FIYTA Precision Technology Co., Ltd. — Interim / Quarterly Report 2006

Aug 11, 2006

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深圳市飞亚达（集团）股份有限公司

SHENZHEN FIYTA HOLDINGS LTD. 2006 Semiannual Report (Full Text)

August 11, 2006

Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Important

The Board of Directors and directors of the Company hereby confirm that there are no important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individually and/or jointly, for the authenticity, accuracy and completion of the whole contents.

This annual report is prepared in both Chinese and English. Should there be any difference in understanding of the two versions, the Chinese version shall prevail.

All the directors attended the Board meeting.

The financial report to this 2006 Semiannual Report has not yet been audited.

Mr. Wu Guangquan, the Chairman of the Board, Mr. Xu Dongsheng, the Managing Director, Mr. Li Dehua, Deputy General Manager and Chief Financial Officer and Mr. Hu Xinglong, Manager of the Financial Department, hereby ensure the accuracy and completeness of the financial report enclosed in this semiannual report.

Except that the Financial Report (Section 6) of the English version is drawn up according to the Auditors' Report as prepared in accordance with International Financial Report Standards, all financial data are based on Chinese Accounting Standards.

Definition:

Unless there is otherwise expression in the context, the following short forms in this report are defined as follows:

This Company, the Company or FIYTA refers to Shenzhen FIYTA Holdings Ltd.

CATIC Shenzhen refers to CATIC Shenzhen Holdings Ltd.

Harmony refers to Shenzhen Harmony World Watches Center Co., Ltd.

Rainbow Supermarket refers to Shenzhen Rainbow Supermarket Co., Ltd.

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Contents

• Section 1 Company Information

• Section 2 Changes in Share Capital and Shares Held by Principal Shareholders

• Section 3 Directors, Supervisors and Senior Executives

• Section 4 Discussion and Analysis of the Management

• Section 5 Significant Events

• Section 6 Financial Report

• Section 7 Documents Available for Inspection

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Section 1 Company Information

I. Company Information

1. Company Name in Chinese: 深圳市飞亚达（集团）股份有限公司 In English: SHENZHEN FIYTA HOLDINGS LTD Short Form in Chinese: 飞亚达公司

Short Form in English: FIYTA

1. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form & Code of the Stock: FIYTA A 0026 FIYTA B 200026

2. Registered Office Address: FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen

Office Address: 20[th] Floor, FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen

Post Code: 518057

Internet Web Site: http:// www. fiyta.com.cn E-mail : szfiyta@public.szptt.net.cn

1. Legal Representative: Mr. Wu Guangquan

2. Secretary of the Board; Mr. Hao Huiwen

3. Securities Affairs Representative: Mr. Chen Zhuo

4. Liaison Address: 20[th] Floor, FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen

Tel : 0755－86013992 86013669

Fax: 0755 - 83348369

E-mail: investor@fiyta.com.cn

1. Newspapers Designated for Disclosing the Information: Securities Times, Hong Kong Commercial Daily

Internet Website for publishing this semi-annual report: http://www.cninfo.com.cn

• Place Where the Semiannual Report is Prepared and Placed: Securities Department of the Company

• Other Relevant Information.

• (1) Date of first registration: March 30, 1990

• Date of change in registration: January 30, 1997

Registration with: Shenzhen Municipal Administration for Industry and Commerce.

(2) Business License No.: 4403011001583 Taxation Registration No.: SZ Zi No: 440301192189783

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

II. Financial Highlights

Table 1 In RMB

Items				Increase/decrease of the end of the report period vs the end of the previous year
	June 30, 2006		December 31, 2005
Current assets:	386,670,710.95		333,275,337.06	16.02%
Current liabilities	117,951,535.77		77,401,625.07	52.39%
Total assets	675,294,130.93		621,275,547.20	8.69%
Shareholders’ equity (excluding	546,966,628.42		533,371,239.36	2.55%
Net assets per share	2.194		2.139	2.55%
Net assets per share after	2.131		2.087	2.11%
Table 2
Items				Increase/decrease of the report period vs the same period of the previous year
	Jan to Jun, 06		Jan to Jun, 05
Net profit	13,595,389.06		5,209,639.04	160.97%
net profit after deduction of non-	12,338,589.59		7,396,174.29	66.82%
Earnings per share	0.055		0.021	160.97%
Net assets-income ratio	2.49%		1.00%	Increase by 1.49 percentage
Net cash flows arising from	-26,564,640.47		-8,722,830.88	－

• Deducting non-recurring gain/loss items and amount involved

Items	Amount In RMB
Earnings from short term investment	1,335,191.64
Net amount of non-operating income and expenses	114,210.15
Amount affected by the income tax	-192,602.32
Total	1,256,799.47

Note: There exists no difference in the net profit calculated according to Chinese Accounting Standards

(CAS) and the International Accounting Standards (IAS).

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

III. Profit Statement

Profit of the report period	Net assets-income ratio	Net assets-income ratio	Earnings per share (RMB/share)	Earnings per share (RMB/share)
	Fully diluted	Weighted average	Fully diluted	Weighted average
Principal business profit	14.83%	15.02%	0.325	0.325
Operating profit	2.86%	2.89%	0.063	0.063
Net profit	2.49%	2.52%	0.055	0.055
Net profit after deduction of non- recurring loss/gain	2.26%	2.28%	0.049	0.049

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Section 2 Change in Share Capital and Shares Held by the Principal Shareholders

I. Change in Shares

Changes in the Company’s share capital ended December 31, 2006 are as follows:

In shares

	Before the change	Increase/ Decrease (+ / -) as ofthe year	After the change
I. Non-listed negotiable shares
Promoters’ shares	130,248,000	0	130,248,000
Including: domestic legal person shares	130,248,000	0	130,248,000
Total non-listed negotiable shares	130,248,000	0	130,248,000
II. Negotiable shares listed
1. RMB ordinary shares	60,749,999	0	60,749,999
Incl.: senior executives’ shares	48,210	0	48,210
2. Foreign shares listed domestically	58,320,000	0	58,320,000
Total listed negotiable shares	119,069,999	0	119,069,999
III. Total Shares	249,317,999	0	249,317,999

II. Total shareholders at the end of the report period

Ended June 30, 2006, the Company had totally 19,852 shareholders, including 10,352 shareholders of A-shares and 9,500.shareholders of B-shares.

III. Shareholders

Top 10 shareholders ended June 30, 2006:

Shareholders	Increase/de crease in the report period			Types of Shares
		Q’ty of shares	Proportion f h
		held (in shares)	o sares held
CATIC Shenzhen HoldingsLtd.	0	130,248,000	52.24%	Domestic legal personshares
Zhejiang International Trust & Investment Co., Ltd.	unknown	5,605,824	2.25%	Negotiable A-shares

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Henan Fangchen Technology & Trade Co., Ltd.	unknown	1,513,700	0.61%	Negotiable A-shares
Zhengzhou Tengbo Trade Co., Ltd.	unknown	509,400	0.20%	Negotiable A-shares
QuYanping	0	500,458	0.20%	Negotiable B-shares
Xue Peiming	108,000	444,800	0.18%	Negotiable B-shares
Lin Chubin	unknown	419,854	0.17%	Negotiable B-shares
Lin Hongbo	0	362,880	0.15%	Negotiable B-shares
ZhangMei	unknown	359,000	0.14%	Negotiable A-shares
Wang Guiqiang	unknown	356,773	0.14%	Negotiable A-shares

The shareholder that holds over 5% (including 5%) of the total share capital is CATIC SHENZHEN HOLDINGS LTD. In the report period there was no change in the shareholding and there were no shares held by it pledged or frozen.

Among the top ten shareholders, there exists no business relationship between the promoter shareholder and other shareholders of negotiable shares. The Company has not found any business relationship among other shareholders of negotiable shares and cannot identify whether there are any shares held other shareholders of negotiable shares pledged or frozen.

IV. Top Ten Shareholders of Negotiable Shares

Shares held by the top ten shareholders of negotiable A shares	Shares held by the top ten shareholders of negotiable A shares	Shares held by the top ten shareholders of negotiable A shares
Serial No.	Shareholders	Number of shares held at end of the period
1	Zhejiang International Trust & Investment Co., Ltd.	5,605,824
2	Henan Fangchen Technology & Trade Co., Ltd.	1,513,700
3	Zhengzhou Tengbo Trade Co., Ltd.	509,400
4	Zhang Mei	359,000
5	Wang Guiqiang	356,773
6	Wang Haiyang	344,803
7	Li Hua	314,900
8	Yang Bin	307,900
9	Tao Qiying	302,200
10	Yang Caixia	297,411
Shares held by the top ten shareholders of negotiable B shares
Serial	Shareholders	Number of shares held at end of the

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

No.		period
1	Qu Yanping	500,458
2	Xue Peiming	444,800
3	Lin Chubin	419,854
4	Lin Hongbo	362,880
5	CHINA PINGAN INSURANCE(HK)CO.LTD	307,230
6	Zeng Ying	283,590
7	Li Ping	270,000
8	Li Rongsheng	258,002
9	GUOTAI JUNAN SECURIES HONG KONG LIMITED	246,070
10	Lin Zhihua	241,800

V. In the report period, no change took place in the Company’s controlling shareholder or actual controller.

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Section 3 Directors, Supervisors, Senior Executives

I. Change in the Company’s Shares

Of the directors, supervisors and senior executives in current office, only Deputy General Manager Mr. Lu Bingqiang holds 48,210 shares in which no change took place in the report period.

II. New Engagement or Disengagement of Directors, Supervisors, Senior Executives

1. Election for the Board of Directors and the Supervisory Committee

2005 Annual Shareholders’ General Meeting reviewed and approved the proposal on election of new Board of Directors and the Supervisory Committee on May 30, 2006. Mr. Wu Guangquan, Mr. Lai Weixuan, Mr. Sui Yong, Mr. Wang Baoying and Mr. Xu Dongsheng were elected directors of the Fifth Board of Directors and Mr. Hua Xiaoning and Mr. Guo Wanda were elected independent directors of the Fifth Board of Directors. Mr. Huang Gaojian was elected a supervisor of the Fifth Supervisory Committee, forming the Fifth Supervisory Committee together with Mr. Zhang Songhua and Mr. Tang Boxue, the staff representative supervisors.

The announcement of the aforesaid information was published on Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn. On May 31, 2006.

2. Engagement of Senior Management

At the 1[st] meeting of the Fifth Board of Directors dated June 8, 2006, Mr. Wu Guangquan was elected Chairman of the Board and Mr. Lai Weixuan was elected Vice-Chairman of the Board; Mr. Xu Dongsheng was engaged as the General Manager; Mr. Lu Bingqiang, Mr. Li Dehua, Mr. Li Bei, Ms. Fang Juan and Mr. Hao Huiwen were engaged as Deputy General Managers, Mr. Li Dehua was engaged as chief accountant (concurrently) and Mr. Hao Huiwen was engaged as the Secretary of the Board (concurrently). Mr. Huang Gaojian was elected the Chairman of the Supervisory Committee at the 1[st] meeting of the Fifth Supervisory Committee.

The announcement of the aforesaid information was published on Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn. On June 13, 2006.

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Section 4 Discussion and Analysis of the Management

I. Discussion and Analysis of the Overall Operation in the Report Period

(I) In the first half year of 2006, the Company achieved a steady progress in its three principal businesses of FIYTA Watches, sales of world brand watches by the Harmony World Watches Center and property according to the according to the work guideline of “carrying through the company’s philosophy, improving the quality of manpower, reinforcing brand integration and devoting efforts to innovative development” worked out at the year beginning, based on the Company’s philosophy and values and insisting on the brand strategy to guide various work. As a result, the Company achieved a

big growth in profit making over the same period of the previous year.

Items	Jan – June, 2006	Jan – June, 2005	Period-to-period Increase/Decrease (%)
Principal business income	229,743,079.32	160,156,032.82	43.45%
Principal business profit	81,125,167.46	57,364,930.84	41.42%
Total profit	17,078,612.65	6,344,630.20	169.18%
Net profit	13,595,389.06	5,209,639.04	160.97%

The Company has been enjoying a growing trend in revenue from various principal businesses, and achieved a big growth especially in retails of famous brand watches. In the report period, the revenue from the principal businesses hit RMB 229,743 thousand, a 43.45% growth over the same period of the previous year. The Company has been much improved in earning capacity, achieved a big growth in revenue. In the report period, the Company realized profit amounting to RMB 17,079 thousand and net profit amounting to RMB 13,595 thousand, with a growth rates of 169.18% and 160.97% respectively over the same period of the previous year.

In the report period, affected by the increase of investment for expansion of Harmony Chain Shops and increase of inventories, the net cash flow arising from the business activities was RMB-26,565 thousand. At the end of the report period, the total assets amounted to RMB 675,294 thousand and shareholders’ equity amounted to RMB 546,967 thousand, with growth rates of 8.69% and 2.55% respectively over the end of the previous year. The main cause is that in the report period, the Company realized a profit amounting to RMB 13,595 thousand and the short term bank loan increased by RMB 40,000 thousand in the report period.

1. FIYTA Watches In the report period, the Company still insisted on the brandy strategy, unceasingly propelled the collaboration based integrated effect in various links of research and development, manufacture, sales, etc. along the value based marketing, devoted great efforts in upgrading the product design and production capacity and deepening the management work in elaborating the market sales. As a result, the Company has achieved a great success in promoting the bran and the Company’s brand identity has been further upgraded. The Company has achieved continuous breakthrough innovations in R & D and design of FIYTA watches. At the 4[th] China Enterprise Product Innovation Design Award (CIDF Product Design Award) held in March, 2006 in Shanghai, FIYTA “Tianji” Series Watches honorably won the golden price and Shenzhou Six Spacecraft Watch won “the Best Design Award of Livelihood Articles”; the Company developed and launched high grade “Gold Buddha Watch” at the beginning of 2006. The concept of fully excavating the Chinese traditional happiness praying culture added with the ingenuous structural design has

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

catered for our customers’ psychological and emotional requirements. The products have been sold well all the time and achieved outstanding success and produced positive influence in the market. As such leading products as “Spacecraft Watch” and “Gold Buddha Watch” have been enjoying good sales in the market, the gross profit rate and average unit sales price have been both raised. In the report period, the Company’s “Proposal of Integration, Marketing and Promotion of Shenzhou Six Spacecraft Watch” won China Top 10 Enterprise Planning Design Projects in 2005; Shenzhen FIYTA Sophisticated Manufacture Co., Ltd., one of the Company’s subsidiaries, has been granted the title of “Shenzhen Hi-tech enterprise”. In the report period, the Company realized sales income amounting to RMB 60,755 thousand from sales of FIYTA watches, a 17.32% growth over the same period of the previous year.

2. Retails of world brand watches by Harmony World Watches Center. In the report period, Harmony World Watches Chain Network enhanced the professional operation based on the high-level standard of “ 2006 Professional Operation Year”, initiated the management innovation activities, gradually deepened the “superficial-medium-high” three-level marketing approach, enhanced the emotional communications with customers, continuously improved the value-added services and improved the competitiveness in retails of top brand watches. In the report period, the Company realized retail sales of top brand watches amounting to RMB 146,555 thousand, a 68.14% growth over the same period of the previous year; and realized a net profit amounting to RMB 5,600 thousand, a big growth over the same period of the last year. In the report period, Harmony World Watches Center newly opened 7 shops and merged one shop, with net increase of 6 chain shops. By the end of the report period, there were 47 chain shops all over big and medium cities of the country. It is estimated that in the second half year of 2006, the chain network size shall continue to expand and the turnover is hopeful to persistently grow.

3. Property Operation In the report period, FIYTA Technology Building located in Shenzhen Hi-tech Park and FIYTA Building located in Shenzhen Huaqiang North Road Business Zone are in good operation status with good rental recovery rate. From these properties, the Company has earned income amounting to RMB 22,433 thousand, a 14.51% growth over the same period of the previous year.

II. Business Highlights

1. Business Scope and Operation Status

The Company is mainly engaged in design, development, manufacture, sales and repairing of timepieces and components, including operation of FIYTA watch products and retail of the world top brand watches by Harmony World Watches Center; property operation of FIYTA Technology Building and FIYTA Building.

(1) Operation Status

• ① The composition of the income and profit from the principal business is as follows:

Businesses	Income from principal businesses, in RMB	Cost of the	G	Increase/decr ease of f	Increase/decre ase of principal	Increase/decrease of gross profit rate over the same period of the previous year, in percents
		principal	ross	revenue rom	business cost
		businesses in	profit	principal bi	over the same
		RMB	rate	usnesses h	period of the
				over te previous year	previous year
industrial manufacture and sales	60,754,623.11	28,457,343.92	53.16%	13.77%	5.57%	Increased by 3.64 percents
Retail	146,555,005.87	114,849,825.29	21.63%	68.14%	63.60%	Increased by 2.17 percents
Property operation	22,433,450.34	3,917,301.69	82.54%	14.51%	-6.04%	Increased by 3.82 percents
Including: related translations	－	－	－	－	－	－

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

② In the report period, the sector or products whose turnover and profit take over 10% of that from the principal businesses is timepieces and property,

A. Watches The sales income and sales cost of FIYTA watches and foreign famous watches are listed as follows:

Table 1: To be presented based on the categories of the products

Businesses	Income from iil			Increase/decrea	Increase/decre ase of principal bi	Increase/decre ase of gross profit rate over the same period of the previous year, inpercents
		Cost of the		se of revenue
		iil	G fi	f iil
	prncpa bi	prncpa	ross prot	rom prncpa	usness cost h
		bi		bi
	usnesses in RMB	usnesses	rate	usnesses over	over te same period of the previous year
		in RMB		the previous year
Manufacture and sales of FIYTA watches	60,754,623.11	28,457,343.92	53.16%	17.32%	10.03%	Increased by 3.10 percents
Sales of foreign famous watches	146,555,005.87	114,849,825.29	21.63%	68.14%	63.60%	Increased by 2.17 percents
Total	207,309,628.98	143,307,169.21	30.87%	49.20%	49.18%	Increased by 0.01 percent
Incl.: related transactions	－	－	－	－	－	－

Table 2: Listed according to regions

Regions	Product sales income in RMB	Increase/ decrease over the sameperiod of thepreviousyear
Northeast China	23,231,863.34	7.83%
North China	28,731,290.47	116.50%
Northwest China	43,545,970.38	35.30%
East China	31,644,709.53	69.82%
Southwest China	9,818,075.62	59.16%
South China	70,337,719.64	49.19%
Total	207,309,628.98	49.20%

B. Property The profit from the property operation took over 10% of the total profit from the principal business. The said operating income and profit were mainly from the lease of FIYTA building and FIYTA Technology Building.

2. In the report period, no material change took place in the Company’s property composition, principal business or its structure, and earning power of the principal business in comparison with the previous year.

3. In the report period, the Company had no other business activities having major influence on

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

the Company.

4. Problems and Difficulties in the Operation

(1) Analysis on affects from adjustment of the consumption tax : According to the Circular CAI SHUI [2006] No. 33 jointly issued by the State Ministry of Finance and the State Administration of Taxation, commencing from April 1, 2006, China is conducting adjustment of the tax items, tax rates of the consumption tax in force and the relevant policy, where the consumption tax is levied over various high grade watches with unit price over RMB 1,000 (with RMB 1,000 inclusive) (with value-added tax exclusive) at the rate of 20%. As the proportion of FIYTA watches applicable to the above taxation is small, the said policy has not produced significant affect upon the business of FIYTA watches. However, the above tax policy may produce fluctuation affect upon sales of famous brand watches at Harmony Famous Brand Watches chain shops. However, on the medium and long term basis, the famous brand watch manufacturers and distributors shall enhance communication and cooperation in order to stabilize the famous watch consumption market and reduce the affect from the taxation factor upon the sales market; in addition, the price demand flexibility of high grade watches is relatively small, therefore, it is expected that the above policy will produce less affect upon sales of famous brand watches.

(2) Competition in the Sector and Countermeasures : The timepiece industry engaged by the Company is still in the trend of keen competition in the market. FIYTA watches are gradually leaping from the error zone of low levels of home-made watches, taking the international top brand enterprises as its good example and looking forward to being involved in the competition of the international top brand watches market.

In respect of the retail of famous brand watches, the domestic and foreign famous brand watches retailers are expecting greatly the highly growing potential of the domestic famous brand watch consumption market, and are involved in droves in the domestic famous watch retail business or further expand chain shop size; the new competition pattern is in process of formation.

Harmony Chain Shops need to make full use of the market opportunities, increase investment in resources, effectively expand and optimize the marketing network, expand cooperation with international top brand watch firms and develop the operation of famous brand watch chain shops.

III. Investment

The Company has neither application of the Proceeds Raised through Share Offering nor Other Significant Investments

IV. Advance Announcement of the Operation Results

As the Company’s income from the principal business grows and the earning power improves, it is predicted that the accumulative net profit of the period from January to September, 2006 shall increase by 100% to 150% over the same period of the previous year.

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Section 10 Significant Events

I. The Company has adopted strict demand on itself and standardized the operation in accordance with the regulations of China Securities Regulatory Commission and positively improved its corporate governance structure. Up to now, the Company has basically complied with the relevant regulations concerning corporate governance.

II. In the report period, the Company approved the Proposal of Profit Distribution and Making up Deficits with Surplus Public Reserve for the Year 2005 at its Annual Shareholders’ General Meeting. For the year 2005, the Company would neither distribute dividend in cash and bonus shares to its shareholders nor conduct conversion of capital public reserve into share capital.

For the first half year of 2006, the Company has not prepared any proposal on profit distribution or any proposal on conversion of public reserve into share capital either.

III. In the report period, the Company has never been involved in any material lawsuit or arbitration and no previous material lawsuit or arbitration has been extended to the report period either.

IV. In the report period, the Company has never been involved in any assets acquisition or assets reorganization and no assets acquisition or assets reorganization has been extended to the report period either.

V. Transactions with Related Parties

1. Implementation of Regular Related Transactions

(1) Both of the Company’s FIYTA Building and FIYTA Technology Building have used property management services and a small quantity of property lease services from Shenzhen CATIC Property Management Co., Ltd. The property management price is determined with reference to the market price by both parties. In the report period, the Company’s property rental and management service charge payable amounted to RMB 1,290 thousand, which complies with the predicted figure.

The Company sells watches via special counters in Rainbow Supermarket. In the report period, the sales costs of the special counters incurred in the supermarket amounted to RMB 915 thousand, which complies with the predicted figure.

The Announcement on the Regular Related Transactions in 2005 was published on Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn. on April 20, 2006.

1. Related Liabilities or Guarantee

Ended June 30, 2006, CATIC Shenzhen Holdings Ltd., the controlling shareholder, offered guarantee to the Company for the bank credit line amounting to RMB 90 million and the Company obtained bank loans amounting to RMB 60 million.

1. Funds occupied by the Company’s controlling shareholder and its subsidiaries.

VI. Important Contracts and Implementation

1. In the report period, the Company was not involved in such events as keeping as custodian, contracted or leased any other company’s assets and vice versa in the report period or extended from the previous years.

2. In the report period, the Company has never been involved in any material guarantees which were extended to the report period from the previous periods either.

3. In the report period, the Company had not been involved in entrustment for finance management and no such event occurred previously but carried down to the report period either.

4. Other Important Contracts and Implementation

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

(1) The Company and Shenzhen Development Bank Shenzhen Jiangsu Building Sub-branch executed an agreement on credit line amounting to RMB 40 million with a term from September 15, 2005 to September 14, 2006. The Company has used all the credit line under that agreement with total amount of RMB 40 million only.

(2) The Company and China Merchants Bank Shenzhen Futian Sub-branch executed an agreement on credit line amounting to RMB 50 million with a term from February 28, 2006 to February 28, 2007. The Company has used RMB 20 million of the credit line under the said agreement.

VII. Shareholders holding over 5% (with 5% inclusive) has neither disclosed any existing and valid undertakings in the report period nor had any undertaking incurred in previous periods but extended to the report period.

As the Company’s equity separation reform proposal has been turned down while the Company once disclosed that “the Company shall start the equity separation reform work in three months as soon as possible according to the regulations such as the Measures on Administration over Listed Companies’ Equity Separation Reform”, the Company accelerated the communication with the shareholders of non-negotiable shareholders. The relevant work is in process of preparation in a positive way. The Company is trying to publish the second equity separation reform proposal before September 30, 2006.

VIII. The financial report of the report period has not been audited yet and the Company has not changed the certified public accountants.

In the report period, approved by 2005 Annual Shareholders’ General Meeting, the Company terminated the engagement Pricewaterhouse Coopers Zhongtian Certified Public Accountants and Pricewaterhouse Coopers China Limited as the Company’s domestic and international auditors for the year 2005, and instead, the Company engaged Yuehua Certified Public Accountants Co., Ltd. and Morison International as the Company’s domestic and international auditors of the Company’s 2005 Annual Financial Report respectively.

IX. In the report period, neither the Company nor any of its directors or senior executives has ever been punished by the supervisory/administrative authority.

X. Index of other Important Information

On April 12, 2006, the Company held a shareholders’ meeting concerning the equity separation reform. However the Proposal for the Equity Separation Reform still failed in approval after voting. The announcement of the aforesaid information was published on Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn. On April 13, 2006.

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Section 6 Financial Report

• I. Accounting Statements (attached hereinafter on Pages 18to 23))

• II. Notes to Accounting Statements (attached hereinafter on Pages 24 to 30)

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

Section 7 Documents Available for Inspection

I. Semi-annual Report signed by the Chairman of the Board;

2. Financial Report signed by and under the seal of the legal representative, chief accountant and accounting supervisor;

3. All the originals of the Company’s documents and public notices disclosed in the newspapers designated by China Securities Regulatory Commission in the report period;

4. Articles of Association of the Company.

Board of Directors of

SHENZHEN FIYTA HOLDINGS LTD.

August 11, 2006.

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

SHENZHEN FIYTA HOLDINGS LIMITED 深圳市飞亚达（集团）股份有限公司

INTERIM RESULT

These consolidated financial statements have not been audited, but have been reviewed by the company’s directors.

CONSOLIDATED INCOME STATEMENT

For the six months ended June 30, 2006

Turnover Cost of sales Gross profit Other revenue Selling expenses Administrative expenses Other operating expenses Profit from operations Finance costs Profit before tax Income tax Profit for the period Attributable to: Equity holders of the parent Minority interests Earnings per share Basic	Notes 4 5 8	For the six months ended June 30, 2006 2005 Unaudited Unaudited RMB’000 RMB’000 229,743 160,156 (148,618) (102,791) 81,125 57,365 4,672 1,397 (36,359) (25,033) (27,927) (23,208) (3,134) (3,673) 18,377 6,848 (1,299) (503) 17,078 6,345 (3,603) (1,065) 13,475 5,280 13,595 5,210 (120) 70 13,475 5,280 RMB 0.055 RMB 0.021	For the six months ended June 30, 2006 2005 Unaudited Unaudited RMB’000 RMB’000 229,743 160,156 (148,618) (102,791) 81,125 57,365 4,672 1,397 (36,359) (25,033) (27,927) (23,208) (3,134) (3,673) 18,377 6,848 (1,299) (503) 17,078 6,345 (3,603) (1,065) 13,475 5,280 13,595 5,210 (120) 70 13,475 5,280 RMB 0.055 RMB 0.021
			Unaudited RMB’000 160,156 (102,791)
			57,365 1,397 (25,033) (23,208) (3,673)
			6,848 (503)
			6,345 (1,065)
			5,280
			5,210 70
			5,280
			RMB 0.021

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

SHENZHEN FIYTA HOLDINGS LIMITED 深圳市飞亚达（集团）股份有限公司

CONSOLIDATED BALANCE SHEET At June 30, 2006

ASSETS Non-currents assets Property, plant and equipment Investment properties Construction in progress Prepaid lease payments Available-for-sale investments Deferred tax assets Other non-current assets Current assets Inventories Trade receivables Bills receivable Other receivables and prepayments Amount due from an ultimate company Tax recoverable Financial assets at fair value through profit or loss Bank balances and cash Total assets	Notes 9 10	June 30, 2006 Unaudited RMB’000 81,487 177,961 135 14,852 10,386 15,466 1,316 301,603 290,254 20,962 － 34,210 － 2,150 2,122 52,673 402,371 703,974	December 31, 2005
			Audited RMB’000 77,182 181,174 135 15,081 10,386 15,466 1,554
			300,978
			233,861 27,205 550 32,551 － 1,403 4,949 47,711
			348,230
			649,208

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

SHENZHEN FIYTA HOLDINGS LIMITED 深圳市飞亚达（集团）股份有限公司

CONSOLIDATED BALANCE SHEET - (continued) At June 30, 2006 Notes EQUITY AND LIABILITIES CAPITAL AND RESERVES Registered capital Reserves Equity attributable to equity holders of the parent Minority interests Total equity Non-current liabilities Deferred income Current liabilities Trade payables Staff welfare payable Other payables and accruals Amount due to a related company Amount due to an invested company Tax payable Bank loan - secured 11 Total liabilities Total equity and liabilities	CONSOLIDATED BALANCE SHEET - (continued) At June 30, 2006 Notes EQUITY AND LIABILITIES CAPITAL AND RESERVES Registered capital Reserves Equity attributable to equity holders of the parent Minority interests Total equity Non-current liabilities Deferred income Current liabilities Trade payables Staff welfare payable Other payables and accruals Amount due to a related company Amount due to an invested company Tax payable Bank loan - secured 11 Total liabilities Total equity and liabilities	June 30, 2006 Unaudited RMB’000 249,318 298,005 547,323 7,376 554,699 3,000 35,451 19,884 18,631 － 12,309 － 60,000 146,275 149,275 703,974.00	December 31, 2005
	11		Audited RMB’000 249,318 284,410
			533,728 7,503
			541,231
			3,000
			28,992 18,820 24,641 215 12,309 － 20,000
			104,977
			107,977
			649,208.00

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

SHENZHEN FIYTA HOLDINGS LIMITED 深圳市飞亚达（集团）股份有限公司

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2006

	Share	Capital	Statutory
	capital	reserves	reserves	Retained profits	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Balance at December 31, 2005	249,318	191,108	82,706	10,596	533,728
Net profit for the 6 months				13,595	13,595
Balance at June 30, 2006	249,318	191,108	82,706	24,191	547,323

FOR THE SIX MONTHS ENDED JUNE 30, 2005

Balance at December 31, 2004 Net profit for the 6 months Balance at June 30, 2005	Share capital RMB’000 249,318 249,318	Capital reserves RMB’000 191,108 191,108	Statutory reserves RMB’000 114,519 114,519		Retained profits RMB’000 (36,770) 5,210 (31,560)	Total RMB’000 518,175 5,210
						523,385

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

SHENZHEN FIYTA HOLDINGS LIMITED

深圳市飞亚达（集团）股份有限公司

CONSOLIDATED CASH FLOW STATEMENT

For the six months ended June 30, 2006

Cash flows from operating activities Profit before taxation Adjustment for: Amortization of prepaid lease payments Amortization of non-current assets Depreciation of investment properties Depreciation of property, plant and equipment Dividend income Gain on disposal of property, plant and equipment Interest paid Interest income Provision for obsolescent inventory Operating profit before working capital changes Increase in inventories (Increase)/Decrease in trade receivables Increase in bill receivable Decrease/(Increase) in other receivables and prepayments Decrease in amount due from a related company Increase in amount due to a related company (Decrease)/Increase in trade payables Increase in staff welfare payable Increase in other payables and accruals Decrease/(Increase) in financial assets at fair value through profit or loss Cash used in operations Interest paid Tax paid Net cash used in operating activities	For the six months ended June 30 2006 2005 Unaudited Unaudited RMB’000 RMB’000 17,078 6,345 229 229 238 196 3,213 3,213 7,463 4,650 － － (12) (1) 1,299 503 (141) (277) － (232) 29,367 14,626 (56,393) (11,217) 6,243 (1,731) 550 － (1,659) 3,462 － 1,500 (215) － 6,459 (28,150) 1,064 (57) (6,010) 604 2,827 2,667 (47,134) (34,422) (17,767) (19,796) (1,299) (503) (4,350) 420 (23,416) (21,379)	For the six months ended June 30 2006 2005 Unaudited Unaudited RMB’000 RMB’000 17,078 6,345 229 229 238 196 3,213 3,213 7,463 4,650 － － (12) (1) 1,299 503 (141) (277) － (232) 29,367 14,626 (56,393) (11,217) 6,243 (1,731) 550 － (1,659) 3,462 － 1,500 (215) － 6,459 (28,150) 1,064 (57) (6,010) 604 2,827 2,667 (47,134) (34,422) (17,767) (19,796) (1,299) (503) (4,350) 420 (23,416) (21,379)
		Unaudited RMB’000 6,345 229 196 3,213 4,650 － (1) 503 (277) (232)
		14,626 (11,217) (1,731) － 3,462 1,500 － (28,150) (57) 604 2,667
		(34,422) (19,796) (503) 420
		(21,379)

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

SHENZHEN FIYTA HOLDINGS LIMITED

深圳市飞亚达（集团）股份有限公司

CONSOLIDATED CASH FLOW STATEMENT - (continued) For the six months ended June 30, 2006

Cash flows from investing activities Interest received Proceeds on disposal of property, plant and equipment Purchase of property, plant and equipment Acquisition of available-for-sale investments Dividend income from available-for-sale investments Investment income from designed deposit Payments for construction in progress Decrease in designated deposits Decrease in minority interests Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Analysis of cash and cash equivalents at the end of June 30 Bank balances and cash	For the six months ended June 30 2006 2005	For the six months ended June 30 2006 2005
	Unaudited RMB’000 141 113 (11,869) － － － － － (7) (11,622) 40,000 － 40,000 4,962 47,711 52,673 52,673	Unaudited RMB’000 277 － (13,589) － － － (450) － (70)
		(13,832) － －
		－ (33,711) 84,792
		51,081
		51,081

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

FOR THE PERIOD ENDED JUNE 30, 2006

NOTES TO THE FINANCIAL STATEMENT

1. Corporate information

Shenzhen Fiyta Holdings Limited (the “Company”) was established in the People’s Republic of China (the “PRC”) as a joint stock limited company a reorganization of its predecessor company, Shenzhen Fiyta Timing Industry Company, in December 1992. The Company’s Renminbi Ordinary Shares (“A Shares”) and Domestically Listed Foreign Shares (“B Shares”) were listed on the Shenzhen Stock Exchange in March 1993.

The Company’s holding company is CATIC Shenzhen Holdings Limited (“CATIC”) which holds 52.24% of its equity interest. CATIC’s H Shares were listed on The Stock Exchange of Hong Kong in September 1997.

The Company and its subsidiaries (the “Group”) are principally engaged in the design, manufacture, assembly and sale of quartz analog watches, clocks, watch casings, and property management.

2. Basis of preparation and accounting policies

Basis of preparation

The interim consolidated financial statements for the six months ended June 30, 2006 have

been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim consolidated financial statements do not include all the information and

disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at December 31, 2005.

Consolidation scope and significant accounting policies

The consolidation scope and accounting policies adopted in the preparation of the interim

consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended December 31, 2005.

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

3. Segment information

For the six months ended June 30, 2006 (unaudited) Turnover Segment results Unallocated expense Operating profits Finance costs Profit before taxation Taxation Profit after taxation Minority interest Net profit Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditure Depreciation and amortization - property, plant and equipment - investment properties Amortization of prepaid leasehold land Provision for doubtful debts Provision for obsolescent inventories	Clocks and watches RMB’000 207,310 64,003 498,039 89,275 11,869 7,463 － － － －	Property rental RMB’000 22,433 18,516 177,961 － － － 3,213 229 － －	Total
			RMB’000 229,743
			82,519 (64,142)
			18,377 (1,299 )
			17,078 (3,603 )
			13,475 120
			13,595
			676,000 27,974
			703,974
			89,275 60,000 149,275 11,869
			7,463
			3,213
			229
			－
			－

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

3. Segment information － (continued)

. Segment information－(continued)
For the six months ended June 30, 2005 (unaudited) Turnover Segment results Unallocated expense Operating profits Finance costs Profit before taxation Taxation Profit after taxation Minority interest Net profit Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditure Depreciation and amortization - property, plant and equipment - investment properties Amortization of prepaid leasehold land Provision for doubtful debts Provision for obsolescent inventories	Clocks and watches RMB’000 140,565 43,409 462,933 60,402 13,589 4,650 － － － －	Property rental RMB’000 19,590 15,421 184,387 － － － 3,213 461 － －	Total RMB’000 160,155
			58,830 (51,982 )
			6,848 (503)
			6,345 (1,065 )
			5,280 (70)
			5,210
			647,320 27,974
			675,294
			60,402 20,000
			80,402
			13,589
			0 4,650
			3,213
			461
			－
			－

There are no sales or other transactions between the business segments ． Segment assets comprise operating assets and mainly exclude deferred tax assets, designated deposits and investments ． Segment liabilities comprise operating liabilities and mainly exclude minority interests, certain borrowings and tax payable ． All assets and operations of the Group are located in the PRC ．

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

4. Turnover and revenue

The Group in engaged in the design, manufacture, assembly and sale of quartz analog watches, clocks, watch straps and watch casings, and property management. Revenue recognized during the period is as follows:

Turnover Rental income Sales of goods Other revenue Bank interest income Repair and maintenance income Gain on disposal of financial assets at fair value through profit or loss Gain on disposal of property, plant and equipment Others Total revenue	For the six months ended June 30, 2006	For the six months ended June 30, 2006
	2006 unaudited RMB’000 22,433 207,310 229,743 142 1,610 2,734 70 116 4,672 234,415	2005
		unaudited RMB’000 19,590 140,566
		160,156 277 994 － 13 112
		1,396
		161,552

5 ． Profit from operations

Profit from operations is arrived at:

For the six months ended June 30

After charging: Amortization of prepaid leasehold land Amortization of other non-current assets Exchange loss Depreciation of property, plant and equipment Depreciation of investment properties Fair value loss on financial assets at fair value through profit or loss Loss on disposal of property, plant and equipment Cost of inventories sold Rent paid under operating leases Staff costs (including directors’ remuneration – note 6, 7)	2006 Unaudited RMB’000 230 1,166 31 2,637 3,213 － 58 143,307 1,290 28,530 180,462	2005
		Unaudited RMB’000 230 1,946 － 2,575 3,213 2,661 14 97,156 1,370 21,313
		130,478

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

6 ． Staff cost

ff cost
Wages and salaries Staff welfare Social insurance expenses	For the six months ended June 30
	2006 Unaudited RMB’000 26,933 1,612 1,289 29,834	2005
		Unaudited RMB’000 19,606 1,366 1,077
		22,049

7 ． Directors’ remuneration

Particulars of the emoluments of the directors for the period were as follows:

Fees Other emoluments	For the six months ended June 30	For the six months ended June 30
	2006 Unaudited RMB’000 － 38 38	2005
		Unaudited RMB’000 － 45
		45

8 ． Earnings per share

The calculation of earnings per share is based on the consolidated profit after tax and after minority interests for the period of RMB13, 595, 000 (2005: RMB5, 210, 000) and 249,318,000 shares (2005: 249,318,000 shares) on issue.

9 ． Trade receivables

June 30, 2006 December 31, 2005

Within 1 year 1 year to 2 years 2 years to 3 years over 3 years Provision for doubtful debts	Unaudited RMB’000 19,133 1,467 654 42,014 63,269 42,307 20,962	Audited RMB’000 25,665 1,322 691 41,833
		69,512 42,307
		27,205

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

10 ． Financial assets at fair value through profit or loss

Market value of listed investments - equity shares	June 30,2006 Unaudited RMB’000 2,122	December 31,2005
		Audited RMB’000 4,949

The financial assets at fair value through profit or loss are traded in active markets and are valued at market prices at the end of period by reference to Stock Exchange quoted prices.

11 ． Bank loan - secured

Repayable within one year	June 30, 2006 Unaudited RMB’000 60,000	December 31, 2005
		Audited RMB’000 20,000

The bank loan was interest bearing at 5.58% per annum (2004: 5.31%) and guaranteed by the holding company, CATIC Shenzhen Holdings Limited.

12 ． Related party transactions

During the six months, the Group had the following material transactions with related parties in normal course of its business:

Property management fee paid to: Shenzhen CATIC Property Management Co., Ltd Commission paid to: Shenzhen Rainbow Department Store Co., Ltd	For the six months ended June 30	For the six months ended June 30
	2006 Unaudited RMB’000 1,290 915	2005
		Unaudited RMB’000 1,371
		420

13 ． Approved of the financial statements

The financial statements were approved and authorized for issue by the board of directors on August 11, 2006.

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Shenzhen FIYTA Holdings Ltd. 2006 Semiannual Report

SUPPLEMENTARY INFORMATION

FOR THE PERIOD ENDED JUNE 30, 2006

The impact of IFRS adjustments on the PRC statutory financial statements is as follows:

As report under PRC statutory financial statements IFRS adjustments: - Adjustment on deferred tax assets - Reclassification of prior year profit appropriation to staff welfare payable - Adjustment on fair value for financial assets at fair value through profit or loss - Adjustment on provision for bad debt - Others As restated after IFRS adjustments	Net profit for the six months ended June 30, 2006 2005 Unaudited Unaudited RMB’000 RMB’000 13,595 5,210 － － － － － － － － － － 13,595 5,210	Shareholders’ equity
		June 30, , 2006 December 31, , 2005 Unaudited Audited RMB’000 RMB’000 546,966 533,371 15,466 15,466 (15,949) (15,949) － － (454) (454) 1,294 1,294 547,323 533,728

30