FIT Hon Teng Limited — Proxy Solicitation & Information Statement 2017

Oct 11, 2017

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 a licensed stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in FIT Hon Teng Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the licensed bank, stockbroker 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.

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FIT Hon Teng Limited 鴻騰六零八八精密科技股份有限公司

(Incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited)

(Stock Code: 6088)

CONTINUING CONNECTED TRANSACTIONS PROPOSED REVISION OF ANNUAL CAPS AND PROPOSED PAYMENT OF 2016 FINAL DIVIDEND AND NOTICE OF EXTRAORDINARY GENERAL MEETING

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

A letter from the board of directors of FIT Hon Teng Limited is set out on pages 4 to 13 of this circular. A letter from the Independent Board Committee (as defined herein) containing its advice to the Independent Shareholders (as defined herein) is set out on page 14 of this circular. A letter from Investec Capital Asia Limited containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 15 to 32 of this circular.

A notice convening the extraordinary general meeting of the Company to be held at 66-1, Chungshan Road, Tucheng District, New Taipei City 23680, Taiwan on Friday, October 27, 2017 at 10:00 a.m., is set out on pages 38 to 40 of this circular. Whether or not you are able to attend the extraordinary general meeting, please complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time of the extraordinary general meeting (i.e. before 10:00 a.m. on Wednesday, October 25, 2017) or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting at the extraordinary general meeting in person should you so wish.

Hong Kong, October 12, 2017

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
LETTER FROM INVESTEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
APPENDIX — GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38

— i —

DEFINITIONS

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

• “2016 Final Dividend” a final dividend of HK$0.047 per Share for the year ended December 31, 2016;

• “Announcement” the announcement of the Company dated August 18, 2017 regarding the proposed revision of the annual caps for the Product Sales Transaction and the Product Purchase Transaction for the three years ending December 31, 2019;

• “associate(s)” having the meaning as defined in the Listing Rules; “Board” the board of Directors; “Company” FIT Hon Teng Limited (鴻騰六零八八精密科技股份有限公司), a company incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited, the Shares of which are listed on the Main Board of the Stock Exchange;

• “Director(s)” the director(s) of the Company; “EGM” the extraordinary general meeting of the Company to be held on Friday, October 27, 2017 at 10:00 a.m. to approve the proposed revision of the annual caps for the Product Sales Transaction and the Product Purchase Transaction for the three years ending December 31, 2019 and the proposed payment of the 2016 Final Dividend, or where the context so admits, any adjournment thereof;

• “Foxconn Far East Cayman” Foxconn (Far East) Limited, an exempted company incorporated in the Cayman Islands with limited liability which owns 100% issued shares of Foxconn Far East Hong Kong;

• “Foxconn Far East Hong Kong” Foxconn (Far East) Limited, a limited liability company incorporated in Hong Kong;

• “Framework Purchase the framework purchase agreement entered into between the Company Agreement” and Hon Hai on November 9, 2016 (as amended by the supplemental agreement dated June 26, 2017 and including any amendment thereto from time to time);

• “Framework Sales Agreement” the framework sales agreement entered into between the Company and Hon Hai on November 9, 2016 (including any amendment thereto from time to time);

• “Group”, “we” or “us” the Company and its subsidiaries;

— 1 —

DEFINITIONS

“Hon Hai”	Hon Hai Precision Industry Co., Ltd. (鴻海精密工業股份有限公司), a
	limited liability company established in Taiwan and listed on the Taiwan
	Stock Exchange (Stock Code: 2317), the controlling shareholder of the
	Company;
“Hon Hai Group”	Hon Hai and its subsidiaries and (where relevant) 30%-controlled entities
	and, for the purpose of this circular, excluding the Group;
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s Republic
	of China;
“Independent Board	the independent board committee established by the Board to consider
Committee”	the Product Sales Transaction, the Product Purchase Transaction, and
	the Proposed Transactions Annual Caps and to advise the Independent
	Shareholders in respect thereof;
“Independent Shareholders”	Shareholders other than Hon Hai and its associates;
“Investec”	Investec Capital Asia Limited, a licensed corporation under the SFO to
	carry out Type 1 (dealing in securities), Type 4 (advising on securities),
	Type 6 (advising on corporate finance) and Type 9 (asset management)
	regulated activities, which has been appointed by the Company to be the
	independent financial adviser to the Independent Board Committee and
	the Independent Shareholders in respect of the Proposed Transactions
	Annual Caps;
“Latest Practicable Date”	October 7, 2017, being the latest practicable date prior to the printing
	of this circular for ascertaining certain information referred to in this
	circular;
“Listing”	the listing of the Company on the Stock Exchange on July 13, 2017;
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange, as
	amended and/or supplemented from time to time;
“percentage ratios”	the percentage ratios calculated based on the requirements under Rule
	14.07 of the Listing Rules;
“Product Purchase	purchase of various raw materials, ancillary materials and semi-finished
Transaction”	components and assembled products by the Group from Hon Hai Group as
	contemplated under the Framework Purchase Agreement;
“Product Sales Transaction”	sale of various interconnect solutions and other related products
	manufactured or owned by the Group to Hon Hai Group as contemplated
	under the Framework Sales Agreement;
“Proposed Purchase	the proposed annual caps for the Product Purchase Transaction for the
Annual Caps”	three years ending December 31, 2019;

— 2 —

DEFINITIONS

“Proposed Sales Annual Caps”	the proposed annual caps for the Product Sales Transaction for the three
	years ending December 31, 2019;
“Proposed Transactions	the Proposed Purchase Annual Cap and the Proposed Sales Annual Cap;
Annual Caps”
“Prospectus”	the prospectus dated June 29, 2017 issued by the Company, a copy of
	which is available on the Company’s website at www.fit-foxconn.com
	and the Stock Exchange’s website at http://www.hkexnews.hk;
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong
	Kong), as amended and/or supplemented from time to time;
“Share(s)”	the ordinary share(s) with nominal value of US$0.01953125 each of the
	Company;
“Shareholders”	the holders of the Shares;
“Share Grant”	a share grant awarded to a participant under the Share Grant Scheme;
“Share Grant Scheme”	the share grant scheme approved and adopted by the Company on January
	5, 2015, and the rules and interpretations thereof further adopted by the
	Board on November 4, 2016;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“subsidiary(ies)”	having the meaning ascribed to it under the Companies Ordinance
	(Chapter 622 of the Laws of Hong Kong);
“US$”	United States dollars, the lawful currency of the United States of
	America;
“Vietnam”	the Socialist Republic of Vietnam; and
“%”	percent.

— 3 —

LETTER FROM THE BOARD

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FIT Hon Teng Limited 鴻騰六零八八精密科技股份有限公司

(Incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited)

(Stock Code: 6088)

Executive Directors:

LU Sung-Ching (Chairman) LU Pochin Christopher GILLESPIE William Ralph

Non-executive Director: CHEN Ga-Lane

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Headquarters in Taiwan:

Independent Non-executive Directors: CURWEN Peter D TANG, Kwai Chang CHAN, Wing Yuen Hubert

66-1, Chungshan Road Tucheng District New Taipei City 23680 Taiwan

Principal Place of Business in Hong Kong: 36/F, Tower Two Times Square 1 Matheson Street Causeway Bay Hong Kong

October 12, 2017

Dear Shareholders,

CONTINUING CONNECTED TRANSACTIONS PROPOSED REVISION OF ANNUAL CAPS AND PROPOSED PAYMENT OF 2016 FINAL DIVIDEND AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The purpose of this circular is to provide the Shareholders with information regarding (i) the proposed revision of the annual caps for the Product Sales Transaction and the Product Purchase Transaction and (ii) the proposed payment of the 2016 Final Dividend, and to seek approval of (where relevant) the Independent Shareholders and the Shareholders in respect of the ordinary resolutions set out in the notice of the EGM on pages 38 to 40 of this circular.

— 4 —

LETTER FROM THE BOARD

In respect of the proposed revision of the annual caps for the Product Sales Transaction and the Product Purchase Transaction, the recommendation of the Independent Board Committee to the Independent Shareholders is set out on page 14 of this circular and the letter from Investec to the Independent Board Committee and the Independent Shareholders containing its advice is set out on pages 15 to 32 of this circular.

(I) PROPOSED REVISION OF ANNUAL CAPS

The Group from time to time has been carrying out the Product Sales Transaction and Product Purchase Transaction with Hon Hai Group pursuant to the Framework Sales Agreement and Framework Purchase Agreement for a term up to December 31, 2019 respectively. The Product Sales Transaction and the Product Purchase Transaction constitute non-exempt continuing connected transactions for the Company under the Listing Rules, and the Company has set the existing annual caps for the Product Sales Transaction and the Product Purchase Transaction for each of the three years ending December 31, 2019 respectively.

It is anticipated that the existing annual caps for the Product Sales Transaction and the Product Purchase Transaction for each of the three years ending December 31, 2019 may not be sufficient due to the stronger-than-expected demand for lightning cable, earphones and other products from our brand company customers. The Company has therefore proposed the Proposed Transactions Annual Caps in place of such existing annual caps.

Based on the maximum amount of the Proposed Transactions Annual Caps, the Product Sales Transaction, the Product Purchase Transaction and the Proposed Transaction Annual Caps are subject to the approval of the Independent Shareholders. The Company has established the Independent Board Committee to advise the Independent Shareholders in respect thereof, and has appointed Investec as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

Background

Reference is made to the section headed “Connected Transaction — Non-exempt Continuing Connected Transactions” of the Prospectus in relation to, among other things, the Product Sales Transaction, the Product Purchase Transaction and the existing annual caps for the Product Sales Transaction and the Product Purchase Transaction, respectively, for the three years ending December 31, 2019.

Product Sales Transaction

The Company’s products are sold to, among others, contract manufacturers and brand company customers. Contract manufacturers incorporate the Company’s interconnect solutions with a vast number of other components and modules and assemble them into finished products at the specification of their customers, generally brand companies. Brand companies generally market and sell their finished products to end users. Hon Hai Group is a leading contract manufacturer which is involved in, among others, assembling the finished products for brand companies and many brand companies often require Hon Hai Group to purchase the relevant parts and components, including the Company’s interconnect solutions, from specific approved suppliers like the Company, as part of the assembly process for better quality control and overall supply chain management.

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LETTER FROM THE BOARD

Please refer to the section headed “Business — Our Customers” of the Prospectus for further details of the transaction model described above. To the best knowledge and information of the Company and as of the Latest Practicable Date, brand company customers of the Company are independent third parties of the Company and Hon Hai Group.

Pursuant to the Framework Sales Agreement, the Group has agreed to sell to Hon Hai Group various interconnect solutions and other related products for a term up to December 31, 2019 upon and subject to the terms and conditions set out therein at a price determined as follows:

• (1) for the sales to Hon Hai Group that are designated by our brand company customers, at the price negotiated and determined between our brand company customers and us; or

• (2) for other sales to Hon Hai Group where selling prices were not designated by our customers (“ Connected Sales ”), at a price that is determined by referencing the blended profit margin, which is the difference between revenue generated from such sales and historical cost allocated thereto for the preceding month, divided by the corresponding revenue, to that of sales to independent third parties (“ Third Party Sales ”), on a rolling basis, such that the differences in the blended profit margins between Connected Sales and Third Party Sales in each fiscal year shall not be more than 6.5% having considered the long-term business relationship, large sales volume to Hon Hai Group, and the strategic partnership with Hon Hai Group.

As more particularly set out in the section headed “Connected Transaction — Non-exempt Continuing Connected Transactions — (c) Framework Sales Agreement” of the Prospectus, in respect of the 6.5% blended profit margin, the Company believes it is industry practice to (1) grant large customers volume discounts; (2) give long-term customers with repeated sales and sustainable businesses price discounts as this would incur lower negotiation, coordination and logistics costs and subject the Company to lower exposure to credit risks, as compared to dealing with new customers; and (3) offer better pricing terms to customers with long-term strategic value to the Company. Having considered that (a) Hon Hai Group accounted for 43.9%, 37.0% and 23.0% of the Group’s revenue in 2014, 2015 and 2016 respectively and the relative magnitude of such amounts vis-a-vis revenue contribution from the other customers, (b) the Company’s long-term business cooperation with Hon Hai Group since the Company’s inception which the Company believes subject it to minimal credit risk as compared to other third party customers, and (c) being part of the ecosystem of Hon Hai Group brings the Company significant strategic value, the Directors are of the view that the 6.5% capped difference in the blended profit margin is under normal commercial terms, fair and reasonable, and in the interests of the Shareholders as a whole.

The pricing policy above has been disclosed in the Prospectus. The “blended profit margin” is calculated by dividing blended gross profit by revenue from customers during a specific period. Blended gross profit is calculated by aggregating the revenue generated from specific customers less the historical unit cost allocated to such sales for the preceding month multiplied by number of units sold. The Company will calculate the blended gross margin for Connected Sales and for Third Party Sales, respectively, and compare the two to determine whether the difference exceeds 6.5%.

As an internal control measure for compliance with the 6.5% threshold, the management of the Company reviews and monitors whether the difference exceeds the 6.5% threshold, at least on a quarterly basis, and takes appropriate measures to ensure compliance from time to time based on the review results. If the management determines that there is a risk for exceeding the 6.5% threshold on an annual basis, it will increase the frequency of review as appropriate and take further measures to ensure compliance.

— 6 —

LETTER FROM THE BOARD

Product Purchase Transaction

Pursuant to the Framework Purchase Agreement, the Group has agreed to purchase from Hon Hai Group various raw materials, ancillary materials and semi-finished components and assembled products for a term up to December 31, 2019 upon and subject to the terms and conditions set out therein at a price determined as follows:

• (1) for the procurement of gold salts, at the price equivalent to the sum of the commodity spot prices and the processing fees. The Group will obtain and compare fee proposals provided by Hon Hai Group and independent third party suppliers on a quarterly basis to the extent practicable. As a risk control measure, the Group will procure gold salts from more than one supplier, but will allocate at least 70% annual purchase from the supplier with the lowest fee quote; or

• (2) for the procurement of ancillary raw materials from Hon Hai Group that is designated by our customers, at the price agreed between Hon Hai Group and our customers; and for other procurement of ancillary raw materials from Hon Hai Group, at the price determined with reference to comparable third-party prices to the extent independent-third-party suppliers are available; or

• (3) for the procurement of semi-finished goods and assembled products, at the price determined based on (a) Hon Hai Group’s purchase prices of raw materials supplied by us, (b) their purchase prices of other raw materials, (c) their labor costs and overheads and (d) handling fees up to 5% of relevant labor cost and overheads.

The pricing policy above has been disclosed in the Prospectus. As to the 70% threshold set out in (1) above, the procurement department of the Company ensures the compliance of the 70% threshold by placing orders for the first three weeks of each month with its gold salts supplier with the lowest quote. It also prepares a monthly report of actual purchase amounts for management’s review as to the compliance of the 70% threshold.

Historical Values and Annual Caps

With reference to the section headed “Connected Transaction” of the Prospectus, the Company has set the existing annual caps for the Product Sales Transaction and the Product Purchase Transaction for each of the three years ending 31 December 2019.

In light of the stronger-than-expected demand for lightning cable, earphones and other products from our brand company customers, we anticipate additional needs to sell our lightning cable and other related products to and purchase certain assembled products from Hon Hai Group under the Product Sales Transaction and the Product Purchase Transaction respectively. Accordingly, the Company envisages that the existing annual caps for the Product Sales Transaction and the Product Purchase Transaction, respectively, may not be sufficient and has therefore proposed the Proposed Sales Annual Caps and the Proposed Purchase Annual Caps to replace such existing annual caps.

— 7 —

LETTER FROM THE BOARD

The table below sets out (a) the historical actual amounts of the Product Sales Transaction and the Product Purchase Transaction for the three years ended December 31, 2016 and for the six months ended June 30, 2017; (b) the existing annual caps for the Product Sales Transaction and the Product Purchase Transaction for the three years ending December 31, 2019; and (c) the Proposed Transactions Annual Caps for the three years ending December 31, 2019.

								Proposed Transactions	Proposed Transactions
	Actual	transaction amounts			Existing	annual	caps	Annual Caps
				Six
				months
				ended
	Year ended December 31,			June 30,	Year ending December 31,			Year ending December 31,
(in US$ millions)	2014	2015	2016	2017	2017	2018	2019	2017 2018	2019
Product Sales Transaction	1,090.5	861.7	661.1	349.9	952.6	893.3	1,047.1	1,008.8 1,116.6	1,309.1
Product Purchase Transaction	232.4	304.9	398.5	194.0	433.5	433.6	443.1	508.5 585.4	620.3

The Proposed Transactions Annual Caps are determined with reference to projections of the Company which in turn are prepared by the Company mainly with reference to the following major factors:

Major factors considered for the existing annual caps as disclosed in the Prospectus:

• in respect of the annual caps for the Framework Sales Agreement, the factors include historical sales figures, sales plans of the Group based on customer demand forecast and market research as well as potential expansion plans and opportunities; and

• in respect of the annual caps for the Framework Purchase Agreement, (i) the factors relating to the procurement of gold salts include the historical average prices during the three financial years ended December 31, 2016, the expected sales forecast and our outlook of movement of gold spot price; (ii) the factors relating to the procurement of ancillary raw materials include the historical figures and the expected sales forecast; and (iii) the factors relating to the purchase of semi-finished goods and assembled products include historical material cost, labor costs, overheads, a handling fee which represents up to 5% of the combined labor costs and overheads, production forecast, relevant historical transaction amount and the potential business expansion.

Major factors considered as to the additional amounts for the Proposed Transactions Annual Caps:

Based on the latest available actual amounts of the transactions under the Product Sales Transaction and the Product Purchase Transaction during the period from January 1, 2017 to June 30, 2017 (both dates inclusive), transactions under such two categories have reached approximately 37% and 45% of the respective existing annual caps for the year ending December 31, 2017, coupled with the fact that based on the Company’s experience in the industry, brand companies, particularly those in the computer and consumer electronics and mobile and wireless end markets, (i) typically choose to release new product offerings in the second half of each year and (ii) tend to increase their purchases in preparation of peak sales holiday seasons.

Since the Listing, orders for certain new products of certain brand company customers of the Company were much higher than expected, as evidenced by the manufacturing forecasts received from these brand companies. The Company believes it is due to combination of (1) a stronger-than-expected demand for lightning cable, earphones and other products associated with such brand companies’ new products to be launched in second half of 2017, and (2) higher allocation of orders from brand companies placed on the

— 8 —

LETTER FROM THE BOARD

Company among their suppliers. Accordingly, there is an approximate 17% increase in the projection of Product Sales Transaction in the second half of 2017 compared with the original projection by the Company.

In light of the stronger-than-expected demand for lightning cable, earphones and other products from brand company customers described above, the Company reviewed its production strategy. The management of the Company then determined that it is beneficial to the Group to further outsource certain non-core, labor-intensive assembly processes to certain production facilities of Hon Hai Group located in Vietnam, having considered that (i) the Company can reduce production cost by leveraging the economies of scale of the large production capacity of Hon Hai Group and (ii) it can avoid increasing its internal production capacity drastically in responses to the stronger demand, which would impose risks on the Group if future demand fluctuates. It is expected that approximately 40% more of such production processes will be outsourced to certain production facilities of Hon Hai Group in Vietnam compared with the original projection by the Company, and there is an approximate 23% increase in the projection of Product Purchase Transaction in the second half of 2017 compared with the original projection by the Company.

Having considered the above reasons (which materialized largely after the Listing) and that the connector industry and its competitive landscape are highly dynamic, the Company has calculated and proposed the Proposed Transactions Annual Caps based on the best estimates of the Company and on a prudent basis.

Reasons for and Benefits in relation to the Transactions

The Company considers it in its best interests to generate more income and save cost by carrying out the Product Sales Transaction and the Product Purchase Transaction in response to the stronger-thanexpected demand for lightning cable, earphones and other products from certain brand company customers, provided that the Group sells to and purchases from Hon Hai Group at prices pursuant to the pricing policies set forth in the Framework Sales Agreement and the Framework Purchase Agreement.

In view of the above, the Directors (including the independent non-executive Directors whose view is set out in the Letter from the Independent Board Committee) consider that the Proposed Transactions Annual Caps together with the terms of the Framework Sales Agreement and the Framework Purchase Agreement are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and its Shareholders as a whole.

Internal Control

The Group has adopted the following internal control procedures over the continuing connected transactions of the Company including the Product Sales Transaction and the Product Purchase Transaction:

• Before entering into a transaction under the continuing connected transactions of the Company, the purchase departments and/or the operation departments (as the case may be) of the Group will review and check whether the pricing is fair and reasonable adhering to the pricing terms and details and, in respect of the procurement of ancillary raw materials from Hon Hai Group that is not designated by our customers, will compare the pricing to comparable third-party prices to the extent independent-third-party suppliers are available. In addition to reviewing the pricing before entering into a transaction under the continuing connected transactions of the Company where the pricing terms under the relevant agreements are applied for the first time or the pricing terms are different from those used previously, the business management department of the Group will review the aforesaid works carried out by the purchase departments and/or the operation departments (as the case may be) on a quarterly basis.

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LETTER FROM THE BOARD

• The business management department of the Company is primarily responsible for reviewing and monitoring the continuing connected transactions ensuring that the annual caps of the relevant continuing connected transactions are not exceeded and the continuing connected transactions have been conducted in accordance with the pricing policies or mechanisms under the framework agreements relating to such continuing connected transactions. The business management department of the Company will consult with the Group’s internal audit function, external lawyers and the compliance adviser in respect of continuing connected transaction compliance issues and annually report to the head of the business management department of the Company, who (in his own capacity and on behalf of the Group’s management designated for the purposes of the Group’s enterprise risk management and internal controls) will report to the audit committee of the Company and also provide a confirmation to the audit committee that the continuing connected transactions of the Company which are subject to the annual review and disclosure requirements under the Listing Rules have been entered into (a) in the ordinary and usual course of business of the Group; (b) on normal commercial terms or better; and (c) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole; and that the Group’s internal control procedures applicable to continuing connected transactions are adequate and effective to ensure that such transactions were so conducted. The audit committee will consider this accordingly.

• The Company’s external auditors will review the continuing connected transactions (which are subject to the annual review and disclosure requirements under the Listing Rules) annually to check and confirm (among others) whether the pricing terms have been adhered to and whether the relevant caps have been exceeded.

• The independent non-executive Directors will review the continuing connected transactions of the Company (which are subject to the annual review and disclosure requirements under the Listing Rules) annually to check and confirm whether such continuing connected transactions are conducted in the ordinary and usual course of business of the Group, on normal commercial terms or better, in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole, and whether the internal control procedures put in place by the Company are adequate and effective to ensure that such continuing connected transactions were conducted in accordance with the pricing policies set out in such relevant agreements.

General Information

The Group

The Group is a leading global interconnect solutions provider and one of the few global interconnect solutions providers whose offerings span wire-based, fiber-based and wireless interconnect solutions.

Hon Hai Group

Hon Hai Group is primarily engaged in the manufacture, sales and service of connectors, case, thermal module, wired/wireless communication products, optical products, power supply modules, and assemblies for use in the IT, communications, automotive equipment, precision molding, automobile, and consumer electronics industries.

— 10 —

LETTER FROM THE BOARD

Listing Rules Requirements

As of the Latest Practicable Date, the Company is indirectly owned as to 76.92% by Hon Hai, the controlling shareholder of the Company. Accordingly, Hon Hai is a connected person of the Company pursuant to Chapter 14A of the Listing Rules.

Pursuant to Rule 14A.54 of the Listing Rules, the Company should re-comply with the applicable requirements under Chapter 14A of the Listing Rules before the existing annual caps for the Product Sales Transaction and the Product Purchase Transaction for the three years ending December 31, 2019 are exceeded.

Based on the maximum amount of the Proposed Transactions Annual Caps, one or more of the relevant percentage ratios are more than 5% and the Product Sales Transaction and the Product Purchase Transaction constitute non-exempt continuing connected transactions for the Company under the Listing Rules and therefore the Proposed Transactions Annual Caps are subject to the approval of the Independent Shareholders. Hon Hai and its associates will abstain from voting on the resolution to be proposed at the extraordinary general meeting for approving the above matters. The Product Sales Transaction and the Product Purchase Transaction are also subject to the annual review requirements under Rules 14A.55 to 14A.59 of the Listing Rules.

The Board has established the Independent Board Committee to review, consider and recommend the Proposed Transactions Annual Caps and to advise the Independent Shareholders in respect thereof, and has appointed Investec as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

As none of the Directors has any material personal interest in the Product Sales Transaction and the Product Purchase Transaction, none of the Directors has abstained from voting on the board resolution to approve the Product Sales Transaction, the Product Purchase Transaction and the Proposed Transactions Annual Caps.

Recommendation

After taking into account the view of the Independent Board Committee as set out in this circular and the reasons for and benefits of the Product Sales Transaction and the Product Purchase Transaction, the Directors are of the view that the terms of the Framework Sales Agreement and the Framework Purchase Agreement and the Proposed Transactions Annual Caps are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favor of the ordinary resolutions to approve the Proposed Transactions Annual Caps at the EGM.

— 11 —

LETTER FROM THE BOARD

(II) PROPOSED PAYMENT OF 2016 FINAL DIVIDEND

As disclosed in the interim results announcement of the Company dated August 18, 2017 (the “ Interim Results Announcement ”), the Board has recommended the payment of the 2016 Final Dividend. The Company will make a further announcement as to the details of the payment of the 2016 Final Dividend in due course.

Recommendation

The Directors consider that the proposed resolution for the payment of the 2016 Final Dividend is in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favor of the ordinary resolution to approve the payment of the 2016 Final Dividend.

EGM

A notice convening the EGM to be held at 66-1, Chungshan Road, Tucheng District, New Taipei City 23680, Taiwan on Friday, October 27, 2017 at 10:00 a.m., is set out on pages 38 to 40 of this circular. At the EGM, ordinary resolutions will be proposed for the Independent Shareholders to consider and, if thought fit, to approve the Proposed Transactions Annual Caps and for the Shareholders to consider and, if thought fit, to approve the proposed payment of the 2016 Final Dividend.

The ordinary resolutions proposed at the EGM will be determined by way of poll by the Independent Shareholders relating to the Proposed Transactions Annual Caps and by the Shareholders relating to the proposed payment of the 2016 Final Dividend.

Pursuant to Rule 14A.36 of the Listing Rules, any connected person (as defined in the Listing Rules) and any Shareholder and their respective associates with a material interest (other than by virtue of being a Shareholder) in the Product Sales Transaction and the Product Purchase Transaction are required to abstain from voting at the EGM. Hon Hai and its associates who in aggregate were interested in 5,179,557,888 Shares (representing approximately 76.92% of the total number of Shares in issue) as of the Latest Practicable Date are required to and will abstain from voting at the EGM in respect of the ordinary resolution approving the Proposed Transactions Annual Caps.

A form of proxy for use in connection with the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in any event not less than 48 hours before the time of the EGM (i.e. before 10:00 a.m. on Wednesday, October 25, 2017) or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM should you so wish.

— 12 —

LETTER FROM THE BOARD

CLOSURE OF REGISTER OF MEMBERS

For the purpose of ascertaining the Shareholders’ entitlement to attend and vote at the EGM, the register of members of the Company will be closed from Tuesday, October 24, 2017 to Friday, October 27, 2017, both days inclusive, during which period no transfer of Shares will be registered. In order to qualify for attending and voting at the EGM, all transfers accompanied by the relevant share certificates must be lodged with the branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration no later than 4:30 p.m. on Monday, October 23, 2017.

GENERAL

Your attention is drawn to the letter from the Independent Board Committee, the letter from Investec, the additional information set out in the appendix to this circular and the notice of the EGM.

Yours faithfully, By Order of the Board FIT Hon Teng Limited* LU Sung-Ching Chairman of the Board

• Incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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FIT Hon Teng Limited 鴻騰六零八八精密科技股份有限公司

(Incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited)

(Stock Code: 6088)

October 12, 2017

Dear Independent Shareholders,

CONTINUING CONNECTED TRANSACTIONS PROPOSED REVISION OF ANNUAL CAPS

We refer to the circular dated October 12, 2017 of the Company (the “ Circular ”) of which this letter forms part. Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to advise you regarding the fairness and reasonableness of the Proposed Transactions Annual Caps. Investec has been appointed as the independent financial adviser to advise us and the Independent Shareholders in this regard.

Having considered the Proposed Transactions Annual Caps, and having taken into account the principal factors and reasons considered by, and the opinion of, Investec as stated in its letter dated October 12, 2017, we consider that the Proposed Transactions Annual Caps are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favor of the ordinary resolution proposed at the EGM approving the Proposed Transactions Annual Caps.

We draw the attention of the Independent Shareholders to (i) the letter from the Board; (ii) the letter from Investec; and (iii) the appendix to the Circular.

CURWEN Peter D

Yours faithfully, Independent Board Committee TANG, Kwai Chang CHAN, Wing Yuen Hubert Independent Non-executive Directors

— 14 —

LETTER FROM INVESTEC

The following is the text of the letter of advice from Investec Capital Asia Limited to the Independent Board Committee and the Independent Shareholders in relation to the continuing connected transactions contemplated under the Framework Sales Agreement and Framework Purchase Agreement (including the Proposed Transaction Annual Caps and the Proposed Purchase Annual Caps) prepared for the purpose of incorporation in this circular.

Investec Capital Asia Limited Room 3609, 36/F, Two International Finance Centre 8 Finance Street, Central, Hong Kong 香港中環金融街8號國際金融中心二期36樓3609室 Tel/電話: (852) 3187 5000 Fax/傳真: (852) 2501 0171 www.investec.com

October 12, 2017

To the Independent Board Committee and the Independent Shareholders of FIT Hon Teng Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS PROPOSED REVISION OF ANNUAL CAPS

I. INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in connection with the Framework Sales Agreement and Framework Purchase Agreement (together, the “ Framework Agreements ”), details of which are set out in the letter from the board (the “ Letter from the Board ”) contained in the circular dated October 12, 2017 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Unless otherwise stated, terms defined in the Circular have the same meanings in this letter.

As set out in the Letter from the Board, it is anticipated that the existing annual caps for the Product Sales Transaction and the Product Purchase Transaction for each of the three years ending December 31, 2019 may not be sufficient due to the stronger than expected demand for lightning cable, earphones and other products from the Group’s brand company customers. The Company has therefore proposed the Proposed Transactions Annual Caps in place of such existing annual caps.

As at the Latest Practicable Date, the Company is indirectly owned as to 76.92% by Hon Hai Group, the controlling shareholder of the Company. Accordingly, Hon Hai Group is a connected person of the Company pursuant to Chapter 14A of the Listing Rules.

Based on the maximum amount of the Proposed Transactions Annual Caps, one or more of the relevant percentage ratios are more than 5% and the Product Sales Transaction and the Product Purchase Transaction constitute non-exempt continuing connected transactions for the Company under the Listing Rules and therefore the Proposed Transaction Annual Caps are subject to the approval of the Independent Shareholders. The Product Sales Transaction and the Product Purchase Transaction are also subject to the annual review requirements under Rules 14A.55 to 14A.59 of the Listing Rules.

The Company expects to convene an extraordinary general meeting (“ EGM ”) to seek the Independent Shareholders’ approval for the Proposed Transactions Annual Caps. Hon Hai and its associates will abstain from voting on the resolution to be proposed at the EGM for approving the above matters.

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LETTER FROM INVESTEC

II. THE INDEPENDENT BOARD COMMITTEE

The Board currently consists of (i) three executive Directors, namely Mr. LU Sung-Ching (Chairman), Mr. LU Pochin Christopher and Mr. GILLESPIE William Ralph; (ii) a non-executive Director, namely Dr. CHEN Ga-Lane; and (iii) three independent non-executive Directors, namely, Mr. CURWEN Peter D, Mr. TANG, Kwai Chang and Mr. CHAN, Wing Yuen Hubert.

The Independent Board Committee comprising all the independent non-executive Directors, namely Mr. CURWEN Peter D, Mr. TANG, Kwai Chang and Mr. CHAN, Wing Yuen Hubert, has been established to advise the Independent Shareholders, and Investec has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Transactions Annual Caps.

As at the Latest Practicable Date, we were independent from and not connected with the Group in accordance with Rule 13.84 of the Listing Rules, and accordingly, are qualified to give independent advice to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Transactions Annual Caps. Save for our appointment as the Independent Financial Adviser, we did not act as an independent financial adviser to the Group under the Listing Rules in the past two years. Apart from the normal advisory fee payable to us in connection with our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, no arrangement exists whereby we shall receive any other fees or benefits from the Company.

III. BASIS OF OUR OPINION

In formulating our advice, we have relied solely on the statements, information, opinions and representations for matters relating to the Group contained in the Circular and the information and representations provided to us by the Group and/or its senior management staff (the “ Management ”) and/ or the Directors. We have assumed that all such statements, information, opinions and representations for matters relating to the Group contained or referred to in the Circular or otherwise provided or made or given by the Group and/or its senior management staff and/or the Directors and for which it is/they are solely responsible were true and accurate and valid at the time they were made and given and continue to be true and valid as at the Latest Practicable Date. We have assumed that all the opinions and representations for matters relating to the Group made or provided by the Directors and/or the Management contained or referred to in the Circular have been reasonably made after due and careful enquiry, and were true and accurate at the time they were made and continue to be so up to the date of the EGM. We have also sought and obtained confirmation from the Group and/or its Management and/or the Directors that no material facts have been omitted from the information provided and referred to in the Circular. In addition, the Company shall inform the Shareholders of any material change of information in the Circular between the Latest Practicable Date and the date of the EGM.

We consider that we have reviewed all currently available information and documents which are available to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinions. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Group and/ or its Management and/or the Directors and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We consider that we have reviewed sufficient and relevant information and documents and have taken reasonable steps as required under Rule 13.80 of the Listing Rules including the notes thereto to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, carried out an independent verification of the information provided, nor have we conducted an independent investigation into the business and affairs of the Company, Hon Hai or any of their subsidiaries or the prospects of the markets in which they respectively operate.

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LETTER FROM INVESTEC

IV. PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion on the Proposed Transactions Annual Caps, we have taken into consideration the following principal factors and reasons:

1. Background information

1.1 Information of the Group

The Group is principally engaged in (i) the manufacturing, sales and service of connectors, case, thermal module, wired and wireless communication products, optical products, power supply modules; and (ii) assembling for use in the information technology, communications, automotive equipment, precision molding, automobile and consumer electronics industries. The Group carries out its manufacturing process mainly through the production complexes located in the PRC and Vietnam, while the sales and services of the Group are principally conducted in Taiwan, Singapore, Hong Kong, the PRC and United States of America.

1.2 Historical financial performance of the Group

Set out below is a summary of (i) the unaudited consolidated financial results extracted from the Company’s interim report for the six months ended June 30, 2017 (the “ 2017 Interim Report ”); and (ii) the audited consolidated financial results as set out in the accountant’s report in the prospectus of the Company dated June 29, 2017 (the “ Prospectus ”), respectively.

	For the six months ended	For the six months ended	For the year ended	For the year ended
	June	30,	December 31,
	2017	2016	2016	2015
	(unaudited)	(unaudited)	(audited)	(audited)
	US$’000	US$’000	US$’000	US$’000
Revenue	1,379,476	1,041,666	2,880,260	2,327,902
Cost of sales	(1,132,878)	(860,778)	(2,389,850)	(1,892,662)
Gross profit	246,598	180,888	490,410	435,240
Profit before tax	91,299	29,618	211,599	209,073
Income tax expense	(23,912)	(6,065)	(43,037)	(32,057)
Profit for the period/year	67,387	23,553	168,562	177,016
Profit/(loss) attributable to:	67,387	23,553	168,562	177,016
— Owners of the Company	67,390	23,550	168,562	177,009
— Non-controlling interests	(3)	3	—	7

Based on the 2017 Interim Report, revenue of the Group increased from approximately US$1,041.7 million for the six months ended June 30, 2016 to approximately US$1,379.5 million for the six months ended June 30, 2017, representing a period-on-period increase of approximately 32.4%.

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LETTER FROM INVESTEC

Profit attributable to owners of the Company increased from approximately US$23.6 million for the six months ended June 30, 2016 to approximately US$67.4 million for the six months ended June 30, 2017, representing a period-on-period increase of approximately 185.6%. The increase was primarily attributable to the net effect of (i) the increase in revenue from mobile and wireless devices end market, communications infrastructure end market and the automotive, industry and medical end market; (ii) increase in gross profit margin; (iii) continuous improvement of the quality of the Group’s new earphone related products; (iv) higher utilisation of the Group’s production facilities; and (v) optimisation of human resources allocation which improved the Group’s efficiency.

As set out in the Prospectus, the Group recorded revenue of approximately US$2,880.3 million for the year ended December 31, 2016, representing an increase of approximately 23.7% compared to approximately US$2,327.9 million for the year months ended December 31, 2015.

Profit attributable to owners of the Company decreased from approximately US$177.0 million for the year ended December 31, 2015 to approximately US$168.6 million for the year ended December 31, 2016, representing a year-on-year decrease of approximately 5.0%. As set out in the Prospectus, the decrease was primarily attributable to, among other things, (i) a decrease in revenue from the computer and consumer electronics business from US$910.9 million for the year ended December 31, 2016 to approximately US$807.2 million, representing a decrease of approximately 11.4%; (ii) increase of the Group’s cost of sales by approximately 26.3%, from approximately US$1,892.7 million for the year ended December 31, 2015 to approximately US$2,389.9 million for the year ended December 31, 2016, which was mainly attributable to increased cost of raw materials and consumables; and (iii) the increase in distribution costs and selling expense by approximately 27.6% from approximately US$68.4 million for the year ended December 31, 2015 to approximately US$87.3 million for the year ended December 31, 2016, which was primarily attributable to the Group’s sales and marketing initiatives to engage the sales team of its newly acquired optical modules business from Avago Technologies Wireless (U.S.A.) Manufacturing Inc., and other independent third party sales agents.

1.3 Historical financial position of the Group

	As at June 30,	As at December	31,
	2017	2016	2015
	(unaudited)	(audited)	(audited)
	US$’000	US$’000	US$’000
Non-current assets	774,066	771,380	735,221
Current assets	1,885,247	1,843,319	1,531,175
Total Assets	2,659,313	2,614,699	2,266,396
Current liabilities	1,265,310	1,329,368	1,077,260
Non-current liabilities	8,653	1,347	2,579
Total liabilities	1,273,963	1,330,715	1,079,839
Total equity	1,385,350	1,283,984	1,186,557
— Equity attributable to
owners of the Company	1,385,320	1,283,951	1,186,521
— Non-controlling interests	30	33	36

— 18 —

LETTER FROM INVESTEC

As at June 30, 2017, the Group had total assets and total liabilities of approximately US$2,659.3 million and approximately US$1,274.0 million, respectively. Total equity attributable to owners of the Company increased to approximately US$1,385.3 million as at June 30, 2017 from approximately US$1,284.0 million as at December 31, 2016, representing an increase of approximately 7.9%. The aforementioned increase in total equity attributable to owners of the Company was primarily attributable the net effect of (i) the increase in inventories of approximately US$84.4 million; (ii) the decrease in trade and other receivables of approximately US$268.6 million; (iii) the increase in cash and cash equivalents of approximately US$270.6 million; (iv) the decrease in trade and other payables of approximately US$162.2 million; and (v) the increase in borrowings of approximately US$108.3 million.

2. Information on Hon Hai Group

Hon Hai Group, a limited liability company established in Taiwan in 1974, the shares of which are listed on the Taiwan Stock Exchange (Stock Code: 2317). Hon Hai Group is a controlling shareholder of the Company and is primarily engaged in (i) manufacturing, sales and service of connectors, case, thermal module, wired and wireless communication products, optical products, power supply module; and (ii) assembling for use in the IT, communications, automotive equipment, precision molding, automobile, and consumer electronics industries.

3. Global connector market overview

3.1. Global connector market and outlook

As per the Prospectus, connectors are increasingly important in the global electronic component industry and are generating higher historical and expected growth rates as compared with the global electronic component industry. Graph A below summarises the historical global connector market size in terms of revenue for the indicated periods, it shows that for the period 2010 to 2016, the market grew by a compound annual growth rate (“ CAGR ”) of approximately 3.9%.

Graph A: Global Connect Market Size by Revenue

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

60 56.9
54.2 54.5
48.9 47.6 48.5
50 45.3
40
30
20
10
0
2010 2011 2012 2013 2014 2015 2016
Source: Prospectus
US$ billions 2010–2016 CAGR: 3.9%
----- End of picture text -----

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LETTER FROM INVESTEC

The main drivers for the growth of the global connector market include but are not limited to the following, (i) increasing demand for connector content in end market devices as a result of growing 3C applications (namely, computers, communication and consumer electronics); (ii) miniaturisation of electronic devices; and (iii) an increasing number of electronic components due to increasing functionality of electronic devices, as per the Prospectus.

3.2. Major connectors end markets overview

Connector products are applied to a diverse range of end markets, including but not limited to, (i) computer and consumer electronics; (ii) mobile and wireless devices; (iii) communications infrastructure; and (iv) other applications such as automotive, industrial and others, according to the Prospectus. The table below sets out the historical global connectors market size in terms of revenue for the periods indicated:

Table A

(in US$ billions, except					CAGR
for percentages)	2010		2016		2010 to 2016
		% of		% of
End Market	US$	Total	US$	Total
Computer and consumer electronics	6.2	13.7	6.7	11.8	1.3%
Mobile and wireless devices	3.4	7.5	4.9	8.6	6.3%
Communications infrastructure	8.6	19.0	12.1	21.3	5.9%
Other end markets	27.1	59.8	33.2	55.9	3.4%
Total	45.3	100.0	56.9	100.0	3.9%

Source: Prospectus

3.2.1. Computer and consumer electronics connector end market

As set out in Table A above, demand for connectors in the computer and consumer electronics sector is expected to grow at a steady rate, illustrated by the CAGR recorded for the period 2010 to 2016 of approximately 1.3%. The factors attributable to the growth of the computer and consumer electronics connector end market are among others (i) device miniaturisation and functional integration of devices through continued innovation; and (ii) as stated in the Prospectus, greater product affordability of consumer electronic products, which may drive substantial demand for connector products.

3.2.2. Mobile and wireless devices connector end market

Based on information set out in Table A above, demand for connectors in the mobile and wireless devices sector is expected to grow at a steady rate, illustrated by the CAGR recorded for the period 2010 to 2016 of approximately 6.3%. The factors for growth in the mobile wireless devices connector end market are attributable to, among others (i) miniaturisation and wireless charging of mobile phones, in which connectors are expected to be similarly miniaturised with higher levels of precision; and (ii) the development of the mobile phone accessory market expected to create substantial demand for connector products.

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LETTER FROM INVESTEC

3.2.3. Communications infrastructure connector end market

In relation to the communications infrastructure connector end market sector, connector products are mainly applied in data centers and fiber optic transmission infrastructure. As set out in Table A above, demand for connectors in the communications infrastructure connector end market is expected to grow at a steady rate, illustrated by the CAGR recorded for the period 2010 to 2016 of approximately 5.9%. The growth of the computer and consumer electronics connector end market are attributable to, among others (i) the expansion of data centers driven by growth in data traffic and continuous need for additional data network bandwidth, as traffic increases, more data center capacities are required to be built; and (ii) cloud computing operations generates heavy demand for sensor connectors and creates market potential for innovative connectors.

3.3. Raw materials analysis

Given the customised nature of the Group’s interconnect solutions and wide spectrum of interconnect components and modules produced by the Group, a wide variety of raw materials are utilised in its production. The major raw materials for manufacturing connector products are gold salts, copper and plastic materials. Based on information set out in the Prospectus, (i) the price of gold in the PRC is forecasted to continue to decline in the coming year; (ii) general oversupply is expected to exert downward pressure on the price of copper over the foreseeable future; and (iii) the price of the primary plastic materials used in the Group’s production, polybutylene terephthalate (“ PBT ”) and polyamide (“ PA ”) are expected to decline steadily as a result of (a) enhanced capabilities of technological innovation; and (b) mass production of PRC manufacturers.

4. Reasons for and benefits of the Framework Agreements

As set out in the Letter from the Board, the Company considers it in its interests to generate more income and save cost by carrying out the Product Sales Transaction and the Product Purchase Transaction in response to the stronger-than-expected demand from certain brand company customers, provided that the Group sells to and purchases from Hon Hai Group at prices pursuant to the pricing policies set forth in the Framework Agreements.

In this connection, we have discussed with the Management and understand that the Management expects stronger demand of (i) the Group’s sale of various interconnect solutions and other related products to Hon Hai Group, including lightning cable, earphones associated with smart phone products and other related products; and (ii) the purchase of various raw materials, ancillary materials and semi-finished components and assembled products from Hon Hai Group, and such shall continue to grow as the Group’s business further develops for the three years ending December 31, 2017, 2018 and 2019.

As set out in the Prospectus, the core businesses of the Group include design, development and production of interconnect solutions and related products that provide critical functionality to computer and consumer electronics, mobile and wireless devices, communications infrastructure. The Management considered that the Group’s businesses complement Hon Hai Group’s businesses of modules comprising system boards and subassemblies, and system comprising full system assembly of electronic products, and vice versa. Such strategic partnership with Hon Hai Group, being a global electronics manufacturing service provider, uniquely positions the Group to participate in Hon Hai Group’s customised solutions and to benefit from its end market exposure and large industry footprint. Furthermore, the Group would also gain greater insight into the industry product life cycle and product demand, as well as leverage its relationships with Hon Hai Group to market its solutions to sizeable customers in broader range of applications.

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LETTER FROM INVESTEC

In view of the above and that the Management envisages the Group shall further develop its principal businesses and that the existing annual caps related the transactions contemplated under the Framework Agreements may not be sufficient to meet the demand for the forthcoming transactions with Hon Hai Group. As such, the Proposed Transactions Annual Caps have been proposed with a view to avoid undue delay when the Company engages Hon Hai Group (or vice versa) for the transactions contemplated under the Framework Agreements, which would otherwise require the Company to seek the approval of Independent Shareholders in a general meeting for each specific instance.

Based on the aforesaid, as well as (i) the Group’s financial performance for the years ended December 31, 2015 and 2016 and the six months ended June 30, 2017 as set out under the earlier section headed “1. Historical financial performance of the Group” in this letter; (ii) the strategy of the Group to solidify its position as a global leader in the development and production of interconnect solutions and related products; (iii) the industry outlook as set out under the earlier section headed “3. Global connector market overview” in this letter; (iv) the expected upcoming demand of various interconnect solutions and other related products of Hon Hai Group and the increase in demand in various raw materials, ancillary materials and semi-finished components and assembled products from Hon Hai Group; and (v) the Framework Agreements (together with the Proposed Transactions Annual Caps) shall facilitate the transactions between the Company and the relevant connected parties; however, it is an option but not an obligation nor commitment of the Group to (a) provide interconnect solutions or other related products to Hon Hai Group; or (b) purchase various materials from Hon Hai Group, we concur with the Directors’ view that the each of the Framework Agreements and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole.

5. Terms of the Framework Agreements

The background and the principal terms of the Framework Agreements are summarised below:

5.1. Framework Sales Agreement

Set out below are principal terms of Framework Sales Agreement and the pricing policy based on the Prospectus and the Letter from the Board.

Parties: Hon Hai (as the purchaser) and the Group (as the supplier) Principal Terms: Pursuant to the Framework Sales Agreement, Hon Hai Group may purchase various interconnect solutions and other related products from the Group. Such transactions mainly represent sales to Hon Hai Group as contract manufacturers, of which more than 50% are designated by the top five brand companies1 who are the primary decision makers when such sales are made. Reasons for Hon Hai Group is one of the leading contract manufacturers that the transaction: are involved among others in assembling the finished products for brand companies, many brand companies often require the Group’s manufacturer customers, such as Hon Hai group, to purchase the relevant parts and components, include the Group’s interconnect solutions, from specific approved suppliers like the Group, as part of the assembly process for better quality control and over supply chain management. As a result, the cooperation arrangement between the Group and Hon Hai Group is mutually complementary.

1 As advised by the Management, the top five brand company were determined based on the size of revenue derived by the Group for the relevant period.

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LETTER FROM INVESTEC

Pricing Policy:

For the sales to Hon Hai Group that are designated by the Group’s brand company customers, the selling prices of its customised interconnect solutions and other products are negotiated and determined between the Group and its brand company customers.

For other sales to Hon Hai Group where selling prices were not designated by the Group’s customers (“ Connected Sales ”), the selling prices are determined by referencing the blending profit margin, which is the difference between revenue generated from such sales and historical cost allocated thereto for the preceding month, divided by the corresponding revenue, to that of sales to independent third parties (“ Third Party Sales ”), on a rolling basis, such that the differences in the blended profit margins between Connected Sales and Third Party Sales in each fiscal year shall not be more than 6.5% having considered the long-term business relationship, large sales volume to Hon Hai Group, and the strategic partnership with Hon Hai Group.

The “blended profit margin” is calculated by dividing blended gross profit by revenue from customers during a specific period. Blended gross profit is calculated by aggregating the revenue generated from specific customers less the historical unit cost allocated to such sales for the preceding month multiplied by number of units sold. The Company will calculate the blended gross margin for Connected Sales and for Third Party Sales, respectively, and compare the two to determine whether the difference exceeds 6.5%.

Based on the Group’s long-term industry experience, the Group believes it is industry practice to (i) grant large customers volume discounts; (ii) give long-term customers with repeated sales and sustainable business price discounts as this would incur lower negotiation, coordination and logistics costs and subject the Group to lower exposure to credit risks, as compared to dealing with new customers; and (iii) offer better pricing terms to customers with long-term strategic value to the Group. Having considered that (a) Hon Hai Group accounted for approximately 43.9%, 37.0% and 23.0% of the Groups revenue in 2014, 2015 and 2016 respectively and the relative magnitude of such amounts vis-à-vis revenue contribution from the other customers; (b) the Group’s long-term business relationship cooperation with Hon Hai Group since inception, which the Group believes subject itself to minimal credit risk as compared to other third party customers; and (c) being part of the ecosystem of Hon Hai Group brings the Group significant strategic value, and the Directors are of the view that the 6.5% capped difference in the blended profit margin is under normal commercial terms, fair and reasonable, and in the interests of the Shareholders as a whole. As disclosed in the Prospectus, it is a typical industry practice for connector manufacturers to offer discount to customers with significant revenue contributions, representing gross profit margin concession in the range of 5% and 10%.

LETTER FROM INVESTEC

5.2. Framework Purchase Agreement

Set out below are principal terms of Framework Purchase Agreement and the pricing policy as set out in the Prospectus and the Letter from the Board.

Parties:

The Group (as the customer) and Hon Hai (as the supplier)

Principal Terms:

Pursuant to the Framework Purchase Agreement, the Group may purchase from Hon Hai Group various raw materials, ancillary materials and semi-finished components and assembled products under the following three procurement models.

Model One

Purchase of gold salts from Hon Hai Group as the Group’s raw materials;

Model Two

Purchase of ancillary materials from Hon Hai Group; and

Model Three

Purchase of semi-finished components and assembled products from Hon Hai Group to whom the Group provides certain raw materials and components for their production of semi-finished components and assembled products.

Reasons for the transaction:

Model One

Gold salts, one of the major raw materials, is a hazardous material allowed to be sold only by licensed suppliers in the PRC. Hon Hai Group is one of the licensed suppliers and have been suppliers of the Group. In addition, due to Hon Hai Group’s economies of scale, the processing fees are generally competitive when compared with other suppliers.

Model Two

The Group purchases certain ancillary materials from Hon Hai Group, either as approved suppliers designated by the Group’s customers or due to Hon Hai Group’s competitive prices compared to other suppliers.

Model Three

In order to enhance the Group’s production efficiency and manage its production cost, the Group from time to time engages Hon Hai Group, for certain labour-intensive production processing of its interconnect solutions and certain other products. Hon Hai Group has been a long-term supplier of manufacturing vendor services of the Group with the expertise to manage a large workforce.

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LETTER FROM INVESTEC

Pricing Policy:

Model One

For the Group’s procurement of gold salts, the commodity spot prices represent the majority of the Group’s purchase prices, with the remainder being processing fees. The Group will obtain and compare fee proposals provided by Hon Hai Group and independent third party suppliers on a quarterly basis to the extent practicable.

As a risk control measure, the Group will procure gold salts from more than one supplier, but will allocate at least 70% annual purchase from the supplier with the lowest fee quote. As set out in the Letter from the Board, the procurement department of the Company ensures compliance of the 70% threshold by placing orders for the first three weeks of each month with its gold salts supplier with the lowest quote. It also prepares a monthly report of actual purchase amounts for Management’s review as to compliance of the 70% threshold.

Model Two

For the Group’s procurement of ancillary raw materials, the Group’s purchase prices are, when designated by its customers, the prices between Hon Hai Group and the Group’s customers, or determined with reference to comparable third-party prices to the extend independent-third-party suppliers are available.

Model Three

Under the framework purchase agreement, the purchase prices of the Group’s semi-finished goods and assembled products are determined based on (a) Hon Hai Group’s purchase prices of raw materials supplied by the Group, (b) Hon Hai Group’s purchase of other raw materials, (c) Hon Hai Group’s labour costs and overheads and (d) handling fees up to 5% of relevant labour cost and overheads.

6. Internal control procedures and pricing basis

6.1. Product Sales Transaction

We understand from the Management that the terms of the Product Sales Transactions are pursuant to the Framework Sales Agreement. In terms of pricing basis, Product Sales Transactions can broadly be divided into two types. For sales to Hon Hai Group that are designated by the Company’s brand company customers, the relevant price is negotiated and determined between the Company’s brand company customers and the Company (the “ Designated Product Sales ”). For other sales to Hon Hai Group where selling prices were not designated by the Company’s customers (i.e. the “ Connected Sales ”), the relevant price is determined by referencing the blended profit margin, which is the difference between revenue generated from such sales and historical cost allocated thereto for the preceding month, divided by the corresponding revenue, to that of sales to independent third parties (the “ Third Party Sales”) , on a rolling basis, such that the differences in the blended profit margins between Connected Sales and Third Party Sales in each fiscal year shall not be more than 6.5% having considered the long-term business relationship, large sales volume to Hon Hai Group, and the strategic partnership with Hon Hai Group.

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LETTER FROM INVESTEC

As disclosed in the Letter from the Board, an internal control measure for compliance with the 6.5% threshold, the Management of the Company reviews and monitors whether the difference exceeds the 6.5% threshold, at least on a quarterly, basis, and takes appropriate measures to ensure compliance from time to time based on the review results. If the Management determines that there is a risk for exceeding 6.5% threshold on an annual basis, it will increase the frequency of review as appropriate and take further to ensure compliance.

To assess the reasonableness of the Designated Product Sales, we have reviewed sales samples with independent third parties and with Hon Hai Group that are designated by the Company’s brand company customers, at the price negotiated and determined between the Company’s brand company customers and the Company, and compared the unit price of the sales samples.

To assess the reasonableness of the Connected Sales where selling prices were not designated by the Company’s customers, we have obtained from the Management sales transaction samples for various products (identifiable through their internal assigned product code). Based on information as per the sales orders recorded in the Company’s enterprise resource planning system and/or customers’ purchase orders, we then compared the unit price of the sampled sales transactions with Hon Hai Group against those with independent third parties.

Furthermore, we have also compared the overall gross margin derived from sales transactions with the connected parties against that of those with independent third parties for the 2017 first quarter and 2016 second half of the year provided by the Management and noted that the overall gross margin of the sales transactions with the connected parties and with independent third parties are in line.

Based on (i) our review of the Group’s relevant internal procedures (including the pricing policies) in connection with the Framework Sales Agreement; (ii) our review of 12 sample transactions (with connected persons and independent third parties) as provided by the Management, most of which were conducted relatively recent in 2017, given the Company is recently listed; (iii) the samples reviewed covered both types of Product Sales Transactions, namely, Designated Product Sales and Connected Sales as well as a range of product types, including connectors used in servers, connectors for desktop use and lightning cables, respectively; (iv) our additional work which include reviewing the overall gross margin for the second half of 2016 and first quarter of 2017 derived from sales transactions with the connected parties and with independent third parties are in line with each other on top of reviewing and comparing individual transactions; and (v) the Management’s confirmation that no material breach to the terms of the Framework Sales Agreement (including the pricing basis set out therein) were recorded since the Company’s listing, we are of the view that the coverage of the sample transactions together with the review of the overall gross margin derived from sales transactions with the connected parties and with independent third parties, is sufficient to support our view that the terms of Product Sales Transaction are fair and reasonable.

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LETTER FROM INVESTEC

6.2. Product Purchase Transaction

We understand from the Management that the pricing basis of the Product Purchase Transactions can broadly be divided into three categories, namely, the procurement of (i) gold salts; (ii) ancillary raw materials; and (iii) semi-finished goods and assembled products. In addition, for the procurement of ancillary raw materials, the Management advised that there are two types of transactions, namely, (i) no designation by the customer on suppliers and that the Group is free to source its raw materials from any of its suppliers, whether it is an independent third party or connected party (the “ Non-designated Supplier Transactions ”); and (ii) the customer has designated supplier(s) of which the Group must source its raw materials from (the “ Designated Supplier Transactions ”).

In this connection, the Group has adopted different internal control procedures (including pricing policies) to cater for each of the aforesaid Product Purchase Transaction categories, as well as for Non-designated Supplier Transactions and Designated Supplier Transactions.

The relevant pricing basis pursuant to the Framework Purchase Agreement (as set out in the Prospectus and/or the Letter from the Board) has been summarised below:

Procurement of: Pricing policy Gold salts The Group will obtain and compare fee proposals provided by Hon Hai Group and independent third party suppliers on a quarterly basis to the extent practicable. Purchases shall be at the price equivalent to the sum of the commodity spot prices and the processing fees. Please refer to “Pricing policy” under paragraph headed “5.2 Framework Purchase Agreement” for risk control measure. Ancillary Designated Supplier Transactions: Non-designated Supplier raw materials Transactions: At the price agreed between Hon Hai Group and the Group’s customers At the price determined with reference to comparable third-party prices to the extent independent-thirdparty suppliers are available Semi-finished goods At the price determined based on (a) Hon Hai Group’s purchase prices of and assembled raw materials supplied by the Group; (b) Hon Hai Group’s purchase prices of products other raw materials; (c) Hon Hai Group’s labor costs and overheads; and (d) handling fees up to 5% of relevant labor cost and overheads.

To assess the purchase transactions in relation to the procurement of gold salts, we have reviewed samples obtained from the Management. Based on the sampled purchase transactions (with Hon Hai Group and independent third parties), we noted that the purchase price was determined with reference to the pricing policy stated, and that the terms of the reviewed purchase transactions with Hon Hai Group were in line with that of the transactions with the independent third parties.

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LETTER FROM INVESTEC

For the procurement of ancillary raw materials, we have reviewed samples of both Designated Supplier Transactions and Non-designated Supplier Transactions. For Designated Supplier Transactions, we have discussed with the Management, reviewed documents provided by the Management including purchase orders and correspondences as well as continuing connected transactions internal control procedures. In addition, we have reviewed purchase samples with Hon Hai Group and compared the unit price of the purchase samples. Similarly, for the Non-designated Supplier Transactions, we have also reviewed purchase samples (with Hon Hai Group and independent third parties) and compared the unit price of the purchase samples. As advised by the Management, the Company determines the price of Non-designated Supplier Transactions through the comparison of price quotations provided by independentthird party suppliers and Hon Hai Group. The Company has provided and we have reviewed the price quotations of purchase samples, and consider price determination process to be in-line with the pricing policy of the Framework Purchase Agreement. Based on the samples reviewed, the Designated Supplier Transactions and Non-designated Supplier Transactions are in line with the pricing policy under the Framework Purchase Agreement.

For the procurement of semi-finished goods and assembled products, based on the sampled purchase transactions and information obtained from the Management, which sets out the breakdown of raw material costs, relevant production costs and margin on production costs, we noted that the purchase price of the sampled transactions were in line with the pricing policy stated, namely at the price determined based on (i) Hon Hai Group’s purchase prices of raw materials supplied by the Group; (ii) Hon Hai Group’s purchase prices of other raw materials; (iii) Hon Hai Group’s labor costs and overheads; and (iv) handling fees up to 5% of relevant labor cost and overheads. The Management advised that given the unique nature of the semifinished goods and assembled products, there were no third party transactions with comparable products. On this basis, we applied the gross margin of the Hon Hai Group for the year ended December 31, 2016 and the six month period ended June 30, 2017, being approximately 7.2% and 7.1%, respectively, based on the published financial statements of Hon Hai Group, to assess the reasonableness of the handling fees of up to 5% under (iv) above, which the Management considered to be a profit margin for Hon Hai Group. The handling fees of up to 5% is lower than the gross margin of Hon Hai Group for the year ended December 31, 2016 and for the six month period ended June 30, 2017 as set out above. Based on the foregoing, we are of the view that the pricing for the sampled purchase transaction under the procurement of semi-finished goods and assembled products is reasonable.

Based on (i) our review of the Group’s relevant internal procedures (including the pricing policies) in connection with the Framework Purchase Agreement; (ii) our review of 24 sample transactions (with connected persons and independent third parties) as provided by the Management, most of which were conducted relatively recent in 2017, given the Company is recently listed; (iii) the samples reviewed covered each type of Purchase Product Transactions, namely, procurement of (a) gold salts; (b) ancillary raw materials; and (c) semi-finished goods and assembled products; (iv) the samples reviewed also covered not less than 11 connected suppliers and independent third party suppliers (in aggregate) of the relevant products; and (v) the Management has confirmed that no material breach to the terms of the Framework Purchase Agreement (including the pricing basis set out therein) was recorded since the Company’s listing, we are of the view that the coverage of the sample transactions is sufficient to support our that the terms of Product Purchase Transaction are fair and reasonable.

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LETTER FROM INVESTEC

7. Basis for determining the Proposed Transaction Annual Caps

As set out in the Letter from the Board, the actual transaction amounts of the Product Sales Transaction and Product Purchase Transaction were as follows:

	For the	For the	For the
	year ended	year ended	year ended
	December 31,	December 31,	December 31,	For the six month
(in US$ millions)	2014	2015	2016	ended June 30, 2017
Product Sales	1,090.5	861.7	661.1	349.9
Transaction				(the “2017 H1 Product
				Sales Transaction
				Amount”)
Product Purchase	232.4	304.9	398.5	194.0
Transaction				(the “2017 H1 Product
				Purchase Transaction
				Amount”)

7.1. Proposed Sales Annual Caps

The Proposed Sales Annual Caps for the three years ending December 31, 2017, 2018 and 2019 are as follows:

	For the	For the	For the
	year ending	year ending	year ending
	December 31,	December 31,	December 31,
(in US$ millions)	2017	2018	2019
Product Sales Transaction	1,008.8	1,116.6	1,309.1

We have discussed with the Management and understand that the Proposed Sales Annual Cap for the year ending December 31, 2017 is primarily based on (i) the 2017 H1 Product Sales Transaction Amount for the six months ended June 30, 2017 amounted to approximately US$349.9 million, which already represented approximately 34.7% of the Proposed Sales Annual Cap for the year ending December 31, 2017; and (ii) new orders placed and/or expected to be placed with the Group for the six months period from July 1, 2017 to December 31, 2017 is in excess of US$600 million. In connection with the new orders placed and/or expected to be placed with the Group for the six months period from July 1, 2017 to December 31, 2017, we have reviewed a forecast sales order schedule prepared by the Management setting out, among others, expected sizeable sales to Hon Hai Group with amount exceeding US$10 million, which are mainly related to 11 entities of the Hon Hai Group, one of which is expected to exceed US$110 million and two others are expected to exceed US$60 million but be below US$80 million, the total sales amount to these 11 connected parties during for the second half of 2017 is expected to exceed US$430 million. These sales, which will be conducted pursuant to the terms of the Framework Sales Agreement, are expected to involve a range of products, including but not limited to, antennas, cables, components, connectors, ear phones, metal parts, power jacket connectors and USB. While the PRC is the main delivery destination, Vietnam and Taiwan are also among the delivery destinations. (the “ 2017 H2 Sales Order Schedule ”).

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LETTER FROM INVESTEC

As set out in the Prospectus, the Group derived approximately 23.0% to 43.9% of its revenue from Hon Hai Group during the three years ended December 31, 2014, 2015 and 2016. Based on the 2017 Interim Report, the 2017 H1 Product Sales Transaction Amount represented approximately 25.4% of the Group’s revenue, which is in line with the historical proportion of revenue derived from Hon Hai Group by the Group.

In addition, we also reviewed the year-on-year increase for the Proposed Sales Annual Caps and noted that the Proposed Sales Annual Caps for the year ending December 31, 2018 and 2019 represented a year-on-year increase of approximately 10.7% and 17.2%, respectively.

Having considered that (i) it is the Group’s business strategy to solidify its position as a global leader in the development and production of interconnect solutions and related products; (ii) the Company intends to further develop its long-term business cooperation with Hon Hai Group and that a portion of the sales to Hon Hai Group are designated by the Company’s brand company customers; (iii) the Group has witnessed increasing sales of interconnect solutions utilised in the new smartphone products released by a brand company customer as well as in the earphones associated with such smartphone products as set out in the 2017 Interim Report; (iv) the 2017 H1 Product Sales Transaction amount for the six months ended June 30, 2017 already represented approximately 34.7% of the Proposed Sales Annual Cap for the year ending December 31, 2017; (v) the relevant sales order information as set out under the 2017 H2 Sales Order Schedule as prepared by the Management; (vi) the Group’s revenue for the year ended December 31, 2016 recorded a year-on-year increase of approximately 23.7% as per the Prospectus; (vii) the Group’s revenue for the six months ended June 30, 2017 represented an increase of approximately 32.4% compared to the Group’s revenue recorded for the six months ended June 30, 2016 as per the 2017 Interim Report; and (viii) the Group’s revenue historically increased by approximately 23.7% and 32.4% (as set out under (vi) and (vii) above), both of which are notably higher than the year-on-year increase in Proposed Sales Annual Caps for the year ending December 31, 2018 and 2019 which represented approximately 10.7% and 17.2%, respectively, we consider that the basis for the Proposed Sales Annual Caps is fair and reasonable.

7.2. Proposed Purchase Annual Caps

The Proposed Purchase Annual Caps for the three years ending December 31, 2017, 2018 and 2019 are as follows:

	For the	For the	For the
	year ending	year ending	year ending
	December 31,	December 31,	December 31,
(in US$ millions)	2017	2018	2019
Product Purchase Transaction	508.5	585.4	620.3

The Management advised that the Proposed Purchase Annual Cap for the year ending December 31, 2017 is primarily determined with reference to the following (i) the 2017 H1 Product Purchase Transaction amount for the six months ended June 30, 2017 represented approximately 38.2% of the Proposed Purchase Annual Cap for the year ending December 31, 2017; and (ii) new orders placed and/or expected to be placed by the Group to Hon Hai Group for the six months period from July 1, 2017 to December 31, 2017 is in excess of US$290 million. For the new orders placed and/or expected to be placed by the Group to Hon Hai Group for the six months period from July 1, 2017 to December 31, 2017, we have reviewed

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LETTER FROM INVESTEC

a forecast purchase order schedule prepared by the Management setting out, among others, expected sizeable purchases from Hon Hai Group with amount exceeding US$5 million, which are mainly related to four entities of Hon Hai Group, one of which is expected to exceed US$215 million, and the purchases from the other three are expected to be between US$9 million and US$15 million, and the total purchase amount from these four connected parties during the second half of 2017 is expected to exceed US$250 million. These purchases, which will be conducted pursuant to the terms of the Framework Purchase Agreement, are expected to involve a range of materials, including but not limited to, cable, gasket face plate, heat sink, gold salt, raw material for ear phones and other ancillary materials for wires (the “ 2017 H2 Purchase Order Schedule ”).

Based on information as set out in the Prospectus, approximately 11.6% to 16.7% of the Group’s cost of sales was attributable to the Product Purchase Transaction during the three years ended December 31, 2014, 2015 and 2016. Based on the 2017 Interim Report, the 2017 H1 Product Purchase Transaction Amount represented approximately 17.1% of the Group’s cost of sales, which is marginally higher than the top range of the historical proportion of the cost of sales of the Group attributable to the Product Purchase Transaction.

In addition, we also reviewed the year-on-year increase for the Proposed Purchase Annual Caps and noted that the Proposed Purchase Annual Caps for the year ending December 31, 2018 and 2019 represented a year-on-year increase of approximately 15.1% and 6.0%, respectively.

Having considered that (i) the Group’s business strategy is to solidify its position as a global leader in the development and production of interconnect solutions and related products; (ii) the Company intends to further develop its long-term business cooperation with Hon Hai Group and that from time to time, customers of the Group may designate Hon Hai Group as the supplier of certain raw materials; (iii) the Group’s revenue and cost of sales for the year ended December 31, 2016 recorded a year-on-year increase of approximately 23.7% and 26.3%, respectively, as per the Prospectus; (iv) the Group’s revenue and cost of sales for the six months ended June 30, 2017 represented an increase of approximately 32.4% and 31.6% compared to the corresponding six months ended June 30, 2016 as per the 2017 Interim Report; (v) the 2017 H1 Product Purchase Transaction Amount for the six months ended June 30, 2017 already represented approximately 38.2% of the Proposed Purchase Annual Cap for the year ending December 31, 2017; (vi) the relevant purchase information is set out under the 2017 H2 Purchase Order Schedule as prepared by the Management; and (viii) the Group’s historical cost of sales increased by approximately 26.3% and 31.6% (as set out under (iii) and (iv) above), which are both notably higher than the year-on-year increase in Proposed Purchase Annual Caps for the year ending December 31, 2018 and 2019 of approximately 15.1% and 6.0%, respectively, we consider that the basis for the Proposed Purchase Annual Caps is fair and reasonable.

Shareholders should note that the Proposed Transactions Annual Caps represent estimates by the Group based on the information currently available and that such should not be construed as the actual transaction amounts between the Group and the Hon Hai Group for the three years ending December 31, 2017, 2018 and 2019. Shareholders should also be aware that the actual utilisation and sufficiency of the Proposed Transactions Annual Caps would depend on a host of factors, including but not limited to, whether the Group conducts the Product Sales Transaction and the Product Purchase Transaction, the progress of entering into the subject contracts and the size and scope of the subject contracts. In this regard, we understand from the Management that the Company will actively monitor the progress and utilisation of the Proposed Transactions Annual Caps to ensure compliance with the Listing Rules from time to time.

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LETTER FROM INVESTEC

V. RECOMMENDATION

Having considered the factors as set out in this letter above, in particular, (i) the reasons for and benefits of the Framework Agreements; (ii) our review as detailed under the section headed “6. Internal control procedures and pricing basis”; (iii) our work performed in connection with the Proposed Transactions Annual Caps as set out under paragraphs headed “7.1 Proposed Sales Annual Caps” and “7.2 Proposed Purchase Annual Caps”, respectively; and (iv) our view that the basis for the Proposed Transactions Annual Caps is fair and reasonable, we are of the view that the transactions contemplated under the Framework Agreements are in the ordinary and usual course of business of the Group and on normal commercial terms and in the interests of the Company and the Shareholders as a whole, and the terms of such transactions (including the Proposed Transactions Annual Caps of the underlying transactions) are fair and reasonable so far as the Shareholders are concerned. Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution to approve the Product Sales Transaction, the Product Purchase Transaction and the Proposed Transactions Annual Caps at the EGM.

Yours faithfully For and on behalf of Investec Capital Asia Limited Lewis Lai Managing Director Corporate Finance

Mr. Lewis Lai of Investec Capital Asia Limited is a responsible officer of Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO. He has been active in the field of corporate finance advisory for over 10 years, and has been involved in and completed various corporate finance advisory transactions.

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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 Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Interests of Directors and chief executive of the Company

As of the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under the provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which had otherwise been notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”), were as follows:

Long positions in the Shares as of the Latest Practicable Date

		Number of	Approximate
	Capacity and	ordinary	percentage of
Name of Directors	nature of interest	shares held	shareholding
LU Sung-Ching 1	Beneficial owner	95,720,000	1.42%
LU Pochin Christopher	Beneficial owner	12,512,000	0.19%
CHEN Ga-Lane	Beneficial owner	2,400,000	0.04%

Note:

1. Mr. Lu is also interested in 349,440,000 Shares under the Share Grant Scheme.

Save as disclosed above, as of the Latest Practicable Date, none of the Directors or chief executive of the Company had any interest or short position in the shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which had otherwise been notified to the Company and the Stock Exchange pursuant to the Model Code.

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APPENDIX — GENERAL INFORMATION

(b) Interests of substantial Shareholders

As of the Latest Practicable Date, according to the register kept by the Company pursuant to Section 336 of the SFO and, so far as was known to the Directors or chief executive of the Company, the persons or entities, other than a Director or chief executive of the Company, who had an interest or a short position in the shares or the underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company or any other company which is a subsidiary of the Company, or in any options in respect of such share capital were as follows:

Long positions in the Shares as of the Latest Practicable Date

			Number of	Approximate
	Capacity and		ordinary	percentage of
Name of Shareholders	nature of interest		shares held	shareholding
Hon Hai	Interest in		5,179,557,888	76.92%
	controlled
	corporation	1
Foxconn Far East Cayman	Interest in		5,179,557,888	76.92%
	controlled
	corporation	2
Foxconn Far East Hong Kong	Beneficial owner		5,179,557,888	76.92%

Notes:

1. Hon Hai holds the entire issued share capital of Foxconn Far East Cayman, which in turn holds the entire issued share capital of Foxconn Far East Hong Kong.

2. Foxconn Far East Cayman holds the entire issued share capital of Foxconn Far East Hong Kong, which in turn holds 5,179,557,888 Shares of the Company.

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

As of the Latest Practicable Date, Dr. Ga-Lane Chen, a non-executive Director, is the Chief Investment Officer and the Chief Technology Officer of the Hon Hai Group.

Save as disclosed above, as of the Latest Practicable Date, none of the director of the Company is a director or employee in Hon Hai, Foxconn Far East Cayman or Foxconn Far East Hong Kong.

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APPENDIX — GENERAL INFORMATION

(c) Directors’ or chief executive’s rights to acquire interests or short positions in Shares and debentures

The Share Grant Scheme was approved and adopted by the Board on January 5, 2015, and the Board further adopted the rules and interpretations thereof on November 4, 2016.

Details of the interests of the Directors in the Share Grant are set out below.

Name of Director	Date of grant	Number of Share Grant
LU Sung-Ching	January 5, 2015	349,440,000
GILLESPIE William Ralph	January 18, 2016	1,632,000

Save as disclosed above, as of the Latest Practicable Date, none of the Directors or chief executive of the Company or their respective spouse or minor children were granted any rights to acquire benefits by means of acquisition of the Shares in or debentures of the Company or any other body corporate; nor was the Company, its subsidiaries or holding company or any of its subsidiaries a party to any arrangement to enable the Directors or chief executive of the Company to acquire such rights in the Company or any other body corporate.

3. DISCLOSURE OF OTHER INTERESTS

(a) Interests in contract or arrangement

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

(b) Interests in assets

As of the Latest Practicable Date, none of the Directors had any direct or indirect interest 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 December 31, 2016, being the date to which the latest published audited accounts of the Group were made up.

(c) Interests in competing business

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

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APPENDIX — GENERAL INFORMATION

4. QUALIFICATION OF EXPERT

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

Name

Qualification

• Investec a licensed corporation under the SFO to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities

5. CONSENT

Investec 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 respectively appear herein.

6. MATERIAL ADVERSE CHANGE

As of the Latest Practicable Date, save as disclosed in the interim results announcement of the Company for the six months ended 30 June 2017 published on 18 August 2017, the Directors are not aware of any material adverse change in the financial or trading position of the Group since December 31, 2016, being the date to which the latest published audited financial statements of the Group were made up.

7. MISCELLANEOUS

• (a) None of the Directors has entered into a service contract with the Company which does not expire or which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

• (b) As of the Latest Practicable Date, Investec was not beneficially interested in the share capital of any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group. As of the Latest Practicable Date, none of the Directors or Investec had any interest, either directly or indirectly, in any assets which have been, since December 31, 2016 being the date to which the latest published audited financial statements of the Company were made up, 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.

• (c) The branch share registrar of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited.

• (d) The principal share registrar of the Company is Conyers Trust Company (Cayman) Limited.

• (e) The English text of this circular shall prevail over the Chinese text, in case of any inconsistency.

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APPENDIX — GENERAL INFORMATION

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the Framework Sales Agreement and the Framework Purchase Agreement are available for inspection during normal business hours at 36/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong from the date of this circular to the date of the EGM (both dates inclusive) and also at the EGM.

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NOTICE OF EGM

==> picture [105 x 61] intentionally omitted <==

FIT Hon Teng Limited 鴻騰六零八八精密科技股份有限公司

(Incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited)

(Stock Code: 6088)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the shareholders of FIT Hon Teng Limited (the “ Company ”) will be held at 66-1, Chungshan Road, Tucheng District, New Taipei City 23680, Taiwan on Friday, October 27, 2017 at 10:00 a.m., for the following purposes:

1. To consider and, if thought fit, passing (with or without modifications) the following ordinary resolutions:

“THAT

• (a) the proposed sales annual caps as set out in the circular of the Company dated October 12, 2017 in respect of the transactions contemplated under the framework sales agreement entered into between the Company and Hon Hai Precision Industry Co. Ltd. (“ Hon Hai ”) on November 9, 2016 (the “ Product Sales Transaction ”) for the three years ending December 31, 2019 be and are hereby approved, confirmed and ratified in all respects;

• (b) the proposed purchase annual caps as set out in the circular of the Company dated October 12, 2017 in respect of the transactions contemplated under the framework purchase agreement entered into between the Company and Hon Hai on November 9, 2016 (as amended by the supplemental agreement dated June 26, 2017) (the “ Product Purchase Transaction ”) for the three years ending December 31, 2019 be and are hereby approved, confirmed and ratified in all respects; and

• (c) any one director of the Company, or any two directors of the Company if affixation of the Company’s common seal is necessary, be and is/are hereby authorized for and on behalf of the Company to execute and deliver (and affix the Company’s common seal to, if necessary) all such documents, instruments or agreements and to do all such other acts or things which he/they may in his/their absolute discretion consider necessary or desirable in connection with or incidental to any of the matters contemplated under the Product Sales Transaction and the Product Purchase Transaction for a term up to December 31, 2019 and/ or the said annual caps.”

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NOTICE OF EGM

1. To declare and pay a final dividend of HK$0.047 per ordinary share of the Company (“ Share(s) ”) for the year ended December 31, 2016.

By Order of the Board FIT Hon Teng Limited* LU Sung-Ching Chairman of the Board

Hong Kong, October 12, 2017

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Headquarters in Taiwan: 66-1, Chungshan Road Tucheng District New Taipei City 23680 Taiwan

Principal Place of Business in Hong Kong: 36/F, Tower Two Times Square 1 Matheson Street Causeway Bay Hong Kong

Notes:

• (a) As set out in the circular of the Company dated October 12, 2017, the register of members of the Company will be closed from Tuesday, October 24, 2017 to Friday, October 27, 2017, both dates inclusive, during which period no transfer of Shares will be registered. In order to be entitled to attend and vote at the extraordinary general meeting, all transfers of Shares accompanied by the relevant share certificates and properly completed and signed transfer forms must be lodged with the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong for registration no later than 4:30 p.m. on Monday, October 23, 2017.

• (b) Any member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need not be a member of the Company. If more than one proxy is appointed, the appointment shall specify the number of Shares in respect of which each such proxy is appointed.

• (c) Form of proxy together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power or authority, must be lodged with the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, not less than 48 hours before the time appointed for holding of the extraordinary general meeting (i.e. before 10:00 a.m. on Wednesday, October 25, 2017) or any adjourned meeting.

• (d) In accordance with Chapter 14A of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”), Hon Hai Precision Industry Co., Ltd., the controlling shareholder of the Company, and its associates (as defined in the Listing Rules) are required to abstain from voting on the ordinary resolution numbered 1.

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NOTICE OF EGM

• (e) The board of directors of the Company has recommended the payment of a final dividend of HK$0.047 per Share for the year ended December 31, 2016. The Company will make a further announcement as to the details of the payment of the final dividend in due course.

• (f) The ordinary resolutions set out above will be determined by way of poll.

• Incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited

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