Latest Practicable Date, the Directors were not aware of any person who had any interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or was required to be notified to the Company and the Stock Exchange pursuant to section 324 of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

Name	Capacity	Number of Shares interested^{1}	Approximate percentage of the relevant class of issued share capital of the Company (%)	Approximate percentage of the total issued share capital of the Company (%)	Class of Shares
YTO^{2}	Beneficial owner	548,485,853(L)	74.96	48.81	A Share

Notes:

(L) – Long position
Sinomach is the controlling shareholder of YTO. Sinomach is deemed to be interested in the Shares held by YTO by virtue of the SFO.

Save as disclosed above, there are no other persons (other than the Directors, supervisors or chief executives of the Company) who, as at Latest Practicable Date, had any interest or short position in the Shares or underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO.

DISCLOSURE OF OTHER INTERESTS OF THE DIRECTORS

(a) Interests in contract or arrangement

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

APPENDIX

GENERAL INFORMATION

(b) Interests in assets

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2023, being the date to which the latest published audited accounts of the Group were made up.

(c) Interests in competing business

As at the Latest Practicable Date, none of the Directors or any of their respective associates of the Company were interested in any business apart from the Company's business, which competed or was likely to compete, either directly or indirectly, with the Company's business.

As at the Latest Practicable Date, none of the Directors was materially interested in any subsisting contract or arrangement which was significant in relation to the business of the Group, and no Director was interested in any assets which had been acquired or disposed of by or leased to (or are proposed to be acquired or disposed of by or leased to) any member of the Group since 31 December 2023, being the date to which the latest published audited accounts of the Group were made up.

4. DIRECTORS' EMPLOYMENT WITH SUBSTANTIAL SHAREHOLDER

Save as disclosed below, as at the Latest Practicable Date, none of the Directors or supervisors of the Company is a director or employee of a company which had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

	Name of substantial shareholder of the Company	Position in the substantial shareholder of the Company
Mr. Li Xiaoyu	Sinomach	Deputy General Manager
	YTO	Director
Mr. Fang Xianfa	YTO	Director
Mr. Yang Jianhui	YTO	Director
Mr. Miao Yu	YTO	Director

APPENDIX

GENERAL INFORMATION

5. DIRECTORS' AND SUPERVISORS' SERVICE CONTRACTS

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

6. 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 accounts of the Group were made up.

7. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name	Qualification
Gram Capital	a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO

Gram Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they appear. The letter from Gram Capital contained herein was issued on 2 December 2024 and was made by Gram Capital for incorporation in this circular.

As at the Latest Practicable Date, Gram Capital did not have any direct or indirect interest in any assets which had since 31 December 2023 (being the date to which the latest published audited accounts of the Company were made up) been acquired or disposed of by or leased to, or which were proposed to be acquired or disposed of by or leased to, any member of the Group.

As at the Latest Practicable Date, Gram Capital was not beneficially interested in the share capital of any member of the Group, nor had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

60 -

APPENDIX

GENERAL INFORMATION

8. DOCUMENTS ON DISPLAY

Copies of the following documents will be available on the Stock Exchange’s website and the Company’s own website from the date of this circular up to and including the date of the EGM:

(a) the New Agreements;

(b) the letter from the Independent Board Committee, the text of which is set out on pages 40 to 41 of this circular;

(d) the written consent of Gram Capital referred to in paragraph 6 of this Appendix; and

(e) this circular.

9. GENERAL

In the event of any inconsistency, the English language text of this circular shall prevail over the Chinese language text.

NOTICE OF EXTRAORDINARY GENERAL MEETING

第一拖拉机股份有限公司

FIRST TRACTOR COMPANY LIMITED*

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

(Stock Code: 0038)

NOTICE OF 2024 SECOND EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the 2024 second extraordinary general meeting (the “EGM”) of First Tractor Company Limited (the “Company”) will be held at 2:30 p.m. on 18 December 2024, Wednesday, at No. 154 Jianshe Road, Luoyang, Henan Province, the People’s Republic of China (the “PRC”) for the purpose of considering and, if thought fit, passing the following resolutions:

ORDINARY RESOLUTIONS

To consider and approve the continuing connected transactions for 2025 to 2027 of the Company (Note 1);

1.01 The Material Procurement Agreement for 2025 to 2027 entered into between the Company and YTO Group Corporation and annual transaction cap amount for each year

1.02 The Sale of Goods Agreement for 2025 to 2027 entered into between the Company and YTO Group Corporation and annual transaction cap amount for each year

1.03 The Energy Procurement Agreement for 2025 to 2027 entered into between the Company and YTO Group Corporation and annual transaction cap amount for each year

1.04 The Composite Services Agreement for 2025 to 2027 entered into between the Company and YTO Group Corporation and annual transaction cap amount for each year

1.05 The Lease Agreement for Real Estate for 2025 to 2027 entered into between the Company and YTO Group Corporation and annual transaction cap amount for each year

1.06 The Lease Agreement for Premises for 2025 to 2027 entered into between the Company and YTO Group Corporation and annual transaction cap amount for each year

62 -

NOTICE OF EXTRAORDINARY GENERAL MEETING

1.07 The Research and Development Services Agreement for 2025 to 2027 entered into between the Company and YTO Group Corporation and annual transaction cap amount for each year

1.08 The Technological Services Agreement for 2025 to 2027 entered into between the Company and YTO Group Corporation and annual transaction cap amount for each year

1.09 Any one of the Directors or other person be hereby authorised for and on behalf of the Company, to sign, confirm, execute, complete the above connected transaction agreements, and to agree to non-material amendments to the above connected transaction agreements if it is in the interest of the Company to do so

2 To consider and approve the Financial Services Agreement for 2025 to 2027 entered into between the Company and Sinomach Finance and annual transaction cap amount for each year. Any one of the Directors or other person be hereby authorised for and on behalf of the Company, to sign, confirm, execute, complete the Financial Services Agreement, and to agree to non-material amendments to the Financial Services Agreement if it is in the interest of the Company to do so (Note 2);

SPECIAL RESOLUTION

3 To consider and approve the resolution on the amendments to the Articles of Association of the Company (Note 3);

ORDINARY RESOLUTIONS

4 To consider and approve the resolution on the amendments to the Rules of Procedures for General Meetings of the Company (Note 3);

5 To consider and approve the resolution on the amendments to the Rules of Procedures for Board of Directors of the Company (Note 3); and

6 To consider and approve the resolution on the amendments to the Rules of Procedures for Supervisory Committees of the Company (Note 3).

By Order of the Board

FIRST TRACTOR COMPANY LIMITED

YU Lina

Company Secretary

Luoyang, the PRC

2 December 2024

NOTICE OF EXTRAORDINARY GENERAL MEETING

As at the date of this notice, the Board comprises Mr. Li Xiaoyu and Mr. Wei Tao as executive Directors; Mr. Fang Xianfa, Mr. Yang Jianhui and Mr. Miao Yu as non-executive Directors; and Mr. Edmund Sit, Mr. Wang Shumao and Mr. Xu Liyou as independent non-executive Directors.

Notes:

Please refer to the Company's circular dated 2 December 2024 in relation to the connected transaction agreements for details of the resolutions.
Please refer to the Company's circular dated 2 December 2024 in relation to the Financial Services Agreement for details of the resolution.
Please refer to the Company's circular dated 2 December 2024 in relation to the proposed amendments on the articles of association of the Company, Rules of Procedures for General Meetings of the Company, Rules of Procedures for Board of Directors of the Company, and Rules of Procedures for Supervisory Committees of the Company for details of the resolutions.
The register of members of the Company will be temporarily closed from 16 December 2024 to 18 December 2024 (both days inclusive) during which no transfer of shares of the Company (the "Shares") will be registered in order to determine the list of shareholders of the Company (the "Shareholders") for attending the EGM. The last lodgment for the transfer of the H Shares of the Company should be made on 13 December 2024 at Hong Kong Registrars Limited by or before 4:00 p.m. The Shareholders or their proxies being registered on 18 December 2024 are entitled to attend the EGM by presenting their identity documents. The address of Hong Kong Registrars Limited, the H Shares registrar of the Company, is Shops 1712-1716, 17/F., Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong.
Each Shareholder having the rights to attend and vote at the EGM is entitled to appoint one or more proxies (whether a Shareholder or not) to attend and vote on his behalf. Should more than one proxy be appointed by one Shareholder, such proxy shall only exercise his voting rights on a poll.
Shareholders can appoint a proxy by an instrument in writing (i.e. by using the Proxy Form enclosed). The Proxy Form shall be signed by the person appointing the proxy or an attorney authorized by such person in writing. If the Proxy Form is signed by an attorney, the power of attorney or other documents of authorization shall be notarially certified. To be valid, the Proxy Form and the notarially certified power of attorney or other documents of authorization must be delivered to the Company's registered address at No. 154 Jianshe Road, Luoyang, Henan Province, the PRC (as far as A Shareholders are concerned), or the Company's H Shares registrar, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong (as far as H Shareholders are concerned) by not less than 24 hours before the time scheduled for the holding of the EGM or any adjournment thereof.
Shareholders or their proxies shall present proofs of their identities upon attending the EGM.
The EGM is expected to last for less than one day. The Shareholders and proxies attending the EGM shall be responsible for their own travelling and accommodation expenses.
The Company's registered address:

No. 154 Jianshe Road, Luoyang, Henan Province, the PRC
Postal code: 471004
Telephone: (86379) 6496 7038
Facsimile: (86379) 6496 7438
Email: [email protected]

For identification purposes only
64 -

AI assistant

First Tractor Company Limited — Proxy Solicitation & Information Statement 2024

48894_rns_2024-12-02_9821f1d5-469a-4136-9498-6bd54e023576.pdf

第一拖拉机股份有限公司

FIRST TRACTOR COMPANY LIMITED*

(1) CONTINUING CONNECTED TRANSACTIONS

(2) NOTICE OF EXTRAORDINARY GENERAL MEETING

DEFINITIONS

第一拖拉机股份有限公司

FIRST TRACTOR COMPANY LIMITED*

CONTINUING CONNECTED TRANSACTIONS

I. INTRODUCTION

II. CONTINUING CONNECTED TRANSACTIONS

(1) Non-exempt CCT Transaction

(A) Material Procurement Agreement

Payment terms

Pricing Standards of the Transactions contemplated under the Sale of Goods Agreement

(B) Composite Services Agreement

(C) Energy Procurement Agreement

(D) Lease Agreement for Real Estate

(E) Research and Development Services Agreement

(3) Fully Exempt CCT Transactions

(A) Lease Agreement for Premises

(B) Technological Services Agreement

(4) Condition Precedent

(5) Internal Control Measures

(6) Reasons for and Benefits of the Continuing Connected Transactions Contemplated under the New Agreements

(7) Information of the Parties to the Transactions

(8) Listing Rules Implications

Connected Persons

Hong Kong Listing Rules Implications

(1) Non-exempt CCT Agreement

(2) Exempt CCT Agreements

(3) Fully Exempt CCT Agreements

Shanghai Listing Rules Implications

III. RECOMMENDATIONS

IV. EGM

第一拖拉机股份有限公司

CONTINUING CONNECTED TRANSACTIONS

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

INDEPENDENCE

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

Information of the Group

Information on YTO, YTO Group and Sinomach Group

Reasons for and benefits of the Procurement Transaction

Principal terms of the Procurement Transaction

1. Principal terms

3. Proposed annual caps

Hong Kong Listing Rules implication

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

(b) Interests in assets

(c) Interests in competing business

4. DIRECTORS' EMPLOYMENT WITH SUBSTANTIAL SHAREHOLDER

5. DIRECTORS' AND SUPERVISORS' SERVICE CONTRACTS

6. MATERIAL ADVERSE CHANGE

7. EXPERT AND CONSENT

8. DOCUMENTS ON DISPLAY

9. GENERAL

第一拖拉机股份有限公司

FIRST TRACTOR COMPANY LIMITED*

NOTICE OF 2024 SECOND EXTRAORDINARY GENERAL MEETING

ORDINARY RESOLUTIONS

More from First Tractor Company Limited

First Tractor Company Limited Proxy Solicitation & Information Statement 2024