Hang Seng Bank Limited - Proxy Solicitation & Information Statement 2007

THis CiRCULAR is iMPORTANT AND REQUiREs YOUR iMMEDiATE ATTENTiON

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

if you have sold or transferred all your shares in China Fortune Holdings Limited, you should at once hand this circular together with the accompanying form of proxy to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims 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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**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 110)

(Formerly known as Fortune Telecom Holdings Limited)

PROPOsED MAJOR AND CONNECTED TRANsACTiON CONCERNiNG THE DisPOsAL OF 49% iNTEREsT iN FTC DisTRiBUTiON ENGAGED iN HANDsET DisTRiBUTiON BUsiNEss

Financial adviser to the Company

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WALLBANCK BROTHERs securities (Hong Kong) Limited

independent Financial Adviser to the independent Board Committee and the independent shareholders

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south China Capital Limited

A letter from the Independent Board Committee is set out on page 15 of this circular.

A letter from South China Capital containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 16 to 28 of this circular.

A notice convening a special general meeting of the Company to be held at Room 1505-7, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong at 11:00 a.m. on Tuesday, 18 December 2007 is set out on pages 57 to 58 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompany form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong Tricor Abacus Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting or any adjourned meeting (as the case may be).

Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or at any adjourned meeting should you so wish.

30 November 2007

* For identification purpose only

	Page
Definitions 1
Letter from the Board	4
Letter from the Independent Board Committee	15
Letter from south China Capital	16
Appendix I – Valuation report 29
Appendix II – General information	50
notice of sGM	57

Definitions

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

“associates” has the meaning ascribed to it under the Listing Rules “Board” the board of Directors “Business” the handset distribution business in the PRC “Business Day” a day (other than a Saturday or a Sunday) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
“Business Transfer” the transfer of Business from Fortune (Shanghai) International Trading Co., Ltd., an indirect wholly-owned subsidiary of the Vendor, to Shanghai YJ
“Company” China Fortune Holdings Limited (formerly known as Fortune Telecom Holdings Limited), a company incorporated in Bermuda with limited liability, whose securities are listed on the Stock Exchange
“Completion” completion on the 2nd Business Day after all the conditions precedent are fulfilled, or on such other date as the Purchaser and Vendor may agree in writing
“Consideration” the consideration of HK$57,820,000 for the Disposal “Directors” directors of the Company “Disposal” the sale of Vendor’s 49% equity interest in FTC Distribution to the Purchaser pursuant to the Disposal Agreement
“Disposal Agreement” the sale and purchase agreement entered into between the Vendor and the Purchaser in relation to the Disposal
“FTC Distribution” Fortune Telecom (China) Distribution Limited (formerly known as China Huangshi Resources Investment Company Limited), a company incorporated in Hong Kong with limited liability and wholly-owned by the Vendor
“Group” the Company and its subsidiaries “HK$” Hong Kong dollars, the lawful currency of Hong Kong
1 -

	Definitions
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Independent Shareholders”	Shareholders except Mr. Lau Siu Ying and his associates
“Latest Practicable Date”	28 November 2007, being the latest practicable date for the
	purpose of ascertaining certain information contained in this
	circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“PRC”	the People’s Republic of China which for the purpose of this
	circular, excludes Hong Kong, the Macau Special Administrative
	Region and Taiwan
“Purchaser”	Mr. Lau Siu Ying, the chairman and chief executive officer of
	the Company
“Reorganisation”	the Business Transfer and the Share Transfer
“RMB”	the lawful currency of the People’s Republic of China
“SGM”	the special general meeting of the Company to be convened and
	to consider and, if thought fit, approve, among other things, the
	Disposal
“Shanghai YJ”	Shanghai Yuanjia International Trading Limited (上海遠嘉國際
	貿易有限公司), a company incorporated in the PRC with limited
	liability and wholly-owned by the Vendor indirectly
“Share(s)”	ordinary share(s) of HK$0.10 each in the share capital of the
	Company
“Share Transfer”	the transfer of the entire issued share capital of Shanghai YJ
	from Fortune Telecom (China) Limited to FTC Distribution
“Shareholder(s)”	holder(s) of the Shares
“South China Capital”	South China Capital Limited, being a deemed licensed corporation
or “Independent Financial	to carry out Type 6 (advising on corporate finance) regulated
Adviser”	activity as set out in Schedule 5 of the SFO, the Independent
	Financial Adviser to the Independent Board Committee and the
	Independent Shareholders in relation to the Disposal
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

Definitions

“USD”	United States dollars, the lawful currency of the United States
	of America
“Vendor”	Fortune Telecom Limited, a company incorporated in Hong
	Kong with limited liability and wholly-owned by the Company
	indirectly
“%”	per cent.

For the purpose of this circular, all amounts denominated in RMB and USD have been translated (for information only) into HK$ using the exchange rates of RMB1.00:HK$1.00 and USD1.00:HK$7.80. Such translation shall not be construed as a representation that amounts of RMB and USD were or may have been converted.

Letter from the Board

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**China fortune holdings Limited 中國長遠控股有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 110)

(Formerly known as Fortune Telecom Holdings Limited)

Executive Directors: Lau Siu Ying (Chairman and C.E.O.) Luo Xi Zhi

Non-executive Directors:

Fung Oi Ip, Alfonso Lo Wing Yat

Independent Non-executive Directors:

Chang Wing Seng, Victor Wong Lit Chor, Alexis Chen Yi Gang

Registered Office: Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda

Principal Office in Hong Kong:

Room 1505-7, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong

30 November 2007

To the Shareholders

Dear Sir or Madam,

ProPoSed maJor aNd CoNNeCted traNSaCtIoN CoNCerNING the dISPoSaL of 49% INtereSt IN ftC dIStrIBUtIoN eNGaGed IN haNdSet dIStrIBUtIoN BUSINeSS

INtrodUCtIoN

On 22 October 2007, the Board announced that on 17 October 2007, the Vendor had entered into the Disposal Agreement pursuant to which the Vendor has conditionally agreed to sell, and the Purchaser has conditionally agreed to purchase 49% equity interest in FTC Distribution, a whollyowned subsidiary of the Vendor engaged in handset distribution business through Shanghai YJ after the Reorganisation. The consideration for the Disposal is HK$57,820,000 payable by cash according to the payment schedule set forth in the section headed “Consideration” under “THE DISPOSAL AGREEMENT” in this circular.

For identification purpose only
4 -

Letter from the Board

Based on the Consideration, it is estimated that the Group will record an unaudited gain of approximately HK$13.02 million (subject to confirmation), with reference to the net asset values of the handset distribution operation as at 30 June 2007 after Reorganisation and FTC Distribution as at 31 August 2007, upon the Disposal.

The Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. Given that the Purchaser is the controlling shareholder and therefore a connected person (as defined under the Listing Rules) of the Company, the Disposal also constitutes a non-exempt connected transaction under Chapter 14A of the Listing Rules and is therefore subject to the reporting and announcement requirements under the Listing Rules as well as the Independent Shareholders’ approval at the SGM by way of poll. The Purchaser and his associates will abstain from voting with respect to the proposed resolution for approving the Disposal.

An Independent Board Committee has been formed to advise the Independent Shareholders on the Disposal. South China Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Disposal Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

The purpose of this circular is to give you (i) further details of the Disposal; (ii) the recommendation of the Independent Board Committee regarding the Disposal to the Independent Shareholders; (iii) a letter from South China Capital containing its advice to the Independent Board Committee and the Independent Shareholders on the Disposal; and (iv) the notice of the SGM and the proxy form.

the dISPoSaL aGreemeNt

date

17 October 2007

Parties

Purchaser: Mr. Lau Siu Ying as the purchaser, the chairman and chief executive officer of the Company. Accordingly, the Purchaser is a connected person (as defined under the Listing Rules).

Vendor: Fortune Telecom Limited as the vendor, an indirect wholly-owned subsidiary of the Company incorporated in Hong Kong.

assets to be disposed of

Pursuant to the Disposal Agreement, the Vendor has conditionally agreed to sell, and the Purchaser has conditionally agreed to purchase 49% equity interest in FTC Distribution, a whollyowned subsidiary of the Vendor engaged in handset distribution business through Shanghai YJ after the Reorganisation.

Letter from the Board

The Vendor is an investment holding company. The financial results of the Vendor are consolidated into the Company’s consolidated financial statements. The Vendor recorded a net profit after tax of approximately HK$5,397,000 (subject to confirmation) and a net loss after tax of approximately HK$17,705 (subject to confirmation) for the year ended 31 December 2005 and 2006 respectively.

Set out below is the shareholding structure of FTC Distribution before the Reorganisation, after the Reorganisation but immediately before Completion and after Completion:

Before reorganisation

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Letter from the Board

after reorganisation but before Completion

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

Purchaser
50.56%
The Company
100%
Express Fortune Holdings Limited
100%
Vendor
100% 100%
FTC Distribution Fortune Telecom (China) Limited
100% 100%
Shanghai YJ
Fortune (Shanghai) International Trading
Co., Ltd.
handset distribution
business
Fulfillment business
and other businesses
Purchaser
49% 50.56%
The Company
100%
Express Fortune Holdings Limited
100%
Vendor
51% 100%
FTC Distribution Fortune Telecom (China) Limited
100% 100%
Shanghai YJ Fortune (Shanghai) International Trading
Co., Ltd.
handset distribution
business Fulfillment business
and other businesses
----- End of picture text -----

after Completion

Letter from the Board

The Directors represented that the fulfillment business is the provision of logistics and sales processing services of Nokia’s products to Nokia Professional Centres/Nokia Stores (NPCs). The Company’s principal, Nokia, would conclude sales price and quantity with NPCs and the Company would provide services so that the sales could be fulfilled. The fulfillment business was commenced on 28 August 2006.

The other businesses were mainly the trading of mobile phones and was commenced since the establishment of Fortune (Shanghai) International Trading Co., Ltd..

The Directors represented that at the Latest Practicable Date, the Company does not have the intention to dispose the remaining 51% interest in FTC Distribution. The Company still has the controlling interest in the business and confirm that there is not a change in principle business of the Company at this moment.

Consideration

The Consideration for the Disposal is HK$57,820,000 payable by cash according to the payment schedule as follows:

(i) an initial payment of HK$10,000,000 will be payable on Completion;
(ii) the second payment of HK$23,910,000 will be made within 6 months from Completion; and
(iii) the remaining balance of HK$23,910,000 will be payable within 12 months from Completion.

The valuation report of Shanghai YJ prepared by LCH (Asia-Pacific) Surveyors Limited as at 30 September 2007 of HK$128 million is set out in Appendix I to this circular. The Consideration represents a discount of approximately 7.81% to the valuation of Shanghai YJ as at 30 September 2007.

BaSIS of CoNSIderatIoN

The Consideration was determined after arm’s length negotiation between the Purchaser and the Vendor with reference to, among other things, the valuation of handset distribution business for HK$128 million, at the valuation date of 30 September 2007, as appraised by LCH (Asia-Pacific) Surveyors Limited, an independent professional valuer.

As referred to Appendix I of this circular, the valuation of handset distribution business has already included the handset distribution business to be transferred pursuant to the Reorganisation.

The Directors represented that the discrepancy between the Consideration and the valuation is due to the fact that the remaining 51% shareholding is a controlling stake. Therefore, the said 49% shall be at a discount to the said HK$128 million.

Given the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the Disposal Agreement are fair and reasonable and on normal commercial terms and the entering into of the Disposal Agreement is in the interests of the Company and the Shareholders as a whole.

Letter from the Board

Conditions Precedent

The Disposal Agreement is conditional upon the fulfillment or performance of the following conditions on or before 27 December 2007:–

(i) the approval of the Disposal Agreement by the Independent Shareholders at the SGM in accordance with the Listing Rules;
(ii) the obtaining by the Vendor of all relevant bank consents if required;
(iii) the Purchaser being reasonably satisfied with the results of a legal, accounting and financial due diligence;
(iv) the Purchaser being reasonably satisfied that the Reorganisation has been duly completed; and
(v) no representation, warranty or agreement of the Vendor contained in the Disposal Agreement and required to be performed before Completion having been breached.

Completion

Completion will take place upon satisfaction of the above mentioned precedent conditions on or before 27 December 2007 and after the Reorganisation. After completion of the Disposal, FTC Distribution will be an indirect non wholly-owned subsidiary of the Company to be engaged in handset distribution through Shanghai YJ.

As at the Latest Practicable Date, none of the conditions has been fulfilled.

reaSoNS for the dISPoSaL

The Company is principally engaged in distribution of mobile phones and related accessories in the PRC.

Due to the recent unsatisfactory performance and loss making nature of handset distribution business of the Group, it is in the benefit of the Group to dispose certain interest of the handset distribution business of the Group in order to cut loss and diversify the risk.

The reason behind the financial position for the handset distribution business changed from profit to loss position has been indicated in the latest interim report. For Nokia mobile phones, the Group was transforming from national distribution to national fulfillment distribution. Under the new arrangement, the Group provides fulfillment distribution to full range of Nokia models to all Nokia stores in China. During the transition period, the Group suffered from tough price competition among the mobile phone models, namely N3220 and N7610, distributed through our national distribution mode as these models were running towards their product life ends.

Letter from the Board

problem in one of the Group’s important Samsung model, namely D848, during the period. As a result, the group has suffered first time operation loss during the period.

fINaNCIaL aNd tradING ProSPeCtS

As mentioned in the interim report of the Company for the six months ended 30 June 2007, even though the total number of handsets sold reached approximately 1.4 million sets and the consolidated turnover rose to approximately HK$1,587 million for the first six months ended 30 June 2007, representing an increase of 8% and 30% respectively as compared with those for the previous corresponding period, the gross margin has dropped significantly from 4.2% to -0.2%.

For Nokia mobile phones, the Group was transforming from national distribution to national fulfillment distribution. Under the new arrangement, the Group provides fulfillment distribution to full range of Nokia models to all Nokia stores in China. During the transition period, the Group suffered from tough price competition among the mobile phone models, namely N3220 and N7610, distributed through our national distribution mode as these models were running towards their product life ends.

The Directors represented that the Company also intends to expand its national fulfillment business to other mobile brands. However, the Company has not finalized the brands to be included in the fulfillment business.

For Samsung mobile phone national distribution, due to the repeated delay in the launch of 2 new Samsung models from 2nd quarter to 3rd quarter of the year, the Group did not deliver any new model resulting in losses of operating cost during the period. There was also unexpected quality problem in one of the Group’s important Samsung model, namely D848, during the period. As a result, the Group has suffered first time operation loss during the period.

More losses also came from stock clearance of some slow moving models like, N9300, E50, 788e and i858.

The distribution costs, however, increased by HK$26.2 million or 168% to HK$41.8 million for the six months ended 30 June 2007 mainly because of the increase in marketing expenses for promoting Samsung mobile phones and facilitating stock clearance of Nokia mobile phones. Due to a one-off equity-settled share based payment expense of HK$17.3 million, the Company also recorded an increase in administrative expenses from HK$7.8 million last period to HK$31.7 million this period.

In February 2007, the Group contracted to acquire 51% stake in 珠海市雷鳴達通訊設備有限公司, a company which is principally and actively involved in the business of distribution and retails of mobile phones, telecom equipments, electronic products, office equipments and their repair services in Zhuhai area.

In April 2007, the Group purchased 50% shareholding in DW Mobile Technology Limited which is principally and actively involved in the business of outlook and content design, marketing and distribution of licensed, characterized and premium mobile phones.

In June 2007, the Company entered into an agreement with TeleChoice International Limited, an indirect subsidiary of Singapore Technologies Telemedia Pte Ltd, which is a wholly-owned subsidiary of Temasek Holdings (Private) Limited, to establish a joint venture to engage in the logistics and fulfillment business for Nokia-branded mobile handsets and accessories in the PRC.

10 -

Letter from the Board

On 24 July 2007, the Group entered into an agreement (amended by a supplemental agreement on 27 July 2007) to acquire from Messrs Lau Siu Ying, Lau Hung Bing and Lau Kin Ying (both are brothers of Mr. Lau Siu Ying) (collectively the “Vendors”) approximately 40.8% equity interest in a mining company in the PRC (the “PRC Mining Company”). At the date of entering into the acquisition agreement, the PRC Mining Company had the right to conduct mining activities in a mining site which is located in Huangshi, southeastern Hubei. The mining site has a general mining area of approximately 0.62 square kilometers and the mineral resources of the mining site include Celestite, Zinc and Lead.

In August 2007, the Group acquired 25% stake of Intelligence Tech Limited, a company providing software and hardware design, as well as total integrated solutions for mobile terminal technology, particularly focusing in the development of unique feature phone, smartphone and PDA phone targeting the PRC market.

The Directors represented that the Group’s core business will transform from handset distribution business to fulfillment business in order to avoid risk of piling up inventories.

To correctly reflect the new core business direction of the Group, on 18 October 2007, the Group changed its name to “China Fortune Holdings Limited”. The Group has also successfully secured a new domain name www.chinafortune.com.

In November 2007, the Group entered into a supplemental agreement in relation to the acquisition of the PRC Mining Company (the “Acquisition”) pursuant to which (i) the consideration for the Acquisition was agreed by the Group and the Vendors to be adjusted down from HK$408 million to HK$367.2 million; and (ii) a profit guarantee provided by the Vendors for not less than RMB80 million profit before tax for the fiscal year ended 31 December 2008 for the PRC Mining Company after restructuring into a sino-foreign equity joint venture (the “JV”). In addition, the Group entered into an agreement with Foshan Goldsonic Telecom Development Company Limited (“Foshan Goldsonic”) to acquire a further 10% direct interest in the PRC Mining Company after the establishment of the JV. A profit guarantee is provided by the Foshan Goldsonic and Mr. Zhang Zhulin for not less than RMB80 million profit before tax for the fiscal year ended 31 December 2008 for the JV.

Other than the business investments as described above, the Group also intends to enhance the Company’s value to the shareholders by further exploring the viability of diversifying its business into other areas, such as property development in the PRC. The Group is in the process of carrying out review and feasibility study on its core competence and resources deployment with the aim of successfully achieving the said objectives.

fINaNCIaL effeCt of the dISPoSaL oN the GroUP

The net proceeds from the Disposal will be applied as general working capital of the Group. The Directors confirmed that the proceeds would not be used to finance the Company’s acquisition of mining rights as disclosed in the announcement dated 27 July 2007.

11 -

Letter from the Board

INformatIoN of ftC dIStrIBUtIoN

FTC Distribution is an investment holding company incorporated on 26 June 2007, a whollyowned subsidiary of the Vendor. After the Reorganisation, FTC Distribution will be principally engaged in the handset distribution business and the sole asset of FTC Distribution will comprise of the entire equity interest of Shanghai YJ. Apart from this, FTC Distribution has no other business activity and asset.

INformatIoN of ShaNGhaI YJ

After the Reorganisation, Shanghai YJ will become a wholly-owned subsidiary of FTC Distribution and will be principally engaged in international trading and transit trading of electrical products. Immediately prior to signing of the Disposal Agreement, Shanghai YJ had a registered capital of USD6,000,000 (equivalent to approximately HK$46,800,000).

INformatIoN of haNdSet dIStrIBUtIoN BUSINeSS

Shanghai YJ possesses an extensive distribution and services network in handset distribution, business with operations in Hong Kong, Beijing, Shanghai, Guangzhou and over 70 sales operations in province/city levels across the PRC with more than 1,500 operating and sales personnel. The Group has about 10,000 active customers and supplies directly to over 30,000 mobile and IT retail shops in the PRC and Hong Kong.

Based on the management accounts of the handset distribution business, the unaudited net asset value of the handset distribution business amounted to approximately HK$91,432,000 as of 30 June 2007, and the unaudited profit/(loss) before and after taxation attributable to the handset distribution business for the two years ended 31 December 2006 and six months ended 30 June 2007 are as follows:

	Six months ended	Year ended	Year ended
	30 June 2007	31 december 2006	31 december 2005
	(Unaudited)	(Unaudited)	(Unaudited)
Profit/(Loss) before taxation	HK$(75,542,000 )	HK$21,822,000	HK$1,714,000
Profit/(Loss) after taxation	HK$(75,181,000 )	HK$16,011,000	HK$1,572,000

12 -

Letter from the Board

GeNeraL

The SGM will be convened at which resolutions will be proposed to seek the Independent Shareholders’ approval of the Disposal Agreement and the transaction contemplated thereunder.

The Independent Board Committee has been formed to advise the Independent Shareholders on the terms of the Disposal Agreement. South China Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Disposal Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

SGm

The SGM will be held at Room 1505-7, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong at 11:00 a.m. on Tuesday, 18 December 2007 to consider and, if thought fit to approve the Disposal.

A notice convening the SGM is set out on pages 57 to 58 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompany form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Abacus Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof.

Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or at any adjourned meeting should you so wish.

ProCedUre to demaNd a PoLL at GeNeraL meetING

Under the bye-laws of the Company, at any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

(i) by the chairman of the meeting; or
(ii) by at least three Shareholders’ present in person (or, in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy for the time bring entitled to vote at the meeting; or
13 -

Letter from the Board

(iii) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the rights to vote at the meetings; or
(iv) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

reCommeNdatIoN

The Directors consider that the terms of the Disposal Agreement are fair and reasonable to the Company and in the interest of the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Disposal Agreement and the transaction contemplated thereunder.

Your attention is also drawn to the letter from the Independent Board Committee set out on page 15 of this circular and the letter from South China Capital to the Independent Board Committee and the Independent Shareholders in connection with the Disposal Agreement and the transaction contemplated thereunder and the principal factors and reasons considered by them in arriving at such advice set out on pages 16 to 28 of this circular.

The Independent Board Committee, having taken into account the advice of South China Capital considers that the terms of the Disposal Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the interest of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Disposal Agreement and the transaction contemplated thereunder.

addItIoNaL INformatIoN

Your attention is drawn to the additional information set out in the appendices to this circular.

By order of the Board China fortune holdings Limited Lau Siu Ying

Chairman and Chief Executive Officer

14 -

Letter from the INDePeNDeNt BoArD CommIttee

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in respect of the Disposal:

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**China fortune holdings Limited 中國長遠控股有限公司[*]**

(Incorporated in Bermuda with limited liability)

(Stock Code: 110)

(Formerly known as Fortune Telecom Holdings Limited)

30 November 2007

To the Independent Shareholders

Dear Sir or Madam,

ProPoSeD mAJor AND CoNNeCteD trANSACtIoN CoNCerNING the DISPoSAL of 49% INtereSt IN ftC DIStrIBUtIoN eNGAGeD IN hANDSet DIStrIBUtIoN BUSINeSS

We refer to the circular (“Circular”) issued by the Company to its shareholders dated 30 November 2007 of which this letter forms part. Capitalised terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board to consider the Disposal Agreement and the transaction contemplated thereunder. South China Capital has been appointed as an independent financial adviser to advise us and the Independent Shareholders in this respect.

We wish to draw your attention to the letter from the Board and the letter from South China Capital set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of South China Capital set out in the letter of advice set out in the Circular, we consider that the Disposal Agreement and the transaction contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned and the Disposal Agreement and the transaction contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions in relation to the above which are set out in the notice of the SGM at the end of the Circular.

Yours faithfully,

For and on behalf of the

Independent Board Committee

Chang Wing Seng, Victor Wong Lit Chor, Alexis Chen Yi Gang Independent Non-executive Directors

For identification purpose only
15 -

Letter from SoUtH CHINA CAPItAL

Set out below is the text of a letter received from South China Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders regarding the Disposal for the purpose of inclusion in this circular.

==> picture [54 x 31] intentionally omitted <==

South China Capital Limited

28/F., Bank of China Tower No. 1 Garden Road Central Hong Kong

30 November 2007

To: The independent board committee and the independent shareholders of China Fortune Holdings Limited

Dear Sirs,

mAJor AND CoNNeCteD trANSACtIoN: DISPoSAL of 49% INtereSt IN ftC DIStrIBUtIoN eNGAGeD IN HANDSet DIStrIBUtIoN BUSINeSS

INtroDUCtIoN

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the Disposal, details of which are set out in the letter from the Board (the “Board Letter”) contained in the circular dated 30 November 2007 issued by the Company to the Shareholders (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 17 October 2007, the Vendor, being a wholly-owned subsidiary of the Company, and the Purchaser, being the Chairman and Chief Executive Officer of the Company, entered into the Disposal Agreement pursuant to which the Purchaser conditionally agreed to purchase and the Vendor conditionally agreed to sell its 49% equity interest in FTC Distribution (after the Reorganisation) for a total consideration of HK$57,820,000.

The Disposal constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. In addition, since the Purchaser is the Chairman and the Chief Executive Officer of the Company, the Disposal also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is therefore subject to the Independent Shareholders’ approval at the SGM by way of poll. The Purchaser and his associates shall be required to abstain from voting on the relevant resolution(s) to approve the Disposal Agreement and the transactions contemplated thereunder at the SGM.

An Independent Board Committee comprising Mr. Chang Wing Seng, Victor, Mr. Wong Lit Chor, Alexis and Mr. Chen Yi Gang (all being independent non-executive Directors) has been formed to advise the Independent Shareholders on (i) whether the terms of the Disposal Agreement are on

16 -

Letter from SoUtH CHINA CAPItAL

normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Disposal is in the ordinary and usual course of business of the Company and is in the interests of the Company and the Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the relevant resolution(s) to approve the Disposal Agreement and the transactions contemplated thereunder at the SGM. We, South China Capital, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

BASIS of oUr oPINIoN

In formulating our advice and recommendation to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true, complete and accurate in all material respects at the time when they were made and continue to be so as at the date of the despatch of the Circular. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiries and careful considerations. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or Directors, which have been provided to us. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our recommendation in compliance with Rule 13.80 of the Listing Rules.

We have not made an independent evaluation or appraisal of the assets and liabilities of the Group and FTC Distribution, and we have not been furnished with any such evaluation or appraisal, save and except for the valuation report prepared by LCH (Asia-Pacific) Surveyors Limited (the “Valuer”) (the “Valuation Report”) as contained in Appendix I to the Circular for the market value of the entire equity interest of Shanghai YJ. We are not experts in the valuation of companies and therefore have relied solely upon the Valuation Report for the market value of the entire equity interest of Shanghai YJ as at 30 September 2007.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading.

We consider that we have been provided sufficient information to reach an informed view and to provide a reasonable basis for our recommendation. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company and the Purchaser, or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Disposal. In addition, we have no obligation to update this opinion to take into account events occurring after the issue of this letter. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

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Letter from SoUtH CHINA CAPItAL

PrINCIPAL fACtorS AND reASoNS CoNSIDereD

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

(1) Background of the Disposal

Information on the Group

As confirmed by the Directors, the Group is principally engaged in the handset distribution business, i.e. the Business, the handset fulfillment business and other businesses in the PRC.

Set out below are the financial information of the Group for the six months ended 30 June 2007, the six months ended 30 June 2006 and the two years ended 31 December 2006 as extracted from the Company’s unaudited interim report for the six months ended 30 June 2007 (the “2007 Interim Report”) and its audited annual report for the year ended 31 December 2006 (the “2006 Annual Report”) respectively:

	for the	for the				from
	six months	six months		for the	for the	30 June
	ended	ended	year ended		year ended	2006 to	Year
	30 June	30 June	31 December		31 December	30 June	on year
	2007	2006		2006	2005	2007	change
	(unaudited)	(unaudited)	(audited)		(audited)
	HK$’000	HK$’000	HK$’000		HK$’000	%	%
Turnover	1,587,023	1,217,168	3,046,805		2,664,254	30.39	14.36
Profits/(Loss)
before taxation	(85,132 )	22,697		37,544	20,344	N/A	84.55
Profits/(Loss)
after taxation	(84,792 )	17,734		31,339	16,207	N/A	93.37
			As at		As at		As at
		30 June	2007	31 December 2006		31 December 2005
		(unaudited)			(audited)		(audited)
		HK$’000			HK$’000		HK$’000
Net asset value	(“NAV”)	396,457			396,168		353,914

From the above table, we note that the audited total turnover of the Group rose from approximately HK$2,664 million to HK$3,047 million from 2005 to 2006, representing an increase of approximately 14.36%. During the same said years under review, the Group’s profits before and after tax also increased significantly by approximately 84.55% and 93.37% respectively. Nevertheless, the Group’s profitability had been deteriorating substantially since the beginning of 2007. As referred to in the 2007 Interim Report, the gross profit margin of the Group dropped from approximately 4.2% for the six months ended 30 June 2006 to -0.2% for the corresponding period in 2007. The Group had incurred losses before and after taxation

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Letter from SoUtH CHINA CAPItAL

of approximately HK$85 million for the six months ended 30 June 2007. As confirmed by the Directors, the loss was mainly resulted from the unsatisfactory performance and the loss making nature of the Business. We shall elaborate the reasons for such loss as provided by the Directors under the paragraph headed “Information on the Business” in this letter.

For the sake of delineating its business structure, the Group initiated the Reorganisation in October 2007. The Reorganisation is expected to be completed in December 2007 before the Disposal takes place. Upon completion of the Reorganisation, FTC Distribution, being an indirect wholly-owned subsidiary of the Company, through Shanghai YJ, will concentrate on the Business; whereas Fortune Telecom (China) Limited, being the Company’s another indirect wholly-owned subsidiary, through Fortune (Shanghai) International Trading Co. Ltd., will concentrate on the handset fulfillment business and other businesses in the PRC.

Information on FTC Distribution

FTC Distribution is an investment holding company incorporated in Hong Kong on 26 June 2007. As aforementioned, following the Reorganisation, FTC Distribution will be principally engaged in the Business and the sole asset of FTC Distribution will consist of the entire equity interest in Shanghai YJ.

Information on Shanghai YJ

Shanghai YJ is a company incorporated in the PRC with limited liability. As part of the Reorganisation, the Group will transfer the Business from Fortune (Shanghai) International Trading Co. Ltd. to Shanghai YJ. Shanghai YJ will therefore be principally engaged in the Business following the Reorganisation.

According to the Board Letter, Shanghai YJ possesses an extensive handset distribution and services network in Hong Kong, Beijing, Shanghai, Guangzhou, the PRC. Shanghai YJ also owned over 70 sales operations in province/city levels across the PRC with more than 1,500 operating and sales personnel as at the Latest Practicable Date.

Information on the Business, the handset fulfillment business and other businesses

As mentioned in the foregoing, the Group’s business can be divided into the Business, the handset fulfillment business and other businesses in the PRC. With regard to the Business, we have enquired into and were advised by the Directors that the Group mainly distributes Nokia and Samsung’s handsets through the established sales operations of Shanghai YJ across the PRC. The Group as a distributor would suffer from hiking inventory in the event that the sales of handset are unsatisfactory.

Whereas for the handset fulfillment business, we note that it refers to the provision of logistics and sales processing services of Nokia’s products to Nokia Professional Centres/Nokia Stores (“NPCs”) in the PRC. Nokia, being the Group’s only client for the fulfillment business, would conclude sales price and quantity with NPCs and the Group would provide services so that the sales could be fulfilled. The Group commenced the fulfillment business on 28 August 2006 when the Directors foresaw the development opportunities in such business.

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Letter from SoUtH CHINA CAPItAL

Lastly, we were given to understand by the Directors that the other businesses are mainly the trading of handset which has been conducted by Fortune (Shanghai) International Trading Co. Ltd. since 1998.

The following table set out the unaudited financial information of the Business based on the management accounts of the Business for the six months ended 30 June 2007 and the two years ended 31 December 2006 respectively:

	for the
	six months ended	for the year ended	for the year ended
	30 June 2007	31 December 2006	31 December 2005
	(unaudited)	(unaudited)	(unaudited)
	HK$’000	HK$’000	HK$’000
Gross profit/(loss)	(20,132)	97,901	67,471
Profits/(Loss) before taxation	(75,542)	21,822	1,714
Profits/(Loss) after taxation	(75,181)	16,011	1,572
	As at	As at	As at
	30 June 2007	31 December 2006	31 December 2005
	(unaudited)	(unaudited)	(unaudited)
	HK$’000	HK$’000	HK$’000
NAV	91,432	166,613	146,391

As illustrated by the above table, even though the Business was profitable for the two years ended 31 December 2006, it could not sustain its profitability from the beginning of 2007. According to the 2007 Interim Report, the Business recorded considerable losses for the six months ended 30 June 2007 due to the following reasons:

(1) the six months ended 30 June 2007 was the transition period of the Group from national distribution to national fulfillment for Nokia mobile phones. In order to clear the stock of some of Nokia’s mobile phones which were running towards their product life ends, the Group suffered from tough price competition;
(2) for the Samsung mobile phone national distribution, due to the repeated delay in the launch of two new Samsung models from 2nd quarter to 3rd quarter of 2007, the Group did not deliver any new models for the six months ended 30 June 2007 resulting in losses of operating costs; and
(3) the marketing expenses for promoting Samsung mobile phones and facilitating stock clearance of Nokia mobile phones had increased and thereby driving up the distribution costs by approximately 168% to approximately HK$41.8 million for the six months ended 30 June 2007 as compared to the corresponding period in 2006.
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Letter from SoUtH CHINA CAPItAL

The Directors are of opinion that the operating environment within the handset distribution industry in the PRC has become increasing competitive. In particular, the Directors are aware of that most handset manufacturers are trying to cut the distribution layers by directly supplying their handsets to provincial distributors and leading retailers in the PRC in order to minimize the operating costs.

We have also researched into the internet in order to form a better understanding on the handset distribution industry in the PRC. From the information we found, we notice that the PRC’s handset distribution industry is under keen competitions. Handset manufacturers and distributors are seeking ways to simplify the handset distribution channels. Since 2003, Motorola and Nokia have started to restructure their distribution channels by abandoning the national distributor system and starting to use provincial distributors. Furthermore, beginning from 2002, the number of specialist handset retailers in the PRC has started to shrink while the household electronic appliance chains which also offer the sales of handsets have expanded. Besides that, in cities like Beijing and Shanghai, the PRC, online sales channels for handsets have been developed. Having considered the aforementioned phenomenon, we concur with the Directors that the PRC’s handset distribution industry will become more diversified, integrated and competitive in the coming future.

While the Group had been encountering the aforementioned difficulties when conducting the Business during the six months ended 30 June 2007, and is facing a competitive operating environment within the handset distribution industry in the PRC, the Directors foresaw the development opportunities in the handset fulfillment services business. Given that (i) most of the leading handset vendors have established sizable individual sales and marketing forces and hence do not require outsider distributors; (ii) plenty of the handset retailers and wholesalers are in need of an efficient operator to fulfill their transactions; and (iii) an increasing number of handset operators such as China Mobile are willing to subsidise activities which will create opportunity for bridging the supply chain between vendors and the widespread retail outlets, the market will require an increasing amount of integrated handset fulfillment distributors who can provide all necessary services, including but not limited to transaction handling, credit financing, delivery, rebate execution and stock buffering, etc. to the customers. In return, the handset fulfillment distributors can receive a contractual margin, as well as various rebates as their service income. The Directors considered such business model to be more transparent as it allows buyer, supplier and fulfillment distributor to share common information. Furthermore, the Directors also expected that such business model will emerge to become the leading business model within the handset services industry.

Having considered (i) the deteriorating profitability of the Business for the six months ended 30 June 2007 and the reasons as put forth by the Directors for such deterioration; (ii) the competitive operating environment within the handset distribution industry in the PRC; and (iii) the upcoming development opportunities within the handset services industry for fulfillment distributors, we concur with the Directors that the Business is likely to suffer from keen competitions whilst the handset fulfillment business and other businesses of the Group in the PRC may have a potential to expand in the future. Shareholders should also note that since Nokia is currently the only client of the Group for the handset fulfillment business, the Group’s operations may be adversely affected in the event that the Group fails to maintain

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Letter from SoUtH CHINA CAPItAL

its business relationship with Nokia and is not able to procure other clients for the handset fulfillment business. Nevertheless, the Directors are confident to procure other clients such as Motorola, Sony Ericsson and LG for the handset fulfillment business given the Group’s extensive experience in this industry. In addition, we were also advised by the Directors that the aforementioned adverse effect would not be crucial to the Group as the Group is in the process of implementing its business diversification strategy including the acquisition of a mining company in the PRC as announced by the Company on 27 July 2007.

Reasons for the Disposal

From the Board Letter, we understand that the Directors considered that it is in the benefit of the Group to dispose of certain interest in the Business in order to limit the operating loss and diversity the business risk. Accordingly, the Company proposes to dispose of its existing 49% equity interest in FTC Distribution, which will be principally engaged in the Business following the Reorganisation. The Directors further confirmed that the Company does not have an intention to dispose of its remaining 51% equity interest in FTC Distribution at present. As a result, FTC Distribution will no longer be wholly-owned by the Company and the Company will consolidate only 51% of the financial results of FTC Distribution into the financial statements of the Group.

Based on the contrasting development prospects of the Business and the handset fulfillment business and other businesses of the Group in the PRC as detailed in the paragraph headed “The Business, the handset fulfillment business and other businesses” in this letter, we concur with the Directors that the Disposal would limit the operating loss and diversity the business risk of the Group. After the Disposal, the Group would be able to focus its resources on the potentially expanding handset fulfillment business and other businesses and thus the Disposal may enhance the overall business performance of the Group in the future. Due to the fact that the Group will maintain 51% equity interest in FTC Distribution, the Disposal would allow the Group to continue to control the management of FTC Distribution and enjoy the flexibility to share in FTC Distribution’s profits in case of any possible future improvement in the development prospects of the Business. As also stated in the Board Letter, the Directors expected that the Group will enjoy an one-off gain of approximately HK$13.02 million (subject to final audit) from the Disposal.

Since the Group is principally engaged in the Business, the handset fulfillment business and other businesses in the PRC, it is in the ordinary and usual course of business for the Group to dispose part of the Business, which is currently loss making, through disposing 49% of its equity interest in FTC Distribution.

Given all of the foregoing (including the benefits which the Disposal may bring to the Group), we are of the opinion that the Disposal is in the ordinary and usual course of business of the Company and is in the interests of the Company and the Shareholders as a whole.

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Letter from SoUtH CHINA CAPItAL

(2) Principal terms of the Disposal Agreement

The Disposal Agreement was entered into between the Vendor and the Purchaser on 17 October 2007. Pursuant to the Disposal Agreement, the Purchaser conditionally agreed to purchase and the Vendor conditionally agreed to sell its 49% equity interest in FTC Distribution for the Consideration of HK$57,820,000. The Consideration will be payable in cash in the following manner:

(i) an initial payment of HK$10,000,000 will be payable on Completion;
(ii) the second payment of HK$23,910,000 will be made within six months from Completion; and
(iii) the remaining balance of HK$23,910,000 will be payable within 12 months from Completion.

Basis of the Consideration

As confirmed by the Directors, the Consideration was determined after arm’s length negotiation between the Purchaser and the Vendor. According to the Valuation Report, the market value of the entire equity interest of Shanghai YJ (after the Reorganisation) was approximately HK$128 million as at 30 September 2007 (the “Shanghai YJ Value”). As further confirmed by the Directors, since FTC Distribution had been set up shortly on 26 June 2007 and does not have any material assets and liabilities save and except for the 100% equity interest in Shanghai YJ upon completion of the Reorganisation but before the Completion, the value of FTC Distribution roughly equals to the market value of Shanghai YJ after the Reorganisation. We note that the Consideration represents a discount of approximately 7.81% to “49% of the Shanghai YJ Value”. In this regard, we have also enquired into and were advised by the Directors that the said discount is due to the fact that the remaining 51% shareholding is a controlling stake. We consider such justification to be acceptable in view of that the Disposal will allow the Group to partially abandon FTC Distribution which according to the Directors is likely to suffer from deteriorating profitability in the future.

In order to further assess the fairness and reasonableness of the Consideration, we have performed a trading multiple analysis which includes the price to earnings ratio (“PER”) and the price to book ratio (“PBR”). We have searched for companies listed on the Stock Exchange which are in similar lines of business to FTC Distribution, i.e. the handset distribution business (the “Market Comparables”). To the best of our knowledge and as far as we are aware of, there are ten companies which met these criteria. Set out below are the PERs and PBRs of the Market Comparables based on their closing prices on 16 October 2007, being the last trading day prior to the date of the Disposal Agreement (the “Last Trading Day”), and their latest published financial information:

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Letter from SoUtH CHINA CAPItAL

Company name		Year end
(Stock code)	Principal business	date	Per	PBr
Global Tech (Holdings)	Trading of telecommunications	30/9/2006	N/A	1.70
Limited (143)	products and provision of repair		(Note 1)	(Note 2)
	services of telecommunications
	products.
HKC International	Sales of mobile phones, sales of	31/3/2007	32.73	0.62
Holdings Limited	business solutions and property
(248)	investment.
CCT Telecom Holdings	Manufacture, sale, design and	31/12/2006	15.24	1.73
Limited (261)	develop of telecom and			(Note 2)
	electronic products and
	accessories, manufacture of
	plastic and power supply
	components, baby products,
	provision of ecommerce services,
	investment in securities and
	property development.
COL Capital Ltd (383)	Mobile phone distribution,	31/12/2006	2.28	0.57
	securities trading and			(Note 2)
	investments, financial services
	and property investment.
SunCorp Technologies	Design, manufacture and sale	30/6/2007	N/A	33.67
Limited (1063)	of telephones and related		(Note 1)
	equipment.
CASIL	Manufacture and distribution	31/12/2006	N/A	9.54
Telecommunications	of communications products,		(Note 1)	(Note 2)
Holdings Limited	intelligent transportation system,
(1185)	video conference system and
	broadband wireless access.
SIM Technology Group	Design, development, production,	31/12/2006	7.63	2.65
Limited (2000)	marketing and sale of			(Note 2)
	mobile handset and wireless
	communications module and
	LCD module.

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Letter from SoUtH CHINA CAPItAL

Company name		Year end
(Stock code)	Principal business	date	Per	PBr
DBA	Design, manufacture and sales of	31/12/2006	8.80	2.31
Telecommunication	telecommunication equipment			(Note 2)
(Asia) Holdings	and related products and sales of
Limited (3335)	telecommunication credit cards
	through smart cards vending
	machines.
T S Telecom	Assembly, distribution	31/3/2007	N/A	10.30
Technologies	and integration of		(Note 1)
Limited (8003)	telecommunications products,
	gas turbine generators, and
	biotechnology products.
First Mobile Group	Distribution, trading and retailing	31/12/2006	11.53	0.51
Holdings Limited	of mobile phones and related			(Note 2)
(8110)	accessories.
maximum			32.73	33.67
minimum			2.28	0.51
Average			13.03	6.36
the Disposal			7.37	1.29
			(Note 3)

Notes:

Loss was recorded in the latest published financial information of the selected companies.
PBR calculation based on the latest interim report of the selected companies.
The Business incurred unaudited loss after taxation for the six months ended 30 June 2007.

Source: the Stock Exchange web-site (www.hkex.com.hk)

(a) The PER analysis

From the above table, we note that the average PER as represented by the Market Comparables was approximately 13.03 times with a range of approximately 2.28 times to 32.73 times.

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Letter from SoUtH CHINA CAPItAL

Given that the unaudited profit after taxation of the Business for the year ended 31 December 2006 was approximately HK$16.01 million (subject to confirmation), the PER of the Disposal is approximately 7.37 times to the unaudited profit after taxation attributable to 49% of the equity interest in the Business for the year ended 31 December 2006, which falls within the PER range of the Market Comparables. In this regard, we also note that the Business actually suffered from an unaudited loss after taxation of approximately HK$75 million for the six months ended 30 June 2007. Accordingly, the above PER analysis is for reference only and it serves to provide a general picture on the PER of the listed companies in Hong Kong which are engaged in similar lines of business to FTC Distribution.

(b) The PBR analysis

From the above table, we also note that the average PBR as represented by the Market Comparables was approximately 6.36 times with a range of approximately 0.51 times to 33.67 times.

Given that the unaudited NAV of the Business as at 30 June 2007 was approximately HK$91.43 million (subject to confirmation), the PBR of the Disposal is approximately 1.29 times to the unaudited NAV attributable to 49% of the equity interest in the Business as at 30 June 2007, which also falls within the PBR range of the Market Comparables.

After taking into account that:

(i) the discrepancy between the Consideration and 49% of the Shanghai YJ Value is due to the fact that the remaining 51% shareholding is a controlling stake and we consider it to be acceptable in view of that the Disposal will allow the Group to partially abandon FTC Distribution which according to the Directors is likely to suffer from deteriorating profitability in the future;
(ii) the PER of the Disposal of approximately 7.37 times falls within the PER range of the Market Comparables while the Business actually suffered from an unaudited loss after taxation of approximately HK$75 million for the six months ended 30 June 2007; and
(iii) the PBR of the Disposal of approximately 1.29 times falls within the PBR range of the Market Comparables,

we concur with the Directors that the Consideration is fair and reasonable so far as the Independent Shareholders are concerned.

We have also reviewed the other terms of the Disposal Agreement and are not aware of any terms which are uncommon to normal market practice. In light of this, we consider that the terms of the Disposal Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

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Letter from SoUtH CHINA CAPItAL

(3) financial effects of the Disposal

Effect on net asset value

According to the 2007 Interim Report, the unaudited consolidated NAV of the Group was approximately HK$396 million as at 30 June 2007. As confirmed by the Directors, there would be an overall increase in the Group’s NAV upon completion of the Disposal due to the fact that the Consideration is in excess of the unaudited NAV being attributable to 49% of the equity interest in the Business as at 30 June 2007.

Effect on earnings

As aforementioned and stated in the Board Letter, the Directors expected that the Group would enjoy an one-off gain from the Disposal of approximately HK$13.02 million (subject to final audit). Besides that, upon completion of the Disposal, the Company will only hold 51% equity interest in FTC Distribution and therefore the financial results of FTC Distribution will no longer be consolidated as to 100% into the financial statements of the Group. Given the deteriorating profitability of FTC Distribution, the Group’s earnings may improve as a result of the Disposal.

Effect on gearing

As at 30 June 2007, the Group’s gearing level (being calculated as non-current liabilities over equity attributable to equity holders of the Company) was zero. The Directors confirmed that the Disposal would not lead to any increase in the non-current liabilities of the Group. Accordingly, the Disposal would not affect the gearing position of the Group.

Effect on working capital

We understand from the Board Letter that the Company will apply the entire net proceeds from the Disposal as general working capital of the Group. Therefore, the Group’s working capital would be increased by an aggregate amount of approximately HK$56.72 million, being the estimated net proceeds form the Disposal, in three stages following the payment schedule of the Consideration.

Given the aforementioned financial effects of the Disposal to the Group, namely (i) the possible enlargement in the NAV of the Group; (ii) the one-off gain of approximately HK$13.02 million (subject to final audit) and possible improvement in the Group’s future earnings; (iii) the gearing level of the Group being kept stable; and (iv) the rise in the Group’s working capital, we are of the opinion that the Disposal is in the interests of the Company and the Shareholders as a whole.

It should be noted that the aforementioned analyses are for illustrative purpose only and does not purport to represent how the financial position of the Company will be upon completion of the Disposal.

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Letter from SoUtH CHINA CAPItAL

reCommeNDAtIoN

Having taken into account the above factors and reasons, we are of the opinion that (i) the terms of the Disposal Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Disposal is in the ordinary and usual course of business of the Company and is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the relevant ordinary resolution(s) to be proposed at the SGM to approve the Disposal Agreement and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of South China Capital Limited Graham Lam Director

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VALUATION REPORT

APPENDIX I

The following is the text of the summary valuation report on the Shanghai Yuanjia International Trading Limited as at 30 September 2007 prepared by LCH (Asia-Pacific) Surveyors Limited for the purpose of inclusion in this circular.

==> picture [254 x 50] intentionally omitted <==

The readers are reminded that the report which follows has been prepared in accordance with the guidelines set by the International Valuation Standards, Eighth Edition, 2007 published by the International Valuation Standards Committee, the Business Valuation Standards 2005 published by the Hong Kong Business Valuation Forum and the HKIS Valuation Standards on Trade-related Business Assets and Business Enterprises, First Edition, 2004 published by the Hong Kong Institute of Surveyors. These standards entitle the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer. It is emphasised that the findings and conclusions presented below are based on the documents and facts known to the valuer at the date of this report. If additional documents and facts are made available, the valuer reserves the right to amend this report and its conclusions.

17th Floor Champion Building Nos. 287-291 Des Voeux Road Central Hong Kong

30 November 2007

The Directors

China Fortune Holdings Limited Rooms 1505-7, Tower A Regent Centre 63 Wo Yi Hop Road Kwai Chung Hong Kong

Dear Sirs,

In accordance with the instructions given by the management of China Fortune Holdings Limited (hereinafter referred to as the “Company”) to us, we have investigated and conducted an agreedupon procedures appraisal of the business enterprise value of 上海遠嘉國際貿易有限公司 translated as Shanghai Yuanjia International Trading Limited (hereinafter referred to as “Shanghai YJ”) as at 30 September 2007 (hereinafter referred to as the “Date of Valuation”) for the Company’s internal management reference. Our findings and conclusion in this valuation are documented in an appraisal report and submitted to the Company at today’s date.

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VALUATION REPORT

APPENDIX I

At the request of the management of the Company, we prepared this summary report to summarise our findings and conclusion as documented in the appraisal report for the purpose of inclusion in a public document for the Company’s shareholders’ reference at today’s date. Terms herein used without definition shall have the same meanings as in the appraisal report, and the assumptions and caveats adopted in the appraisal report also apply to this report.

INTRODUCTION

Business enterprise value is defined as the total value of a business. It comprises of monetary assets (net working capital), tangible assets and intangible assets, thereby encompassing all assets of a business enterprise (see Note). In other words, the business enterprise value is also equal to the value of its invested capital - common equity, preferred stocks and long-term debts. While there is no universal definition of the term, it is the usual practice for a professional valuer, based on his professional knowledge and experience, to identify the definition for the intended valuation.

In this appraisal (the word appraisal has the same meaning of valuation in this report), we were instructed to analyse and to express an independent opinion of the value of the entire equity interest of Shanghai YJ (hereinafter referred to as the “Appraised Asset”) as at the Date of Valuation, on a going concern basis, and based on documents and information provided by the management of the Company. Based on the instructions, we define the term business enterprise value in this appraisal as the market value of the Appraised Asset.

The term “Market Value” is defined by the International Valuation Standards (hereinafter referred to as the “IVS”), Eighth Edition, 2007 published by the International Valuation Standards Committee of which the Business Valuation Standards 2005 (hereinafter referred to as the “BVS”) published by the Hong Kong Business Valuation Forum and the HKIS Valuation Standards on Trade-related Business Assets and Business Enterprises, First Edition, 2004 (hereinafter referred to as the “HKIS Standards”) published by the Hong Kong Institute of Surveyors follow as “the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

We further assumed that, subject to the above definition, both the buyer and the seller contemplate the retention of Shanghai YJ at its existing status for the continuation of the current operations and with the inclusion of the planned business, on going concern basis, and both seeking their maximum economic self-interest in arriving at an arm’s-length transaction.

We understand that the management of the Company will refer our work product (disregarding the form of presentation) as part of its business diligence and we have not been engaged to make specific purchase or sale recommendations. We further understand that the management of the Company will not rely solely on our work, and that the use of our work product will not supplant other due diligence which the management of the Company should conduct in reaching its business decision. Our work is designed solely to provide information that will allow the management of the Company to make an informed decision.

Note: A business enterprise is defined as a commercial, industrial, service, or investment entity, or a combination thereof, pursuing an economic activity.

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VALUATION REPORT

APPENDIX I

OVERVIEw (SEE NOTE)

Company Profile

Shanghai YJ is a handset trading firm with limited liability and incorporated in the People’s Republic of China (hereinafter referred to as the “PRC” or “China”) on 15 April 2002 with a registered capital of USD6 million. The registered address of the company is situated at 上海市外高橋保稅區台中南路2號新貿樓1樓139室 translated as Room 139 on Level 1, Xin Mao Building, No. 2 Tai Zhong Nan Road, Waigaoqiao Free Trade Zone, Shanghai, the PRC. It was a wholly foreign owned invested company by Fortune Telecom (China) Limited, a company incorporated in Hong Kong with limited liability and wholly-owned by the Company indirectly.

According to a 企業法人營業執照 Enterprise Legal Person Business License 企獨滬浦總字第 315198號（浦東）Qi Du Hu Pu Zong Di 315198 Hao (Pudong) dated 6 February 2007, the operation term of Shanghai YJ was 15 years from 15 April 2002 to 14 April 2017. The business scope of Shanghai YJ was restricted to “國際貿易、轉口貿易、保稅區企業間的貿易及區內貿易代理、保稅區內商業性簡單加工、貿易諮詢。通訊器材、數碼產品、電子產品、計算機及配件的批發、佣金代理（拍賣除外）、進出口（除手機進口）及其他相關配套業務。（涉及配額許可證管理、專項規定管理的商品按照國家有關規定辦理）（涉及許可經營的憑許可證經營）。” translated as “international trade, re-export trade, trading and act as trading agent between enterprises in the Bonded Zone; simple by-processing work in the Bonded Zone (commercial) and trade consultancy services. Communication equipments, digital products, electronic products, wholesale business of computer and accessories, commission agents (except auction), import and export (except import of handsets) and its related services. (Commodities related to quota permit and special approvals are subject to the State’s rules and regulations) (Business that required approval is subject to the relevant permit to operate)”.

Note: The information provided in this section relating to the handsets distribution market is derived in part or extracted or referred to from various official and unofficial sources. The official sources include various governmental websites. The unofficial sources include information provided by the management of the Company, various websites (included: www.hkex.com.hk, www.china.org.cn, www.nasdaq.com, www.google.com, www.intomobile.com, www.msnbc.com, www.forbes.com and www.bloomberg.com), newspapers and journals from various industry practitioners or analysts. We need to state that such official and unofficial information have not been prepared or independently verified by us, and may not be consistent with other information complied within or outside China. None of our staff involved in preparing this report make any representation as to the correctness or accuracy of such information and accordingly such information should not be unduly relied upon. The readers should conduct his/her due diligence with regard to the correctness and accuracy of such information for his/her own use.

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Based on the financial information provided by the management of the Company, the audited financial performance of Shanghai YJ since year 2003 (before reorganisation) can be fairly represented as follows:

RMB	Dec 2003	Dec 2004	Dec 2005	Dec 2006
Turnover	274,799,509	248,359,899	265,317,012	355,295,289
After-tax Net Profit	4,950,202	11,018,289	5,025,888	4,880,444
Total Asset	45,919,669	58,277,632	68,773,762	68,025,640

According to the information from the management of the Company, Shanghai YJ possesses an extensive distribution and services network in handset distribution, business with operations in Hong Kong, Beijing, Shanghai, Guangzhou and over 70 sales operations in province/city levels across the PRC with more than 1,500 operating and sales personnel.

On 22 October 2007, the Company announced that pursuant to a disposal agreement, one of its subsidiaries – Fortune Telecom Limited (hereinafter referred to as the “Vendor”) has agreed to sell 49% (or per cent. used in the report) equity interest (out of 100%) in Fortune Telecom (China) Distribution Limited (hereinafter referred to as the “FTC Distribution”) to the Company’s major shareholder. However, this disposal is subject to a chain of reorganisation activities among the Company’s subsidiaries, and the result will lead to (i.) the transfer of handset distribution business among the Company’s subsidiaries to Shanghai YJ and (ii.) Shanghai YJ becomes the wholly-owned subsidiary of FTC Distribution.

We have been advised by the management of the Company that upon the completion of the reorganisation, Shanghai YJ will be responsible for the handset distribution business of the Company in the Greater China region. Based on the management accounts of the handset distribution business (consolidated) provided by the management of the Company, the unaudited net asset value of the handset distribution business amounted to approximately HK$91,432,000 as of 30 June 2007, and the unaudited revenue and the unaudited profit/(loss) after taxation attributable to the handset distribution business in 2005, 2006 and the six months ended 30 June 2007 are presented below:

HK$	Dec 2005	Dec 2006	Jan – June 2007
	(unaudited)	(unaudited)	(unaudited)
Revenue	2,368,245,000	2,817,429,000	1,057,817,000
After-tax Profit (Loss)	1,572,000	16,011,000	(75,181,000 )

The management of the Company considered that the reasons for the loss of business for the first half of 2007 were: the handset distribution business suffered from tough price competition among the mobile phone models, namely N3220 and N7610 of NOKIA, which were running towards their product life ends. For Samsung mobile phone national distribution, due to the repeated delay in the launch of 2 new Samsung models from 2nd quarter to 3rd quarter of the year, the handset distribution business did not deliver any new model resulting in losses of operating cost during the period. There

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was also unexpected quality problem in one of its handset distribution business’ important Samsung model, namely D848, during the period. As a result, the handset distribution business’ has suffered first time operation loss during the period.

The management of the Company opined that should the above factors did not happen during the period, the handset distribution business shall have a similar financial position as year 2006. The management of the Company believed that through the reorganisation among its subsidiaries shortly afterwards, the handset distribution business will benefit in the coming years.

For the purpose of this valuation, the management of the Company was requested to provide updated financial projections to us for the next period i.e. 2008, and the following figures were extracted from the latest projections provided. They are:

HK$	July to Dec 2007	whole Year 2007	Dec 2008
Turnover	1,060,000,000	2,117,817,000	2,600,000,000
After-tax Net Profit (Loss)	(53,000,000 )	(128,181,000 )	14,820,000

The Economic Outlook of China

The economy of China is the fourth largest in the world when measured by nominal GDP (Gross Domestic Product). Its economic output for 2006 was USD2.68 trillion. The GDP growth of China for last year was 11.10% (revised figures). With the strong growth of China’s economy at a compound annual growth rate of approximately 10.19% from 1990 to 2006, it is expected that the China economic growth would remain at 8.5% to 9% from 2008 to 2011. Due to large scale investments both from domestic and foreign companies, China’s booming economy has consistently overshot government targets in recent years. Economists further estimated that the 2008 Olympic Games in Beijing would benefit China’s national GDP by an additional one per cent. Therefore, the overall prospects of the Chinese economy are favourable in the next few years.

The Industry

The appearance of handset devices had a tremendous impact in the communication market. It revolutionized the efficiency and method of communication. Nowadays, many countries have more mobile phones than people. The total number of mobile phone subscribers in the world was estimated at 2.14 billion in 2005. And in 2006, around 80% of the world’s population experiences mobile phone coverage. And this figure is expected to increase to 90% by the year 2010. The worldwide market for “wireless handsets” totaled around USD110 billion in 2005. In 2006, it grew to USD136 billion and the research firms expect the market to exceed USD250 billion by 2011. It is hardly a surprising statistic given the many innovations of handsets available in the global market. The purpose of handset manufacturers is to make users feel that their handsets without innovations are unbearable. With the continual release of ever innovative handsets into the market, the market of handsets will continue to grow in the next few years.

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An organisation that tracks Asia’s telecom markets predicts the Chinese handset sector will grow to 255 million units in 2011 from 137.9 million units in 2006. And according to Gartner’s July 2007 report, the Chinese handset market in 2007 is expected to reach 170 million units, with a 30 percent compound annual growth rate (CAGR) from 2003 to 2007. It also predicts a CAGR of 18.8% from 2007 to 2011. This is how rapidly growing the Chinese handset market is. However, according to Analysis International’s data, the increasingly fierce competition in China’s handset market had reduced the competitive advantages of domestic handset makers and resulted in a decrease of market shares. Foreign mobile phone brands such as NOKIA, Motorola, Samsung and Sony Ericsson took a combined 70.7% share of China’s mobile phone market. NOKIA announced that its net sales in China surged by 39 per cent. to 5.3 billion Euros in 2006 which is an increase of 67 per cent. compared to the previous year. It is forecasted that the whole market will see a double-digit growth in 2007. Domestic handsets are facing a tough operating environment as foreign handsets have greater brand recognition among Chinese consumers.

The world’s second-biggest mobile phone maker, Samsung, sold a record of 42.6 million handsets in the third quarter of 2007 globally. During the first three quarters of 2007, Samsung sold 115 million mobile phones, which exceeds the 114 million handsets that the company sold in all of 2006. And a large part of this sale is in the Chinese market. In fact, Samsung was a relative latecomer to the Chinese market. It started its operation in China in 1995. Since then, it has made a cumulative USD2.5 billion investment and set up 23 plants in China. Currently, Samsung is speeding up its expansions in China, planning to shift its global focus from the United States to China. Regionally, there are four representative offices situated in Beijing, Shanghai, Guangdong and Shenyang responsible for marketing activities of Samsung’s electronic products. There is a handset team in each office to take care of all activities related to the handset market.

In Asia today, the mobile phone is becoming more and more a fashionable consumer product. It is beyond just a communication tool, but also a representation of the user’s taste and style. The appearances rather than the functions become the key factor of consideration when a consumer purchases a handset device. In this aspect, Samsung has gained wide popularity in China’s mobile phone market due to its style and fashion in appearance. Samsung pursues a strategy of high quality and high price, targeting the high-end market. All Samsung’s handsets sold in China are imported from abroad and they are distributed from national wholesalers to regional wholesalers and then to individual retailers. Increasingly, Samsung has gained a considerable portion in the China handset market.

According to the Ministry of Information Industry in China, there are 487 million mobile phone users in 2007. This number is far beyond the 371 million landline phone users in China. In 2003, the number of mobile phones in China surpassed that of landline phone for the first time. The rapid increase of the number of mobile phone users in China is astonishing. Since the start of 2006, the number of mobile phone users increased by 6 million and the number of landline phone users increased by only 1 million. Most of the newly added subscribers of mobile phones are from rural areas since the mobile phone market in big cities is nearing a saturation point. Not surprisingly, the SMS usage also increased 38.1% from the previous year to reach 182.6 billion of text messages sent. And NOKIA is estimating mobile phone user numbers in China will pass the 500 million mark by the end of 2007. NOKIA said in a statement that it also sees the ratio of replacement buyers growing from around 60 per cent. of the total handset device market to over 80 per cent. by 2010.

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VALUATION PROCEDURES ADOPTED

In performing the appraisal, we have adopted the following procedures which were agreed with the management of the Company before the engagement. They are:

To read the supplied materials and based on the content of the materials such as product information, balance sheet, market condition, financial information and the scale of the going concern of Shanghai YJ to arrive at our opinion. In the course of valuation, we will assume the information that contained in the materials is correct and we will not verify or ascertain the correctness of the information contained in the materials.
To prepare and submit a list(s) of required document and information regarding the operation of Shanghai YJ during the course of valuation. The completeness of the valuation depends on the availability of the required information being supplied by the management of Shanghai YJ.
To hold discussions with relevant personnel and to review various accounting and financial documents in order to understand the scope of their assets.
To review various accounting and financial documents in order to understand the scope of their operations.
To obtain the latest available asset schedule of Shanghai YJ on which to start the valuation.
To identify off-balance sheet assets (if any) that should be recognised and valued.
To conduct appropriate study in order to obtain necessary industry and market information to support our opinion of value. The extent of research is at our discretion.
To value the Appraised Asset using the respective standards of value that is most appropriate.
To document our findings and conclusion in our appraisal report.

THE BASIS OF VALUATION

The Appraised Asset is valued on the basis of “Market Value” in continued use or as a going concern. The continued use premise assumes that the Appraised Asset will be used for the purpose for which the Appraised Asset was conceived or is currently used. Implicit in this definition is the fact that a hypothetical willing and able buyer would not pay more to acquire the Appraised Asset than he could reasonably expect to earn in the future from an investment in the Appraised Asset.

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Our valuation has been made on the assumptions that, as at the Date of Valuation,

the legally interested party in the Appraised Asset has free and uninterrupted rights to assign for the whole of the unexpired terms as granted under the relevant approvals and any premiums/administrative costs payable have already been fully paid;
all the exclusive supply contracts will be successfully executed and completed till the end of the term of the relevant approvals and will obtain the projected result within the term;
all the required licenses, certificates, consents, or other legislative or administrative authority from any local, provincial, or national government or private entity or organisation have been or can readily be obtained or renewed on which the valuation contained in our report is based;
the prospective earnings of the exclusive supply contracts would provide a reasonable return to Shanghai YJ, and that Shanghai YJ has adequate working capital to operate its existing and planned business from time to time;
the legally interested party in the Appraised Asset has adopted reasonable and necessary security measures and have considered several contingency plans against any disruption (such as change of government policy, change of suppliers’ policies and labour dispute) to Shanghai YJ business; and
the Appraised Asset can be freely disposed and transferred free of all encumbrances for its existing uses in the market to both local and overseas purchasers without payment of any premium to the government.

Should this not be the case, it will have adverse impact to the reported findings and conclusion herein.

FACTORS CONSIDERED IN THE VALUATION

The valuation of the Appraised Asset required consideration of all pertinent factors affecting the operations of the business and its ability to generate future investment returns. The factors considered in the valuation included, but were not limited to, the following:

The nature of the Appraised Asset;
The nature and the going concern business of Shanghai YJ;
The quality of Shanghai YJ’s assets;
The capability and determination of the management of Shanghai YJ to follow the planned road map in the provided financial projections;
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The capability and determination of the management of Shanghai YJ to renew all the necessary licences, permits and approvals from time to time to make the business of Shanghai YJ be on-going;
The capability and determination of the management of Shanghai YJ to maintain its existing clientele (the sales network) and its favourable working relationship with its suppliers (the supply network);
The capability and determination of the management of Shanghai YJ to continue the existing marketing strategy;
The capability and determination of the management of Shanghai YJ to maintain its existing qualification and management standards and to review/up-lift its standards to catch the market needs from time to time;
The capability and determination of the management of Shanghai YJ to trade up-to-date products to catch the market needs;
The commitment of the management of Shanghai YJ to protect the Appraised Asset against any disruption of the normal business of Shanghai YJ;
The commitment of the management of Shanghai YJ to maintain a cost effective and stable supply chain of the products to distribute to the customers;
The projected economic income stream of Shanghai YJ for the next period;
The economic and industry data affecting Shanghai YJ and the handset distribution business in the Greater China region;
Market-derived investment returns in similar nature of entities; and
The risks facing Shanghai YJ and the Appraised Asset.

ESTABLISHmENT OF TITLES

Due to the market value basis of valuation, the management of the Company provided us the necessary documents to support that the legally interested party in the Appraised Asset, the Vendor, has free and uninterrupted rights to assign the Appraised Asset (in this instance, an absolute title) free of all encumbrances and any premiums payable have already been paid in full or outstanding procedures have been completed. However, our procedures to value as agreed with the management of the Company did not required us to conduct legal due diligence on the legality and formality on the way that the legally interested party obtained the Appraised Asset from the relevant authorities. We agreed with the management of the Company that this should be the responsibility of the legal advisor to the management of the Company. Thus, no responsibility or liability is assumed from our part to the origin and continuity of the titles to the Appraised Asset.

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For the sake of valuation, we have been provided with copies of the title documents and legal opinions dated 26 November 2007 issued by Guantao Law Firm (觀韜律師事務所), lawyers qualified to practice in China, (the “Legal Opinion”) regarding the Appraised Asset. According to the Legal Opinion, the Vendor has obtained full legal and beneficial title free from all encumbrances in respect of the Appraised Asset. However, we have not inspected the original documents filed in the relevant authorities to verify ownership or to verify any amendment which may not appear on the copies handed to us. We need to state that we are not legal professionals and are not qualified to ascertain the titles and to report any encumbrances that may be registered against the Appraised Asset. In the course of preparing our report, we have relied solely on the copy of the Legal Opinion with regards to the existing legally interested party in the Appraised Asset. No responsibility and liability is assumed in relation to those opinions or copies of documents.

In our valuation, we have assumed that the legally interested party in the Appraised Asset has obtained all the approval and/or endorsement from the relevant authorities, and that there would have no legal impediment (especially from the regulators) for the legally interested party to continue the ownership of the Appraised Asset. Should this not be the case, it will affect our conclusion in this report significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.

APPROACH TO VALUE

In the process of valuation, we have considered the three generally accepted business enterprise appraisal approaches to value, namely the Asset-based Approach, the Market Approach and the Income Approach.

The Asset-based Approach

The assumption of this approach is that when each of the elements of working capital, tangible and intangible assets is individually valued, their sum represents the value of a business enterprise and equals to the value of its invested capital (equity and long-term debt). In other words, the value of the business enterprise is represented by the money that has been collected to purchase the business assets needed. This money comes from investors who buy the stocks of the business enterprise (equity) and investors who lend money to the business enterprise (debt). After collecting the total amount of money from equity and debt, and converted into various types of assets of the business enterprise for its operations, their sum equals the value of the business enterprise.

From a valuation perspective, the valuer will restate the value of all types of assets of a business enterprise from book value i.e. historical cost minus depreciation to appropriate standards of value. After the restatement, the valuer can identify the indicated value of the business enterprise.

This approach to value is only appropriate when the subject business enterprise is an asset rich entity or a real estate investment holding. Shanghai YJ is basically a service company and a trading company. We consider its real assets are its holding of exclusive supply contracts, a sales network and its relationship with its customers and these are intellectual properties. It is difficult to assess the replacement cost of intellectual property and the value of the expertise used in developing this kind of intellectual property since the Company’s incorporation.

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Given that the Asset-based Approach does not take into consideration the stunning market potential and future growth of the business, its business model, and the impact of its management’s abilities. We, therefore, considered this approach as irrelevant.

market Approach

The Market Approach is basically a comparison method to value a business enterprise by comparison to the prices at which other similar business nature companies or interests changed hands in arm’s-length transactions. The underlying theory of this approach is one would not pay more than one would have to pay for an equally desirable alternative. By using this approach, the valuer will first look for valuation indication from the prices of other similar companies or equity interests in companies that were sold recently. The right transactions used in analysing for valuation indication need to be sold on an arm’s-length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell. Then, based on those transactions to derive multiples (i.e. financial ratios) to apply to the fundamental financial variables of the subject business enterprise and to arrive at an indicated value of the subject business enterprise. The most commonly used multiples are price-to-earnings (“PE”), price-to-sales (“PS”) and price-to-tangible book multiple.

There are two methods of the Market Approach known as the Guideline Publicly Traded Company Method (by using similar company daily stock transaction prices) and the Guideline Merged and Acquired Company Method. Both methods need to rely on analysing available similar transacted comparables, and the big difference is on the structure of transactions - daily stock transaction prices in public market or mergers and acquisitions as occurred. In most cases, finding good market comparables is often difficult (particularly for those mergers and acquisitions) for there is no single marketplace where similar assets change hands between buyers and sellers, who are well informed and have no special motivations or compulsions to buy or to sell, are recorded.

To the best of our knowledge, there were some merger and acquisition activities of similar business ventures in China in 2007. They were:

HSW International, Inc. (NASDAQ: HSWI) on 2 October announced that it has completed its previously announced merger with INTAC International, Inc. (NASDAQ: INTN). INTN is an emerging provider of educational and career development services and software for educational institutions and a distributor of wireless handset products in China. As a result of the merger, INTN International has become a wholly-owned subsidiary of HSW International, and INTN International’s stock will no longer be quoted on NASDAQ. Under terms of the transaction, INTN shareholders are entitled to exchange their INTN shares for an equal number of shares in HSW International’s stock.
Guangzhou Global Telecom Inc. (OTCBB: GZGT) on 14 June announced that it has signed a Letter of Intent with Hengwei Digital Ltd. (“Hengwei”) to acquire a 100% equity interest in Hengwei for the purchase price of 2,000,000 Renminbi (approximately USD263,158). Hengwei, located in Guangzhou, is a private company engaged in importing and exporting cell phones and cell phone spare parts. In 2006, Hengwei realized unaudited revenues of approximately USD1,000,000 with a net profit of approximately USD50,000.
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We take the view that there might have been a number of merger and acquisition activities of similar business ventures like the transaction listed above in China or in Hong Kong around the Date of Valuation, however, due to the imperfect nature of the market, details of the transactional data and the basis were not made available to the public. Under such circumstances, we have not relied on the Guideline Merged and Acquired Company Method in our estimate of the market value of the Appraised Asset due to insufficient supporting data (market-based transactional information in this instance).

To the best of our knowledge, we aware that there are numerous closely-held companies having similar line of business in China. However, we have difficulties in using these companies as guideline companies as no sufficient financial data and earnings of these companies are made available to the public to form a “guideline” of the industry. The use of these comparables will cause inadequate comparative analysis.

As the Company is a listed company on the Main Board of the Stock Exchange of Hong Kong Limited, we, then, walked through the listed companies in the Stock Exchange of Hong Kong Limited to look for guideline companies to set up a representative industry benchmark to support our valuation. We noticed that there are several publicly traded companies in the Main Board (the market that the Company’s shares is listed) and in the Growth Enterprise Board having approximately similar line of business as the Company and with operation in China. Details of these companies are listed below for quick reference.

Company
(Stock code)		Price/Earnings
(Year listed)		Ratio	Price/Sales
(market capitalisation)	Business	(estimate)	Ratio
China Fortune	All the revenues as at June 2007	13.65(7.89)	0.14
Holdings Limited	were contributed by distribution
(110)	and trading of mobile phones
(2004)	and were derived from the PRC
(HK$518 million)	(including Hong Kong).
COL Capital	The company as at June 2007	Not	Not
Limited	covered securities trading, financial	relevant	relevant
(383)	services, property investment and
(1991)	mobile phone distribution (about
(HK$1,811.76 million)	0.68% of the revenue as at June
	2007). However, the business of
	mobile phone distribution was
	discontinued after June 2007.

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Company
(Stock code)		Price/Earnings
(Year listed)		Ratio	Price/Sales
(market capitalisation)	Business	(estimate)	Ratio
HKC International	The company revenue came from	30.91	0.18
Holdings Limited	sales of mobile phone (about
(248)	88.60% revenue in 2006-7 fiscal
(2001)	year), business solution and gross
(HK$161.86 million)	rental income. More than 90% of
	the company’s revenue is generated
	in Hong Kong.
Global Tech (Holdings)	The company is mainly engaged	N.A.	0.64
Limited	in trading of telecommunication
(143)	products (about 99.67%
(1999)	revenue in 2006-7 fiscal year),
(HK$ 656.08 million)	provision of repair services of
	telecommunication products and
	listed securities investment and
	trading. The company is operating
	in Hong Kong (more than 90%
	revenue), Macau and Taiwan.
First Mobile Group	The company is principally	9.04	0.06
Holdings Limited	engaged in the trading, distribution
(8110)	and retail sales of mobile phones
(2000)	and related accessories from
(HK$466.97 million)	various international brands in
	the Asia Pacific region (about
	99.96% as at June 2007). It offers
	complete value-added solutions to
	manufacturers, operators, dealers
	and end users, from pre-sales to
	distribution, marketing and after-
	sales of products.
	However, the revenues are mainly
	contributed by the business in
	Hong Kong (about 79% of revenues
	as at June 2007) and with 0.65%
	from mainland China.

Source: from hkex.com.hk and bloomberg.com, current

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From the above selected companies, we are aware that only Global Tech (Holdings) Limited and First Mobile Group Holdings Limited have comparable business to Shanghai YJ or simply the Company, but the defect is - they have no (or previously have) or small scale operation in mainland China. We take the view that as the Company and the comparable companies are listed in the Stock Exchange of Hong Kong Limited and the products that the companies distributed are homogeneous - mobile phones, the price of the relevant stocks already factored in such geography difference on the market by the investors.

In our analysis, we have considered which variable to be used in the valuation such as PE or PS or both. Once the variable has been determined, the relevant market-derived capitalisation rate will be adopted to arrive at the value of the Appraised Asset.

The PE ratio is the most commonly used valuation measure. It compares the price of a share to the company’s earnings (net profit) per share. It directly relates the price of a share to the proportion of the company’s profits that belong to the owner of that share. One of the reasons for the popularity of the PE ratio is its simplicity. It can be calculated simply by dividing the share price by the earning per share (“EPS”).

Although PE is the most widely used valuation ratio and has the advantage of being comparatively simple, the problem with this measure is that it only looks at the growth rate over one year, whereas with high growth companies it is their long term growth potential that matters. This makes it a rather crude measure that may be useful for initial screening but should only be used as a valuation ratio with caution. It also assumes a linear relationship between growth and value (a company with twice the growth rate should have twice the PE) which is also incorrect although it may be a reasonable approximation when comparing similar companies. Further, a company’s earning is distorted by financial structure (how indebted, or not, a company is) and the accounting policy adopted. EPS can be whatever the company wants it to be, depending on assumptions and accounting policies. Last but not the least, in most stocks with incredibly high PE ratios (or no PE ratios) is seldom measured by its earnings. Most investors are generally looking at the promise of future earnings. And the promise of future earnings comes from high revenue growth curves with a scalable business model that produces higher earnings in the future, which, to certain extent, is speculative. This is against the underlying theory of “as-is and in perpetuity” when using the financial multiples.

Given that the above disadvantages of using the PE ratio and the continuous reported malpractice of accounting treatments of publicly traded companies especially on the earnings in China, we have reservation to adopt the market-derived PE ratio in our valuation. Ipso facto, the loss of the handset distribution business in 2007 and its subsequent earnings in 2008 (estimate) caused uncertainty in applying any multiple in relation to earning elements of the Company.

The PS ratio is the company’s price divided by its sales (or revenue). But because the sales number is rarely expressed as a per-share figure, it is easier to divide a company’s total market value (equals to share price x outstanding shares) by its total sales for the last 12 months. The PS ratio has become an increasingly popular method of valuation since late 1990s. Perhaps it is due to the difficult-to-manipulate sales figures (especially when the country/area has the value-added-tax system), the sales are generally stable than earnings as earnings are often manipulated through write-offs and

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other accounting shenanigans but sales are much harder to “manage”. Second, some quantitative investors demonstrated that stocks with low PS ratios outperformed stocks with low PE multiples. Third, the explosion in Internet stocks forced investors to look for ways to value companies with lots of potential, but no earnings. Finally, some analysts considered it is far more important to gauge the stock’s valuation by the PS ratio because all of the assumptions of future earnings are based on the revenue projection, not the earnings history which is distorted by non-cash items.

It is a consensus that the PS ratio is best used when the subject and guideline companies are homogeneous in operating characteristics with high customer base persistence like Shanghai YJ.

Having studied in detail, we have taken out Global Tech (Holdings) Limited for the company only resumed trading on 10 September 2007 after 3 years suspension for trading since July 2004. The short period of trading may not be ideal for comparison purpose. We have also considered the PS ratio of the Company, but have reservation to make reference to its stock price related multiples for we believed the recent Company’s announcement on investment in mining projects would have impact to its stock price and making it difficult to compare to a purely handset distribution business operator.

Finally, we have adopted the PS ratio of First Mobile Group Holdings Limited as the representative industry ratio to be used in our valuation.

This study is fully cognisant of the fact that there are several listed companies in the stock exchanges of China with part of their businesses similar to the business of Shanghai YJ. They are: TCL Corporation (000100), Dalian Daxian Co., Ltd. (600747), Stellar Megaunion Corporation (000892), Konka Group Co., Ltd. (200016) and China Kejian Co., Ltd. (000035).

Theoretically, the financial data of these companies after making suitable adjustment can be used as a valuation indication of representative industry. However, care is required in using such financial multiples in valuation for: i.) the different scale of operation and market parameters of these companies compared to Shanghai YJ, in particular Shanghai YJ is not a mobile phone manufacturer; ii.) the size difference between these companies and Shanghai YJ which may involve subjective adjustment on the size premium; iii.) some of these companies are involved in other industry segments such as property development and enjoy various tax benefits, this may affect their financial ratios. In fact, China is considered by a number of investors as a comparatively risky country due to the frequent intervention of the government in its financial and equity markets, and the speculative nature of its stock market. Such moves will cause the stock market or the price of the underlying stock to fluctuate substantially, which distorts the valuation ratios compared to stock performance. Thus, for the sake of representation, it is a common practice to use comparable companies from a mature equity market with a comparatively high level of institutional holder ratio, like Hong Kong or the U.S.

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VALUATION REPORT

APPENDIX I

Income Approach

The Income Approach focuses on the economic benefits generated by the income-producing capability of a business enterprise. The underlying theory of this approach is that the value of a business enterprise can be measured by the present worth of the economic benefits to be received over the useful life of the business enterprise. Based on this valuation principle, the Income Approach estimates the future economic benefits and discounts these benefits to its present value using a discount rate suitable for the risks associated with realising those benefits. Alternatively, this can be calculated by capitalising the economic benefits to be received in the next period at an appropriate capitalisation rate. This is subject to the assumption that the business enterprise has been maintaining stable economic benefits and growth rate.

Theoretically, this approach is considered to be the most appropriate approach in valuing a business enterprise since a rational buyer normally will purchase an asset only if the present value of the expected economic benefits is at least equal to the purchase price. Likewise, a rational seller normally will not sell if the present value of the expected economic benefits is more than the selling price. Thus, a sale generally will occur only at an amount equal to the economic benefits of the business enterprise.

We used the method of capitalisation of income stream in our valuation as the management of the Company confirmed that the expected annually compounded rate of growth is stable and sustainable over a long period of time. In capitalising, we focused on the return of just one single period and then divided that single number by a divisor called the capitalisation rate. The capitalisation rate is the difference between the discount rate and the expected long-term growth rate of the subject asset being valued (in this instance, the handset distribution business). However, the use of such analysis reflects investment criteria and requires the valuer to make empirical and subjective assumptions.

The first step of the computation is to estimate the economic income projection in the next twelve months. We were provided with a latest version of financial projection from the appointed personnel of Shanghai YJ, and they are responsible for the assumptions upon which the projections are based. Having discussed with the appointed personnel of Shanghai YJ, we understood that the assumptions adopted by the appointed personnel of Shanghai YJ reflect their judgment of their ability to promote and to commercialise their research and development through its marketing strategy and client networks. The projections are based on their view of the most likely action to be taken by Shanghai YJ in the operation of the business, and they attested that the supplied data are accurate and reasonable.

The second step is to estimate the appropriate capitalisation rate by reference to the cost of capital of Shanghai YJ. We take the view that cost of capital in a capital investment project is forward looking, same as the capital investment project itself. Thus, we need to take into consideration the capital structure of the project in the future to determine its required cost of capital i.e. discount rate. We have referenced our finding to the cost of capital of the Company because the capital structure of Shanghai YJ was and will be tied up with the Company upon completion of the reorganisation. From Bloomberg, we noted that the cost of capital (the weighted average cost of capital) of the Company

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VALUATION REPORT

APPENDIX I

is 4.66%. Having considered the possible risks to the Company upon completion of the acquisition of a mining company in the near future, an additional risk premium of, say 6% (such as additional cost of debt be required) was added to the existing Company’s cost of capital to reflect the possible risks to be faced by the Company in the mining business.

For the estimation of the long-term growth rate, we have made reference to the inflation rate in the Greater China region, the projected growth of Shanghai YJ, the Greater China’s economy and the world economy as a whole. Having considered the quantity and quality of available data, and each analysed method in providing a valid indication of capitalisation rate, we have, therefore, assigned a capitalisation rate of 8.66 per cent. in our valuation.

Based on our assessment of the relative merits of each of the approaches, a weighting factor was given to reflect our preference on the Market Approach in our valuation. Thus, the indicated market value of the Appraised Asset was estimated at HK$128 million.

VALUATION COmmENTS

As we are valuing the entire equity interest of Shanghai YJ, no discount or premium has been taken. By definition, ownership interests in closely held companies are typically not readily marketable, and, by definition not as liquid and as easily converted to cash compared to similar interests in public companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly held company. However, it is the fact that the Company has entered into an agreement to dispose the FTC Distribution’s stock (of which Shanghai YJ is FTC Distribution’s major asset) only to the Company’s major shareholder, a connected transaction, so lack of marketability may not be an important issue in this case.

mATTERS THAT mIgHT AFFECT THE VALUE REPORTED

No allowance has been made in our valuation for any charges, mortgages, outstanding premium or amounts owing on the Appraised Asset. Also, no allowance has been made in our valuation for any expenses or depreciation or taxation, which may be incurred in effecting a sale of the Appraised Asset. Unless otherwise stated, it is assumed that the Appraised Asset is free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect its value.

In our valuation, we have assumed that the Appraised Asset is able to sell and purchase in the market without any legal impediment (especially from the regulators). Should this not be the case, it will affect the reported value significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.

As at the Latest Practical Date of this circular, we are unable to identify any adverse news against the Appraised Asset which may affect the reported value in our report. Thus, we are not in the position to report and comment on its impact (if any) to the Appraised Asset. However, should it be established subsequently that such news did exist at the Date of Valuation, we reserve the right to adjust the value reported herein.

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VALUATION REPORT

APPENDIX I

INSPECTIONS AND INVESTIgATIONS

No company visit has been made to Shanghai YJ for the management of the Company is in Hong Kong. If any interested party in Shanghai YJ is proposing to purchase the Appraised Asset and wants to satisfy them as to the condition of it, then they should have their own visit and report of their own before deciding whether or not to enter into an agreement for sale and purchase.

Our valuation has been made on the assumption that no unauthorised alteration, extension or addition has been made in the premises that occupied by Shanghai YJ, and that the use of our report do not purport to be a building survey of the premises. We have assumed that the premises are free of rot and inherent danger or unsuitable materials and techniques.

SOURCES OF INFORmATION AND ITS VERIFICATION

For the purpose of valuing the Appraised Asset, we were furnished with various latest financial documents and other documents related to the Appraised Asset as a going concern business. These data have been utilised without further verification. We have had no reason to doubt the truth and accuracy of the information that we have been furnished. No responsibility or liability is assumed for the accuracy of the provided information.

Due to the purpose of this engagement and the market value basis of valuation, the management of the Company is requested to provide us the necessary documents to support Shanghai YJ’s title to the going concern business. In the course of valuation, we have been provided with copies of the documents regarding Shanghai YJ and the Appraised Asset, and these copies have been referenced without further verifying with the relevant bodies and/or authorities. Our procedures to value did not require us to conduct any searches or inspected the original documents to verify ownership or to verify any amendment which may not appear on the copies handed to us. We need to state that we are not legal professionals, therefore, we are not in the position to advise and comment on the legality and effectiveness of the documents provided by the management of the Company.

We have relied solely on the information provided by the management of the Company or its appointed personnel without further verification and have fully accepted advice given to us on such matters as planning approvals or statutory notices, titles, easements, financial data, corporation status, business scope, assets and all other relevant matters.

Unless otherwise stated, we have not carried out a valuation on a redevelopment basis on any land that owned, directly or indirectly by Shanghai YJ (if any) and the study of possible alternative development options and the related economics do not come within the scope of our report.

We are not contracted to conduct a due diligence to review the existing handset distribution industry in the Greater China region. In the course of appraisal, we have solely depended on the advice given by the management of the Company. We are unable to accept any responsibility or liability for the reliability of the advice.

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VALUATION REPORT

APPENDIX I

Our procedures to value did not include a detail physical inspection of the service facilities of Shanghai YJ and to prepare an error free asset list for the purpose of our valuation. In our valuation, we were instructed to rely on the information as contained in the balance sheet provide by the management of the Company, thus, we expressed no comment to the existence and the functional ability of the assets. No responsibility or liability is assumed from our part.

Information furnished by others, upon which all or portions of our report are based, is believed to be reliable but has not been verified in all cases. Our procedures to value or work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our report.

When we adopted the work products from other named or unnamed professions, external data providers and/or the management of the Company in our valuation, the assumptions and caveats adopted by them in arriving at their opinions also apply in our valuation. The procedures we have taken do not require us to examine all the evidences, like an auditor, in reaching at our opinion. As we have not performed an audit, we are not expressing an audit opinion in our valuation.

We are unable to accept any responsibility for the information that has not been supplied to us by the management of the Company. We have sought and received confirmation from the management of the Company that no material factors have been omitted from the information supplied. Our analysis and valuation are based upon full disclosure between us and the management of the Company of material and latent facts that may affect the appraisal.

Unless otherwise stated, all monetary amounts are in Hong Kong dollars.

LImITINg CONDITIONS

This report is provided strictly for the sole use of Company. Neither the whole nor any part of this report or any reference made hereto may be included in any published documents, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Unless otherwise stated, the copyright of this report belongs to the valuer. Nonetheless, we consent to the publication of this summary report in this circular at today’s date for the Company’s shareholders’ reference.

Our opinion of value in this report is valid only for the stated purpose at the Date of Valuation and only to the named company. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this report, and we accept no responsibility whatsoever to any other person.

No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or change of government policy or financial condition or other conditions, which occur subsequent to the date hereof.

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VALUATION REPORT

APPENDIX I

Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

The Company is required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our report except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

OPINION OF VALUE

Based on the above, and on the appraisal method employed, it is our opinion that as of the Date of Valuation, the market value of the entire equity interest of Shanghai YJ (before taking into consideration any transaction cost) is reasonably stated by the amount of HONG KONG DOLLARS ONE HUNDRED AND TWENTY EIGHT MILLION (HK$128,000,000.00).

STATEmENTS

Our opinion of value is based on generally accepted appraisal procedures and practices that rely extensively on assumptions and considerations, not all of which can be easily quantified or ascertained exactly. While we have exercised our professional judgement in arriving at the appraisal, the readers are urged to consider carefully the nature of such assumptions which are disclosed in our report and should exercise caution in interpreting our report.

Our valuation is prepared in line with the guidelines as contained in the IVS as well as the BVS and the HKIS Standards. The valuation has been undertaken by valuers, acting as external valuers, qualified for the purpose of the valuation.

We retain a copy of our report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, keep for a period of 6 years from the date of our report and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without Company’s authorisation and prior arrangement made with us. Moreover, we will add Company’s information into our client list for our future reference.

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APPENDIX I

We hereby certify that the fee for this service is not contingent upon our conclusion of value and we have no significant interest in the Appraised Asset, the Company or the value reported.

Yours faithfully, For and on behalf of LCH (Asia-Pacific) Surveyors Limited Ho Chin Choi, Joseph

BSc PgD RPS (GP)

Managing Director

Mr. Joseph Ho Chin Choi has been conducting asset valuations and advisory work in Hong Kong, Macau, Taiwan, mainland China, Japan, South East Asia, Australia, Germany, Scotland, Finland, Guyana, Canada and the United States of America for various purposes since 1988. He obtained the Examination Certificate of the Uniform Standards of Professional Appraisal Practice issued by the American Society of Appraisers in 1996. He has extensive experience in the valuation of various types of intangible assets and power plants, toll road, health products and foodstuffs, mineral resources, retail and distribution, agricultural property assets, financial services, luxurious consumer goods, pharmaceutical and biotechnology, electronic consumer products manufactory, semiconductors, telecommunication, media and information technology related businesses for the listed companies in Hong Kong, Taiwan, Singapore, Canada and the United States of America. At present, he is a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by the Hong Kong Institute of Surveyors and a Registered Business Valuer registered with the Hong Kong Business Valuation Forum.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquires that to the best of their knowledge and belief, there are no other facts the omission of which would made any statement herein misleading.

2. DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the Shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests 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 were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies were as follows:

			Approximate
Name of	Number of	Capacity and	percentage of
Director	shares interested	nature of interests	issued share capital
Chang Wing Seng, Victor	200,000 (L)	Beneficial interests	0.05%
Chen Yi Gang	100,000 (L)	Beneficial interests	0.03%
Fung Oi lp, Alfonso	150,000 (L)	Beneficial interests	0.04%
Lau Siu Ying_(Note 1)_	383,580,013 (L)	Beneficial interests	102.89%
Lo Wing Yat, Kelvin	100,000 (L)	Beneficial interests	0.03%
Luo Xi Zhi	100,000 (L)	Beneficial interests	0.03%
Wong Lit Chor, Alexis	100,000 (L)	Beneficial interests	0.03%

(L) denotes long position

Note 1: Of the 383,580,013 Shares:–
i. 194,280,000 Shares are beneficially owned by Mr. Lau Siu Ying, in which 2,000,000 Shares are options granted to Mr. Lau Siu Ying.
ii. 188,300,013 Shares are held by Future 2000 Limited, a company incorporated in the British Virgin Islands which in turn are held by a discretionary trust. The beneficiaries of the discretionary trust include Mr. Lau Siu Ying, his spouse and his children.
iii. 1,000,000 Shares are options granted to Mr. Lau Siu Ying’s spouse and therefore Mr. Lau Siu Ying is deemed to be interested pursuant to the SFO.
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GENERAL INFORMATION

APPENDIX II

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interests and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director was taken or deemed to have under such provisions of the SFO); or which was required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which was required, pursuant to the Model Code for Securities Transaction by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, Mr. Lau Siu Ying had entered into an acquisition agreement with a wholly owned subsidiary of the Company, namely Express Fortune Holdings Limited, on 24 July 2007 to dispose of his entire shareholding interest in Richly Giant International Limited. The said disposal was disclosed in the announcements made by the Company on 27 July 2007 and 1 November 2007.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors was interested, directly or indirectly, in any assets which had since 31 December 2006 (being the date to which the latest published audited consolidated financial statements of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, the persons (other than a Director or chief executive of the Company) who had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO were:

			Approximate
			percentage
Name of	Nature of	Number of	of issued
substantial shareholder	interests	shares interested	share capital
Lau Siu Ying_(Note 2)_	Beneficial interests	383,580,013 (L)	102.89%
Future 2000 Limited_(Note 3)_	Beneficial interests	188,300,013 (L)	50.51%
Lee Wai, Timothy_(Note 3)_	Interests of controlled	188,300,013 (L)	50.51%
	corporation

(L) denotes long position

Note 2: Please refer to Note 1 on previous page.

Note 3: Mr. Lee Wai, Timothy owns the entire issued share capital of Future 2000 Limited and therefore is deemed to be interested in the Shares held by Future 2000 Limited pursuant to the SFO.

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GENERAL INFORMATION

APPENDIX II

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors or the chief executive of the Company were aware of any person (other than a Director or the chief executive of the Company or a member of the Group) who had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group or had any options in respect of such capital as at the Latest Practicable Date.

4. LITIGATION

On 22 August 2007, Synergy Technologies (Asia) Limited (“Synergy Technologies”), an indirect wholly owned subsidiary of the Company, has issued a Writ of Summons with general endorsement to claim for damages exceeding HK$1 million against a Taiwanese company called Gigabyte Communications Inc. for breaches of distribution agreement and after-sale services agreement. Synergy Technologies is in the course of serving the said Summons on the defendant, which is established in Taiwan, out of jurisdiction of Hong Kong.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, there was no existing and proposed service contract between any of the Directors and any member of the Group (excluding contracts which may expire or be terminated by the employer within one year without payment of compensation (other than statutory compensation)).

6. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or his representative associate (as defined under the Listing Rules) had any interests in a business which competes or may compete with the business of the Group.

7. MATERIAL CHANGES

As at the Latest Practicable Date, save and except for the profit warning as disclosed in the announcement dated 28 November 2007, the Directors were not aware of any material adverse changes in the financial or trading position of the Group since 31 December 2006, the date to which the latest published audited consolidated accounts of the Group had been made up.

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GENERAL INFORMATION

APPENDIX II

8. MATERIAL CONTRACTS

Within the two years immediately preceding the issue of this circular, the following contracts, not being contracts entered into in the ordinary course of business, have been entered by members of the Group and are or may be material:

(a) the agreement dated 12 November 2007 made among the Company, Foshan Goldsonic Telecom Development Company Limited and Mr. Zhang Zhulin in respect of the possible further acquisition of interest in PRC mining company;
(b) the Disposal Agreement;
(c) the agreement dated 14 August 2007 made among the Company, Mr. Lam Bing Sum and Intelligence Tech Limited in respect of the acquisition of 2,750,000 shares in Intelligence Tech Limited;
(d) the agreement dated 24 July 2007 and two supplemental agreements dated 27 July 2007 and 1 November 2007 respectively made among the Company and Mr. Lau Siu Ying, Lau Hung Bing and Lau Kin Ying in respect of the possible acquisition of interest in PRC mining company;
(e) the agreement dated 5 June 2007 and the supplemental agreements dated 4 September 2007 made between the Company and TeleChoice International Limited in respect of establishment of a joint venture company;
(f) the subscription agreement dated 25 May 2007 made between the Company and Galaxy China Opportunities Fund in respect of the subscription of 40,000,000 new Shares;
(g) the agreement dated 2 April 2007 made among the Company, Carefree Times International Limited, DW Mobile Technology Limited and Pang Chor Fu in respect of the acquisition of 53,500 shares in DW Mobile Technology Limited;
(h) the agreement dated 15 February 2007 made among the Company, Zhuhai Lei Ming Da Telecom Technology Development Company Limited (珠海市雷明達通訊技術發展有限公司), Kuang Huai Biu, Kuang Bing Jiu and Zhuhai Lei Ming Da Telecom Equipment Company Limited (珠海市雷明達通訊設備有限公司) (“JV Company”) in respect of the acquisition and subscription of totally 51% equity interest in the JV Company; and
(i) the agreement dated 29 December 2005 made among the Company, Well Force International Inc., Synergy Pacific (Holding) Limited and Synergy Technologies (Asia) Limited in respect of the restructuring, acquisition of equity interest in Synergy Technologies (Asia) Limited and disposal of equity interest in Synergy Pacific (Holding) Limited.
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GENERAL INFORMATION

APPENDIX II

9. STATEMENT OF INDEBTEDNESS

At the close of business on 30 September 2007, being the latest practicable date for the purpose of preparing this indebtedness statement prior to the printing of this circular, the Group had following indebtedness:

The Group Unsecured bank loans Secured bank loans Secured bank overdrafts	HK$’000 13,633 186,900 7,813
	208,346

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have outstanding at the close of business on 30 September 2007 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, finance leases or hire purchase commitment, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, guarantees or other material contingent liabilities.

Foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of business on 30 September 2007.

10. WORKING CAPITAL

The Directors are of the opinion that, taking into account the internal resources and available credit facilities of the Group, the Group will have sufficient working capital for its requirements for the next twelve months from the date of this circular.

11. EXPERTS

The qualification of the experts who have given opinion in this circular are as follows:

Name	Qualification
South China Capital	A deemed licensed corporation to carry on type 6
	(advising on corporate finance) regulated activity
	as set out in Schedule 5 to the SFO
LCH (Asia-Pacific) Surveyors Limited	Chartered Surveyors

As at the Latest Practicable Date, South China Capital and LCH (Asia-Pacific) Surveyors Limited did not have any shareholding in any member of the Group and did not have any right (whether legally enforceable or not) to subscribe or to nominate persons to subscribe for securities in any member of the Group.

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GENERAL INFORMATION

APPENDIX II

As at the Latest Practicable Date, none of South China Capital and LCH (Asia-Pacific) Surveyors Limited had any interest, direct or indirect in any assets which had been, since 31 December 2006, the date to which the latest published audited consolidated financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

12. CONSENTS

South China Capital and LCH (Asia-Pacific) Surveyors Limited have given and have not withdrawn their written consents to the issue of this circular with the inclusion herein of their letters or reports (as the case may be) and references to their names included herein in the form and context in which they are included.

13. GENERAL

(a) The secretary and qualified accountant of the Company is Mr. Lam Man Kit. Mr. Lam is yet to be a full member of the HKICPA. It is expected that upon fulfilling the procedural requirements, Mr. Lam will become a full member of the HKICPA by the end of March 2008.
(b) The auditor of the Company is Messrs. Deloitte Touche Tohmatsu.
(c) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(d) The share registrar of the Company in Hong Kong is Tricor Abacus Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(e) The English language text of this circular shall prevail over the Chinese language text in case of inconsistency.

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the Company’s principal place of business in Hong Kong of the Company at Room 1505-7, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong from the date of this circular up to the date of the special general meeting of the Company to be held on 18 December 2007 to consider and approve the Disposal:

(a) the memorandum of association and bye-laws of the Company;
(b) the Disposal Agreement;
(c) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 15 of this circular;
(d) the letter of advice from South China Capital to the Independent Board Committee and the Independent Shareholders dated 30 November 2007, the text of which is set out on pages 16 to 28 of this circular;
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GENERAL INFORMATION

APPENDIX II

(e) the summary valuation report dated 30 November 2007 from LCH (Asia-Pacific) Surveyors Limited for the purpose of incorporation in this circular, the texts of which is set out in Appendix I to this circular;
(f) the annual reports of the Company for the two years ended 31 December 2006 and the interim report for the six months ended 30 June 2007;
(g) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;
(h) the written consents as referred to under the section headed “Consents” in this Appendix; and
(i) this circular.
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NOTICE OF sgm

==> picture [65 x 56] intentionally omitted <==

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

(Incorporated in Bermuda with limited liability) (Stock Code: 110)

(Formerly known as Fortune Telecom Holdings Limited)

NOTICE OF sPECIAL gENERAL mEETINg

NOTICE Is HEREBY gIVEN that a special general meeting (the “Meeting”) of China Fortune Holdings Limited (the “Company”) will be held at Room 1505-7, Tower A, Regent Centre, 63 Wo Yi Hop Road, Kwai Chung, Hong Kong at 11:00 a.m. on Tuesday, 18 December 2007 for the purpose of considering and, if thought fit, passing with or without modifications, the following resolution which will be proposed as an ordinary resolution of the Company:

ORDINARY REsOLUTION

“ THAT :

(1) the disposal of 49% interest in FTC Distribution, particulars of which are set out in the sale and purchase agreement dated 17 October 2007 (the “Disposal Agreement”) entered into between Fortune Telecom Limited, the Company’s indirect wholly-owned subsidiary as vendor and Mr. Lau Siu Ying, the chairman and chief executive officer of the Company as purchaser, be and is hereby approved and confirmed;
(2) the contents of the Disposal Agreement (a copy of which is tabled at the Meeting and marked “A” and initialled by the chairman of the Meeting for identification purpose) be and are hereby approved, confirmed and ratified; and
(3) any one or more of the directors of the Company be and is/are hereby authorised to do all such acts and things and execute all such documents which he/they consider(s) necessary or expedient for the implementation of and giving effect to the Disposal Agreement and the transactions contemplated thereunder on behalf of the Company.”

By order of the Board China Fortune Holdings Limited

Lau siu Ying Chairman and Chief Executive Officer

Hong Kong, 30 November 2007

For identification purpose only
57 -

NOTICE OF sgm

Notes:

(1) Any member entitled to attend and vote at the Meeting is entitled to appoint more than one proxy to attend and, on a poll, to vote instead of him. A proxy need not be a member of the Company.
(2) Where there are joint registered holders of any share, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at the Meeting personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share, shall alone be entitled to vote in respect thereof.
(3) A form of proxy for use at the Meeting is enclosed.
(4) To be valid, the form of proxy, together with the power of attorney or other authority, if any, under which it is signed or a certified copy of such power or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Abacus Limited of 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or the adjourned meeting. Completion and return of the form of proxy will not preclude members from attending and voting in person at the Meeting.
(5) The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.
(6) As at the date of this notice, the Board comprises two executive directors, namely Mr. Lau Siu Ying and Mr. Luo Xi Zhi, two non-executive directors, namely Mr. Fung Oi Ip, Alfonso and Mr. Lo Wing Yat and three independent non-executive directors, namely Mr. Chang Wing Seng, Victor, Mr. Wong Lit Chor, Alexis and Mr. Chen Yi Gang.
58 -

AI assistant

Hang Seng Bank Limited — Proxy Solicitation & Information Statement 2007

48870_rns_2007-11-30_1dba544f-2f8c-430e-a133-f0a3b7360bf9.pdf

China Fortune Holdings Limited 中國長遠控股有限公司[*]

PROPOsED MAJOR AND CONNECTED TRANsACTiON CONCERNiNG THE DisPOsAL OF 49% iNTEREsT iN FTC DisTRiBUTiON ENGAGED iN HANDsET DisTRiBUTiON BUsiNEss

WALLBANCK BROTHERs securities (Hong Kong) Limited

Contents

Definitions

Definitions

China fortune holdings Limited 中國長遠控股有限公司[*]

ProPoSed maJor aNd CoNNeCted traNSaCtIoN CoNCerNING the dISPoSaL of 49% INtereSt IN ftC dIStrIBUtIoN eNGaGed IN haNdSet dIStrIBUtIoN BUSINeSS

INtrodUCtIoN

Letter from the Board

the dISPoSaL aGreemeNt

date

Parties

assets to be disposed of

Before reorganisation

after reorganisation but before Completion

after Completion

Letter from the Board

Consideration

BaSIS of CoNSIderatIoN

Letter from the Board

Conditions Precedent

Completion

reaSoNS for the dISPoSaL

fINaNCIaL aNd tradING ProSPeCtS

Letter from the Board

fINaNCIaL effeCt of the dISPoSaL oN the GroUP

INformatIoN of ftC dIStrIBUtIoN

INformatIoN of ShaNGhaI YJ

INformatIoN of haNdSet dIStrIBUtIoN BUSINeSS

GeNeraL

SGm

ProCedUre to demaNd a PoLL at GeNeraL meetING

reCommeNdatIoN

addItIoNaL INformatIoN

China fortune holdings Limited 中國長遠控股有限公司[*]

ProPoSeD mAJor AND CoNNeCteD trANSACtIoN CoNCerNING the DISPoSAL of 49% INtereSt IN ftC DIStrIBUtIoN eNGAGeD IN hANDSet DIStrIBUtIoN BUSINeSS

Independent Board Committee

Letter from SoUtH CHINA CAPItAL

South China Capital Limited

mAJor AND CoNNeCteD trANSACtIoN: DISPoSAL of 49% INtereSt IN ftC DIStrIBUtIoN eNGAGeD IN HANDSet DIStrIBUtIoN BUSINeSS

INtroDUCtIoN

Letter from SoUtH CHINA CAPItAL

BASIS of oUr oPINIoN

PrINCIPAL fACtorS AND reASoNS CoNSIDereD

(1) Background of the Disposal

Information on FTC Distribution

Information on Shanghai YJ

Information on the Business, the handset fulfillment business and other businesses

Letter from SoUtH CHINA CAPItAL

Letter from SoUtH CHINA CAPItAL

Reasons for the Disposal

(2) Principal terms of the Disposal Agreement

Basis of the Consideration

(a) The PER analysis

(b) The PBR analysis

(3) financial effects of the Disposal

Effect on net asset value

Effect on earnings

Effect on gearing

Effect on working capital

reCommeNDAtIoN

INTRODUCTION

OVERVIEw (SEE NOTE)

Company Profile

The Economic Outlook of China

The Industry

APPENDIX I

VALUATION PROCEDURES ADOPTED

THE BASIS OF VALUATION

FACTORS CONSIDERED IN THE VALUATION

ESTABLISHmENT OF TITLES

APPROACH TO VALUE

The Asset-based Approach

market Approach

APPENDIX I

Income Approach

Hang Seng Bank Limited Proxy Solicitation & Information Statement 2007

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**

**China fortune holdings Limited 中國長遠控股有限公司[*]**

**China fortune holdings Limited 中國長遠控股有限公司[*]**

**China Fortune Holdings Limited 中國長遠控股有限公司[*]**