THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Jiyi Household International Holdings Limited (the ‘‘Company’’), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of the Company.

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Jiyi Household International Holdings Limited 集一家居國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1495)

(1) PROPOSED RIGHTS ISSUE OF 172,800,000 RIGHTS SHARES AT HK$0.60 PER RIGHTS SHARE ON THE BASIS OF

TWO(2) RIGHTS SHARES FOR EVERY FIVE(5) EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER AND (3) NOTICE OF EGM

Underwriter to the Rights Issue

Xinling Limited

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

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

A letter from the Board is set out on pages 12 to 33 of this circular and a letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on pages 34 to 35 of this circular. A letter from Euto Capital Partners Limited containing its advice to the Independent Board Committee and the Independent Shareholders in respect of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver is set out on pages IFA-1 to IFA-33 of this circular.

It should be noted that the Underwriting Agreement contains provisions granting the Underwriter the right to terminate the obligations of the Underwriter thereunder on the occurrence of certain events. These certain events are set out in the paragraph headed ‘‘Termination of the Underwriting Agreement’’ from pages 23 to 24 of this circular. If the Underwriting Agreement is terminated by the Underwriter or does not become unconditional, the Rights Issue will not proceed.

A notice convening the EGM to be held at 2/F., J Plus, 35-45B Bonham Strand, Sheung Wan, Hong Kong at 11:00 a.m. on Thursday, 14 June 2018 is set out on pages EGM-1 to EGM-4 of this circular. A form of proxy for use at the EGM is also enclosed. Whether or not you intend to attend the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to Computershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof (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 EGM or any adjournment thereof (as the case may be) should you so wish.

25 May 2018

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
SUMMARY OF THE RIGHTS ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . .	34
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . .	IFA-1
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . .	I-1
APPENDIX II – UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

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

‘‘acting in concert’’
has the meaning ascribed to it under the Takeovers Code
‘‘Announcement’’
the announcement of the Company dated 25 April 2018 in relation to, among other matters, the Rights Issue, the Underwriting Agreement and the application for Whitewash Waiver
‘‘Board’’ the board of Directors
‘‘Business Day’’
for the purpose of the Underwriting Agreement, a day (excluding Saturdays) on which banks are generally open for business in Hong Kong; and for all other purposes, a day on which the Stock Exchange is open for transaction of business
‘‘CCASS’’ the Central Clearing and Settlement System established and operated by HKSCC
‘‘Companies (WUMP) Ordinance’’ the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended from time to time
‘‘Company’’ Jiyi Household International Holdings Limited（集一家居國際控股有限公司）, an exempted company incorporated in the Cayman Islands with limited liability
‘‘Concert Group’’ Xinling and parties acting in concert with it (including Ms. Hou Wei, Jiesi Global, Mr. Hou Bo and Ms. Deng Haiming)
‘‘connected person’’
has the meaning ascribed to it under the Listing Rules
‘‘controlling shareholder’’
shall have the meaning as ascribed to it under the Listing Rules
‘‘Directors’’ directors of the Company
‘‘EAF(s)’’
the form(s) of application for excess Rights Shares to be issued in connection with the Rights Issue

– 1 –

DEFINITIONS

‘‘EGM’’

the extraordinary general meeting of the Company to be convened and held on Thursday, 14 June 2018 at 11:00 a.m., at 2/F., J Plus, 35-45B Bonham Strand, Sheung Wan, Hong Kong at which resolution(s) will be proposed to consider, and, if thought fit, approve the Whitewash Waiver, the Rights Issue, the Underwriting Agreement and the transactions contemplated thereunder
‘‘Euto Capital’’ or the ‘‘Independent Financial Adviser’’
Euto Capital Partners Limited, a corporation licensed to carry out Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities as defined under the SFO, being the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver
‘‘Executive’’
the Executive Director of the Corporate Finance Division of the SFC or any of his delegate(s)
‘‘Final Acceptance Date
the last date for acceptance and payment in respect of provisional allotments under the Rights Issue and for application and payment for excess Rights Shares, which is currently scheduled to be on Monday, 16 July 2018 or such later date as the Company and the Underwriter may agree
‘‘Group’’ the Company and its subsidiaries
‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the People’s Republic of China

‘‘HK$’’ Hong Kong dollar, the lawful currency of Hong Kong
‘‘HKSCC’’ Hong Kong Securities Clearing Company Limited
‘‘Independent Board Committee’’

the independent committee of the Board comprising all the non-executive Directors, who have no direct or indirect interest in the Whitewash Waiver, namely Mr. Lam On Tai, Mr. Ye Yihui, Mr. Ho Hin Yip, and Mr. Hou Liancheng, established for the purpose of advising and giving recommendation to the Independent Shareholders on the Whitewash Waiver, the Rights Issue and the Underwriting Agreement. Mr. Hou Bo, being a non-executive Director of the Company and the sole shareholder of Jiesi Global, is a member of the Concert Group and therefore would not be a member of the Independent Board Committee

– 2 –

DEFINITIONS

‘‘Independent Shareholders’’
the Shareholders other than the Concert Group and those who are involved in or interested in the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver
‘‘Jiesi Global’’ Jiesi Global Investments Limited, a company incorporated in the British Virgin Islands, which is wholly controlled by Mr. Hou Bo, a non-executive Director of the Company
‘‘Last Closing Price’’ the closing price of HK$0.70 per Share as quoted on the Stock Exchange on the Last Trading Day
‘‘Last Day for Transfer’’ Wednesday, 20 June 2018, being the last date for lodging transfer of Shares prior to the closure of register of members of the Company
‘‘Last Trading Day’’ Wednesday, 25 April 2018, being the last full trading day for the Shares before the release of the Announcement
‘‘Latest Practicable Date’’ 23 May 2018, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
‘‘Latest Time for Acceptance’’ a time which is currently expected to be 4:00 p.m. on the Final Acceptance Date
‘‘Listing Committee’’ has the meaning ascribed thereto in the Listing Rules
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on Stock Exchange
‘‘Non-Qualifying Shareholder(s)’’
Overseas Shareholder(s) in respect of whom the Directors, based on legal advice provided by legal advisers in the relevant jurisdictions, consider it necessary or expedient to exclude from the Rights Issue, on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place
‘‘Overseas Shareholder(s) Shareholder(s) whose names appear on the register of members of the Company as at the close of business on the Record Date and whose address(es) as shown on such register is/are outside Hong Kong

‘‘PAL(s)’’ the provisional allotment letter(s) to be issued in connection with the Rights Issue

– 3 –

DEFINITIONS

‘‘Posting Date’’

Thursday, 28 June 2018, or such other date as the Underwriter may agree in writing with the Company for the dispatch of the Rights Issue Documents

‘‘PRC’’
the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region and Taiwan
‘‘Prospectus’’
the prospectus to be issued by the Company in relation to the Rights Issue
‘‘Qualifying Shareholder(s)’’ Shareholder(s), other than the Non-Qualifying Shareholder(s), whose name(s) appear on the register of members of the Company as at the close of business on the Record Date
‘‘Record Date’’ Wednesday, 27 June 2018, the record date to determine entitlements to the Rights Issue
‘‘Relevant Period’’ the period beginning on the date which is six months immediately prior to the date of the Announcement (i.e. 25 October 2017) and ending on the Latest Practicable Date
‘‘Rights Issue’’ the issue of 172,800,000 Rights Shares at the Subscription Price on the basis of two (2) Rights Shares for every five (5) existing Shares held as at the close of business on the Record Date payable in full on acceptance
‘‘Rights Issue Documents’’ the Prospectus, PAL and EAF
‘‘Rights Share(s)’’
new Share(s) to be allotted and issued in respect of the Rights Issue
‘‘SFC’’
the Securities and Futures Commission of Hong Kong
‘‘SFO’’
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
‘‘Share(s)’’ ordinary share(s) of the Company
‘‘Shareholder(s)’’ holder(s) of the Shares
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Subscription Price’’ the subscription price of HK$0.60 per Rights Share ‘‘Takeovers Code’’ the Hong Kong Code on Takeovers and Mergers

– 4 –

DEFINITIONS

‘‘Taken Up/take up/taking up’’
those Rights Shares and/or Underwritten Shares in respect of which the relevant PALs and/or EAFs have been lodged and accompanied by cheques or other remittances for the full amount payable in respect thereof
‘‘Underwriting Agreement’’

the underwriting agreement dated 25 April 2018 and entered into between the Company and the Underwriter in relation to the Rights Issue

‘‘Underwritten Shares’’ means the Rights Shares underwritten by the Underwriter pursuant to the terms of the Underwriting Agreement, and the total number of which is 172,800,000 Rights Shares
‘‘Whitewash Waiver’’
a waiver to be granted by the Executive pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code in respect of the obligation of Xinling to make a general offer for all the issued Shares not already owned or agreed to be acquired by Xinling and parties acting in concert with it which may otherwise arise as a result of the subscription of the Rights Shares by Xinling pursuant to the Underwriting Agreement
‘‘Xinling’’ or ‘‘Underwriter’’ Xinling Limited（欣領有限公司）, a company established in the British Virgin Islands and a controlling shareholder of the Company
‘‘%’’ per cent

– 5 –

EXPECTED TIMETABLE

Set out below is the expected timetable for the Rights Issue which is indicative only and has been prepared on the assumption that all the conditions of the Rights Issue will be fulfilled.

The expected timetable for the Rights Issue is set out below:

Despatch of circular with notice of the EGM . . . . . . . . . . . . . . . .Friday, 25 May 2018	Despatch of circular with notice of the EGM . . . . . . . . . . . . . . . .Friday, 25 May 2018
Latest time for lodging transfer of
Shares to qualify for attendance and
voting at the EGM . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . 4:30 pm on Thursday,
	7 June 2018
Closure of register of members for
determination of entitlements
to attend and vote and the EGM	. . . . . . . . . . . . . . . . . . . . . Friday, 8 June 2018 to
	Thursday, 14 June 2018
	(both days inclusive)
Latest time for return of proxy form	for the EGM . . . . . . . . . . . 11:00 a.m. on Tuesday,
	12 June 2018
Record date for determination of entitlements to
attend and vote at the EGM . . .	. . . . . . . . . . . . . . . . . . . . Thursday, 14 June 2018
Expected date and time of the EGM	. . . . . . . . . . . . . . . . . . 11:00 a.m. on Thursday,
	14 June 2018
Announcement of poll results of the	EGM . . . . . . . . . . . . . . . . Thursday, 14 June 2018
Last day of dealings in Shares
on a cum-rights basis . . . . . . .	. . . . . . . . . . . . . . . . . . . . . .Friday, 15 June 2018
Commencement of dealings in the Shares
on an ex-rights basis . . . . . . .	. . . . . . . . . . . . . . . . . . . . Tuesday, 19 June 2018
Latest time for lodging transfer of
the Shares in order to be qualified
for the Rights Issue . . . . . . . .	. . . . . . . . . . . . . . . . . . . 4:30 p.m. on Wednesday,
	20 June 2018

– 6 –

EXPECTED TIMETABLE

Closure of register of members for determination of	Closure of register of members for determination of
entitlements under the Rights Issue . . . . .	. . . . . . . . . . . Thursday, 21 June 2018 to
	Wednesday, 27 June 2018
	(both days inclusive)
Record Date for determining entitlements
under the Rights Issue . . . . . . . . . . . . .	. . . . . . . . . . . Wednesday, 27 June 2018
Despatch of Rights Issue Documents . . . . . .	. . . . . . . . . . . . . Thursday, 28 June 2018
First day of dealings in nil-paid Rights Shares	. . . . . . . . . . . . . . Tuesday, 3 July 2018
Latest time for splitting nil-paid Rights Shares	. . . . . . . . . . . . . . . 4:30 p.m. on Friday,
	6 July 2018
Last day of dealings in nil-paid Rights Shares	. . . . . . . . . . . . Wednesday, 11 July 2018
Latest time for acceptance of, payment for,
the Rights Shares and application and
payment for excess Rights Shares . . . . . .	. . . . . . . . . . . . . . 4:00 p.m. on Monday,
	16 July 2018
Latest time and date for terminating
under Underwriting Agreement . . . . . . . .	. . . . . . . . . . . . . . 4:00 p.m. on Tuesday,
	17 July 2018
Rights Issue expected to become unconditional	. . . . . . . . . . . . . . Tuesday, 17 July 2018
Announcement for results of the Rights Issue
and the excess application to be published
in the respective websites of the Stock Exchange
and the Company on or before . . . . . . . .	. . . . . . . . . . . . . . Monday, 23 July 2018
Refund cheques in respect of wholly
or partially unsuccessful excess applications
for excess Rights Shares expected
to be posted on or before . . . . . . . . . . . .	. . . . . . . . . . . . . . Tuesday, 24 July 2018
Certificates for the Rights Shares expected
to be despatched on or before . . . . . . . . .	. . . . . . . . . . . . . . Tuesday, 24 July 2018

– 7 –

EXPECTED TIMETABLE

Dealings in fully-paid Rights Shares commence . . . . . . . . . . . 9:00 a.m. on Wednesday, 25 July 2018

Designated broker starts to stand in the market to

provide matching services for odd lots of Shares . . . . . . . . . Wednesday, 25 July 2018

The last day for the designated broker to

provide matching services for odd lots of Shares . . . . . . . . . . Friday, 17 August 2018

Note:

All times and dates in this circular refer to Hong Kong times and dates or deadlines specified in this circular are indicative only and may be varied by agreement between the Company and the Underwriter. Any consequential changes to the expected timetable will be published or notified to Shareholders and the Stock Exchange appropriately.

EFFECT OF BAD WEATHER ON LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE RIGHTS SHARES AND FOR APPLICATION AND PAYMENT FOR EXCESS RIGHTS SHARES

The latest time for acceptance of and payment for the Rights Shares and for application and payment for excess Rights Shares will not take place if there is a tropical cyclone warning signal no. 8 or above, or a ‘‘black’’ rainstorm warning issued by the Hong Kong Observatory:

(1) in force in Hong Kong at any time before 12:00 noon and no longer in force after 12:00 noon on the Final Acceptance Date. Instead the latest time for acceptance of and payment for the Rights Shares and for application and payment for excess Rights Shares will be extended to 5:00 p.m. on the same Business Day; or
(2) in force in Hong Kong at any time between 12:00 noon and 4:00 p.m. on the Final Acceptance Date. Instead the latest time for acceptance of and payment for the Rights Shares and for application and payment for excess Rights Shares will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

If the latest time for acceptance of and payment for the Rights Shares and for application and payment for excess Rights Shares does not take place on the currently scheduled date for the Final Acceptance Date, the dates mentioned above may be affected. The Company will notify the Shareholders by way of announcements of any change to the expected timetable as soon as practicable in this regard.

– 8 –

SUMMARY OF THE RIGHTS ISSUE

If at any time between the date of the Underwriting Agreement and 5:00 p.m. on the third Business Day following the Final Acceptance Date one or more of the following events or matters (whether or not forming part of a series of events) shall occur, arise, or exist:

(a) the Underwriter shall become aware of the fact that, or shall have reasonable cause to believe that, any of the warranties given by the Company under the Underwriting Agreement was untrue, inaccurate, misleading or breached, and in each case the same is (in the reasonable opinion of the Underwriter) material in the context of the Rights Issue; or
(b) (i) any new law or regulation is enacted, or there is any change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority, whether in Hong Kong, Cayman Islands or elsewhere;
(ii) there is any change in local, national or international financial, political, industrial or economic conditions;
(iii) there is any change of an exceptional nature in local, national or international equity securities or currency markets;
(iv) there is any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict;
(v) there is any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange;
(vi) there is any suspension in the trading of the Shares on the Stock Exchange for a continuous period of ten (10) Business Days;
(vii) there is any change or development involving a prospective change in taxation or exchange controls in Hong Kong or elsewhere which will or may materially and adversely affect the Group or a material proportion of the Shareholders in their capacity as such,

which event or events is or are in the reasonable opinion of the Underwriter:

(1) likely to have a material adverse effect on the business or financial or trading position or prospects of the Group taken as a whole; or
(2) likely to have a material adverse effect on the success of the Rights Issue or the level of Rights Shares to be Taken Up; or

– 9 –

SUMMARY OF THE RIGHTS ISSUE

(3) so material as to make it inappropriate, inadvisable or inexpedient to proceed further with the Rights Issue; or
(4) there is a breach by the Company of the Underwriting Agreement,

then the Underwriter may, in addition to and without prejudice to any other remedies to which the Underwriter may be entitled, by notice in writing to the Company terminate the Underwriting Agreement forthwith.

The following information is derived from, and should be read in conjunction with, the full text of this circular.

Number of Rights Shares : 172,800,000 Rights Shares Amount to be raised before : approximately HK$103.68 million before expenses expenses (based on the number of existing Shares in issue as at the Latest Practicable Date, and assuming no Shares have been allotted and issued on or before the Record Date)

Underwriter : Xinling Total number of Shares in issue : 604,800,000 Shares as enlarged by the Rights Shares upon completion of the Rights Issue

Aggregate nominal value of the : HK$17,280,000 Rights Shares to be issued

– 10 –

SUMMARY OF THE RIGHTS ISSUE

Assuming no new Shares (other than the Rights Shares) are allotted and issued on or before completion of the Rights Issue, the aggregate number of Rights Shares proposed to be allotted and issued pursuant to the terms of the Rights Issue represents 40% of the Company’s total number of issued Shares as at the Latest Practicable Date and will represent approximately 28.57% of the Company’s total number of issued Shares as enlarged by the issue of the Rights Shares immediately after completion of the Rights Issue.

As at the Latest Practicable Date, the Company had no outstanding convertible securities, options or warrants in issue which would otherwise confer any right to subscribe for, convert or exchange into the existing Shares.

– 11 –

LETTER FROM THE BOARD

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Jiyi Household International Holdings Limited 集一家居國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1495)

Executive Directors: Ms. Hou Wei (Chairlady) Mr. Liu Xianxiu

Non-executive Directors: Mr. Hou Bo Mr. Lam On Tai

Registered Office: Clifton House 75 Fort Street P.O. Box 1350 Grand Cayman KY1-1108 Cayman Islands

Independent non-executive Directors:

Mr. Ye Yihui Mr. Ho Hin Yip Mr. Hou Lianchang

Head office and principal place of business in Hong Kong: Room 1405, 14/F. Jubilee Centre 18 Fenwick Street Wanchai, Hong Kong

25 May 2018

To the Shareholders

Dear Sir/Madam

(1) PROPOSED RIGHTS ISSUE OF 172,800,000 RIGHTS SHARES AT HK$0.60 PER RIGHTS SHARE ON THE BASIS OF TWO(2) RIGHTS SHARES FOR EVERY FIVE(5) EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER AND (3) NOTICE OF EGM

I. INTRODUCTION

Reference is made to the Announcement in relation to, among other matters, the Rights Issue and the Whitewash Waiver.

– 12 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further information in relation to, among others, (i) the Rights Issue, the Underwriting Agreement and the Whitewash Waiver, (ii) a letter from the Independent Board Committee setting out their advice in relation to the Rights Issue, the Underwriting Agreement and the Whitewash Waiver, (iii) a letter of advice from Euto Capital Partners Limited to the Independent Board Committee and the Independent Shareholders in relation to the Rights Issue, the Underwriting Agreement and the Whitewash Waiver, (iv) other information as required under the Listing Rules and the Takeovers Code, and (v) the notice of the EGM.

II. PROPOSED RIGHTS ISSUE

Subject to, among other conditions, the grant of the Whitewash Waiver and the approval by the Independent Shareholders at the EGM, the Board proposes to implement the Rights Issue, details of which are summarised below:

Basis of the Rights Issue : two (2) Rights Shares for every five (5) existing Shares held on the Record Date Subscription Price : HK$0.60 per Rights Share Number of existing Shares in : 432,000,000 Shares issue as at the Latest Practicable Date Number of Rights Shares : 172,800,000 Rights Shares Amount to be raised before : approximately HK$103.68 million before expenses expenses (based on the number of existing Shares in issue as at the Latest Practicable Date, and assuming no Shares have been allotted and issued on or before the Record Date) Underwriter : Xinling Total number of Shares in issue : 604,800,000 Shares as enlarged by the Rights Shares upon completion of the Rights Issue Aggregate nominal value of the : HK$17,280,000 Rights Shares to be issued

– 13 –

LETTER FROM THE BOARD

Qualifying Shareholders

To qualify for the Rights Issue, a Shareholder’s name must appear on the register of members of the Company on the Record Date, which is currently expected to be Wednesday, 27 June 2018 and such Shareholder must not be a Non-Qualifying Shareholder. In order to be registered as a member of the Company on the Record Date, any transfer of Shares (together with the relevant share certificate(s)) must be lodged with the share registrar of the Company for registration by 4:30 p.m. on the Last Day for Transfer. The register of members of the Company will be closed from Thursday, 21 June 2018 to Wednesday, 27 June 2018, both days inclusive.

The share registrar of the Company is Computershare Hong Kong Investor Services Limited of Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong. The last day of dealings in the Shares on a cum-rights basis is Friday, 15 June 2018. The Shares will be dealt with on an ex-rights basis from Tuesday, 19 June 2018.

The Latest Time for Acceptance is expected to be 4:00 p.m. on the Final Acceptance Date.

Qualifying Shareholders who take up their pro rata entitlement in full will not suffer any dilution to their interests in the Company (except in relation to any dilution resulting from the taking up by third parties of any Rights Shares arising from the aggregation of fractional entitlements). If a Qualifying Shareholder does not take up any of his/her/its entitlement in full under the Rights Issue, his/her/its proportionate shareholding in the Company will be diluted.

– 14 –

LETTER FROM THE BOARD

The Company expects to send the Rights Issue Documents to the Qualifying Shareholders on or before the Posting Date. Subject to the advice of the Company’s legal advisers in the relevant jurisdiction(s) and to the extent reasonably practicable, the Company will send copies of the Prospectus to the Non-Qualifying Shareholders for their information only, but will not send any PAL or EAF to them. A copy of the Prospectus will also be made available on the respective websites of the Company (http://www.jiyihousehold.com) and the Stock Exchange (www.hkexnews.hk).

Closure of Register of Members

For the purpose of determining entitlements to the Rights Issue, the register of members of the Company will be closed from Thursday, 21 June 2018 to Wednesday, 27 June 2018, both days inclusive. No transfer of Shares will be registered during this period.

Non-Qualifying Shareholders

The Rights Issue Documents are not intended to be registered or filed under the applicable securities legislation or equivalent legislation of any jurisdictions other than Hong Kong.

The Company will make enquiries regarding the feasibility of extending the Rights Issue to the Overseas Shareholders. The Company notes the necessary requirements specified in the Listing Rules and will only exclude from the Rights Issue the Overseas Shareholders whom the Directors, after making enquiries, consider it necessary or expedient to exclude on account of either the legal restrictions under the laws of the relevant jurisdictions or any requirements of the relevant regulatory bodies or stock exchanges in such jurisdictions. The basis of exclusion of the Non-Qualifying Shareholders from the Rights Issue, if any, will be disclosed in the Prospectus. The Company will not offer the Rights Shares to the Non-Qualifying Shareholders. Accordingly, no provisional allotment of Rights Shares will be sent to the Non-Qualifying Shareholders. The Company will, subject to the advice of the Company’s legal advisers in the relevant jurisdiction(s) where the NonQualifying Shareholders are located and to the extent reasonably practicable, send copies of the Prospectus to the Non-Qualifying Shareholders for their information only, but the Company will not send any PAL or EAF to them.

– 15 –

LETTER FROM THE BOARD

Arrangements will be made for the Rights Shares, which would otherwise have been provisionally allotted to the Non-Qualifying Shareholders had they been Qualifying Shareholders, to be sold in the market in their nil-paid form as soon as practicable after dealings in the nil-paid Rights Shares commence and in any event before dealings in the nilpaid Rights Shares end, if a premium in excess of all expenses of sale can be obtained. The aggregate net proceeds of such sale will be distributed by the Company to the NonQualifying Shareholders (pro-rata to their respective shareholdings on the Record Date) in Hong Kong dollars, provided that if any of such Non-Qualifying Shareholders would be entitled to a sum not exceeding HK$100, such sum will be retained by the Company for its own benefit. Any unsold nil-paid Rights Shares to which such Non-Qualifying Shareholders would otherwise have been entitled will be made available for excess application by the Qualifying Shareholders under the EAFs and the untaken balance (if any) will be underwritten by Xinling.

Overseas Shareholders and beneficial owners of the Shares who are residing outside Hong Kong should note that they may or may not be entitled to the Rights Issue pursuant to Listing Rules subject to the results of the enquiries made by the Board. The Company reserves the right to treat as invalid any acceptance of or applications for Rights Shares where it believes that such acceptance or application would violate the applicable securities or other laws or regulations of any territory or jurisdiction. Accordingly, Overseas Shareholders and beneficial owners of the Shares who are residing outside Hong Kong should exercise caution when dealing in the Shares.

Odd Lot Arrangement

In order to facilitate the trading of odd lots of the Shares arising from the Rights Issue, a designated broker will be appointed to match the purchase and sale of odd lots of the Shares at the relevant market price per Share for the period from Wednesday, 25 July 2018 to Friday, 17 August 2018 (both dates inclusive). Holders of odd lots of Shares should note that successful matching of the sale and purchase of odd lots of Shares is not guaranteed. Any Shareholder who is in any doubt about the odd lot arrangement is recommended to consult his/her/its own professional advisers. Details of the odd lot arrangement will be provided in the Prospectus.

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LETTER FROM THE BOARD

Terms of the Rights Issue

Subscription Price

The Subscription Price of HK$0.60 per Rights Share is payable in full by a Qualifying Shareholder upon acceptance of the provisional allotment of the Rights Shares under the Rights Issue or application for excess Rights Shares or when a renounce of any provisional allotment of the Rights Shares or a transferee of nil-paid Rights Shares applies for the Rights Shares. The Subscription Price represents:

(i) a discount of approximately 14.29% to the Last Closing Price;
(ii) a discount of approximately 4.76% to the closing price of HK$0.63 as quoted on the Stock Exchange on the Latest Practicable Date;
(iii) a discount of approximately 15.25% to the average closing price of approximately HK$0.708 per Share as quoted on the Stock Exchange for the 5 consecutive trading days ending on and including the Last Trading Day;
(iv) a discount of approximately 15.85% to the average closing price of approximately HK$0.713 per Share as quoted on the Stock Exchange for the 10 consecutive trading days ending on and including the Last Trading Day;
(v) a discount of approximately 10.45% to the theoretical ex-right price of approximately HK$0.67 per Share based on the Last Closing Price; and
(vi) a discount of approximately 35.48% to the audited consolidated net asset value per Share attributable to equity holders of the Company of approximately HK$0.93 as at 31 December 2017.

Each Rights Share has a par value of HK$0.1. The net price per Rights Share upon full acceptance of the relevant provisional allotment of Rights Shares (assuming no new Shares are allotted and issued on or before completion of the Rights Issue) will be approximately HK$0.59.

The Subscription Price was determined by the Directors with reference to the market price of the Shares prior to and including the Last Trading Day,and the prevailing market conditions. After taking into consideration the reasons for the Rights Issue as stated in the section headed ‘‘Reasons for the Rights Issue and Use of Proceeds’’ below, the Directors (including the members of the Independent Board Committee) consider the terms of the Rights Issue, including the Subscription Price and in the context of the Company’s longterm business strategy, to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Basis of Provisional Allotments

The basis of the provisional allotment shall be two (2) Rights Shares for every five (5) existing Shares held by the Qualifying Shareholders on the Record Date. Application for all or any part of a Qualifying Shareholder’s provisional allotment should be made by completing the PAL and lodging the same with a remittance for the Rights Shares being applied for with the share registrar of the Company on or before the Latest Time for Acceptance.

Fractional Entitlements to the Rights Shares

The Company will not provisionally allot and issue and will not accept application for any fraction of the Rights Shares and the entitlements of the Qualifying Shareholders will be rounded down to the nearest whole number. All fractions of Rights Shares will be aggregated (rounded down to the nearest whole number). All nil-paid Rights Shares arising from such aggregation will be provisionally allotted (in nil-paid form) to the Company or its nominee/agent, and the Company or its nominee/agent will use reasonable endeavours to sell or procure the sale of those aggregated nil-paid Rights Shares in the market for the benefit of the Company if a premium (net of expenses) can be obtained, and the Company will retain the proceeds from such sale. Any unsold fractions of Rights Shares will be made available for excess application by the Qualifying Shareholders under the EAFs and the untaken balance (if any) will be underwritten by Xinling.

Status of the Rights Shares

The Rights Shares (when allotted, issued and fully paid) will rank pari passu with the then existing Shares in issue in all respects. Holders of fully paid Rights Shares will be entitled to receive all future dividends and distributions which may be declared, made or paid after the date of allotment and issue of the Rights Shares.

Application for Excess Rights Shares

Qualifying Shareholders may apply, by way of excess application, for:

(i) any unsold entitlements to the Rights Shares of the Non-Qualifying Shareholders had they been Qualifying Shareholders;
(ii) any unsold Rights Shares created by adding together fractions of the Rights Shares; and
(iii) any nil-paid Rights Shares provisionally allotted but not accepted by the Qualifying Shareholders or otherwise not subscribed for by renouncees or transferees of nil-paid Rights Shares.

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LETTER FROM THE BOARD

Applications for excess Rights Shares can be made only by Qualifying Shareholders and only by completing an EAF (in accordance with the instructions printed therein) and lodging the same with a separate remittance for the excess Rights Shares being applied for. The Directors (other than Ms. Hou Wei and Mr. Hou Bo) will allocate the excess Rights Shares (if any) at their discretion on a pro rata basis in proportion to the number of excess Rights Shares being applied for under each application. No reference will be made to the Rights Shares subscribed through applications by a PAL or the existing number of Shares held by Qualifying Shareholders. No preference will be given to top up odd lots to whole board lots.

Investors whose Shares are held by a nominee (or which are held in CCASS) should note that the Board will regard the nominee (including HKSCC Nominees Limited) whose name appears on the register of members of the Company (‘‘Registered Nominee’’) as a single Shareholder under the aforesaid arrangement in relation to the allocation of excess Rights Shares. Beneficial owners who hold Shares through a Registered Nominee are advised to consider whether they would like to arrange for the registration of their Shares in their own names prior to 4:30 p.m. on the Last Day for Transfer.

Investors whose Shares are held by a Registered Nominee and who would like to have their names registered on the register of members of the Company, must lodge all necessary documents with the share registrar of the Company for completion of the relevant registration by 4:30 p.m. on the Last Day for Transfer. The register of members of the Company will be closed from Thursday, 21 June 2018 to Wednesday, 27 June 2018, both dates inclusive.

Qualifying Shareholders who wish to apply for excess Rights Shares in addition to their provisional allotment must complete and sign an EAF and lodge it, together with a separate remittance for the amount payable on application in respect of the excess Rights Shares applied for, with the share registrar of the Company on or before the Latest Time for Acceptance.

Share Certificates and Refund Cheques for the Rights Issue

Subject to the fulfilment of the conditions of the Rights Issue, share certificates for fully paid Rights Shares are expected to be posted to those who have accepted and (where applicable) applied for, and paid for, the Rights Shares by ordinary post at their own risk on or before Tuesday, 24 July 2018. Each Shareholder will receive one share certificate for all allotted Rights Shares. Refund cheques in respect of wholly or partially unsuccessful applications for excess Rights Shares (if any) are expected to be posted to the applicants by ordinary post at their own risk on or before Tuesday, 24 July 2018.

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LETTER FROM THE BOARD

Application for Listing

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms. No part of the securities of the issuer is listed, or dealt in, or for which listing or permission to deal is being or is proposed to be sought, on any other stock exchange. Nil-paid Rights Shares are expected to be traded in board lots of 2,000 (as the Shares are currently traded on the Stock Exchange in board lots of 2,000).

Rights Shares will be Eligible for Admission into CCASS

Subject to the granting of the listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms on the Stock Exchange as well as compliance with the stock admission requirements of HKSCC, the Rights Shares in both their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement dates of dealings in the Rights Shares in both their nil-paid and fully-paid forms on the Stock Exchange or such other dates as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second settlement day after the date of the transaction. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. Shareholders should seek advice from their stockbrokers or other professional advisers for details of those settlement arrangements and how such arrangements will affect their rights and interests.

Stamp Duty and Other Applicable Fees and Charges

Dealings in the Rights Shares (in both nil-paid and fully-paid forms), which are registered in the register of members of the Company in Hong Kong, will be subject to the payment of stamp duty, Stock Exchange trading fee, the SFC transaction levy and other applicable fees and charges in Hong Kong.

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LETTER FROM THE BOARD

Underwriting Arrangements

Principal Terms of the Underwriting Agreement

Date : 25 April 2018 Issuer : The Company Underwriter : Xinling, a controlling shareholder of the Company, is principally engaged in investment holding Total number of : 172,800,000 Rights Shares Underwritten Shares Commission : No underwriting commission is payable to the Underwriter

As at the Latest Practicable Date, Xinling is a controlling shareholder of the Company which owns 189,054,000 Shares, representing approximately 43.76% of the existing issued share capital of the Company. The ultimate beneficial owner of Xinling is Ms. Hou Wei, the Chairlady and an executive Director, the controlling shareholder of the Company. Therefore, Xinling is a controlling shareholder and a connected person of the Company as defined under the Listing Rules. Accordingly, the transactions between the Company and Xinling as contemplated under the Underwriting Agreement constitute a connected transaction of the Company.

Conditions of the Rights Issue and the Underwriting Agreement

The obligations of the Underwriter under the Underwriting Agreement are conditional on the following, none of which can be waived, whether in whole or in part:

(a) the passing at the EGM of necessary resolution(s) by the Independent Shareholders to approve the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder, at which the voting shall be taken on a poll and in accordance with the Listing Rules and the Takeovers Code;
(b) the granting of the Whitewash Waiver to Xinling by the Executive and the fulfillment of all conditions (if any) attached to it;

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LETTER FROM THE BOARD

(c) the registration of the Rights Issue Documents (with all the documents required to be attached thereto by Section 342C of the Companies (WUMP) Ordinance) by the Registrar of Companies in Hong Kong in compliance with the Companies (WUMP) Ordinance by no later than the Posting Date;
(d) the posting of the Rights Issue Documents to the Qualifying Shareholders on or before the Posting Date;
(e) all necessary approvals, permits, waivers, consents and authorisations having been obtained for the provisional allotment and allotment of the Rights Shares from the Stock Exchange as well as for the Rights Issue generally;
(f) the Listing Committee of the Stock Exchange having granted (subject only to provisional allotment and/or allotment of the Rights Shares, the posting of the Prospectus and dispatch of certificates in respect of the Rights Shares and any other matters which are agreed between the Company and the Underwriter) the listing of and permission to deal in the Rights Shares (both nil-paid and fullypaid) on the Stock Exchange, in each case by no later than the first day of dealing thereof and such listing and permission to deal not being revoked prior to 4:00 p.m. on the third Business Day after the Final Acceptance Date;
(g) the Underwriting Agreement not being terminated by the Underwriter pursuant to its terms prior to the latest time for termination;
(h) none of the undertakings and obligations of the Company under the Underwriting Agreement having been breached; and
(i) the warranties given by the Company under the Underwriting Agreement remaining true, accurate and not misleading in all material respects.

As at the Latest Practicable Date, none of the above conditions precedent have been fulfilled. If any of the above conditions are not fulfilled at or before 4:00 p.m. on Tuesday, 17 July 2018 (or such other date as the Company and the Underwriter may agree in writing), or shall become incapable of being fulfilled on or before such time or date, the Underwriting Agreement may be terminated by the Underwriter by written notice to the Company, and no party to the Underwriting Agreement shall have any claim against any other party thereto for compensation, costs, damages or otherwise.

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LETTER FROM THE BOARD

Termination of the Underwriting Agreement

(a) the Underwriter shall become aware of the fact that, or shall have reasonable cause to believe that, any of the warranties given by the Company under the Underwriting Agreement was untrue, inaccurate, misleading or breached, and in each case the same is (in the reasonable opinion of the Underwriter) material in the context of the Rights Issue; or
(b) (i) any new law or regulation is enacted, or there is any change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority, whether in Hong Kong, Cayman Islands or elsewhere;
(ii) there is any change in local, national or international financial, political, industrial or economic conditions;
(iii) there is any change of an exceptional nature in local, national or international equity securities or currency markets;
(iv) there is any local, national or international outbreak or escalation of hostilities, insurrection or armed conflict;
(v) there is any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange;
(vi) there is any suspension in the trading of the Shares on the Stock Exchange for a continuous period of ten (10) Business Days;
(vii) there is any change or development involving a prospective change in taxation or exchange controls in Hong Kong or elsewhere which will or may materially and adversely affect the Group or a material proportion of the Shareholders in their capacity as such,

which event or events is or are in the reasonable opinion of the Underwriter:

(1) likely to have a material adverse effect on the business or financial or trading position or prospects of the Group taken as a whole; or
(2) likely to have a material adverse effect on the success of the Rights Issue or the level of Rights Shares to be Taken Up; or

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LETTER FROM THE BOARD

(3) so material as to make it inappropriate, inadvisable or inexpedient to proceed further with the Rights Issue; or
(4) there is a breach by the Company of the Underwriting Agreement,

If the Underwriter exercises such right of termination, the Underwriting Agreement will not become unconditional and the Rights Issue will not proceed. Further announcement will be made if the Underwriting Agreement is terminated by the Underwriter. Upon termination of the Underwriting Agreement, the obligations of the Underwriter and the Company under the Underwriting Agreement shall terminate and cease and no party shall have any claim against any other party in respect of any matter or thing arising out of or in connection with the Underwriting Agreement save in respect of any antecedent breach of any obligation under it.

Warning of the Risks of Dealing in Shares and Rights Shares in Nil-Paid Form

The last day for dealing in the Shares on a cum-rights basis is expected to be Friday, 15 June 2018. The Shares are expected to be dealt in on an ex-rights basis from Tuesday, 19 June 2018. The Rights Shares are expected to be dealt with in their nil-paid form from Tuesday, 3 July 2018 to Wednesday,11 July 2018 (both days inclusive).

The Rights Issue is conditional upon the Underwriting Agreement becoming unconditional and not being terminated. It should also be noted that the Underwriting Agreement contains provisions granting the Underwriter the right to terminate their obligations on the occurrence of certain events including force majeure. If the Underwriting Agreement does not become unconditional or is terminated, the Rights Issue will not proceed.

Any Shareholder or other person dealing in Shares of the Company up to the date on which all the conditions to which the Rights Issue is subject are fulfilled (and the date on which the Underwriter’s right of termination of the Underwriting Agreement ceases) and any person dealing in the nil-paid Rights Shares during the period from Tuesday, 3 July 2018 to Wednesday,11 July 2018 (both days inclusive) will accordingly bear the risk that the Rights Issue may not become unconditional or may not proceed. If in any doubt, Shareholders, and other persons contemplating dealing in securities of the Company and potential investors are recommended to consult their professional advisers. Shareholders and potential investors should exercise caution in dealing in the securities of the Company.

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LETTER FROM THE BOARD

Changes in the Shareholding Structure

Assuming no Shares (other than the Rights Shares) are allotted and issued on or before the completion of the Rights Issue, the changes in the shareholding structure of the Company arising from the Rights Issue are as follows:

Concert Group Xinling (Note 1) Jiesi Global (Note 2) Ms. Deng Haiming Subtotal Substantial Shareholder Yiju Holdings Limited (Note 3) Mr. Lin Kuan Ming (Note 4) Public Shareholders Total	As at the Latest Practicable Date No. of Shares Approximate % 189,054,000 43.76 5,562,000 1.29 300,000 0.07 194,916,000 45.12 40,188,000 9.30 35,827,000 8.29 161,069,000 37.29 432,000,000 100	Shareholding upon completion of the Rights Issue Assuming all Rights Shares are taken up by the Qualifying Shareholders Assuming no Rights Shares are taken up by the Qualifying Shareholders and the Underwriter is required to underwrite the Underwritten Shares No. of Shares Approximate % No. of Shares Approximate % 264,675,600 43.76 361,854,000 59.83 7,786,800 1.29 5,562,000 0.92 420,000 0.07 300,000 0.05 272,882,400 45.12 367,716,000 60.80 56,263,200 9.30 40,188,000 6.64 50,157,800 8.29 35,827,000 5.93 225,496,600 37.29 161,069,000 26.63 604,800,000 100 604,800,000 100	Shareholding upon completion of the Rights Issue Assuming all Rights Shares are taken up by the Qualifying Shareholders Assuming no Rights Shares are taken up by the Qualifying Shareholders and the Underwriter is required to underwrite the Underwritten Shares No. of Shares Approximate % No. of Shares Approximate % 264,675,600 43.76 361,854,000 59.83 7,786,800 1.29 5,562,000 0.92 420,000 0.07 300,000 0.05 272,882,400 45.12 367,716,000 60.80 56,263,200 9.30 40,188,000 6.64 50,157,800 8.29 35,827,000 5.93 225,496,600 37.29 161,069,000 26.63 604,800,000 100 604,800,000 100
			100

Notes:

Xinling is wholly owned by Ms. Hou Wei, the Chairlady and an executive Director.
Jiesi Global is wholly owned by Mr. Hou Bo, brother of Ms. Hou Wei, a non-executive Director, Jiesi Global is a member of the Concert Group and will be abstained from voting on the resolutions at the EGM in relation to the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the underlying transaction contemplated thereunder.
As at the Latest Practicable Date, Yiju Holdings Limited was the registered holder of 40,188,000 Shares and Mr. Liu Shui is the sole shareholder of Yiju Holdings Limited. Under Part XV of the SFO, Mr. Liu Shui was therefore deemed to have interests in 40,188,000 Shares in which Yiju Holdings Limited was interested. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, Mr. Liu Shui is a Pre-IPO investor of the Group and is acquainted with Ms. Hou Wei. As at the Latest Practicable Date, Mr. Liu Shui is one of the directors of Shenzhen Tianhan Eco-environment Company Limited（深圳市鐵漢生態環境股份有限公司）(‘‘Tie Han’’), which is a listed company whose shares are listed in the Shenzhen Stock Exchange (Stock Code: 300197). Tie Han is principally engaged in eco-environment construction work and, during its ordinary course of business, has sub-contracted some engineering work to the Group. Save as the above-mentioned business relationship, there are no other relationships between Mr. Liu Shui (and his concert group) and Ms. Hou Wei (and her concert group). Yiju Holdings Limited and/or Mr. Liu Shui was not involved in the negotiation of the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver.

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LETTER FROM THE BOARD

Mr. Lin Kuan Ming (‘‘Mr. Lin’’) is deemed to be interested in a total of 35,827,000 Shares, which were held as to 9,261,000 Shares by Corporate Image Limited and 26,566,000 Shares by Lucky Union Int’l Co., Ltd.. On the other hand, Ms. Lin Ling Yu (spouse of Mr. Lin, ‘‘Ms. Lin’’) is deemed to be interested in a total of 35,827,000 Shares, which were held as to 26,566,000 Shares by Lucky Union Int’l Co., Ltd. and 9,261,000 Shares in which Mr. Lin is interested in. By virtue of the SFO, as Mr. Lin beneficially owns the entire issued share capital of Corporate Image Limited, he is deemed to be interested in 9,261,000 Shares held by Corporate Image Limited and Ms. Lin, as his spouse, is also deemed to be interested in these 9,261,000 Shares. Further, Mr. Lin, Ms. Lin, Ms. Lin Hsin Hui and Ms. Lin Chia Hui, the daughters of Mr. Lin and Ms. Lin, own 30%, 50%, 10% and 10% of the issued share capital of Lucky Union Int’l Co., Ltd., respectively. By virtue of the SFO, both Mr. Lin and Ms. Lin are deemed to be interested in 26,566,000 Shares held by Lucky Union Int’l Co., Ltd.. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, Mr. Lin is a Pre-IPO investor of the Group and is acquainted with Ms. Hou Wei, and save as disclosed above, there are no other relationships between Mr. Lin and Ms. Hou Wei (and/or Xinling). Mr. Lin and/or Ms. Lin were not involved in the negotiation of the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver.

Save as Ms. Hou Wei and Mr. Hou Bo as mentioned above, none of the Directors have any interest in Shares as at the Latest Practicable Date.

Reasons for the Rights Issue and Use of Proceeds

The Group is principally engaged in the business of sale and distribution of building and home improvement materials and furnishings and provision of interior design and engineering services in the PRC.

The estimated net proceeds from the Rights Issue (after deducting all estimated expenses) will be approximately HK$101.8 million (assuming there is no change in the number of issued Shares on or before the Record Date). It is expected that the proceeds from the Rights Issue can satisfy the Company’s expected funding needs for the next 12 months.

The Board is considering to implement its growth strategy to develop its interior design and engineering service business in the PRC in order to strengthen the Group’s income stream and maximise return to shareholders. The Board intends to apply the net proceeds from the Rights Issue in the following manner:

approximately HK$91.62 million (representing approximately 90% of the estimated net proceeds from the Rights Issue) will be applied for financing the capital input for several interior design and engineering projects under construction in the PRC;

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LETTER FROM THE BOARD

As at the Latest Practicable Date, the Group has entered into following major construction contracts with potential customers

			Expected	Expected
	Location	Approximately	capital	Completion
Name of the Projects	of the Project	Contract Amount	expenditures	Date
Sanfeng rehousing project	Meizhou City	RMB150 million	RMB134.6 million	In March 2019
（三豐安置區工程）
General contracting agreement	Meizhou City	RMB606.8 million	RMB546.1 million	In August 2020
for project Shang Cheng
（尚城項目總承包合同）
Total		RMB756.8 million	RMB680.7 million	–

the remaining proceeds of approximately HK$10.18 million (representing approximately 10% of the estimated net proceeds from the Rights Issue) will be applied for general working capital for the payment of operational expenses for the Company’s Hong Kong principal office, such as payment of salaries and rents and general operational expenses, etc.

The Board has also explored alternative possible fund-raising methods, such as debt financing, placing of or subscription for new Shares or convertible securities. The Board is of the view that debt financing will result in additional interest burden, higher gearing ratio of the Group and subject the Group to raising interest rates. Hence, debt financing is not preferable for the Company to raise fund.

Further, having consider the funding needs, the Board reasonably believed that it cannot be achieved by issue of securities under general mandate. The Board also considered that, for raising fund from placing or subscription, substantial amount of securities must be issued under specific mandate which will be sought at the general meeting of the Company and in which case the subscriber(s) will usually require for a substantial discount to the trading price of the Shares to be subscribed. Meanwhile, the Company has not secured any placing agents and subscribers with such large amount of securities but having subscription price comparable to that of the Rights Issue. Further, issue of substantial amount of securities and underlying securities will cause huge dilution effect to the Shareholders and deny the Shareholders to participate in the fund raising activities in order to maintain their shareholdings. As such, the Directors believe that Rights Issue is the best alternative among other fund-raising alternatives.

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LETTER FROM THE BOARD

The Directors consider that the Rights Issue offers all Qualifying Shareholders the opportunity to participate and grasp the benefit of the future development of the Group. The Directors are of the view that the Rights Issue not only provides greater financial flexibility for the Company, but also offers all Qualifying Shareholders the opportunity to maintain their pro rata shareholding interests in the Company. Unlike borrowings or issuance of debt securities, the Directors (including members of the Independent Board Committee whose view is set out in the section headed ‘‘Letter from the Independent Board Committee’’ in this circular) consider that the rights issue would be a preferred means for the Company to raise long-term funds to finance long-term investments and new business potentials without subjecting itself to interest burden or additional debt.

The net proceeds from the Rights Issue will be used as funds for (1) project costs for the interior design and engineering work for several projects in progress in Meizhou, Guangdong Province, the PRC and (2) as the general working capital of the Group. The Group also intends to continue to focus on the development of its existing sales and distribution of household building materials and furnishings business and interior design and engineering service business, and look for other potential good investment opportunities in the existing business fields of the Group to achieve sustainable growth and create value for its Shareholders. As at Latest Practicable Date, the Company did not identify any suitable acquisition targets.

Furthermore, the capital base of the Company will be strengthened after completion of the Rights Issue and the improved financial position provided sufficient internal resources and financing capacity for the Company to meet its future expansion needs.

The Directors (including members of the Independent Board Committee whose view is set out in the section headed ‘‘Letter from the Independent Board Committee’’ in this circular) believe that the Rights Issue is in the best interests of the Company and the Shareholders as a whole.

Takeovers Code Implications and Application for Whitewash Waiver

As at the Latest Practicable Date, the Concert Group is interested in 194,916,000 Shares, representing approximately 45.12% of the entire issued Shares of the Company.

Pursuant to the Underwriting Agreement, Xinling has undertaken to the Company that it will fully underwrite the Underwritten Shares.

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LETTER FROM THE BOARD

Assuming no acceptance by the Qualifying Shareholders under the Rights Issue, Xinling will be required to take up the Underwritten Shares and the total shareholding of the Concert Group upon completion of the Rights Issue would amount to approximately 60.80% of the then issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares. Under such circumstance, Xinling would be required to make a mandatory general offer for all the issued Shares (other than those already owned or agreed to be acquired by the Concert Group) under Rule 26.1 of the Takeovers Code, unless a waiver from strict compliance with Rule 26.1 of the Takeovers Code is granted by the Executive.

An application has been made by the Underwriter to the Executive for the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code.

The Executive has indicated that the Whitewash Waiver will be granted and will be conditional upon, among other things, the approval of the Independent Shareholders at the EGM by way of poll, in which the Concert Group shall abstain from voting on the relevant resolution(s). Save for the Concert Group, no Shareholder is involved in or interested in the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver which requires him/her/it to abstain from voting on the relevant resolution(s) at the EGM. If the Whitewash Waiver is not granted or not approved by the Independent Shareholders, the Underwriting Agreement will not become unconditional and the Rights Issue will not proceed.

If the Whitewash Waiver is approved by the Independent Shareholders, the shareholding of the Concert Group may exceed 50%, in which event the Underwriter may further increase its shareholding in the Company without incurring any further obligations under Rule 26 of the Takeovers Code to make a general offer.

As at the Latest Practicable Date, the Company did not believe that the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transaction contemplated thereunder gives rise to any concerns in relation to compliance with other applicable rules or regulations (including the Listing Rules). The Company notes that the Executive may not grant the Whitewash Waiver if the Rights Issue, the Underwriting Agreement and the transaction contemplated thereunder does not comply with other applicable rules and regulations.

Information on Xinling and the Concert Group

Xinling was incorporated in the British Virgin Islands and is principally engaged in investment holding. Xinling is not engaged in the business of underwriting. As at the Latest Practicable Date, Xinling is beneficially owned as to 100% by Ms. Hou Wei (the Chairlady and an executive Director of the Company). As at the Latest Practicable Date, Xinling holds 189,054,000 Shares, representing approximately 43.76% of the entire issued Shares of the Company.

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LETTER FROM THE BOARD

It is the intention of Xinling to continue to carry on the businesses of the Group and to continue the employment of the employees of the Group. Xinling has no intention to introduce any changes to the businesses of the Group including redeployment of the fixed assets of the Group.

Jiesi Global was incorporated in the British Virgin Islands and is principally engaged in investment holding. As at the Latest Practicable Date, Jiesi Global is owned as to 100% by Mr. Hou Bo (a non-executive Director of the Company). As at the Latest Practicable Date, Jiesi Global holds 5,562,000 Shares, representing approximately 1.29% of the entire issued Shares of the Company.

As at the Latest Practicable Date, Ms. Deng Haiming, the vice president of the Group and the sister-in-law of Ms. Hou Wei, is personally interested in 300,000 Shares.

As at the Latest Practicable Date, the members of the Concert Group has not received any irrevocable commitment to vote for or against the proposed resolution approving the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the underlying transaction contemplated thereunder, at the EGM. Save for the transactions contemplated under the Underwriting Agreement, there is no arrangement (whether by way of option, indemnity or otherwise) under Note 8 to Rule 22 of the Takeovers Code in relation to the Shares entered into by any member of the Concert Group and which might be material to the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver.

At the Latest Practicable Date, other than approximately 45.12% interests in the issued share capital of the Company owned by the Concert Group, the members of the Concert Group does not hold or has control or direction over any other shares, rights over shares, convertible securities, warrants or options of the Company, or any outstanding derivative in respect of relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company.

None of the members of the Concert Group has any dealings in any securities of the Company in the Relevant Period.

At the Latest Practicable Date, save for the Underwriting Agreement, there is no arrangement or agreement to which members of the Concert Group is a party which relates to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver. There is no relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company which the Concert Group has borrowed or lent as at the Latest Practicable Date.

– 30 –

LETTER FROM THE BOARD

Information on the Group

Independent Board Committee

The Independent Board Committee (comprising Mr. Lam On Tai, Mr. Ye Yihui, Mr. Ho Hin Yip, and Mr. Hou Liancheng) has been established to advise the Independent Shareholders as to whether the terms of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and in the interest of the Company and the Shareholders as a whole as far as the Independent Shareholders are concerned and to advise the Independent Shareholders on how to vote at the EGM. Mr. Hou Bo, being a nonexecutive Director of the Company and the sole shareholder of Jiesi Global, is a member of the Concert Group and therefore would not be a member of the Independent Board Committee.

Independent Financial Adviser

With the approval of the Independent Board Committee, Euto Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the terms of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver.

Listing Rules Implications

Pursuant to Rule 7.19(6)(a) of the Listing Rules, since the Rights Issue would increase the total number of issued Shares by no more than 50%, the Rights Issue is not conditional on approval by Shareholders.

As at the Latest Practicable Date, Xinling is interested in 189,054,000 Shares, representing approximately 43.76% of the entire issued Shares of the Company. Therefore, Xinling is a controlling shareholder and a connected person of the Company as defined under the Listing Rules. Accordingly, the transactions between the Company and Xinling as contemplated under the Underwriting Agreement constitute a connected transaction of the Company. Pursuant to Rule 14A.92(2)(b) of the Listing Rules, as arrangements have been made in relation to excess applications in compliance with Rule 7.21 of the Listing Rules and given that no underwriting commission is payable to Xingling such that the applicable percentage ratios in respect of the underwriting commission are less than 0.1%, the transactions contemplated under the Underwriting Agreement is exempted from all reporting, announcement and independent shareholders’ approval requirements under Chapter 14A the Listing Rules so far as the Listing Rules is concerned. However, pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code, as the Concert Group is interested in the

– 31 –

LETTER FROM THE BOARD

Whitewash Waiver, it is required to abstain from voting on the resolutions to be proposed at the EGM in relation to the Whitewash Waiver (including the resolutions regarding the Rights Issue and the Underwriting Agreement). Therefore, the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder are still subject to the Independent Shareholders’ approval at the EGM for the purpose of the Takeovers Code. It is not in the ordinary course of business of Xinling to underwrite shares.

Save for the Concert Group, no Shareholder is involved in or interested in the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver which requires him/her/it to abstain from voting on the relevant resolutions at the EGM. An Independent Board Committee has been established by the Company to give recommendation to the Independent Shareholders in respect of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver. The Independent Financial Adviser has been appointed to advise the Independent Board Committee of the Company regarding the Rights Issue, the Underwriting Agreement and the Whitewash Waiver.

Ms. Hou Wei (being the sole shareholder of the Xinling and a connected person of the Company) and Mr. Hou Bo (being the sole shareholder of Jiesi Global and a non-executive Director of the Company) had abstained from voting on the relevant resolutions of the Board approving the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder.

III. EGM

A notice convening the EGM at 2/F., J Plus, 35-45B Bonham Strand, Sheung Wan, Hong Kong, on Thursday, 14 June 2018 at 11:00 a.m. is set out on pages EGM-1 to EGM-4 of this circular. Whether or not you are able to attend the EGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s share registrar, Computershare Hong Kong Investor Services Limited of Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as practicable but in any event not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjournment thereof (as the case may be) should you so wish.

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LETTER FROM THE BOARD

IV. RECOMMENDATIONS

Your attention is drawn to the advice of the Independent Board Committee set out in its letter on pages 34 to 35 of this circular. Your attention is also drawn to the letter of advice from Euto Capital to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder set out on pages IFA-1 to IFA-33 in this circular.

The Directors (including the members of the Independent Board Committee whose view is set out in the section headed ‘‘Letter from the Independent Board Committee’’ in this circular) consider that the terms of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of all resolutions to be proposed at the EGM to approve the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder. You are advised to read the letter from the Independent Board Committee and the letter from Euto Capital mentioned above before deciding how to vote on the resolutions to be proposed at the EGM.

V. ADDITIONAL INFORMATION

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

By Order of the Board of

JIYI HOUSEHOLD INTERNATIONAL HOLDINGS LIMITED Hou Wei

Chairlady

– 33 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder.

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Jiyi Household International Holdings Limited 集一家居國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1495)

25 May 2018

To the Independent Shareholders

Dear Sir/Madam

(1) PROPOSED RIGHTS ISSUE OF 172,800,000 RIGHTS SHARES AT HK$0.60 PER RIGHTS SHARE ON THE BASIS OF TWO(2) RIGHTS SHARES FOR EVERY FIVE(5) EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER AND (3) NOTICE OF EGM

We refer to the circular of the Company dated 25 May 2018 (the ‘‘Circular’’) of which this letter forms part. Unless the context specifies otherwise, capitalised terms used herein have the same meanings as defined in the Circular.

We have been appointed by the Board to advise the Independent Shareholders as to whether the terms of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable as far as the Independent Shareholders are concerned and to recommend whether or not the Independent Shareholders should vote for the resolutions to be proposed at the EGM to approve the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder. The appointment of Euto Capital Partners Limited as the Independent Financial Adviser to advise you and us in this regard has been approved by us. Details of its advice, together with the principal factors and reasons it has taken into consideration in arriving at such advice, are set out on pages IFA-1 to IFA-33 of the Circular.

– 34 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Your attention is also drawn to the ‘‘Letter from the Board’’ in this Circular and the additional information set out in the appendices thereto.

Having taken into account the principal factors and reasons considered by, and the advice and recommendation of, the Independent Financial Adviser as set out in its letter of advice to you and us on pages IFA-1 to IFA-33 of the Circular, we are of the opinion that the terms of the Rights Issue and the Underwriting Agreement are on normal commercial terms, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole, and are of the view that the Whitewash Waiver, which is to facilitate the implementation of the Rights Issue, is fair and reasonable and in the interests of the Company and the Shareholders as a whole as far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

the Independent Board Committee

Mr. Lam On Tai Mr. Ye Yihui Mr. Ho Hin Yip Mr. Hou Liancheng Non-executive Director Independent nonIndependent nonIndependent nonexecutive Director executive Director executive Director

– 35 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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Euto Capital Partners Limited Room 2418, Wing On Centre, T +852 3106 2393 111 Connaught Road Central, F +852 3582 4722 Hong Kong www.eutocapital.com

25 May 2018

To the Independent Board Committee and the Independent Shareholders of Jiyi Household International Holdings Limited

Dear Sirs and Madams,

(1) PROPOSED RIGHTS ISSUE OF 172,800,000 RIGHTS SHARES AT HK$0.60 PER RIGHTS SHARE ON THE BASIS OF TWO (2) RIGHTS SHARES FOR EVERY FIVE (5) EXISTING SHARES HELD ON THE RECORD DATE; AND

(2) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Rights Issue, the Underwriting Agreement and the Whitewash Waiver (the ‘‘Transactions’’), details of which are set out in the letter from the Board (the ‘‘Letter’’) contained in the circular of the Company dated 25 May 2018 (the ‘‘Circular’’) of which this letter forms part. Unless otherwise specified, capitalized terms used herein shall have the same meanings as those defined in the Circular.

A. The proposed Rights Issue

As set out in the Letter, the Company proposes to raise gross proceeds of approximately HK$103.68 million before expenses by way of a rights issue of 172,800,000 Rights Shares at a price of HK$0.60 per Rights Share on the basis of two (2) Rights Shares for every five (5) existing Shares held by the Qualifying Shareholders on the Record Date. The Rights Issue is only available to the Qualifying Shareholders and will not be available to the Non-Qualifying Shareholders. Pursuant to the Rights Issue, the Qualifying Shareholders will be provisionally allotted two (2) Rights Shares in nil-paid form for every five (5) existing Shares held on the Record Date.

IFA – 1

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company will not provisionally allot and issue and will not accept application for any fraction of the Rights Shares. All fractions of Rights Shares will be aggregated (rounded down to the nearest whole number). All nil-paid Rights Shares arising from such aggregation will be provisionally allotted (in nil-paid form) to the Company or its nominee/agent, and the Company or its nominee/agent will use reasonable endeavours to sell or procure the sale of those aggregated nil-paid Rights Shares in the market for the benefit of the Company if a premium (net of expenses) can be obtained, and the Company will retain the proceeds from such sale. Any unsold fractions of Rights Shares will be made available for excess application by the Qualifying Shareholders under the EAFs and the undertaken balance (if any) will be underwritten by Xinling.

B. The Underwriting Agreement

As at the Latest Practicable Date, Xinling, the underwriter and a substantial shareholder of the Company, owns 189,054,000 Shares, representing approximately 43.76% of the existing issued share capital of the Company.

Pursuant to the terms of the Underwriting Agreement, Xinling has undertaken to the Company that it will fully underwrite the subscription of the Underwritten Shares on and subject to the terms and conditions of the Underwriting Agreement.

The obligations of the Underwriter to underwrite the Underwritten Shares are conditional on (i) the satisfaction of the conditions referred to in the paragraph headed ‘‘Conditions of the Rights Issue and the Underwriting Agreement’’ under the section headed ‘‘Underwriting Arrangements’’ in the Letter, which cannot be waived in whole or part, and (ii) the Underwriting Agreement not being terminated by the Underwriter in accordance with its terms. If the conditions are not fulfilled or the Underwriting Agreement is terminated pursuant to its terms, the Rights Issue will not proceed.

IFA – 2

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

C. Reasons for the proposed rights issue and use of proceeds

As stated in the Letter, the Board is considering to implement its growth strategy to develop its interior design and engineering service business in the PRC in order to strengthen the Group’s income stream and maximise return to shareholders.

The estimated net proceeds from the Rights Issue (after deducting all estimated expenses) will be approximately HK$101.8 million which will be used as funds for (1) financing the capital input for the Group’s several interior design and engineering projects under construction in the PRC and (2) as the general working capital of the Group.

The Directors (including the members of the Independent Board Committee who will form their views after consulting the Independent Financial Adviser) consider that the Rights Issue offers all Qualifying Shareholders the opportunity to participate and grasp the benefit of the future development of the Group. The Directors are of the view that the Rights Issue not only provides greater financial flexibility for the Company, but also offers all Qualifying Shareholders the opportunity to maintain their pro rata shareholding interests in the Company.

Takeovers code implications and application for whitewash waiver

As at the Latest Practicable Date, the Concert Group is interested in 194,916,000 Shares, representing approximately 45.12% of the entire issued Shares of the Company. Pursuant to the Underwriting Agreement, Xinling has undertaken to the Company that it will fully underwrite the Underwritten Shares.

Xinling has made an application to the Executive for the granting of the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, the approval of the Independent Shareholders at the EGM by way of poll. If the Whitewash Waiver is not granted or not approved by the Independent Shareholders, the Underwriting Agreement will not become unconditional and the Rights Issue will not proceed.

IFA – 3

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Listing Rules implications

However, pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code, as the Concert Group is interested in the Whitewash Waiver, it is required to abstain from voting on the resolutions to be proposed at the EGM in relation to the Whitewash Waiver (including the resolutions regarding the Rights Issue and the Underwriting Agreement). Therefore, the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder is still subject to the Independent Shareholders’ approval at the EGM for the purpose of the Takeovers Code. It is not in the ordinary course of business of Xinling to underwrite shares.

Ms. Hou Wei (being the sole shareholder of the Xinling and a connected person of the Company) and Mr. Hou Bo (being the sole shareholder of Jiesi Global, a non-executive Director of the Company and a brother of Ms. Hou Wei) had abstained from voting on the relevant resolutions of the Board approving the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising Mr. Lam On Tai, Mr. Ye Yihui, Mr. Ho Hin Yip and Mr. Hou Lianchang, all being the non-executive Directors, has been established to advise the Independent Shareholders as to (i) whether the terms of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and in the interest of the Company and the Shareholders as a whole as far as the Independent Shareholders are concerned and (ii) to advise the Independent Shareholders on how to vote at the EGM.

IFA – 4

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In our capacity as the Independent Financial Adviser to the Independent Board Committee and the Shareholders for the purpose of the Listings Rules, our role is to give an independent opinion as to (i) whether the terms of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver are on normal commercial terms, fair and reasonable as far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole, and (ii) advise the Independent Shareholders on how to vote at the EGM. Our appointment has been approved by the Independent Board Committee.

OUR INDEPENDENCE

We, Euto Capital Partners Limited (‘‘Euto Capital’’), have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Mr. Manfred Shiu (‘‘Mr. Shiu’’) is the person signing off the opinion letter from Euto Capital contained in the Circular. Mr. Shiu has been a responsible officer of Type 6 (advising on corporate finance) regulated activities under SFO since 2009 and has participated in and completed various independent financial advisory transactions in Hong Kong. As at the Latest Practicable Date, we were not aware of any relationships or interest between Euto Capital and the Company or any other parties that could be reasonably be regarded as hindrance to Euto Capital’s independence as defined under Rule 13.80 of Listing Rules to act as the Independent Financial Adviser to the Independent Board Committee and the Shareholders in respect of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver.

We are not associated with the Company, its subsidiaries, its associates or their respective substantial shareholders or associates, and accordingly, are eligible to give independent advice and recommendations. Apart from normal professional fees payable to us in connection with this appointment as the Independent Financial Adviser to the Independent Board Committee and Shareholders, no arrangement exists whereby we will receive any fees from the Company, its subsidiaries, its associates or their respective substantial shareholders or associates. We are not aware of the existence of or change in any circumstances that would affect our independence. Euto Capital has not acted as a financial adviser to the Company in the last two years. Accordingly, we consider that we are eligible to give independent advice on the terms of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver.

IFA – 5

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION AND RECOMMENDATION

In formulating our opinion and recommendation to the Independent Board Committee and the Shareholders in relation to the Rights Issue, the Underwriting Agreement and the Whitewash Waiver, we have relied on the information, facts and representations contained or referred to in the Circular and the information, facts and representations provided by, and the opinions expressed by the Directors, management of the Company and its subsidiaries (the ‘‘Management’’). We have assumed that all information, facts, opinions and representations made or referred to in the Circular were true, accurate and complete at the time they were made and continued to be true and that all expectations and intentions of the Directors and the Management, will be met or carried out as the case may be. We have no reason to doubt the truth, accuracy and completeness of the information, facts, opinions and representations provided to us by the Directors and the Management. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed. Independent Shareholders will be notified of material changes to the information provided and our opinion, if any, as soon as possible after the Latest Practicable Date and until the EGM.

We consider that we have been provided with, and we have reviewed sufficient information to reach an informed view, to justify relying on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have no reason to doubt that any relevant material facts have been withheld or omitted from the information provided and referred to in the Circular or the reasonableness of the opinions and representations provided to us by the Directors and the Management. We have not, however, conducted any independent verification of the information provided, nor have we carried out any independent investigation into the business, financial conditions and affairs of the Group or its future prospects.

Based on the foregoing, we confirm that we have taken all reasonable steps, which are applicable to the Transactions, as referred to in Rule 13.80 of the Listing Rules (including the notes thereof) in formulating our opinion and recommendation.

This letter is issued for the information for the Independent Board Committee and the Shareholders solely in connection with their consideration of the terms of the Transactions and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

IFA – 6

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion to the Independent Board Committee and the Independent Shareholders, we have considered the following principal factors and reasons:

1. Information of the Group

The Company is a company incorporated in Cayman Islands with limited liability and the Shares of which have been listed on the Main Board of the Stock Exchange. The Company is an investment holding company and the holding company of the Group.

(a) Principal business of the Group

The Group is principally engaged in (i) the business of sale and distribution of building and home improvement materials and furnishings; and (ii) provision of interior design and engineering services in the PRC.

(b) Financial information of the Group

Set out below is the financial information of the Group as extracted from the annual report of the Company for the year ended 31 December 2016 (the ‘‘2016 Annual Report’’) and the annual report of the Company for the year ended 31 December 2017 (the ‘‘2017 Annual Report’’):

Table 1: Summary of the audited consolidated financial performance of the Group

Revenue – Sale and distribution of merchandise – Provision of interior design and engineering services Sub-total of revenue Profit for the year attributable to equity holders of the Company	For the year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) (Restated) 314,832 312,459 316,641 33,836 70,376 99,327 348,668 382,835 415,968 31,271 17,597 8,981	For the year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 (audited) (audited) (audited) (Restated) 314,832 312,459 316,641 33,836 70,376 99,327 348,668 382,835 415,968 31,271 17,597 8,981
		415,968 8,981

IFA – 7

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 December 2016

As set out in the table 1, the audited consolidated total revenue of the Group for the year ended 31 December 2016 increased by approximately RMB34.2 million or 9.8% to approximately RMB382.8 million, as compared with approximately RMB348.67 million for the year ended 31 December 2016. As disclosed in the 2016 Annual Report, such increase in total revenue was mainly attributable to an increase of revenue generated from the provision of interior design and engineering services from approximately RMB33.84 million for the year ended 2015 to approximately RMB70.4 million for the year ended 2016. As advised by the Management, such increased revenue was mainly driven by the increase in number and size of corporate projects during the financial year 2016.

As further set out in the table 1, the Group recorded an audited consolidated net profit of approximately RMB17.60 million for the year ended 31 December 2016, representing a decrease of approximately RMB13.67 million as compared to the audited consolidated net profit of approximately RMB31.27 million for the year ended 31 December 2015. As advised by the Management, such decrease in net profit was mainly due to a decrease in the Group’s overall gross profit which had decreased by approximately RMB19.8 million or approximately 21.3% from approximately RMB92.6 million for the year ended 31 December 2015 to approximately RMB72.9 million for the year ended 31 December 2016. The Group’s overall gross profit margin also decreased from approximately 26.6% for the year ended 31 December 2015 to approximately 19.0% for the year ended 2016, which was mainly due to (i) the increase in proportion of revenue generated from provision of services during the financial year 2016 and the gross profit margin of provision of services was generally lower than that of the sale and distribution of merchandise; and (ii) the increase in proportion of revenue generated from the sale of building materials which entailed relatively lower gross profit margin than the sale and distribution of merchandise business.

As advised by the Management, the decrease in gross profit margin of sale of building materials was mainly due to (i) the reduction in selling prices of pipe and fittings to cope with the increase in market competition; (ii) the decrease in sales of cables which entailed relatively higher gross profit; and (iii) the sales of cement and steel entailed relatively lower gross profit margin within the category of building materials. In addition, the decrease in gross profit margin of provision of services was mainly due to the Group’s intention to expand its market share of such business by obtaining more sizeable corporate projects with relatively lower gross margin during the financial year 2016.

IFA – 8

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 December 2017

As set out in the table 1, the audited consolidated total revenue of the Group for the year ended 31 December 2017 increased by approximately RMB33.2 million or 8.7% to approximately RMB416.0 million, as compared with approximately RMB382.8 million for the year ended 31 December 2016. As disclosed in the 2017 Annual Report, such increase in the overall revenue was mainly driven by (i) the increase in sale of building materials, and (ii) the growth in revenue generated from the business of the provision of interior design and engineering services.

As further set out in the table 1, the Group recorded an audited consolidated net profit of approximately RMB9.0 million for the year ended 31 December 2017, representing a decrease of approximately RMB8.6 million as compared to the audited consolidated net profit of approximately RMB17.6 million for the year ended 31 December 2016. As advised by the Management, such decrease in net profit was mainly due to a decrease in the Group’s overall gross profit which had decreased by approximately RMB19.8 million or approximately 27.2% from approximately RMB72.9 million for the year ended 31 December 2016 to approximately RMB53.1 million for the year ended 31 December 2017. The Group’s overall gross profit margin also decreased from approximately 19.0% for the year ended 31 December 2016 to approximately 12.8% for the year ended 2017, which was mainly due to (i) the increase in proportion of revenue generated from the sale of building materials which entail relatively lower gross profit margin within the sale and distribution of merchandise business; and (ii) the increase in proportion of revenue generated from provision of services during the financial year 2017 and the gross profit margin of provision of services was generally lower than that of sale and distribution of merchandise.

As disclosed in the 2017 Annual Report, the gross profit margin of the business of sale and distribution of merchandise dropped from approximately 20.3% for the year ended 2016 to approximately 14.2% for the year ended 2017, which was mainly due to (i) the increase in proportion of revenue generated from sale of building materials which entails relatively lower gross profit margin within the business segment of sale and distribution of merchandise during the financial year 2017 and (ii) the drop in gross profit margin of sales and home improvement materials and furnishings due to the keen market and price competition during the financial year 2017. In addition, the gross profit margin of provision of services was decreased from approximately 13.4% for the year ended 2016 to approximately 8.3% for the year ended 31 December 2017.

IFA – 9

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Table 2: Summary of the audited consolidated financial position of the Group

Non-current assets Current assets Total assets Current liabilities Total liabilities Total equity	As at 31 December 2016 2017 RMB’000 RMB’000 (audited) (audited) 80,495 77,572 406,818 430,198 487,313 507,770 160,432 172,846 160,432 172,846 326,881 334,924	As at 31 December 2016 2017 RMB’000 RMB’000 (audited) (audited) 80,495 77,572 406,818 430,198 487,313 507,770 160,432 172,846 160,432 172,846 326,881 334,924
		507,770 172,846
		172,846 334,924

As at 31 December 2017

Non-current assets and current assets

As set out in the table 2 above, as at 31 December 2017, the audited consolidated non-current assets and the audited consolidated current assets of the Group are amounted to approximately RMB77.6 million and RMB430.2 million respectively. Set out below is the breakdown of the non-current assets and current assets of the Group as at 31 December 2017 and 2016.

IFA – 10

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Table 3: Breakdown of the consolidated total assets of the Group

Non-current assets Property, plant and equipment Land use right Intangible assets Deferred income tax assets Current assets Inventories Due from customers on construction contracts Trade and other receivables Restricted cash Cash and cash equivalents Total assets	As at 31 December 2016 2017 RMB’000 RMB’000 (audited) (audited) 75,249 72,515 2,919 2,823 537 484 1,790 1,750 80,495 77,572 32,315 38,127 16,052 51,517 252,347 247,284 300 300 105,804 92,970 406,818 430,198 487,313 507,770	As at 31 December 2016 2017 RMB’000 RMB’000 (audited) (audited) 75,249 72,515 2,919 2,823 537 484 1,790 1,750 80,495 77,572 32,315 38,127 16,052 51,517 252,347 247,284 300 300 105,804 92,970 406,818 430,198 487,313 507,770
		77,572 38,127 51,517 247,284 300 92,970
		430,198 507,770

As set out in the above table, the audited consolidated non-current assets of the Group decreased from approximately RMB80.5 million as at 31 December 2016 to approximately RMB77.6 million as at 31 December 2017, representing a decrease of approximately 3.6%. The decrease in audited consolidated non-current assets of the Group was mainly due to a decrease in the carrying amount of property, plant and equipment from approximately RMB75.2 million as at 31 December 2016 to approximately RMB72.5 as at 31 December 2017 as a result of depreciation.

Further set out in the above table, the audited consolidated current assets of the Group increased from approximately RMB406.8 million as at 31 December 2016 to approximately RMB430.2 million as at 31 December 2017, representing an increase of approximately 5.7%. The increase in current assets of the Group was mainly due to an increase in the amount due from customers on construction contracts from approximately RMB16.1 million as at 31 December 2016 to approximately RMB51.5 million as at 31 December 2017 as a result of the Group’s strategy of obtaining more sizable projects.

IFA – 11

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Current liabilities

As set out in the table 2 above, as at 31 December 2017, audited consolidated current liabilities of the Group are amounted to approximately RMB172.8 million. Set out below is the breakdown of the audited consolidated current liabilities of the Group as at 31 December 2017 and 2016.

Table 4: Breakdown of the consolidated total liabilities of the Group

Current liabilities Trade and other payables Due from customers on construction contracts Bank borrowings Current income tax liabilities Total liabilities	As at 31 December 2016 2017 RMB’000 RMB’000 (audited) (audited) 54,826 71,383 475 3,240 98,000 88,200 7,131 10,023 160,432 172,846 160,432 172,846	As at 31 December 2016 2017 RMB’000 RMB’000 (audited) (audited) 54,826 71,383 475 3,240 98,000 88,200 7,131 10,023 160,432 172,846 160,432 172,846
		172,846 172,846

As set out in the above table, the current liabilities of the Group increased from approximately RMB160.4 million as at 31 December 2016 to approximately RMB172.8 million as at 31 December 2017, representing an increase of approximately 7.7%. The increase in current liabilities of the Group was mainly due to (i) an increase in the amount of trade and other payables from approximately RMB54.8 million as at 31 December 2016 to approximately RMB71.4 million as at 31 December 2017; and (ii) an increase in the amount due from customers on construction contracts from approximately RMB475,000 as at 31 December 2016 to approximately RMB3.2 million as at 31 December 2017.

As disclosed in the 2017 Annual Report, there is no non-current liabilities recognized as at 31 December 2017.

IFA – 12

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Reasons for the Rights Issue and intended use of proceeds

(a) Intended use of proceeds

As stated in the Letter, the Board is considering to implement its growth strategy to develop its interior design and engineering business in the PRC in order to strengthen the Group’s income stream and maximise return to shareholders. The Board intends to apply the net proceeds from the Rights Issue in the following manner:

(i) approximately HK$91.62 million (representing approximately 90% of the estimated net proceeds from the Rights Issue) will be applied for financing the capital input for several interior design and engineering projects under construction in the PRC;
(ii) the remaining proceeds of approximately HK$10.18 million (representing approximately 10% of the estimated net proceeds from the Rights Issue) will be applied for general working capital for the payment of operational expenses for the Company’s Hong Kong principal office, such as payment of salaries and rents and general operational expenses, etc.

(b) Funding needs of the Group

As stated in the Letter, the net proceeds from the Rights Issue will be used as funds for (i) project costs for the interior design and engineering work for several projects in progress in Meizhou, Guangdong Province, the PRC and (ii) as the general working capital of the Group.

IFA – 13

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(i) The project costs for the interior design and engineering work

As advised by the Management, during the year and in the ordinary course of business, the Company, as a contractor, had to proceed with the execution of works with reserved fund utilizing for the advance payment of each project and the percentage of the required minimum fund increases with the increase of the contract value. In accordance with the contracts executed between the Group and its customers in respect of the interior design and engineering work, the Company offers its customers and operate the aforesaid projects under a construction contract wherein the receipts are linked to the construction work and not pre-defined on a time-based schedule. Under such model, the Group is required to fund most of the project cost incurred during the design and construction phases from external bank loans, cash from operations and equity contributions. Hence, the Company would be exposed to cash flow risks in respect of the payment structure under the existing business model. We are advised by the Management that the Group has entered into several construction contracts with potential customers in which the construction work has been commenced at the end of 2017 and first quarter of 2018.

We have reviewed the contract amount, expected working capital requirement and expected commencement date regarding the aforementioned projects taken up by the Group. We noted that, among other things, the expected contract sum and expected working capital requirement of the planned projects taken up by the Group is expected to be over RMB100 million. In addition, we have discussed with the Management and understand that in order to tender for more projects, the Group would have to fulfil the capital requirements of the projects and ensure the Group has enough capital to fund the projects. The Group’s bank and cash balances of approximately RMB92.97 million (equivalent to approximately HK$111.56 million) as at 31 December 2017 is inadequate to fund the signed projects, therefore the net proceeds of HK$91.62 million is intended to fulfil the capital requirements and funding potential projects of the Group.

In light of the above, we are of the view and concur with the Directors’ view that it is necessary to maintain a financial flexibility as in the event that the Company does not have sufficient immediately available funds to fund the project costs, it may be inflexible, if not impracticable, for the Group to complete the projects, which may lead to the progress of negotiation and completion of the projects being hampered and delayed due to the lack of working capital.

IFA – 14

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) General working capital of the Group

As set out in the Letter, the Company is seeking to finance a total of approximately HK$10.2 million of the net proceeds to fund the daily business operation of the Group.

As advised by the Management, the Board aims to strengthen the Group’s established presence and reputation in the interior design and engineering industry in the PRC by continuing the building of its strong team of high caliber professionals coupled with a meticulously managed product and service portfolio. As disclosed in the 2017 Annual Report, the total selling and administrative expenses of the Group for the year ended 31 December 2017 was approximately RMB33.2 million (equivalent to approximately HK$39.9 million).

The Group considers that with the development of its existing business segments, it may have to incur additional selling and administrative expenses for development and administration of the businesses. As such, the Management intends to apply the general working capital for, among others, daily operating expenses such as marketing, employee training, office overheads, legal and professional fees and business networking expenditures incurred in conducting its interior design and engineering business. Having considered (i) the expenditures of the Group incurred for the year ended 31 December 2017; and (ii) the potential development of the Group’s interior design and engineering business, we consider that the allocations of approximately HK$10.2 million of the net proceeds to finance general working capital of the Group are justifiable.

Besides, we consider that should suitable business opportunity be identified which, in the view of the Directors, is beneficial to the Group, there is no certainty that the existing cash and financing resources will be adequate to capture such opportunity. If the Group does not have sufficient cash or financing resources on hand, the Group may lose such suitable opportunity in which the Directors consider favourable to the Group.

Based on the above and that the Company expects that the expenditures of the Group shall increase in line with its business expansion and we consider allocating the net proceeds for funding general working capital of the Group is reasonable.

IFA – 15

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Conclusion

Based on the above analysis on the proposed use of proceeds from the Rights Issue, we are of the view that the Company has taken into consideration the current financial position of the Group, as well as its future business development, in particular, (i) its intention to fulfil the capital requirements of the planned projects of the Group; (ii) the expansion plan of the Group’s operation to develop and increase the scale of operation under its existing business segment; and (iii) the level of bank and cash balances for the business operation of the Group. As such, we consider the basis of the Company in allocating the net proceeds from the Rights Issue is reasonable.

(c) Other financing alternatives

As stated in the Letter, the Directors consider that the Rights Issue offers all Qualifying Shareholders the opportunity to participate and grasp the benefit of the future development of the Group. The Directors are of the view that the Rights Issue not only provides greater financial flexibility for the Company, but also offers all Qualifying Shareholders the opportunity to maintain their pro rata shareholding interests in the Company. Unlike borrowings or issuance of debt securities, the Directors consider that the rights issue would be a preferred means for the Company to raise long-term funds to finance long-term investments and new business potentials without subjecting itself to interest burden or additional debt.

Besides, as advised by the Management, the Board has explored possible fund-raising methods, such as debt financing, placing of or subscription for new Shares or convertible securities. Given that debt financing will result in additional interest burden, higher gearing ratio of the Group and subject the Group to raising interest rates. Hence, debt financing is not preferable.

Besides, given that the minimum funding needs is of approximately HK$103.68 million, it cannot be achieved by issue of securities under general mandate. To raise fund from placing or subscription, substantial amount of securities must be issued under specific mandate to be sought at the general meeting of the Company and usually the subscriber(s) will ask for a deep discount to the trading price of the Shares in view of the substantial amount of securities involved. The Company is unable to secure any placing agents and subscribers with such large amount of securities but having subscription price comparable to that of the Rights Issue. Further, issue of substantial amount of securities and underlying securities will cause huge dilution effect to the Shareholders and deny the Shareholders to participate in the fund raising activities in order to maintain their shareholdings. As such, the Directors believe that Rights Issue is the best alternative among other fund-raising alternatives.

IFA – 16

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Considering the reasons as stated above, including (i) debt financing will incur additional finance cost; (ii) deep discount to the trading price of the Shares occurred by placing or subscription; and (iii) placing or subscription will deny the Shareholders to participate in the fund raising activities and cause huge dilution effect, we concur with the Management’s view that the conduct of the Rights Issue is in the interests of the Company and the Shareholders as a whole.

3. Principal terms of the proposed Rights Issue

Set out below are the principal terms of the Rights Issue

Basis of the Rights Issue : two (2) Rights Share for every five (5) existing Shares held on the Record Date Subscription Price : HK$0.6 per Rights Share Number of existing Shares in issue : 432,000,000 Shares as at the Latest Practicable Date Number of Rights Shares : 172,800,000 Rights Shares Amount to be raised before expenses : approximately HK$103.68 million before expenses (based on the number of existing Shares in issue as at the Latest Practicable Date, and assuming no Shares have been allotted and issued on or before the Record Date) Underwriter : Xinling Total number of Shares in : 604,800,000 Shares issue as enlarged by the Rights Shares upon completion of the Rights Issue Aggregate nominal value of : HK$17,280,000 the Rights Shares to be issued

IFA – 17

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) The Subscription Price

(i) a discount of approximately 4.76% to the closing price of HK$0.63 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a discount of approximately 14.29% to the Last Closing Price;
(iii) a discount of approximately 15.25% to the average closing price of approximately HK$0.708 per Share as quoted on the Stock Exchange for the 5 consecutive trading days ending on and including the Last Trading Day;
(iv) a discount of approximately 15.85% to the average closing price of approximately HK$0.713 per Share as quoted on the Stock Exchange for the 10 consecutive trading days ending on and including the Last Trading Day;
(v) a discount of approximately 10.45% to the theoretical ex-right price of approximately HK$0.67 per Share based on the Last Closing Price; and
(vi) a discount of approximately 35.48% to the audited consolidated net asset value per Share attributable to equity holders of the Company of approximately HK$0.93 as at 31 December 2017.

IFA – 18

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Subscription Price was determined by the Directors with reference to the market price of the Shares prior to and including the Last Trading Day, and the prevailing market conditions. After taking into consideration the reasons for the Rights Issue as stated in the section headed ‘‘Reasons for the Rights Issue and Use of Proceeds’’ below, the Directors (including members of the Independent Board Committee who will form their views after consulting the Independent Financial Adviser) consider the terms of the Rights Issue, including the Subscription Price and in the context of the Company’s long-term business strategy, to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

(b) Evaluation of the Subscription Price

In assessing the fairness and reasonableness of the Subscription Price, we have primarily made references to (i) the historical performance of the Share price; (ii) the historical trading liquidity of the Shares; and (iii) a comparable analysis against other comparable rights issue exercises in the market, details of which are set out below respectively.

(i) Historical performance of the Share price

Chart 1 below sets out the daily closing prices of the Shares on the Stock Exchange for the period from 26 April 2017 (being the first trading day of the 12month period prior to the Last Trading Day) up to and including the Latest Practicable Date (the ‘‘Review Period’’). We consider the Review Period which covers a full year prior to the Underwriting Agreement, represents a reasonable period to provide a general overview of the recent price performance of the Shares when conducting an analysis among the historical closing prices of the Shares and the Subscription Price.

IFA – 19

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Chart 1: Share price performance against the Subscription Price during the Review Period

==> picture [355 x 227] intentionally omitted <==

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

1.20
1.00
0.80
0.60
0.40
0.20
0.00
2017/04/26 2017/05/11 2017/05/24 2017/06/07 2017/06/20 2017/07/03 2017/07/14 2017/07/27 2017/08/09 2017/08/22 2017/09/05 2017/09/18 2017/09/29 2017/10/16 2017/10/27 2017/11/09 2017/11/22 2017/12/05 2017/12/18 2018/01/03 2018/01/16 2018/01/29 2018/02/09 2018/02/26 2018/03/09 2018/03/22 2018/04/09 2018/04/20 2018/05/04 2018/05/17
----- End of picture text -----

Source: The website of the Stock Exchange (http://www.hkex.com.hk/)

IFA – 20

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Shares had been traded at above the Subscription Price throughout the Review Period. The daily closing price of the Shares during the Review Period ranged from the lowest of HK$0.6 per Share on 26 April 2018 and 27 April 2018 to the highest of HK$1.03 per Share on 19 June 2017, 20 June 2017 and 21 June 2017. The average closing price of Shares during the Review Period was approximately HK$0.80 per Share, and the Subscription Price represents a discount of approximately 25.0% to the average closing price of Shares during the Review Period. The Subscription Price represents a discount to the closing price of the Shares throughout the Review Period and to the average closing price of the Shares. We noted that the Share price fluctuated during the Review Period.

Despite the Subscription Price is set at a discount to the historical closing price of the Shares, taking into account that it is common for listed issuers in Hong Kong to set the subscription price at a discount to the closing prices in order to increase attractiveness of a rights issue, the comparable analysis set out below revealed that the subscription price of 9 out of 11 Comparables (as defined below) were set at a discount to the respective closing share prices on the respective last trading days, we are of the view that the determination of the Subscription Price of HK$0.6 per Share is justifiable.

(ii) Historical trading liquidity of the Shares

Table 5 below shows the monthly statistics of the trading volume of the Shares during the Review Period.

IFA – 21

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Table 5: Historical trading volume of the Shares

						Percentage of	Percentage of
						the average	the average
					Total Shares	daily trading	daily trading
					held in	volume of	volume of
	Monthly		Average	Total issued	public hands	the Shares to	the Shares in
	total trading		daily trading	Shares at the	as at the	the total	public hands
	volume of	No. of	volume of	end of each	Latest	issued Shares	(C)/(E) (%)
	the Shares	trading days	the Shares	month (D)	Practicable	(C)/(D) (%)	(Approximate)
Period	(A)	(B)	(C) = (A)/(B)	(Note 1)	Date (E)	(Approximate)	(Note 2)
2017
May	22,318,000	20	1,115,900	432,000,000	242,946,000	0.26	0.46
June	28,664,000	22	1,302,909	432,000,000	242,946,000	0.30	0.54
July	4,832,000	21	230,095	432,000,000	242,946,000	0.05	0.09
August	2,056,000	22	93,454	432,000,000	242,946,000	0.02	0.04
September	2,282,000	21	108,667	432,000,000	242,946,000	0.03	0.04
October	2,616,000	20	130,800	432,000,000	242,946,000	0.03	0.05
November	1,814,000	22	82,455	432,000,000	242,946,000	0.02	0.03
December	2,188,000	19	115,158	432,000,000	242,946,000	0.03	0.05
2018
January	3,810,000	22	173,182	432,000,000	242,946,000	0.04	0.07
February	1,474,000	18	81,889	432,000,000	242,946,000	0.02	0.03
March	1,116,000	21	53,143	432,000,000	242,946,000	0.01	0.02
April	5,668,100	19	298,321	432,000,000	242,946,000	0.07	0.12
May and up to the
Latest Practicable Date	3,386,400	15	225,760	432,000,000	242,946,000	0.05	0.09

Source: The website of the Stock Exchange (http://www.hkex.com.hk/)

Note:

Based on the number of the Shares in issue as of the last date of each of the respective months or that as at the Latest Practicable Date for 25 May 2018.
Based on the number of the Shares held in public hands as of the last date of each of the respective months or that as at the Latest Practicable Date for 25 May 2018.

As illustrated in Table 5 above, the average daily trading volume of the Shares during the Review Period was generally low, with a range from approximately 0.01% to approximately 0.3% of the total number of Shares in issue as at the last date of the respective months during the Review Period.

The relative low transaction volume of the Shares during the Review Period indicated the general thin liquidity of the Shares on the market. Without an active trading volume, Shareholders may not be able to sell their entire Shares timely at a more desirable price. Such difficulties in realising their share investments may lead to the potential difficulties in initiating the Qualifying Shareholders to participate in the Rights Issue should the Rights Issue price have been set at a premium or close to the Last Closing Price. The discount of the Rights Issue Price to the Last Closing Price would attract the Qualifying Shareholders to participate in the Rights Issue, which would in turn allow them to maintain their shareholding interests in, and participate in the future growth of the Company.

IFA – 22

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Comparison with other rights issue exercise

Based on the information available from the Stock Exchange’s website, having considered the recent volatility of the Hong Kong stock market, and in order to (i) include sufficient number of transactions for comparison purposes; and (ii) allow the Shareholders to have a general understanding of the recent rights issue transactions being conducted in the Hong Kong stock market, we have identified an exhaustive list of 11 of the rights issues (the ‘‘Comparables’’) as announced by the companies listed on the main board or growth enterprise market of the Stock Exchange six months immediately preceding the Last Trading Day and up to the Latest Practicable Date. Despite the fact that the Comparables that we have identified are with different basis of entitlement that might not be exactly the same as the Rights Issue, we consider that the statistics of the Comparables as set out below, for illustration purpose only, can provide the Shareholders or potential investors of the Company, a general trend and data of rights issue exercises in the market to make decision with respect to the Rights Issue. In addition, Shareholders should note that the businesses, operations and prospects of the Company are not the same as the Comparables. We have not conducted any independent investigation with regard to the businesses and operations of the Comparables which shall not affect our analysis as we are comparing the general trend of rights issue exercises in the market with the Rights Issue. We set out our findings in the following table:

					Premium/
					(Discount) of
					subscription	Premium/
					price over/to	(Discount) of
					the closing	subscription
					share price on	price over/to			Application of
Date of initial				Basis of	the last trading	the theoretical	Commission	Maximum	whitewash
announcement	Company name	Principal activities	Stock code	entitlement	day	ex-right price	rate	dilution	waiver
						(Note 1)		(Note 2)
					(Approximately	(Approximately	(%)	(Approximately
					%)	%)		%)
11 April 2018	PPS International	Provision of environment	8201	1 for 1	(32.08)	(19.28)	Nil and 3	50.00	No
	(Holding) Limited	services in Hong Kong,					(Note 3)
		Shenzhen and Shanghai
28 March 2018	Enerchina Holdings	Investment holdings, trading	622	1 for 1	(7.22)	(3.74)	3	50.00	No
	Limited	and investment of
		securities, securities
		brokerage services, placing
		and underwriting services,
		corporate financial
		advisory services, margin
		financing services, money
		lending services and
		investment advisory and
		management services

IFA – 23

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

					Premium/
					(Discount) of
					subscription	Premium/
					price over/to	(Discount) of
					the closing	subscription
					share price on	price over/to			Application of
Date of initial				Basis of	the last trading	the theoretical	Commission	Maximum	whitewash
announcement	Company name	Principal activities	Stock code	entitlement	day	ex-right price	rate	dilution	waiver
						(Note 1)		(Note 2)
					(Approximately	(Approximately	(%)	(Approximately
					%)	%)		%)
16 Mar 2018	Xinyi Automobile	The business of the	8328	1 for 5	(11.90)	(10.01)	Nil	16.67	No
	Glass	installation of automobile
	Hong Kong	glass products in Hong
	Enterprises Limited	Kong, the production and
		sales of lithium battery
		products, the trading of
		forklift as well as the
		provision of wind farm
		management services and
		investment and
		development in wind farm
		projects in the PRC
25 Jan 2018	China Agroforestry	Forestry management, money	1069	3 for 2	(29.73)	(14.75) 1 and 2.5 (Note		60.00	No
	Low-Carbon	lending and provision of					4)
	Holdings Limited	management and related
		services for the leases of
		container houses
25 January 2018	Longitech Smart	Smart energy and solar	1281	1 for 2	(41.50)	(32.20)	Ni	33.33	No
	Energy	energy businesses
	Holding Limited
23 January 2018	Bolina Holding Co.,	Manufacture and sale of	1190	2 for 1	(24.78)	(9.89)	2.5	66.67	No
	Limited	sanitary ware products and
		research and development,
		manufacture and sale of
		massage chairs and
		massage devices
3 January 2018	DeTai New Energy	The importing, wholesale and	559	2 for 1	(29.73)	(11.86)	2.5	66.67	No
	Group Limited	installation of architectural
		builders’ hardware,
		bathroom, kitchen
		collections and furniture
		and the provision of
		construction service for
		property developers in
		Hong Kong and the PRC
20 December	Yu Tak International	The development, sale and	8048	1 for 2	5.26	3.45	Nil	33.33	Yes
2017	Holdings Limited	implementation of
		enterprise software,
		provision of systems
		integration and
		professional services,
		design and sales of gold
		and jewellery products
		and investment holding

IFA – 24

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

					Premium/
					(Discount) of
					subscription	Premium/
					price over/to	(Discount) of
					the closing	subscription
					share price on	price over/to			Application of
Date of initial				Basis of	the last trading	the theoretical	Commission	Maximum	whitewash
announcement	Company name	Principal activities	Stock code	entitlement	day	ex-right price	rate	dilution	waiver
						(Note 1)		(Note 2)
					(Approximately	(Approximately	(%)	(Approximately
					%)	%)		%)
18 December	China Oceanwide	Discretionary and non-	952	8 for 3	6.80	1.85	1.5	72.73	Yes
2017	International	discretionary dealing
	Financial Limited	services for securities,
		futures and options,
		securities placing and
		underwriting services,
		margin financing and
		money lending services,
		insurance broking and
		wealth management
		services; corporate finance
		advisory and general
		advisory services; fund
		management, discretionary
		portfolio management and
		portfolio management
		advisory services; website
		management, online
		advertising, investor
		relation, online advertising
		and financial information
		services; and investment
		holding and securities
		trading
28 November	TCL Multimedia	Research and development,	1070	1 for 3	(25.80)	(20.60)	0.54	25.00	No
2017	Technology	manufacturing and
	Holdings Limited	distribution of consumer
		electronic products, and
		its products are sold all
		over the world
21 November	National Investment	Investments in a diversified	1227	1 for 2	(41.67)	(32.26)	3	33.33	No
2017	Fund Limited	portfolio of listed and
		unlisted companies
				Maximum	6.8	3.45	3	25.00
				Minimum	(41.67)	(32.26)	Nil	72.73
				Average	(21.12)	(13.57)		46.16
				Company	(14.29)	(10.45)	Nil	28.57

Source: the website of the Stock Exchange (http:www.hkex.com.hk)

Notes:

The theoretical ex-rights price is calculated by adding the market value of all the issued shares (based on the closing price of the shares on the last trading day) with the gross amount of subscription proceeds expected to be received from the rights issue (before expenses), and then divided by the total number of issued shares as enlarged by the rights issue. Taking the Company’s case as an example, in case of every 1 rights share for every 1 existing shares, (1 x closing price on the last trading day)+1x (the subscription price)/(1+1) (i.e.(1 x HK$0.265+1x HK$0.180)/(1+1)) = approximately HK$0.223).

IFA – 25

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Maximum dilution effect of each rights issue is calculated as: (number of rights shares and (if any) bonus shares to be issued under the basis of entitlement)/(number of existing shares held for the entitlement for the rights shares under the basis of entitlement + number of rights shares and (if any) bonus shares to be issued under the basis of entitlement) x 100%. Taking the Company’s case as an example, for a rights issue with basis of 1 rights share for every 1 existing share taken up, the maximum dilution effect is calculated as ((1)/(1+1))*100) = 50.0%.
PPS International (Holdings) Limited has entered into underwriting agreements with Mr. Yu (‘‘Mr. Yu’’) and Lamtex Securities Limited (‘‘Lamtex’’) in respect of the rights issue, pursuant to which nil of the aggregate subscription price in respect of the maximum number of underwritten shares underwritten by Mr. Yu is payable to Mr. Yu; and 3.0% of the aggregate subscription price in respect of the maximum number of underwritten shares underwritten by Lamtex is payable to Lamtex.
China Agroforestry Low-Carbon Holdings Limited has entered into underwriting agreements with Mr. Wang (‘‘Mr. Wang’’) and Kingston Securities Limited (‘‘Kingston’’) in respect of the rights issue, pursuant to which 1.0% of the aggregate subscription price in respect of the maximum number of underwritten shares underwritten by Mr. Wang is payable to Mr. Wang; and 2.5% of the aggregate subscription price in respect of the maximum number of underwritten shares underwritten by Kingston is payable to Kingston.

Based on the above table, we noted that the subscription price of 9 out of 11 Comparables were set at a discount to the respective closing share prices on the respective last trading days. The subscription price to the closing price on the respective last trading day prior to the rights issue announcement of the Comparables ranged from a premium of approximately 6.8% to a maximum discount of approximately 41.67%, with the mean at discount of approximately 21.12%. The discount of approximately 14.29% to the closing price per Share on the Last Trading Day of the Subscription Price as represented by the Rights Issue Price falls within the range of the Comparables.

On the other hand, the subscription prices to the theoretical ex-entitlement prices per share based on the respective last trading day prior to the rights issue announcement of the Comparables ranged from a premium of approximately 3.45% to a maximum discount of approximately 32.26%, with the mean at a discount of approximately 13.58%. Given the discount of the Subscription Price to the closing price per Share on the Last Trading Day and the theoretical exentitlement price per Share of approximately 10.45% falls within the range of the Comparables, we considered that the Subscription Price is fair and reasonable and in the interests of Shareholders.

IFA – 26

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Furthermore, we noted that 2 out of 11 Comparables also involved application for whitewash waiver (the ‘‘Whitewash Waiver Comparables’’), and that out of the Whitewash Waiver Comparables, (i) the subscription price to the closing price on the respective last trading day prior to the respective rights issue announcement of the Whitewash Waiver Comparables ranged from a premium of approximately 5.26% to a premium of approximately 6.80%; and (ii) the subscription prices to the theoretical ex-entitlement prices per share based on the respective last trading day prior to the rights issue announcement of the Whitewash Waiver Comparables ranged from a premium of approximately 1.85% to a premium of approximately 3.45% (the ‘‘Whitewash Market Range’’). The discount of the Subscription Price to the closing price per Share on the Last Trading Day falls below the Whitewash Market Range, however, having considered that (i) to set a Subscription Price at a discount to the closing price and/or the net asset value per Share could encourage Qualifying Shareholders to participate in the Rights Issue by taking up their respective entitlements and to maintain their shareholdings in the Company and participate in the potential growth of the Group; and (ii) the interest of the Qualifying Shareholders will not be prejudiced by the discount of the Subscription Price as they are each offered an equal opportunity to participate in the Rights Issue, we are of the view that the discount to Whitewash Waiver Comparables as indicated above to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Taking into account the above, we consider that it is a common market practice for listed issuers in Hong Kong to conduct rights issue with a rights issue price that is lower than each of the prevailing share price and the theoretical ex-right price.

Conclusion on the determination of the Subscription Price

Based on the analyses above, having considered that

(i) the generally thin liquidity of the Shares during the Review Period, which indicates the potential difficulties in initiating the Qualifying Shareholders to participate in the Rights Issue should the rights issue price have been set at a premium or close to the Last Closing Price;
(ii) it is a common practice for listed issuers in Hong Kong to set the rights issue price at a discount to each of the prevailing share price and the theoretical ex-right price;

IFA – 27

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) the discounts of the Subscription Price would attract the Qualifying Shareholders to participate in the Rights Issue, which would in turn allow them to maintain their shareholding interests in, and participate in the future growth of the Company;
(iv) the Rights Issue is available to all Qualifying Shareholders and therefore provide them with an equal opportunity to participate;

we are of the view that the determination of the Subscription Price of HK$0.6 per Rights Share is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

(iv) Application for Excess Rights Shares

As set out in the Letter, Qualifying Shareholders may apply, by way of excess application, for (i) any unsold entitlements to the Rights Shares of the Non-Qualifying Shareholders; (ii) any unsold Rights Shares created by adding together fractions of the Rights Shares; and (iii) any nil-paid Rights Shares provisionally allotted but not accepted by the Qualifying Shareholders or otherwise subscribed for by renounces or transferees of nil-paid Rights Shares.

The Directors will, upon consultation with the Underwriters, allocate the excess Rights Shares at their discretion on a fair and equitable basis according to the principle that any excess Rights Shares will be allocated (if any) at their discretion on a pro rata basis in proportion to the number of excess Rights Shares being applied for under each application. No reference will be made to the Rights Shares subscribed through applications by a PAL or the existing number of Shares held by Qualifying Shareholders. No preference will be given to top up odd lots to whole board lots.

Conclusion

Considering the above, we are of the view that the terms of the Rights Issue, including the Subscription Price, are on normal commercial terms, fair and reasonable as far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

IFA – 28

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. The Underwriting Agreement

On 25 April 2018, the Underwriter and the Company entered into the Underwriting Agreement, pursuant to which the Underwriter has conditionally undertaken to the Company to underwrite the subscription of the Underwritten Shares on a fully underwritten basis, being not more than 172,800,000 Rights Shares, subject to the terms and conditions thereof. The obligations of the Underwriter to underwrite the Underwritten Shares are conditional on (i) the satisfaction of the conditions referred to in the paragraph headed ‘‘Conditions of the Rights Issue and the Underwriting Agreement’’ under the section headed ‘‘Underwriting Arrangements’’ in the Letter, which cannot be waived in whole or part, and (ii) the Underwriting Agreement not being terminated by the Underwriter in accordance with its terms. If the conditions are not fulfilled or the Underwriting Agreement is terminated pursuant to its terms, the Rights Issue will not proceed.

No commission will be paid to the Underwriter pursuant to the Underwriting Agreement. The commission rate was determined after arm’s length negotiations between the Company and the Underwriter with reference to, among other things, the scale of the Rights Issue and market rate. With reference to the Comparables, we consider that the underwriting commission rate is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Further details of the Underwriting Agreement are set out in the section headed ‘‘The Underwriting Agreement’’ in the Letter.

5. Potential dilution in public shareholding interests

All Qualifying Shareholders are entitled to subscribe for the Rights Shares. Qualifying Shareholders who take up their pro rata entitlement under the Rights Issue in full will not suffer any dilution to their interests in the Company. If a Qualifying Shareholder does not take up his, her or its entitlement in full under the Rights Issue, his, her or its proportionate shareholding in the Company will be diluted.

IFA – 29

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Concert Group	As at the date of this Circular No of Shares Approximate %	As at the date of this Circular No of Shares Approximate %	Shareholding upon completion of the Rights Issue Assuming all Rights Shares are taken up by the Qualifying Shareholders Assuming no Rights Shares are taken up by the Qualifying Shareholders and the Underwriter is required to underwrite the Underwritten Shares No of Shares Approximate % No of Shares Approximate %	Shareholding upon completion of the Rights Issue Assuming all Rights Shares are taken up by the Qualifying Shareholders Assuming no Rights Shares are taken up by the Qualifying Shareholders and the Underwriter is required to underwrite the Underwritten Shares No of Shares Approximate % No of Shares Approximate %	Shareholding upon completion of the Rights Issue Assuming all Rights Shares are taken up by the Qualifying Shareholders Assuming no Rights Shares are taken up by the Qualifying Shareholders and the Underwriter is required to underwrite the Underwritten Shares No of Shares Approximate % No of Shares Approximate %	Shareholding upon completion of the Rights Issue Assuming all Rights Shares are taken up by the Qualifying Shareholders Assuming no Rights Shares are taken up by the Qualifying Shareholders and the Underwriter is required to underwrite the Underwritten Shares No of Shares Approximate % No of Shares Approximate %
Xinling (Note 1) Jiesi Global (Note 2) Ms. Deng Haiming	189,054,000 5,562,000 300,000	43.76 1.29 0.07	264,675,600 7,786,800 420,000	43.76 1.29 0.07	361,854,000 5,562,000 300,000	59.83 0.92 0.05
Sub-total Substantial Shareholders Yiju Holdings Limited (Note 3) Mr. Lin Kuan Ming (Note 4) Public Shareholders Total	194,916,000 40,188,000 35,827,000 161,069,000 432,000,000	45.12 9.30 8.29 37.29 100.00	272,882,400 56,263,200 50,157,800 225,496,600 604,800,000	45.12 9.30 8.29 37.29 100.00	367,716,000 40,188,000 35,827,000 161,069,000 604,800,000	60.80 6.64 5.93 26.63
						100.00

Notes:

Xinling is wholly owned by Ms. Hou Wei, the Chairlady and an executive Director.
Jiesi Global is wholly owned by Mr. Hou Bo, brother of Ms. Hou Wei, a non-executive Director, Jiesi Global is a member of the Concert Group and will be abstained from voting on the resolutions at the EGM in relation to the Rights Issue, the Underwriting Agreement, the Whitewash Waiver and the underlying transaction contemplated thereunder.
As at the Latest Practicable Date, Yiju Holdings Limited was the registered holder of 40,188,000 Shares and Mr. Liu Shui is the sole shareholder of Yiju Holdings Limited. Under Part XV of the SFO, Mr. Liu Shui was therefore deemed to have interests in 40,188,000 Shares in which Yiju Holdings Limited was interested. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, Mr. Liu Shui is a Pre-IPO investor of the Group and is acquainted with Ms. Hou Wei. As at the date of this Circular, Mr. Liu Shui is one of the directors of Shenzhen Tianhan Eco-environment Company Limited（深圳市鐵漢生態環境股份有限公司）(‘‘Tie Han’’), which is a listed company whose shares are listed in the Shenzhen Stock Exchange (Stock Code: 300197). Tie Han is principally engaged in eco-environment construction work and, during its ordinary course of business, has sub-contracted some engineering work to the Group. Save as the above-mentioned business relationship, there are no other relationships between Mr. Liu Shui (and his concert group) and Ms. Hou Wei (and her concert group). Yiju Holdings Limited and/or Mr. Liu Shui was not involved in the negotiation of the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver.

IFA – 30

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Mr. Lin Kuan Ming (‘‘Mr. Lin’’) is deemed to be interested in a total of 35,827,000 Shares, which were held as to 9,261,000 Shares by Corporate Image Limited and 26,566,000 Shares by Lucky Union Int’l Co., Ltd.. On the other hand, Ms. Lin Ling Yu (spouse of Mr. Lin, ‘‘Ms. Lin’’) is deemed to be interested in a total of 35,827,000 Shares, which were held as to 26,566,000 Shares by Lucky Union Int’l Co., Ltd. and 9,261,000 Shares in which Mr. Lin is interested in. By virtue of the SFO, as Mr. Lin beneficially owns the entire issued share capital of Corporate Image Limited, he is deemed to be interested in 9,261,000 Shares held by Corporate Image Limited and Ms. Lin, as his spouse, is also deemed to be interested in these 9,261,000 Shares. Further, Mr. Lin, Ms. Lin, Ms. Lin Hsin Hui and Ms. Lin Chia Hui, the daughters of Mr. Lin and Ms. Lin, own 30%, 50%, 10% and 10% of the issued share capital of Lucky Union Int’l Co., Ltd., respectively. By virtue of the SFO, both Mr. Lin and Ms. Lin are deemed to be interested in 26,566,000 Shares held by Lucky Union Int’l Co., Ltd.. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, Mr. Lin is a Pre-IPO investor of the Group and is acquainted with Ms. Hou Wei, and save as disclosed above, there are no other relationships between Mr. Lin and Ms. Hou Wei (and/or Xinling). Mr. Lin and/or Ms. Lin were not involved in the negotiation of the Rights Issue, the Underwriting Agreement and/or the Whitewash Waiver.

In the case that no Shareholder takes up any of the Underwritten Shares and all Underwritten Shares are taken up by the Underwriter, assuming no Shares are allotted and issued on or before the Record Date, shareholding interests of the public Shareholders will decrease from approximately 37.29% as at the Latest Practicable Date to approximately 26.63% immediately upon completion of the Rights Issue, representing a possible dilution of approximately 10.66% in their shareholding interests arising from the Rights Issue.

We have made reference to the Comparables as contained in the section headed ‘‘Comparison with other rights issue exercises’’, the possible maximum dilution effect of the public Shareholders interest in the Company (i.e. 28.6%) is within the range of the maximum dilution effect of the Comparables (from 25.0% to 72.7%), and is significantly lower than the average dilution of the Comparables (i.e. 46.16%).

Taking into account that (i) all Qualifying Shareholders are offered an equal opportunity to participate in the Rights Issue so as to maintain their respective shareholding interest in a lower price compared to the historical Share price; (ii) the dilution on the shareholdings of those Qualifying Shareholders who do not take up in full their assure entitlements under the Rights Issue is inevitable; (iii) the possible maximum dilution of the public shareholding of the Company is significantly lower than the average of the corresponding dilutions in public shareholding interests of the Comparables; (iv) Qualifying Shareholders have the opportunity to realize their nil-paid Rights Shares in the market; and (v) the net proceeds from the Rights Issue would enhance the financial position and business prospect of the Group, we concur with the Directors that the potential dilution effect on the shareholding is acceptable and justifiable.

IFA – 31

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6. Possible financial effects of the Rights Issue

(a) Effect on net asset value

Reference is made to the statement of unaudited pro forma statement of adjusted consolidated net asset value of the Group as set out in Appendix II to the Circular. As at 31 December 2017, based on (i) the audited consolidated net asset value of the Group attributable to the equity holder of the Company of approximately RMB331,617,000 (equivalent to approximately HK$385,601,000); and (ii) the 432,000,000 Shares in issue, the audited consolidated net asset value per Share attributable to the Shareholders amounted to approximately HK$0.89 per Share.

On the assumptions that completion of the Rights Issues had taken place on 31 December 2017 and 172,800,000 Rights Shares had been issued, immediately upon completion of the Rights Issue, (i) the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the equity holders of the Company would become approximately RMB416,621,000 (equivalent to approximately HK$484,443,000); and (ii) the number of Shares in issue would become 604,800,000 Shares, resulting in the unaudited pro forma adjusted consolidated net asset value per Share attributable to the Shareholders of approximately HK$0.80.

Despite the reduction in the consolidated net asset value per Share by approximately 10.1% upon completion of the Rights Issue, we have considered (i) the reasons for the Rights Issue as stated in the section under ‘‘2. Reasons for the Rights Issue and intended use of proceeds’’ of this letter, and (ii) the rights of the Qualifying Shareholders to take up their respective entitlements and to maintain their shareholdings in the Company and participant in the Group’s potential growth, we are of the view that the overall impact on the consolidated net asset value per Share is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(b) Effect on working capital

As advised by the Company, as the net proceeds from the Rights Issue will be used as general working capital of the Group, the working capital position of the Group would be improved upon completion of the Rights Issue.

It should be noted that the aforementioned analyses are for illustrative purpose only and do not purport to represent how the financial position of the Group will be upon completion of the Rights Issue.

7. Whitewash Waiver

IFA – 32

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Assuming no acceptance by the Qualifying Shareholders under the Rights Issue, Xinling will be required to take up the Underwritten Shares and the total shareholding of the Concert Group upon completion of the Rights Issue would amount to approximately 60.80% of the then issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares. Under such circumstance, the Concert Group would be required to make a mandatory general offer for all the issued Shares (other than those already owned or agreed to be acquired by the Concert Group) under Rule 26.1 of the Takeovers Code, unless a waiver from strict compliance with Rule 26.1 of the Takeovers Code is granted by the Executive.

In light of (i) the reasons for the Rights Issue and the intended use of the net proceeds therefrom; and (ii) the terms of the Rights Issue and the Underwriting Agreement being fair and reasonable so far as the Independent Shareholders are concerned, we are of the opinion that the approval for the Whitewash Waiver, which is a condition for completion of the Rights Issue, is in the interests of the Company and the Shareholders as a whole and is fair and reasonable for the purpose of proceeding with the Rights Issue.

RECOMMENDATION

Having considered the principal factors and reasons set out in this letter, we are of the view that the terms of the Rights Issue, the Underwriting Agreement and the Whitewash Waiver are on normal commercial terms, fair and reasonable as far as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the relevant resolution in relation to the Rights Issue, the Underwriting Agreement and the Whitewash Waiver at the EGM.

Yours faithfully, For and on behalf of Euto Capital Partners Limited Manfred Shiu Director

In this letter, translation of RMB into HK$ is based on the exchange rate of HK$1: RMB0.86. No representation is made that any amounts in RMB and HK$ can be or could have been converted at the above exchange rate or any other rates.

IFA – 33

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION

The financial information of the Group for each of the financial years ended 31 December 2015, 2016 and 2017 respectively had been set out in the annual reports of the Company for these three financial years respectively and are available on the website of the Stock Exchange as specifically set out below:

Year ended Website 31 December 2015 http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0422/LTN201604221090.pdf 31 December 2016 http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0426/LTN201704261526.pdf 31 December 2017 http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0426/LTN201804262171.pdf

The above financial information of the Group are also available at the website of the Company at http://www.jiyihousehold.com/.

I – 1

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following is the summary of the consolidated financial information of the Group for the each of the three years ended 31 December 2015, 2016 and 2017, which were extracted from the Company’s 2015, 2016 and 2017 annual reports respectively.

RESULTS Revenue Profit before income tax Income tax expenses Profit for the year Total comprehensive income attributable to equity holders of the Company Dividend Dividend per Share	For the year ended 31 December 2017 2016 2015 RMB’000 RMB’000 RMB’000 (Audited) (Audited) (Audited) 415,968 382,835 348,668 14,698 26,187 45,433 (5,717) (8,590) (14,162) 8,981 17,597 31,271 8,043 19,162 32,194 RMB RMB RMB Nil Nil Nil RMB RMB RMB Nil Nil Nil

I – 2

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ASSETS AND LIABILITIES Total assets Total liabilities Net assets/Total equity attributable to equity holders of the Company	As at 31 December 2017 2016 RMB’000 RMB’000 (Audited) (Audited) 507,770 487,313 (172,846) (160,432) 334,924 326,881	2015 RMB’000 (Audited) 437,011 (176,811) 260,200

Note:

The auditor of the Group, PricewaterhouseCoopers has not issued qualified opinion on the audited financial statements of the Group for each of the three year ended 31 December 2015, 2016 and 2017.
No exceptional items because of their size, nature or incidence were recognised in the above accounts for each of the three year ended 31 December 2015, 2016 and 2017.

I – 3

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL INFORMATION OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2017

The following is the full text of the audited financial statements of the Group for the year ended 31 December 2017 as extracted from the annual report of the Company for the year ended 31 December 2017:

CONSOLIDATED INCOME STATEMENT

Note
Revenue
5
Cost of sales
5, 7
Gross profit
Selling expenses
7
Administrative expenses
7
Other income and gains – net
6
Operating profit
Finance income
9
Finance expenses
9
Finance costs – net
9
Profit before income tax
Income tax expense
10
Profit for the year, all attributable
to equity holders of the Company
Earnings per share attributable
to equity holders of the Company
for the year
– Basic and diluted (RMB per share)
11

Year ended 31 December
2017
2016
RMB’000
RMB’000
415,968
382,835
(362,895)
(309,982)
53,073
72,853
(18,243)
(16,774)
(14,969)
(22,087)
732
478
20,593
34,470
118
771
(6,013)
(9,054)
(5,895)
(8,283)
14,698
26,187
(5,717)
(8,590)
8,981
17,597
0.02
0.04

I – 4

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Profit for the year Other comprehensive income: Items that may be reclassified to profit or loss Currency translation differences Total comprehensive income for the year, all attributable to equity holders of the Company	Year ended 31 December 2017 2016 RMB’000 RMB’000 8,981 17,597 (938) 1,565 8,043 19,162	Year ended 31 December 2017 2016 RMB’000 RMB’000 8,981 17,597 (938) 1,565 8,043 19,162
		19,162

I – 5

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

Note
ASSETS
Non-current assets
Property, plant and equipment
13
Land use right
14
Intangible assets
Deferred income tax assets
21
Current assets
Inventories
16
Due from customers on construction
contracts
17
Trade and other receivables
18
Restricted cash
19
Cash and cash equivalents
20
Total assets
EQUITY
Capital and reserves attributable to
equity holders of the Company
Share capital
22
Share premium
22
Other reserves
Retained earnings
Total equity

As at 31 December
2017
2016
RMB’000
RMB’000
72,515
75,249
2,823
2,919
484
537
1,750
1,790
77,572
80,495
38,127
32,315
51,517
16,052
247,284
252,347
300
300
92,970
105,804
430,198
406,818
507,770
487,313
35,638
35,638
243,832
243,832
(53,300)
(52,362)
108,754
99,773
334,924
326,881

I – 6

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note LIABILITIES Current liabilities Trade and other payables 23 Due to customers on construction contracts 17 Bank borrowings 24 Current income tax liabilities Total liabilities Total equity and liabilities	As at 31 December 2017 2016 RMB’000 RMB’000 71,383 54,826 3,240 475 88,200 98,000 10,023 7,131 172,846 160,432 172,846 160,432 507,770 487,313	As at 31 December 2017 2016 RMB’000 RMB’000 71,383 54,826 3,240 475 88,200 98,000 10,023 7,131 172,846 160,432 172,846 160,432 507,770 487,313
		160,432
		160,432
		487,313

I – 7

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the Company Share capital Share premium Other reserves Retained earnings RMB’000 RMB’000 RMB’000 RMB’000 29,484 202,467 (53,927) 82,176 – – – 17,597 – – 1,565 – 6,154 41,365 – – 35,638 243,832 (52,362) 99,773 35,638 243,832 (52,362) 99,773 – – – 8,981 – – (938) – 35,638 243,832 (53,300) 108,754	Attributable to equity holders of the Company Share capital Share premium Other reserves Retained earnings RMB’000 RMB’000 RMB’000 RMB’000 29,484 202,467 (53,927) 82,176 – – – 17,597 – – 1,565 – 6,154 41,365 – – 35,638 243,832 (52,362) 99,773 35,638 243,832 (52,362) 99,773 – – – 8,981 – – (938) – 35,638 243,832 (53,300) 108,754	Attributable to equity holders of the Company Share capital Share premium Other reserves Retained earnings RMB’000 RMB’000 RMB’000 RMB’000 29,484 202,467 (53,927) 82,176 – – – 17,597 – – 1,565 – 6,154 41,365 – – 35,638 243,832 (52,362) 99,773 35,638 243,832 (52,362) 99,773 – – – 8,981 – – (938) – 35,638 243,832 (53,300) 108,754	Total Equity RMB’000 260,200 17,597 1,565 47,519
Share capital RMB’000 29,484 – – 6,154 35,638 35,638 – – 35,638	Share premium RMB’000 202,467 – – 41,365 243,832 243,832 – – 243,832	Other reserves RMB’000 (53,927) – 1,565 – (52,362) (52,362) – (938) (53,300)
			326,881
			326,881 8,981 (938)
			334,924

I – 8

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Note
Cash flows from operating activities
Cash generated from/(used in) operations
25(a)
Interest paid
Income tax paid
Net cash generated from/(used in)
operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Disposal of intangible assets
Release of restricted cash
Addition of restricted cash
Net cash used in investing activities
Cash flows from financing activities
Proceeds from bank borrowings
Repayments of bank borrowings
Proceeds from issuance of ordinary shares
22
Net cash (used in)/generated from
financing activities
Net decrease in cash and
cash equivalents
Cash and cash equivalents
at beginning of the year
Exchange (losses)/gains on cash and
cash equivalents
Cash and cash equivalents
at end of the year
20

Year ended 31 December
2017
2016
RMB’000
RMB’000
9,764
(43,547)
(5,862)
(8,296)
(2,786)
(7,213)
1,116
(59,056)
(3,328)
(25,509)
–
3
600
147,450
(600)
(122,545)
(3,328)
(601)
155,000
180,840
(164,800)
(179,875)
–
47,519
(9,800)
48,484
(12,012)
(11,173)
105,804
115,412
(822)
1,565
92,970
105,804

I – 9

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 General information

Jiyi Household International Holdings Limited (the ‘‘Company’’) was incorporated in the Cayman Islands on 2 February 2015 as an exempted company with limited liability under the Companies Law (as revised) of the Cayman Islands. The address of the Company’s registered office is Clifton House, 75 Fort Street, P.O. Box 1350, Grand Cayman, KY1-1108, Cayman Islands. The address of its principal place of business is Room 1405, 14/F., Jubilee Centre, 18 Fenwick Street, Wanchai, Hong Kong.

The Company is an investment holding company and its subsidiaries (together, the ‘‘Group’’) are principally engaged in the business of sale and distribution of building and home improvement materials and furnishings and provision of interior design and engineering services in the People’s Republic of China (the ‘‘PRC’’). The controlling shareholder of the Group is Xinling Limited, a company incorporated in the British Virgin Islands (‘‘BVI’’) which is wholly-owned by Ms. Hou Wei (‘‘Ms. Hou’’).

The Company had its primary listing on the Main Board of The Stock Exchange of Hong Kong Limited on 6 November 2015.

These financial statements are presented in thousands of Renminbi (‘‘RMB’’), unless otherwise stated.

These consolidated financial statements have been approved for issue by the board of directors of the Company on 29 March 2018.

2 Summary of significant accounting policy

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of Company have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (‘‘HKFRS’’) and the disclosure requirements of the Hong Kong Companies Ordinance Cap. 622. The consolidated financial statements have been prepared under the historical cost convention.

I – 10

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

2.1.1 Changes in accounting policies and disclosures

(a) New and amended standards adopted by the Group

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2017:

Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to HKAS 12;
Disclosure initiative – amendments to HKAS 7, and
Annual improvements 2014-2016 – amendments to HKFRSs.

The adoption of these amendments did not have any impact on the amounts recognised in prior periods. Most of the amendments will also not affect the current or future periods. However, the amendments to HKAS 7 require disclosure of changes in liabilities arising from financing activities, see Note 25(c).

(b) New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below.

HKFRS 9, ‘Financial instruments’

HKFRS 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

I – 11

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

There will be no impact on the Group’s accounting for financial assets and liabilities, as the new requirements only affect the accounting for financial assets and liabilities that are designated at fair value and the Group does not have any such assets and liabilities. Accordingly, the Group does not expect the new guidance to have a significant impact on the classification and measurement of its financial assets and liabilities.

The new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. While the Group does not hold any hedging instruments, accordingly, the Group does not expect a significant impact on the accounting for its hedging relationships.

The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under HKAS 39. It applies to financial assets classified at amortised cost, debt instruments measured at FVOCI, contract assets under HKIFRS 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee contracts. Based on the assessments undertaken to date, the Group expects increase in the loss allowance for account receivables to be insignificant.

The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of the adoption of the new standard.

HKFRS 9 must be applied for financial years commencing on or after 1 January 2018. Early adoption is permitted. The Group does not intend to adopt HKFRS 9 before its mandatory adoption date. The Group will apply the new rules retrospectively from 1 January 2018, with the practical expedients permitted under the standard. Comparatives for 2017 will not be restated.

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HKFRS 15, ‘Revenue from contracts with customers’

The HKICPA has issued a new standard for the recognition of revenue. This will replace HKAS 18 which covers contracts for goods and services and HKAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption.

Management is currently assessing the effects of applying the new standard on the Group’s financial statements and has identified the following areas that are likely to be affected:

revenue from service – the application of HKFRS 15 may result in the identification of separate performance obligations which could affect the timing of the recognition of revenue.
accounting for certain costs incurred in fulfilling a contract – certain costs which are currently expensed may need to be recognised as an asset under HKFRS 15.

At this stage, the Group is not able to estimate the impact of the new rules on the Group’s financial statements. The Group will make more detailed assessments of the impact over the next twelve months.

HKFRS 15 is mandatory for financial years commencing on or after 1 January 2018. The Group does not intend to adopt the standard before its effective date.

HKFRS 16, ‘Leases’

HKFRS 16 will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.

The accounting for lessors will not significantly change.

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The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has noncancellable operating lease commitments of RMB33,053,000 (2016: RMB37,605,000), see note 26. However, the Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit and classification of cash flows.

Some of the commitments may be covered by the exception for short-term and low value leases and some commitments may relate to arrangements that will not qualify as leases under HKFRS 16.

The new standard is mandatory for financial years commencing on or after 1 January 2019. At this stage, the Group does not intend to adopt the standard before its effective date.

There are no other HKFRSs or HK interpretations that are not yet effective that would be expected to have a material impact to the Group.

2.2 Subsidiaries

2.2.1 Consolidation

A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

(a) Business combinations

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

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The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by HKFRS.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with HKAS 39 in profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any noncontrolling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the consolidated income statement.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.

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(b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in a loss of control are accounted for as equity transactions – that is, as transactions with the owners of the subsidiary in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. It means the amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred to another category of equity as specified/ permitted by applicable HKFRSs.

2.2.2 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

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APPENDIX I

2.3 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decisionmaker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief executive officer of the Company that makes strategic decisions.

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The functional currency of the Company and certain of its overseas subsidiaries is Hong Kong dollars (‘‘HK$’’). As the major operations of the Group are within the PRC, the Group presents its consolidated financial statements in RMB, unless otherwise stated.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the consolidated income statement within ‘finance costs – net’. All other foreign exchange gains and losses are presented in the consolidated income statement within ‘other income and gains – net’.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income.

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APPENDIX I

(c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transaction); and
(iii) all resulting currency translation differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are recognised in other comprehensive income.

(iv) Disposal of foreign operation and partial disposal

On the disposal of a foreign operation (that is, a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a joint venture that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the currency translation differences accumulated in equity in respect of that operation attributable to the owners of the company are reclassified to profit or loss.

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APPENDIX I

In the case of a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated currency translation differences are reattributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (that is, reductions in the Group’s ownership interest in associates or joint ventures that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange difference is reclassified to profit or loss.

2.5 Land use rights

Land use rights are up-front payments to acquire long-term interests in the usage of land. They are stated at cost and charged to the consolidated income statement over the remaining period of the lease on a straight-line basis, net of any impairment losses.

2.6 Property, plant and equipment

All property, plant and equipment are stated at historical costs less accumulated depreciation and accumulated impairment charge. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

Buildings (including the property improvement)	10-30 years
Motor vehicles	5-10 years
Furniture, fittings and equipment	5-10 years
Leasehold improvements	5-10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Construction in progress is property, plant and equipment on which construction work has not been completed and stated at cost. Cost includes acquisition and construction expenditure incurred, interest and other direct costs attributable to the development. Depreciation is not provided on construction in progress until the related asset is completed for intended use.

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APPENDIX I

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.8).

Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised within ‘Other income and gains – net’ in the consolidated income statement.

2.7 Intangible assets

Intangible assets represent the computer software. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Amortisation is calculated using the straight-line basis to allocate the cost of the computer software over their estimated useful lives of 5 to 10 years respectively.

2.8 Impairment of non-financial assets

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

2.9 Financial assets

2.9.1 Classification

The Group classifies its financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those that are not expected to be realised within the normal operating cycle of the business. These are classified as non-current assets. Loans and receivables comprise trade and other receivables (Note 2.12), restricted cash and cash and cash equivalents (Note 2.15).

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2.9.2 Recognition and measurement

Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the consolidated income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

2.10 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

2.11 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprising purchases and other incidental cost, are determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

2.12 Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. See Note 2.9.2 for further information about the Group’s accounting for trade receivables and Note 2.14 for a description of the Group’s impairment policies.

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APPENDIX I

2.13 Construction contracts

A construction contract is defined as a contract specifically negotiated for construction of an asset. Contract costs are recognised as cost in the period when they are incurred.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable.

When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognised over the period of the contract by reference to the stage of completion. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Variations in contract work, claims and incentive payments are included in contract revenue to the extent that may have been agreed with the customer and are capable of being reliably measured.

The Group uses the ‘‘percentage-of-completion method’’ to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the balance sheet date as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature.

The Group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings.

The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).

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APPENDIX I

2.14 Impairment of financial assets

(a) Assets carried at amortised cost

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement.

2.15 Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents include cash in hand, deposits held at call with banks and with original maturities of three months or less.

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2.16 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2.17 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as noncurrent liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.18 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

2.19 Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

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2.20 Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the consolidated income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to property, plant and equipment are included in noncurrent liabilities as deferred government grants and are credited to the consolidated income statement on a straight-line basis over the expected lives of the related assets.

2.21 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the consolidated income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

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APPENDIX I

(b) Deferred income tax

Inside basis differences

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Outside basis differences

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the Group the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from the associate’s undistributed profits is not recognised.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

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(c) Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.22 Employee benefits

Pension obligations

In accordance with the rules and regulations in the PRC, the PRC based employees of the Group participate in various defined contribution retirement benefit plans organised by the relevant municipal and provincial governments in the PRC under which the Group and the employees are required to make monthly contributions to these plans calculated as a percentage of the employees’ salaries, subject to certain ceiling. The municipal and provincial governments undertake to assume the retirement benefit obligations of all existing and future retired PRC based employee payable under the plans described above. Other than the monthly contributions, the Group has no further obligation for the payment of retirement and other post-retirement benefits of its employees. The assets of these plans are held separately from those of the Group in an independent fund managed by the PRC government. The Group’s contributions to these plans are expensed as incurred.

Housing funds, medical insurances and other social insurances

Employees of the Group in the PRC are entitled to participate in various government-supervised housing funds, medical insurance and other employee social insurance plan. The Group contributes on a monthly basis to these funds based on certain percentages of the salaries of the employees, subject to certain ceiling. The Group’s liability in respect of these funds is limited to the contributions payable in each year.

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2.23 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.24 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. The Group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below. The Group bases its estimates of return on historical results, taking into consideration the type of customers, the type of transactions and the specifics of each arrangement.

(a) Sale and distribution of goods

Revenue from the sales and distribution of merchandise is recognised when significant risks and rewards of ownership of the merchandise are transferred to the customer, and the customer has accepted the merchandise and collectability of the related receivables is reasonably assured.

(b) Provision of interior design and engineering services

The Group uses the ‘percentage of completion method’ to determine the appropriate amount of revenue to recognise in a given period for the provision of interior design and engineering services. The stage of completion is measured by reference to the costs incurred up to the balance sheet date as a percentage of total estimated costs.

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When the outcome of a contract can be estimated reliably and it is probable that the contract will be profitable, revenue is recognised as services are provided. When it is probable that total costs to service will exceed total revenue allocated to the interior design and engineering contract, the expected loss is recognised as an expense immediately. When the outcome of an interior design and engineering contract cannot be estimated reliably, revenue is recognised only to the extent of costs incurred that are likely to be recoverable.

2.25 Interest income

Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognised using the original effective interest rate.

2.26 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease.

2.27 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders or directors, where appropriate.

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3 Financial risk management

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: foreign exchange risk, interest rate risk, credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Group treasury identifies and evaluates in close co-operation with the Group’s operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, non-derivative financial instrument and investment of excess liquidity.

(a) Foreign exchange risk

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to HK$. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

The Group manages its exposures to foreign currency transactions by monitoring the level of foreign currency receipts and payments. The Group ensures that the net exposure to foreign exchange risk is kept to an acceptable level from time to time. The Group is presently not using any forward exchange contracts to hedge against foreign exchange risk as management considers its exposure minimal.

As of 31 December 2017, the directors considered that the Group did not bear significant foreign exchange risk as the amount of financial assets and liabilities denominated in foreign currency was not material (2016: Same).

(b) Interest rate risk

Other than bank balances with variable interest rate, the Group has no other significant interest-bearing assets. Management does not anticipate significant impact to interest-bearing assets resulted from the changes in interest rates, because the interest rates of bank balances are not expected to change significantly.

As the Group has no long-term borrowings, management considers the exposure to interest rate risk is low.

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(c) Credit risk

The Group is exposed to credit risk in relation to its cash and cash equivalents, restricted cash and trade and other receivables.

For cash and cash equivalents and restricted cash, management manages the credit risk by placing all the bank deposits in state-owned financial institutions or reputable banks which are all high-credit-quality financial institutions.

For trade receivables, the Group performs ongoing credit evaluations of its debtors’ financial condition and does not require collateral from the debtors on the outstanding balances. Based on the expected recoverability and timing for collection of the outstanding balances, the Group maintains a provision for doubtful accounts and actual losses incurred have been within management’s expectations.

For other receivables, management makes periodic collective assessments as well as individual assessment on the recoverability of other receivables based on historical settlement records and past experience. The directors of the Company believe that there is no material credit risk inherent in the Group’s outstanding balance of other receivables.

(d) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities.

The Group’s primary cash requirements have been for additions of and upgrades on property, plant and equipment, payment on related debts and payment for purchases and operating expenses. The Group finances its working capital requirements through a combination of internal resources and bank borrowings, as necessary.

The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure it maintain sufficient cash and cash equivalents and has available funding through adequate amount of committed credit facilities to meet its working capital requirements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table details the remaining contractual maturities at each of the reporting dates during the year of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the year-end dates during the year) and the earliest date the Group may be required to pay.

As at 31 December 2016 Trade and other payables () Borrowings, including interest payables As at 31 December 2017 Trade and other payables () Borrowings, including interest payables	Less than 1 year RMB’000 26,531 101,608
	128,139
	35,547 91,704
	127,251

It excluded other taxes payables, salaries and staff welfare payables, advance from customers, accrued operating lease expenses, and withholding individual income tax in respect of dividends payment.

3.2 Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings divided by total capital. Total borrowings referred to ‘bank borrowings’ as shown in the consolidated balance sheet. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus total borrowings.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The gearing ratios at 31 December 2017 and 2016 were as follows:

Bank borrowings Total equity Total capital Gearing ratio	As at 31 December 2017 2016 RMB’000 RMB’000 88,200 98,000 334,924 326,881 423,124 424,881 21% 23%	As at 31 December 2017 2016 RMB’000 RMB’000 88,200 98,000 334,924 326,881 423,124 424,881 21% 23%
		424,881
		23%

3.3 Fair value estimation

The financial instruments carried at fair value by valuation method are analysed into three levels as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The Group has no financial assets and liabilities that are measured at fair value as at 31 December 2017 (2016: Nil).

There were no transfers between different levels during the year (2016: same).

4 Critical accounting estimates and judgments

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4.1 Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

(a) Revenue recognition

The Group uses the percentage-of-completion method in accounting for its contracts to provide interior design and engineering services. The stage of completion is measured by reference to the services performed to date compared to the estimated total costs for the contract. Significant assumptions are required to estimate the total contract costs and in making these estimates, management has relied on past experience and industry knowledge. Management monitors the progress of the contracts and reviews periodically the estimated total costs for each contract as the contract progresses. If the actual costs differ from management’s estimates, the revenue, cost of sales and provision for foreseeable losses would be adjusted.

(b) Useful lives of property, plant and equipment

The Group’s management determines the estimated useful lives of its property, plant and equipment and consequently the related depreciation charges. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write off or write down technically obsolete or non-strategic assets that have been abandoned or sold.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Impairment of trade and other receivables

Management reviews its trade and other receivables for objective evidence of impairment. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered as objective evidence that a receivable is impaired. In determining this, management makes judgments as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect on the market and economic environment in which the debtor operates in. Where there is objective evidence of impairment, management makes judgments as to whether an impairment loss should be recorded as an expense.

Provision for impairment of trade and other receivables of the Group as at 31 December 2017 is RMB2,198,000 (2016: RMB3,862,000).

(d) Provision for inventories

In determining the amount of allowance required for obsolete and slowmoving inventories, the Group would evaluate ageing analysis of inventories and compare the carrying value of inventories to their respective net realisable value. A considerable amount of judgment is required in determining such allowances. If conditions which have impact on the net realisable value of inventories deteriorate, additional allowances may be required.

Provision for impairment of inventories of the Group as at 31 December 2017 is RMB362,000 (2016: RMB950,000).

(e) Income taxes and deferred taxation

The Group is subject to income tax in different jurisdictions. Estimation and judgment is required in determining the amount of the provision for income tax. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact on the income tax and deferred taxation provisions in the period in which such determination is made.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In accordance with the corporate income tax laws in the PRC, a 10% withholding tax will be levied on the dividend declared by Guangdong Jiyi Household Building Materials Chain Co., Ltd (’’Jiyi Household’’) established in the PRC to their foreign investors starting from 1 January 2008. During the year, the directors of the Company reassessed the dividend policy of its major subsidiary established in the PRC, Jiyi Household. Based on the Group’s current business plan and financial position, no retained earnings as of 31 December 2017 generated by Jiyi Household would be distributed to its non-PRC registered intermediate holding company and as such, no deferred tax liability has been provided by the Group for the earnings expected to be retained by Jiyi Household in the PRC and not to be remitted out of the PRC in the foreseeable future.

5 Segment information

The chief operating decision-maker (‘‘CODM’’) has been identified as the chief executive officer of the Company. The chief executive officer reviews the Group’s internal reporting in order to assess performance and allocate resources. The chief executive officer has determined the operating segments based on these reports. The chief executive officer considers the business from products and services perspective, and determines that the Group has the following operating segments:

(i) Sale and distribution of merchandise
(ii) Provision of interior design and engineering services

The CODM assesses the performance of the operating segments mainly based on segment revenue and gross profit of each operating segment. The Company currently does not allocate assets and liabilities to its segments, as the CODM does not use this information to allocate resources to or evaluate the performance of the operating segments. Therefore, the Company does not report a measure of total assets or total liabilities for each reportable segment.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The segment information provided to the CODM for the reportable segments for the year is as follows:

Segment Revenue – Sale and distribution of merchandise Total segment revenue Inter-segment revenue Revenue from external customers – Provision of interior design and engineering services Total segment revenue Inter-segment revenue Revenue from external customers Segment Cost – Sale and distribution of merchandise – Provision of interior design and engineering services	Year ended 31 December 2017 2016 RMB’000 RMB’000 346,176 340,528 (29,535) (28,069) 316,641 312,459 105,174 89,860 (5,847) (19,484) 99,327 70,376 415,968 382,835 Year ended 31 December 2017 2016 RMB’000 RMB’000 271,788 249,031 91,107 60,951 362,895 309,982

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment gross profit – Sale and distribution of merchandise – Provision of interior design and engineering services Segment gross profit Other income and gains – net Selling expenses Administrative expenses Finance costs – net Income tax expense Profit for the year	Year ended 31 December 2017 2016 RMB’000 RMB’000 44,853 63,428 8,220 9,425 53,073 72,853 Year ended 31 December 2017 2016 RMB’000 RMB’000 53,073 72,853 732 478 (18,243) (16,774) (14,969) (22,087) (5,895) (8,283) (5,717) (8,590) 8,981 17,597

During the year, all revenues of the Group were derived from the PRC.

Non-current assets other than deferred income tax assets are mainly located in PRC as at 31 December 2017 (2016: Same).

For the year ended 31 December 2017, revenues of approximately RMB47,479,000, accounting for 11.4% of the Group’s revenues, were derived from a single external customer (2016: RMB37,960,000, 9.9%). These revenues were attributed to the sale and distribution of merchandise segment.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Breakdown of the revenue by products or service is as follows:

Segment Revenue Sale and distribution of merchandise – Building materials – Home improvement materials – Furnishings Provision of interior design and engineering services Elimination 6 Other income and gains – net Government grants relating to costs Others	Year ended 31 December 2017 2016 RMB’000 RMB’000 278,672 224,054 44,893 58,486 22,611 57,988 346,176 340,528 105,174 89,860 (35,382) (47,553) 415,968 382,835 Year ended 31 December 2017 2016 RMB’000 RMB’000 905 490 (173) (12) 732 478

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7 Expenses by nature

Expenses included in cost of sales, selling expenses and administrative expenses are analysed as follows:

Cost of inventories sold Cost of services provided Depreciation of property, plant and equipment (Note 13) Amortisation of land use right (Note 14) Amortisation of intangible assets Employee benefit expenses (Note 8) Rental fees and property management fees Other tax expenses (Reversal of)/Provision for write-down of inventories (Note 16) (Reversal of)/Provision for impairment of trade and other receivables (Note 18) Legal fees and professional charges Auditor’s remuneration – Audit services Advertising and promotion expenses Delivery and installation expenses Water and electricity expenditures Entertainment expenses Office expenses Automobile expenses Travel expenses Other expenses Total	Year ended 31 December 2017 2016 RMB’000 RMB’000 270,595 247,284 87,966 57,832 8,776 7,052 96 96 54 60 12,454 13,086 4,471 1,854 2,050 2,925 (588) 254 (1,660) 3,239 2,086 1,508 1,650 2,200 873 662 1,251 1,973 654 713 704 1,187 493 358 535 881 800 873 2,847 4,806 396,107 348,843	Year ended 31 December 2017 2016 RMB’000 RMB’000 270,595 247,284 87,966 57,832 8,776 7,052 96 96 54 60 12,454 13,086 4,471 1,854 2,050 2,925 (588) 254 (1,660) 3,239 2,086 1,508 1,650 2,200 873 662 1,251 1,973 654 713 704 1,187 493 358 535 881 800 873 2,847 4,806 396,107 348,843
		348,843

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8 Employee benefit expenses (including directors’ emoluments)

Wages, allowance and bonus Retirement benefits contribution (a) Other social insurance and housing funds	Year ended 31 December 2017 2016 RMB’000 RMB’000 10,358 10,863 1,037 1,171 1,059 1,052 12,454 13,086	Year ended 31 December 2017 2016 RMB’000 RMB’000 10,358 10,863 1,037 1,171 1,059 1,052 12,454 13,086
		13,086

(a) Pensions – defined contribution plans

Employees of the PRC Subsidiaries are required to participate in a defined contribution retirement scheme administered and operated by the local municipal government. The Group contributes funds which are calculated on fixed percentage of 15% for the period from January to June 2017 and 14% for the period from July to December 2017 (2016: 15%) of the employees’ salary (subject to a floor and cap) as set by local municipal governments to each scheme locally to fund the retirement benefits of the employees.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include four directors (2016: four) whose emoluments are reflected in the analysis shown in Note 29. The emoluments paid to the remaining one individual (2016: one) during the year ended 31 December 2017 are as follows:

Wages, allowance and bonus Retirement scheme contribution	Year ended 31 December 2017 2016 RMB’000 RMB’000 763 711 16 15 779 726	Year ended 31 December 2017 2016 RMB’000 RMB’000 763 711 16 15 779 726
		726

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year, no directors or any of the five highest paid individuals of the companies now comprising the Group waived any emoluments and no emoluments were paid by the companies now comprising the Group to any of the directors or five highest paid individuals as an inducement to join or upon joining the companies now comprising the Group or as compensation for loss of office.

The emoluments fell within the following band:

Emolument band HK$1,000,001 – HK$1,500,000	Number of individuals 2017 2016 1 1

There was no arrangement under which a director or any of the five highest paid individuals agreed to waive any emolument during the year (2016: Nil).

9 Finance costs – net

Finance income: – Interest income on short-term bank deposits Finance expenses: – Interest expense on bank borrowings Finance expenses: – Foreign exchange losses Net finance costs	Year ended 31 December 2017 2016 RMB’000 RMB’000 (118) (771) 5,964 9,054 49 – 5,895 8,283	Year ended 31 December 2017 2016 RMB’000 RMB’000 (118) (771) 5,964 9,054 49 – 5,895 8,283
		8,283

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10 Income tax expense

Current income tax Deferred income tax (Note 21)	Year ended 31 December 2017 2016 RMB’000 RMB’000 5,677 8,627 40 (37) 5,717 8,590	Year ended 31 December 2017 2016 RMB’000 RMB’000 5,677 8,627 40 (37) 5,717 8,590
		8,590

The taxation on the Group’s profit before income tax differs from the theoretical amount that would arise using the tax rate applicable to profit of the Group as follows:

Profit before income tax Tax calculated at the tax rate of 25% Tax losses for which no deferred income tax asset was recognised Expenses not deductible for tax purposes	Year ended 31 December 2017 2016 RMB’000 RMB’000 14,698 26,187 3,675 6,547 618 226 1,424 1,817 5,717 8,590	Year ended 31 December 2017 2016 RMB’000 RMB’000 14,698 26,187 3,675 6,547 618 226 1,424 1,817 5,717 8,590
		8,590

Cayman Islands income tax

The Company is incorporated in the Cayman Islands as an exempted company with limited liability under the Companies Law of the Cayman Islands and accordingly, is exempted from the Cayman Islands income tax.

BVI income tax

The Company’s subsidiary in the BVI was incorporated under the International Business Companies Act of the BVI and, accordingly, is exempted from the BVI income tax.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Hong Kong profits tax

Entities incorporated in Hong Kong are subject to Hong Kong profits tax at a rate at 16.5% for the years ended 31 December 2017 (2016: 16.5%) on the estimated assessable profit for the year. No Hong Kong profits tax has been provided for as there was no business operation that is subject to Hong Kong profits tax during the year.

PRC enterprise income tax (‘‘EIT’’)

The entities incorporated in the PRC are subject to EIT. According to the EIT law effective from 1 January 2008, all PRC enterprises are subject to a standard EIT rate of 25%.

PRC withholding tax (‘‘WHT’’)

According to the applicable PRC tax regulations, dividends distributed by a company established in the PRC to a foreign investor with respect to profits derived after 1 January 2008 are generally subject to a 10% WHT. If a foreign investor incorporated in Hong Kong meets the conditions and requirements under the double taxation treaty arrangement entered into between the PRC and Hong Kong, the relevant withholding tax rate will be reduced from 10% to 5%. During the year, the directors of the Company reassessed the dividend policy of its major subsidiary established in the PRC, Jiyi Household, based on the Group’s current business plan and financial position. No retained earnings as of 31 December 2017 generated by Jiyi Household would be distributed to its non-PRC registered intermediate holding company and as such, no deferred tax liability has been provided by the Group for the earnings expected to be retained by Jiyi Household in the PRC and not to be remitted out of the PRC in the foreseeable future.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

Profit attributable to equity holders of the Company (RMB’000) Weighted average number of ordinary shares in issue (thousands of shares) (a) Basic earnings per share (RMB per share)	Year ended 31 December 2017 2016 8,981 17,597 432,000 398,268 0.02 0.04	Year ended 31 December 2017 2016 8,981 17,597 432,000 398,268 0.02 0.04
		398,268
		0.04

(a) On 20 June 2016, the Company completed the placing of 72,000,000 new shares and the number of issued shares of the Company increased from 360,000,000 to 432,000,000 shares.

For the years ended 31 December 2017 and 2016, diluted earnings per share were the same as basic earnings per share due to the absence of dilutive potential ordinary shares as at 31 December 2017 and 2016.

12 Dividends

The directors of the Company do not propose payment of a final dividend for the year ended 31 December 2017 (2016: Nil).

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

13 Property, plant and equipment

Year ended 31 December 2016 Opening net book amount Additions Transfer Disposal Depreciation Closing net book amount Year ended 31 December 2016 Cost Accumulated depreciation Net book amount Year ended 31 December 2017 Opening net book amount Additions Transfer Disposal Depreciation Exchange Difference Closing net book amount Year ended 31 December 2017 Cost Accumulated depreciation Net book amount	Buildings RMB’000 42,946 – 351 – (2,109) 41,188 51,750 (10,562) 41,188 41,188 – – – (1,765) – 39,423 51,392 (11,969) 39,423	Motor vehicles RMB’000 1,186 2,765 – (6) (229) 3,716 4,810 (1,094) 3,716 3,716 103 – (3) (475) (168) 3,173 4,588 (1,415) 3,173	Furniture, fittings and equipment RMB’000 207 342 – (13) (105) 431 1,469 (1,038) 431 431 610 – (2) (150) – 889 2,023 (1,134) 889	Leasehold improvements RMB’000 12,295 2,261 – – (4,609) 9,947 31,356 (21,409) 9,947 9,947 92 20,201 – (6,386) – 23,854 51,649 (27,795) 23,854	Construction in progress RMB’000 177 20,141 (351) – – 19,967 19,967 – 19,967 19,967 5,410 (20,201) – – – 5,176 5,176 – 5,176	Total RMB’000 56,811 25,509 – (19) (7,052)
						75,249
						109,352 (34,103)
						75,249
						75,249 6,215 – (5) (8,776) (168)
						72,515
						114,828 (42,313)
						72,515

As at 31 December 2017, bank borrowings of RMB79,000,000 (2016: RMB83,000,000) were secured by buildings at the carrying amount of RMB39,423,000 (2016: RMB41,188,000) (Note 24).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Depreciation of property, plant and equipment has been charged to the consolidated statements of comprehensive income (Note 7) as follows:

Selling expenses Administrative expenses 14 Land use right Opening net book amount Amortisation (Note 7) Closing net book amount Cost Accumulated amortisation Net book amount	Year ended 31 December 2017 2016 RMB’000 RMB’000 6,264 4,874 2,512 2,178 8,776 7,052 As at 31 December 2017 2016 RMB’000 RMB’000 2,919 3,015 (96) (96) 2,823 2,919 3,630 3,630 (807) (711) 2,823 2,919

The Group’s land use right is located in Mainland China. The lease period of land use right is 39 years. As at 31 December 2017, the remaining lease period of the Group’s land use right was 31 years (2016: 32 years).

As at 31 December 2017, bank borrowings of RMB5,000,000 (2016: RMB15,000,000) were secured by the land use right at the carrying amount of RMB2,823,000 (2016: RMB2,919,000) (Note 24).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15 Subsidiaries

				Proportion	of
	Place of	Principal activities	Particulars of	ordinary shares			Proportion of
	incorporation and	and place of	issued share capital	directly held	by		ordinary shares held
Company name	kind of legal entity	operation	and debt securities	parent			by the Group
				2017		2016	2017	2016
				(%)		(%)	(%)	(%)
Directly owned:
Zhan Yun Holdings Limited	BVI, limited liability	Investment holding,	50,000 ordinary	100%	100%		100%	100%
	company	BVI	share of USD 1
			each
Indirectly owned:
Jiyi Investments Limited	Hong Kong, limited	Investment holding,	1 ordinary share of	–		–	100%	100%
	liability company	Hong Kong	HK$ 1 each
Jiyi Household	PRC, limited liability	Sales of household	RMB161,600,000	–		–	100%	100%
	company	building materials,
		PRC
Meizhou Jisheng Household Building	PRC, limited liability	Investment holding,	RMB2,000,000	–		–	100%	100%
Materials Company Limited	company	PRC
Guangdong Jiyi Xinya Decoration and	PRC, limited liability	provision of interior	RMB10,100,000	–		–	100%	100%
Design Construction Company	company	design and
Limited		engineering
		services, PRC
Shanghang County Jiyi Household	PRC, limited liability	Sales of household	RMB3,000,000	–		–	100%	100%
Building Materials Company Limited	company	building materials,
		PRC
Zhongshan Jiyi Household Building	PRC, limited liability	Sales of household	RMB1,300,000	–		–	100%	100%
Materials Company Limited	company	building materials,
		PRC
Changting County Jiyi Household	PRC, limited liability	Sales of household	RMB1,000,000	–		–	100%	100%
Building Materials Company Limited	company	building materials,
		PRC
Wuping County Jiyi Household	PRC, limited liability	Sales of household	RMB2,000,000	–		–	–	100%
Building Materials Company Limited	company	building materials,
		PRC

All the companies now comprising the Group have adopted 31 December as their financial year-end date.

The English names of certain subsidiaries referred to above represented the best efforts by management of the Company in translating the subsidiaries’ Chinese names, as they do not have official English names.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16 Inventories

Merchandises Less: provision for impairment of inventories Inventories – Net	As at 31 December 2017 2016 RMB’000 RMB’000 38,489 33,265 (362) (950) 38,127 32,315	As at 31 December 2017 2016 RMB’000 RMB’000 38,489 33,265 (362) (950) 38,127 32,315
		32,315

The cost of inventories included in cost of sales during the years ended 31 December 2017 amounted to RMB270,595,000 (2016: RMB247,284,000).

Movements on the Group’s provision for impairment of inventories are as follows:

At beginning of the year (Reversal of)/Provision for write-down of inventories At end of the year	As at 31 December 2017 2016 RMB’000 RMB’000 950 696 (588) 254 362 950	As at 31 December 2017 2016 RMB’000 RMB’000 950 696 (588) 254 362 950
		950

The relevant inventories were sold to independent customers during the years ended 31 December 2017 and 2016. The above amounts are included in ‘cost of sales’ in the consolidated income statement.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17 Due from/(to) customers on construction contracts

Due from customers on construction contracts Due to customers on construction contracts At end of the year Contract costs incurred plus recognised profits to date Less: Progress billings received and receivable At end of the year	As at 31 December 2017 2016 RMB’000 RMB’000 51,517 16,052 (3,240) (475) 48,277 15,577 218,630 114,977 (170,353) (99,400) 48,277 15,577

All amounts due from customers on construction contracts were not considered impaired and there was no concentration of credit risk with respect to these balances.

18 Trade and other receivables

Trade receivables due from third parties (a) Trade receivables due from a related party (a) (Note 27) Less: allowance for impairment of trade receivables (b) Trade receivables – net Prepayments Less: allowance for impairment of prepayments (c) Prepayments – net Notes receivables Deposits Other receivables	As at 31 December 2017 2016 RMB’000 RMB’000 180,902 165,043 6,866 2,334 (1,355) (3,862) 186,413 163,515 56,324 83,788 (843) – 55,481 83,788 274 601 4,332 2,567 784 1,876 247,284 252,347

The fair values of trade and other receivables approximate to their carrying values.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Trade receivables

The credit period granted to customers is between 0 to 360 days. The ageing analysis of the trade receivables based on the date of sales is as follows:

Up to 6 months 6 to 12 months Over 12 months	As at 31 December 2017 2016 RMB’000 RMB’000 124,512 122,914 59,440 34,037 3,816 10,426 187,768 167,377	As at 31 December 2017 2016 RMB’000 RMB’000 124,512 122,914 59,440 34,037 3,816 10,426 187,768 167,377
		167,377

As at 31 December 2017, trade receivables of RMB2,461,000 (2016: 9,224,000) was past due but not impaired.

These relate to a number of independent customers for whom there is no significant financial difficulty and based on past experience, their overdue amounts can be recovered. The ageing analysis of these trade receivables is as follows:

Over 12 months	As at 31 December 2017 2016 RMB’000 RMB’000 2,461 9,224

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2017, trade receivables of RMB1,355,000 (2016: RMB20,303,000) were impaired. The amount of the provision was RMB1,355,000 as at 31 December 2017 (2016: RMB3,862,000). The ageing analysis of these trade receivables is as follows:

Up to 6 months 6 to 12 months Over 12 months	As at 31 December 2017 2016 RMB’000 RMB’000 – 16,069 – 3,032 1,355 1,202 1,355 20,303	As at 31 December 2017 2016 RMB’000 RMB’000 – 16,069 – 3,032 1,355 1,202 1,355 20,303
		20,303

(b) Provision for impairment of trade receivables

The movements on the provision for impairment of trade receivables are as follows:

At beginning of the year (Reversal of)/Provision for impairment Receivables written off as uncollectible At end of the year	As at 31 December 2017 2016 RMB’000 RMB’000 3,862 623 (2,503) 3,239 (4) – 1,355 3,862	As at 31 December 2017 2016 RMB’000 RMB’000 3,862 623 (2,503) 3,239 (4) – 1,355 3,862
		3,862

The maximum exposure to credit risk at the reporting date is the carrying values of each class of receivables mentioned above. The Group did not hold any collateral as security for these receivables.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At beginning of the year Provision for impairment At end of the year	As at 31 December 2017 2016 RMB’000 RMB’000 – – 843 – 843 –	As at 31 December 2017 2016 RMB’000 RMB’000 – – 843 – 843 –
		–

(d) The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:

RMB HK$	As at 31 December 2017 2016 RMB’000 RMB’000 246,797 251,845 487 502 247,284 252,347	As at 31 December 2017 2016 RMB’000 RMB’000 246,797 251,845 487 502 247,284 252,347
		252,347

19 Restricted cash

		As at 31	December
		2017	2016
		RMB’000	RMB’000
Restricted	cash	300	300

As at 31 December 2017, bank deposits amounted to RMB300,000 (2016: RMB300,000) were placed as guarantee deposits for issuing notes payable (Note 23(b)).

For the year ended 2017, the effective interest rate on restricted cash was 1.30% (2016: 1.30%) per annum.

The carrying amounts of restricted cash approximate to their fair values and represent maximum exposure to credit risk.

The carrying amounts of restricted cash are all denominated in RMB.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20 Cash and cash equivalents

Cash at banks and on hand	As at 31 December 2017 2016 RMB’000 RMB’000 92,970 105,804

The carrying amounts of cash and cash equivalents approximate to their fair values and represent maximum exposure to credit risk.

The carrying amounts of cash at banks and on hand are denominated in:

RMB HK$ USD Cash at banks and on hand	As at 31 December 2017 2016 RMB’000 RMB’000 87,385 94,901 5,342 10,611 243 292 92,970 105,804	As at 31 December 2017 2016 RMB’000 RMB’000 87,385 94,901 5,342 10,611 243 292 92,970 105,804
		105,804

21 Deferred income tax

As no deferred income tax liabilities were recognised, there are no offset amounts as at 31 December 2017 (2016: Nil).

Deferred tax assets: – to be recovered within 12 months	As at 31 December 2017 2016 RMB’000 RMB’000 1,750 1,790

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The movements in deferred tax assets are as follows:

Deferred tax assets:

At 1 January 2016 (Charged)/Credited to profit or loss At 31 December 2016 At 1 January 2017 Credited/(Charged) to profit or loss At 31 December 2017	Accrued rental RMB’000 807 (422) 385 385 635 1,020	Accrued payroll RMB’000 616 (415) 201 201 (112) 89	Provision for impairment of trade and other receivables RMB’000 156 810 966 966 (416) 550	Provision for impairment of inventories RMB’000 174 64 238 238 (147) 91	Total RMB’000 1,753 37
					1,790
					1,790 (40)
					1,750

At 31 December 2017, the Group did not recognise deferred income tax assets of RMB871,000 (2016: RMB253,000) in respect of losses amounting to RMB3,484,000 (2016: to RMB1,015,000) as it is not probable that future taxable profits against which the losses can be utilised to offset the losses. The estimated tax losses are subject to approval by the relevant tax authorities.

22 Share capital and share premium

Ordinary shares, issued and fully paid:

Opening balance 1 January 2016 New shares placing (a) At 31 December 2016 At 31 December 2017	Share Capital Number of ordinary shares (HK$0.10 each) RMB’000 360,000,000 29,484 72,000,000 6,154 432,000,000 35,638 432,000,000 35,638	Share Premium RMB’000 202,467 41,365
		243,832
		243,832

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) On 20 June 2016, the Company allotted and issued 72,000,000 new ordinary shares at par value of HK$0.10 per share for cash consideration of HK$0.78 each. All the ordinary shares issued rank pari passu with the then existing ordinary shares in all respects.

23 Trade and other payables

Trade payables (a) Notes payable (b) Advance from customers Salaries and staff welfare payables Other tax payables Accrued operating lease expenses Withholding individual income tax in respect of dividends payment Other payables	As at 31 December 2017 2016 RMB’000 RMB’000 31,434 22,122 1,000 1,000 10,366 6,998 1,256 1,310 4,134 2,448 4,080 1,539 16,000 16,000 3,113 3,409 71,383 54,826	As at 31 December 2017 2016 RMB’000 RMB’000 31,434 22,122 1,000 1,000 10,366 6,998 1,256 1,310 4,134 2,448 4,080 1,539 16,000 16,000 3,113 3,409 71,383 54,826
		54,826

The fair values of trade and other payables approximate to their carrying values.

(a) The ageing analysis of trade payables based on invoice date were as follows:

Up to 3 months 3 to 6 months 6 to 12 months Over 12 months	As at 31 December 2017 2016 RMB’000 RMB’000 18,373 17,780 5,013 1,607 4,281 1,772 3,767 963 31,434 22,122	As at 31 December 2017 2016 RMB’000 RMB’000 18,373 17,780 5,013 1,607 4,281 1,772 3,767 963 31,434 22,122
		22,122

The credit period secured by the Group’s suppliers ranges from 0 to 180 days.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) The notes payable represented non-interest bearing bank acceptance notes with maturity dates within six months, and was secured by restricted cash (Note 19).
(c) The carrying amounts of trade and other payables are denominated in the following currencies:

RMB HK$ 24 Bank borrowings Secured bank borrowings	As at 31 December 2017 2016 RMB’000 RMB’000 71,104 54,212 279 614 71,383 54,826 As at 31 December 2017 2016 RMB’000 RMB’000 88,200 98,000

The bank borrowings of the Group were secured by property, plant and equipment and land use right of RMB39,423,000 (Note 13) and RMB2,823,000 (Note 14), respectively (2016: secured by property, plant and equipment and land use right of RMB41,188,000 and RMB2,919,000, respectively) as at 31 December 2017. The bank borrowings were also jointly guaranteed by Ms. Hou, Mr. Deng Jianshen, husband of Ms. Hou, Mr. Shupeng, Mr. Wenjingfeng, Meizhou Enterprise Credit Financing Guarantee Investment Co., Ltd.（梅州市企信融資擔保投資有限公司）, Meizhou Jisheng Household Building Materials Company Limited, Guangdong Jiyi Xinya Decoration and Design Construction Company Limited.

The weighted average effective interest rate during the year is as follows:

Bank borrowings	Year ended 31 December 2017 2016 RMB’000 RMB’000 5.64% 5.80%

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The carrying amounts of the Group’s borrowings were approximated to their fair values as at 31 December 2017 as the interest rates of most of borrowings were variable and original term within one year.

The carrying amounts of bank borrowings are all denominated in RMB.

25 Cash flow information

(a) Reconciliation of profit before income tax to cash generated from operations

Profit before income tax
Adjustments for:
Interest income and expense (Note 9)
Depreciation of property,
plant and equipment (Note 13)
Amortisation of land use right (Note 14)
Amortisation of intangible assets
Loss on disposal of property,
plant and equipment – net
(Reversal of)/Provision for write-down of
inventories (Note 16)
(Reversal of)/Provision for impairment of
trade and other receivables (Note 18)
Foreign exchange losses
Changes in working capital:
(Increase)/Decrease in inventories
Decrease/(increase) in trade and other receivables
(Increase)/decrease in balances with customers
on construction contracts (Note 17)
Increase/(Decrease) in trade and other payables
Cash generated from/(used in) operations

Year ended 31 December
2017
2016
RMB’000
RMB’000
14,698
26,187
5,846
8,283
8,776
7,052
96
96
54
60
5
19
(588)
254
(1,660)
3,239
49
–
(7,364)
4,106
9,488
(73,344)
(32,700)
211
13,064
(19,710)
9,764
(43,547)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) In the consolidated cash flow statement proceeds from disposal of properties, plant and equipment comprise:

Net book amount (Note 13) Loss on disposal of property, plant and equipment Proceeds from disposal (c) Net cash reconciliation: Cash and cash equivalents Borrowings – repayable within one year Net cash Cash and cash equivalents Gross debt – fixed interest rates Gross debt – floating interest rates Net cash	Year ended 31 December 2017 2016 RMB’000 RMB’000 5 19 (5) (19) – – Year ended 31 December 2017 2016 RMB’000 RMB’000 92,970 105,804 (88,200) (98,000) 4,770 7,804 92,970 105,804 (5,000) (15,000) (83,200) (83,000) 4,770 7,804

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Net cash as at 31 December 2016 Cash flow Foreign exchange adjustments Net cash as at 31 December 2017	Cash and cash equivalents RMB’000 105,804 (12,012) (822) 92,970	Borrowings RMB’000 (98,000) 9,800 – (88,200)	Total RMB’000 7,804 (2,212) (822)
			4,770

26 Operating lease commitments

The Group leases certain of its office premises under non-cancellable operating lease agreements. The Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Not later than one year Later than one year and not later than five years Later than five years	Year ended 31 December 2017 2016 RMB’000 RMB’000 824 1,460 15,948 14,847 16,281 21,298 33,053 37,605	Year ended 31 December 2017 2016 RMB’000 RMB’000 824 1,460 15,948 14,847 16,281 21,298 33,053 37,605
		37,605

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27 Related party transactions

The directors of the Company are of the view that the following companies and individuals were related parties that had transactions or balances with the Group during the year:

Name of the related party	Principal business activities	Relationship with the Group
Ms. Hou Wei		Controlling Shareholder
Meizhou Xikang	Architectural Engineering	An entity is significantly
Construction Company		influenced by a close member
Limited (‘‘Meizhou Xikang’’)		of the family of the
		Controlling Shareholder
Mr. Wen Jingfeng		Son of Ms. Deng Haiming, key
(‘‘Mr. Wen’’)		management

Except as disclosed in Note 24 (Bank Borrowings), the Group had the following related party transactions for the years ended 31 December 2017 and 2016.

(a) Key management compensation

Wages, allowance and bonus Contributions to pension plans and others	Year ended 31 December 2017 2016 RMB’000 RMB’000 2,576 2,448 145 140 2,721 2,588	Year ended 31 December 2017 2016 RMB’000 RMB’000 2,576 2,448 145 140 2,721 2,588
		2,588

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Transactions with related parties

The following transactions were carried out between the Group and related parties. In the opinion of the directors of the Company, the related party transactions were carried out in the normal course of business and at terms negotiated between the Group and the respective related parties.

Sales to Meizhou Xikang Provision of engineering services to Meizhou Xikang Rental paid to Mr. Wen	Year ended 31 December 2017 2016 RMB’000 RMB’000 5,291 2,907 1,117 – 35 32

(c) Balance with a related party

Amount due from Meizhou Xikang	As at 31 December 2017 2016 RMB’000 RMB’000 6,866 2,334

The balance due from a related party is denominated in RMB, unsecured, interest free and are repayable on demand.

As at 31 December 2017, trade receivables of RMB123,000 (2016: Nil) due from Meizhou Xikang was past due but not impaired.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28 Balance sheet and reserve movement of the company

Balance sheet of the Company

Note
ASSETS
Non-current assets
Investment in a subsidiary
Current assets
Amounts due from shareholders
Amounts due from subsidiaries
Cash and cash equivalents
Prepayments and other receivables
Total assets
EQUITY
Capital and reserves attributable to
equity holders of the Company
Share capital
Share premium
Other reserves
a
Retained earnings
a
Total equity
LIABILITIES
Current liabilities
Other payables
Total liabilities
Total equity and liabilities

As at 31 December
2017
2016
RMB’000
RMB’000
154,299
154,299
358
384
119,330
127,709
4,901
9,601
363
477
124,952
138,171
279,251
292,470
35,638
35,638
243,830
243,830
10,154
19,041
(10,638)
(6,430)
278,984
292,079
267
391
267
391
279,251
292,470

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(a) Reserve movement of the Company

At 1 January 2016 Loss for the year Currency translation At 31 December 2016 At 1 January 2017 Loss for the year Currency translation At 31 December 2017	Other reserves RMB’000 10,649 – 8,392 19,041 19,041 – (8,887) 10,154	Retained earnings RMB’000 (1,027) (5,403) – (6,430) (6,430) (4,208) – (10,638)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29 Benefits and interests of directors

(a) Directors’ and chief executive’s emoluments

The remuneration of each director and the chief executive officer of the Company is set out below:

For the year ended 31 December 2017:

Name of Directors Executive Directors Ms. Hou (i) Mr. Liu Xianxiu Non-executive Directors Mr. Hou Bo Mr. Lam On Tai Independent non- executive Directors Mr. Ye Yihui Mr. Ho Hin Yip Mr. Hou Lianchang	Emoluments paid or receivable in respect of a person’s services as a director, whether of the company or its subsidiary undertaking Fees Salary Employer’s contribution to a retirement benefit scheme Total RMB’000 RMB’000 RMB’000 RMB’000 830 121 27 978 208 78 16 302 1,038 199 43 1,280 208 – – 208 208 – – 208 416 – – 416 104 – – 104 208 – – 208 104 – – 104 416 – – 416	Emoluments paid or receivable in respect of a person’s services as a director, whether of the company or its subsidiary undertaking Fees Salary Employer’s contribution to a retirement benefit scheme Total RMB’000 RMB’000 RMB’000 RMB’000 830 121 27 978 208 78 16 302 1,038 199 43 1,280 208 – – 208 208 – – 208 416 – – 416 104 – – 104 208 – – 208 104 – – 104 416 – – 416
		1,280
		208 208
		416
		104 208 104
		416

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 December 2016:

Name of Directors Executive Directors Ms. Hou (i) Mr. Liu Xianxiu Non-executive Directors Mr. Hou Bo Mr. Lam On Tai Independent non- executive Directors Mr. Ye Yihui Mr. Ho Hin Yip Mr. Hou Lianchang	Emoluments paid or receivable in respect of a person’s services as a director, whether of the company or its subsidiary undertaking Fees Salary Employer’s contribution to a retirement benefit scheme Total RMB’000 RMB’000 RMB’000 RMB’000 823 121 28 972 206 80 17 303 1,029 201 45 1,275 206 – – 206 206 – – 206 412 – – 412 103 – – 103 206 – – 206 103 – – 103 412 – – 412	Emoluments paid or receivable in respect of a person’s services as a director, whether of the company or its subsidiary undertaking Fees Salary Employer’s contribution to a retirement benefit scheme Total RMB’000 RMB’000 RMB’000 RMB’000 823 121 28 972 206 80 17 303 1,029 201 45 1,275 206 – – 206 206 – – 206 412 – – 412 103 – – 103 206 – – 206 103 – – 103 412 – – 412
		1,275
		206 206
		412
		103 206 103
		412

(i) Ms. Hou is also the chief executive officer.

(b) Directors’ retirement benefits

No director’s retirement benefit subsisted at the end of the year or at any time during the year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Directors’ termination benefits

No director’s termination benefit subsisted at the end of the year or at any time during the year.

(d) Consideration provided to third parties for making available directors’ services

No consideration provided to third parties for making available directors’ services subsisted at the end of the year or at any time during the year.

(e) Information about loans, quasi-loans and other dealings in favour of directors, controlled bodies corporate by and connected entities with such directors

No loans, quasi-loans and other dealings in favour of directors, controlled bodies corporate by and connected entities with such directors subsisted at the end of the year or at any time during the year.

30 Comparative figures

Certain comparative figures have been reclassified to conform with the current year presentation.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 March 2018, being the latest practicable date for the purpose of ascertaining the indebtedness of the Group prior to the printing of this circular, the indebtedness of the Group was as follows:

(a) Borrowings

The Group had outstanding borrowings of approximately RMB82,500,000, representing bank borrowings secured by property, plant and equipment and land use right of the Group. The bank borrowings were also jointly guaranteed by Ms. Hou, Mr. Deng Jianshen, husband of Ms. Hou, Ms. Deng Haiming, Mr. Shupeng, Mr. Wenjingfeng, Meizhou Enterprise Credit Financing Guarantee Investment Co., Ltd.（梅州市企信融資擔保投資有限公司）, Meizhou Jisheng Household Building Materials Company Limited, Guangdong Jiyi Xinya Decoration and Design Construction Company Limited.

(b) Disclaimer

Save as disclosed above and apart from intra-group liabilities and normal trade payables in the ordinary course of the Group’s business, as at the close of business on 31 March 2018, based on the books and records currently available to the Directors, the Directors are not aware of the Group having other outstanding mortgages, charges, debentures or other loan capital, bank overdrafts or loans, other similar indebtedness, finance lease or hire purchase commitments, liabilities under acceptance or acceptance credits, guarantees or other material contingent liabilities.

4. MATERIAL CHANGES

As at the Latest Practicable Date, the Directors confirm that there has not been any material change in the financial or trading position or outlook of the Group since 31 December 2017, the date to which the latest published audited consolidated financial statements of the Group were made up.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the present financial resources and the estimated net proceeds from the Rights Issue, and in the absence of unforeseeable circumstances, the Group has sufficient working capital to satisfy its requirements for at least twelve months from the date of this circular.

6. FINANCIAL AND TRADING PROSPECT OF THE GROUP

The Company is an investment holding company. The Group is principally engaged in the business of sale and distribution of building and home improvement materials and furnishings and provision of interior design and engineering services in the PRC.

Although the revenue generated from the business of sale and distribution of merchandise slightly increased by approximately RMB4.2 million or approximately 1.3% from approximately RMB312.5 million for FY2016 to approximately RMB316.7 million for FY2017, the gross profit of this business dropped by approximately RMB18.5 million or approximately 29.3% from approximately RMB63.4 million for FY2016 to approximately RMB44.9 million for FY2017. The decrease was mainly due to the change in product mix (the increase in proportion of revenue generated from the sale of building materials which entailed relatively lower gross profit margin within the business) and the keen market and price competition during FY2017.

On the other hand, the business of the provision of interior design and engineering services experienced approximately RMB28.9 million or approximately 41.1% growth in revenue during the year ended 31 December 2017. However, the gross profit of this business was dropped by approximately RMB1.2 million or approximately 12.8% from approximately RMB9.4 million for FY2016 to approximately RMB8.2 million for FY2017. The decrease in gross profit and gross profit margin was mainly due to the Group’s intention to obtain more sizeable projects in order to upgrade its Construction Enterprise Qualification and expand its market share of this business.

As set out in the 2017 annual report, the gross profit and the gross profit margin of the business of sale and distribution of merchandise were weakened by the keen market and price competition during FY2016 and FY2017. The Group expects that the operating environment of this business will still be difficult in the foreseeable future. The Group will keep optimising the product portfolio in order to improve the performance of this business segment.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On the other hand, the Group will keep its focus on the development of business of provision of interior design and engineering services in the coming years. During FY2017, Guangdong Jiyi Xinya Decoration and Design Construction Limited, a wholly owned subsidiary of the Company, successfully obtained the Second-class (FY2016: Third-class) Construction & Decoration Engineering Contractor（建築裝修裝飾工程專業承包）Qualification Certificate from Meizhou Bureau of Housing and Urban-Rural Construction. The Group aims to upgrade to Firstclass Qualification in the near future in order to be capable to secure more sizeable corporate projects, including Public-Private Partnership projects from the PRC government. In spite of the fact that the gross profit margin may retain at a lower level during the developing stage, the Group still feel confident in the growth of this business segment in 2018 in light of the number and size of projects secured by the Group at the moment and it may become the core business of the Group in the foreseeable future.

Upon the completion of the Rights Issue, the Group will make use of the proceeds to implement its growth strategy to develop its interior design and engineering service business in the PRC in order to strengthen the Group’s income stream and maximise return to shareholders. The Group will also keep abreast of and consider from time to time other expansion opportunities.

I – 70

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS

The following unaudited pro forma statement of adjusted consolidated net tangible assets of the Group attributable to the equity holders of the Company (the ‘‘Unaudited Pro Forma Financial Information’’) prepared in accordance with Rule 4.29(1) of the Listing Rules is set out to illustrate the effect of the Rights Issue on the unaudited consolidated net tangible assets of the Group as if the Rights Issue had been completed on 31 December 2017.

The Unaudited Pro Forma Financial Information is prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the financial position of the Group had the Rights Issue been completed as at 31December 2017 or at any future date.

The Unaudited Pro Forma Financial Information is prepared based on the audited consolidated statement of financial position of the Group as at 31 December 2017, as extracted from the published annual report of the Company for the year ended 31 December 2017 dated 29 March 2018, with adjustments described below.

Based on 172,800,000 Rights Shares at Subscription Price of HK$0.6 per Rights Share	Consolidated net tangible assets of the Group attributable to the equity holders of the Company as at 31 December 2017 RMB’000 (Note 1) 331,617	Estimated net proceeds from the Rights Issue RMB’000 (Note 2) 85,004	Unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the equity holders of the Company as at 31 December 2017 RMB’000 416,621	Unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the equity holders of the Company per share as at 31 December 2017 RMB (Note 3) 0.69

II – 1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes:

The consolidated net tangible assets of the Group as at 31 December 2017 of approximately RMB331,617,000 is based on the consolidated net assets of the Group attributable to the equity holders of the Company as at 31 December 2017 of approximately RMB334,924,000 with an adjustment for the land use right of approximately RMB2,823,000 and intangible assets of approximately RMB484,000, as extracted from the published annual report of the Company for the year ended 31 December 2017 dated 29 March 2018.
The estimated net proceeds from the Rights Issue are based on 172,800,000 Rights Shares to be issued at the Subscription Price of HK$0.6 per Rights Share after deduction of the estimated related expenses (including financial advisor and other professional fees) of approximately HK$1,879,000 (equivalent to RMB1,569,000).
Assuming that the Rights Issue had been completed on 31 December 2017, the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the equity holders of the Company per Share immediately after the completion of the Rights Issue are calculated based on 604,800,000 Shares, comprising 432,000,000 Shares in issue as at 31 December 2017 and 172,800,000 Rights Shares to be issued.
No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the equity holders of the Company to reflect any trading results or other transactions of the Group entered into subsequent to 31 December 2017.
For the purpose of the unaudited pro forma adjusted net tangible assets of the Group attributable to the equity holders of the Company, the balances stated in Hong Kong dollars are translated into Renminbi at the approximately exchange rate of HK$1 to RMB0.8350 which was the prevailing exchange rate as at 31 December 2017 for illustration purpose only, and such translation does not constitute a representation that any amount has been, could have been, or may otherwise be exchanged or converted at the above rate.

II – 2

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

B. INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of the report received from the reporting accountant, Moore Stephens CPA Limited, Certified Public Accountants, Hong Kong, on the unaudited pro forma financial information of the Rights Issue of the Group prepared for the purpose of inclusion in this Circular.

==> picture [100 x 76] intentionally omitted <==

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

TO THE DIRECTORS OF JIYI HOUSEHOLD INTERNATIONAL HOLDINGS LIMITED

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Jiyi Household International Holdings Limited (the ‘‘Company’’) and its subsidiaries (collectively the ‘‘Group’’) by the directors of the Company (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group attributable to the equity holders of the Company as at 31 December 2017 and related notes (the ‘‘Unaudited Pro Forma Financial Information’’) as set out on pages II-1 to II-2 of the circular issued by the Company dated 25 May 2018 (the ‘‘Circular’’) in connection with the proposed rights issue on the basis of two rights shares for every five existing shares of the Company (the ‘‘Rights Issue’’). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are described on II-1 to II-2 of the Circular.

II – 3

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the Rights Issue on the Group’s consolidated financial position as at 31 December 2017 as if the Rights Issue had taken place on 31 December 2017. As part of this process, information about the Group’s consolidated financial position has been extracted by the Directors from the Group’s audited consolidated financial statements as included in the annual report for the year ended 31 December 2017 dated 29 March 2018.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars (‘‘AG 7’’) issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’).

Our Independence and Quality Control

We have complied with the independence and other ethical requirement of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

II – 4

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountant plans and performs procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Rights Issue if the Rights Issue had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Rights Issue at 31 December 2017 would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the Rights Issue, and to obtain sufficient appropriate evidence about whether:

the related pro forma adjustments give appropriate effect to those criteria; and
the Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgement, having regard to the reporting accountant’s understanding of the nature of the Group, the Rights Issue in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

II – 5

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Opinion

In our opinion:–

a. the Unaudited Pro Forma Financial Information has been properly compiled by the Directors on the basis stated;
b. such basis is consistent with the accounting policies of the Group; and
c. the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Moore Stephens CPA Limited

Certified Public Accountants

Li Wing Yin

Practising Certificate Number: P05035 Hong Kong, 25 May 2018

II – 6

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

This circular includes particulars given in compliance with the Takeovers Code. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date; and (ii) immediately following the completion of the Rights Issue are expected to be as follows:

Authorised 5,000,000,000 Shares as the Latest Practicable Date and immediately following the completion of the Rights Issue Issued and fully paid: 432,000,000 Shares in issue as at the Latest Practicable Date 172,800,000 Rights Shares to be allotted and issued under the Rights Issue 604,800,000 Shares immediately following the completion of the Rights Issue	HK$ 500,000,000
	43,200,000 17,280,000
	60,480,000

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APPENDIX III

All of the Rights Shares when allotted, issued and fully paid will rank pari passu in all respects with all the Shares then in issue as at the date of allotment and issue of the Rights Shares. The Rights Shares will be listed and traded on the Stock Exchange.

No part of the equity of the Company is listed or dealt in, nor is listing or permission to deal in the Shares of the Company being, or proposed to be, sought on any other stock exchange.

There are no arrangements under which future dividends will be waived or agreed to be waived. As at the Latest Practicable Date, no capital of any member of the Group was under option or agreed conditionally or unconditionally to be put under option.

No Shares have been issued since 31 December 2017, being the date on which the latest audited financial statements of the Group were made up. Except for the Rights Shares contemplated under the Underwriting Agreement, as at the Latest Practicable Date, no Shares, options, warrants, conversion rights or any equity or debt securities of the Company was outstanding or was proposed to be issued for cash or otherwise and no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any such capital.

3. DISCLOSURE OF INTERESTS

(a) Directors’ Interests and Short Positions in Shares, Underlying Shares and Debentures of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying Shares or 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 in which they were deemed or taken 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 maintained by the Company referred to therein, or which were required pursuant to the Listing Rules to be notified to the Company and the Stock Exchange, or which were required to be disclosed under the Takeovers Code were as follows:

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APPENDIX III

Long position in the ordinary shares of HK$0.10 each of the Company

			Approximate
			percentage of
		Number of	the issued
Name of the Director	Nature of interest	shares	share capital
Ms. Hou Wei (Note 1)	Interest in a controlled	189,054,000	43.76%
	corporation
Mr. Hou Bo (Note 2)	Interest in a controlled	5,562,000	1.29%
	corporation

Notes:

(1) Ms. Hou was beneficially interested in 100% of the issued share capital of Xinling Limited. Xining was the registered holder of 189,054,000 Shares. Under Part XV of the SFO, Ms. Hou was therefore deemed to have interests in 189,054,000 Shares in which Xinling was interested.
(2) Mr. Hou was beneficially interested in 100% of the issued share capital of Jiesi Global Investments Limited. Jiesi Global was the registered holder of 5,562,000 Shares. Under Part XV of the SFO, Mr. Hou was therefore deemed to have interests in 5,562,000 Shares in which Jiesi Global was interested.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had or was deemed to have any interests or short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or which are required pursuant to section 352 of the SFO to be entered in the register maintained by the Company referred to therein, or which were required pursuant to the Listing Rules to be notified to the Company and the Stock Exchange, or which were required to be disclosed under the Takeovers Code.

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APPENDIX III

(b) Substantial Shareholders

As at the Latest Practicable Date so far as is known to any Director or chief executive of the Company, other than the interests disclosed above in respect of certain directors and chief executive of the Company, the interests and short positions of persons 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 as recorded in the register required to be kept by the Company under Section 336 of the SFO, or who were, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital or relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company or any member of the Group were as follows:

			Approximate
			percentage of
		Number of	the issued
Name of the Shareholder	Nature of interest	shares	share capital
Xinling (Note 1)	Beneficial owner	189,054,000	43.76%
Yiju Holdings Limited (Note 2)	Beneficial owner	40,188,000	9.30%
Mr. Lin Kuan Ming (Note 3)	Interest in a controlled	35,827,000	8.29%
	corporation

Notes:

(1) Xining was the registered holder of 189,054,000 Shares.
(2) Mr. Liu Shui was beneficially interested in 100% of the issued share capital of Yiju Holdings. Yiju Holdings was the registered holder of 40,188,000 Shares. Under Part XV of the SFO, Mr. Liu Shui was therefore deemed to have interests in 40,188,000 Shares in which Yiju Holdings was interested.
(3) Mr. Lin Kuan Ming (‘‘Mr. Lin’’) is deemed to be interested in a total of 35,827,000 Shares, which were held as to 9,261,000 Shares by Corporate Image Limited and 26,566,000 Shares by Lucky Union Int’l Co., Ltd.. On the other hand, Ms. Lin Ling Yu (spouse of Mr. Lin, ‘‘Ms. Lin’’) is deemed to be interested in a total of 35,827,000 Shares, which were held as to 26,566,000 Shares by Lucky Union Int’l Co., Ltd. and 9,261,000 Shares in which Mr. Lin is interested in. By virtue of the SFO, as Mr. Lin beneficially owns the entire issued share capital of Corporate Image Limited, he is deemed to be interested in 9,261,000 Shares held by Corporate Image Limited and Ms. Lin, as his spouse, is also deemed to be interested in these 9,261,000 Shares. Further, Mr. Lin, Ms. Lin, Ms. Lin Hsin Hui and Ms. Lin Chia Hui, the daughters of Mr. Lin and Ms. Lin, own 30%, 50%, 10% and 10% of the issued share capital of Lucky Union Int’l Co., Ltd., respectively. By virtue of the SFO, both Mr. Lin and Ms. Lin are deemed to be interested in 26,566,000 Shares held by Lucky Union Int’l Co., Ltd..

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APPENDIX III

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

4. ADDITIONAL DISCLOSURE OF INTERESTS AND DEALING IN SHARES

As at the Latest Practicable Date,

(a) save for the Underwriting Agreement, there was no agreement, arrangement or understanding between the Concert Group and other persons in relation to the transfer, charge or pledge of the Shares that will be issued and allotted to Xinling pursuant to the fulfillment of its obligations under the Underwriting Agreement;
(b) save as disclosed in the section headed ‘‘Changes in the Shareholding Structure’’ in the Letter from the Board of this circular, none of the members of the Concert Group held, owned or controlled any other Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company. In addition, none of the members of the Concert Group had dealt for value in any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period;
(c) save as disclosed in the section headed ‘‘Changes in the Shareholding Structure’’ in the Letter from the Board of this circular and the paragraph headed ‘‘3. Disclosure of Interests’’ in this appendix, the sole director of Xinling was not interested in any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company or similar rights which are convertible or exchangeable into any Shares. In addition, the sole director of Xinling had not dealt in any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period;
(d) no person had irrevocably committed themselves to vote for or against the resolution(s) to be proposed at the EGM to approve the Rights Issue, the Underwriting Agreement and the Whitewash Waiver;
(e) the Concert Group did not have any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with any other persons;

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(f) none of the members of the Concert Group or the sole director of Xinling had borrowed or lent any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company or similar rights which are convertible or exchangeable into Shares;
(g) save as disclosed in the paragraph headed ‘‘3. Disclosure of Interests’’ in this appendix, none of the Directors was interested in any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company or similar rights which are convertible or exchangeable into any Shares. In addition, none of the Directors had dealt for value in any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period;
(h) save as disclosed in the paragraph headed ‘‘Changes in the Shareholding Structure’’ in the Letter from the Board of this circular, none of the Company and the Directors held any shares, convertible securities, warrants, options or derivatives of Xinling or similar rights which are convertible or exchangeable into shares of Xinling. None of them had dealt for value in any shares, convertible securities, warrants, options or derivatives of Xinling during the Relevant Period;
(i) none of (i) the subsidiaries of the Company, (ii) the pension fund of the Company or of any of its subsidiaries, nor (iii) any advisers to the Company as specified in class (2) of the definition of ‘‘associate’’ under the Takeovers Code (other than persons enjoying exempt principal trader status under the Takeovers Code), had any interest in the Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company and none of them had dealt for value in any securities of the Company during the period from the Last Trading Day to the Latest Practicable Date;
(j) no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate in the Takeovers Code and none of them had dealt for value in any securities of the Company during the period from the Last Trading Day to the Latest Practicable Date;
(k) no Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company were managed on a discretionary basis by fund managers (other than exempt fund managers) connected with the Company and none of them had dealt for value in any securities of the Company during the period from the Last Trading Day to the Latest Practicable Date;

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APPENDIX III

(l) none of the Company nor any Directors had borrowed or lent any Shares, convertible preference shares, convertible securities, warrants, options or derivatives of the Company or similar rights which are convertible or exchangeable into Shares;
(m) there was no benefit to be given to any Directors as compensation for loss of office in any member of the Group or otherwise in connection with the Rights Issue, the Underwriting Agreement and the Whitewash Waiver;
(n) save for the Underwriting Agreement, there was no agreement, arrangement or understanding (including any compensation arrangement) (i) between Xinling, the Concert Group and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Rights Issue, the Underwriting Agreement and the Whitewash Waiver; and (ii) between any Directors and any other persons having any connection with or dependence upon the Rights Issue, the Underwriting Agreement and the Whitewash Waiver;
(o) as at the Latest Practicable Date, there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to any business of the Group;
(p) as at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been since 31 December 2017 (being the date to which the latest published audited 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;
(q) save for the Underwriting Agreement, no material contracts had been entered into by Xinling in which any Director had any material personal interest;
(r) as at the Latest Practicable Date, except for Ms. Hou Wei and Mr. Ho Bo’s interests in the Shares as disclosed under the Section headed ‘‘3. Disclosure of Interests’’ of this appendix, none of the Directors were interested in any Shares, and hence no Director would be entitled to vote for or against any of the resolutions to be proposed at the EGM (i.e. Ms. Hou Wei and Mr. Hou Bo are required to abstain from voting at the EGM); and
(s) Xinling and Jiesi Global had indicated that they would accept their respect entitlement to the provisional allotment of 75,621,600 and 2,224,800 Rights Shares respectively under the Rights Issue.

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APPENDIX III

5. MARKET PRICES

The table below shows the closing prices of the Shares on the Stock Exchange (i) at the end of each of the six calendar months immediately preceding the date of the Announcement and ending on the Latest Practicable Date, (ii) 24 April 2018, the last business day prior to the issue of the Announcement; (iii) 25 April 2017, being the Last Trading Day; and (iv) as at the Latest Practicable Date:

	Closing price
Date	per Share
	HK$
31 October 2017	0.82
30 November 2017	0.74
29 December 2017	0.71
31 January 2018	0.80
28 February 2018	0.85
29 March 2018	0.74
24 April 2018	0.71
25 April 2018 (the Latest Trading Date)	0.70
30 April 2018	0.61
23 May 2018 (the Latest Practicable Date)	0.63

The highest and lowest closing prices per Share recorded on the Stock Exchange during the Relevant Period were HK$0.86 on 1 November 2017 and HK$0.60 on each of the two consecutive days from 26 April 2018 respectively.

6. MATERIAL CONTRACTS

The following contracts (not being contracts entered into under the ordinary course of business of the Group) have been entered into by the Group within two years immediately preceding the date of the Announcement and up to the Latest Practicable Date and are or may be material:

(1) The placing agreement dated 6 June 2016 entered in to by the Company and Cinda International Securities Limited for placing of a maximum of 72,000,000 Shares (details are set out in the Company’s announcement dated 6 June 2016); and
(2) The Underwriting Agreement.

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APPENDIX III

7. SERVICE CONTRACTS

As at the Latest Practicable Date:

(a) none of the Directors had entered or proposed to enter into a service contract with the Company or any of its subsidiaries or associated companies which is not determinable by the Company within one year without payment of compensation, other than statutory compensation;
(b) none of the Directors had entered into or amended any service contracts (including both continuous and fixed term contracts) with the Company or any of its subsidiaries or any of its associated companies within the Relevant Period;
(c) none of the Directors had any continuous service contracts with the Company or any of its subsidiaries or associated companies with a notice period of 12 months or more; and
(d) none of the Directors had any fixed term service contracts with the Company or any of its subsidiaries or associated companies with more than 12 months to run irrespective of the notice period.

As at the Latest Practicable Date, none of the Directors had entered into or amended any service contracts (including both continuous and fixed term contracts) with the Company or any of its subsidiaries or any of its associated companies within six months before the date of the Announcement.

8. LITIGATION

As at the Latest Practicable Date, no member of the Group is engaged in any litigation or arbitration of material importance and there is no litigation or claims of material importance known to the Directors to be pending or threatened by or against any member of the Group.

9. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name	Qualifications
Euto Capital Partners Limited	a corporation licensed to carry out Type 6 (advising
	on corporate finance) and Type 9 (asset management)
	regulated activities as defined under the SFO
Moore Stephens CPA Limited	Certified Public Accountants

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APPENDIX III

Each of Euto Capital Partners Limited and Moore Stephens CPA Limited have given and have not withdrawn their written consent to the issue of this circular with the inclusion herein of their letter or their name in the form and context in which they respective appear.

Each of Euto Capital Partners Limited and Moore Stephens CPA Limited do not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Each of Euto Capital Partners Limited and Moore Stephens CPA Limited do not have any direct or indirect interests in any assets which have been, since 31 December 2017 (being the date to which the latest published audited consolidated accounts of the Group were made up), acquired or disposed of by or leased to, any member of the Group, or which are proposed to be acquired or disposed of by or leased to, any member of the Group.

10. COMPETING INTERESTS

None of the Directors or their respective close associates was interested in any business apart from the Group’s businesses which competes or is likely to compete, either directly or indirectly, with the Group’s business as at the Latest Practicable Date.

11. DIRECTOR’S INTEREST IN CONTRACTS AND ASSETS

As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to any business of the Group. As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been since 31 December 2017 (being the date to which the latest published audited 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. EXPENSES

The expenses in connection with the Rights Issue, including financial, legal, other professional advisory fees, printing and translation expenses, registration and statutory fees are estimated to be approximately HK$1,900,000, which are payable by the Company. No underwriting commission is payable to the Underwriter.

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APPENDIX III

13. CORPORATE INFORMATION

Registered Office	Clifton House
	75 Fort Street, P.O. Box 1350
	Grand Cayman KY1-1108
	Cayman Islands
Authorised Representatives	Ms. Hou Wei
	No.2 Xianzi Middle Road
	Meixian District,
	Meizhou, Guangdong Province,
	PRC
	Mr. Leung Wai Hong
	Room 1405, 14th Floor,
	Jubilee Centre
	18 Fenwick Street,
	Wanchai
	Hong Kong
Company Secretary	Mr. Leung Wai Hong
	Room 1405, 14th Floor,
	Jubilee Centre
	18 Fenwick Street,
	Wanchai
	Hong Kong
Legal adviser to the Company	Patrick Mak & Tse
	Rm. 901-905,
	Wing On Centre,
	111 Connaught Road Central,
	Hong Kong
Reporting Accountant	Moore Stephens CPA Limited
	801-806 Silvercord,
	Tower 1, 30 Canton Road,
	Tsimshatsui,
	Kowloon, Hong Kong
Underwriter	Xinling Limited
	Unit C, 20/F, T1A,
	Tower 1, Grand Austin,
	No.9 Austin Road West, Kowloon, Hong Kong

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APPENDIX III

Share Registrar Computershare Hong Kong Investor Services Limited Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong Principal Bankers Bank of China (Hong Kong) Limited 1 Garden Road, Central Hong Kong Industrial and Commercial Bank of China (Asia) Limited 33rd Floor, ICBC Tower 3 Garden Road, Central Hong Kong Meizhou Branch, Bank of China No. 53 Meijiang Yi Road, Meizhou, Guangdong Province, PRC Meizhou Branch, Guangfa Bank No. 101 Binfang Avenue, Meizhou, Guangdong Province, PRC Meizhou Branch, Bank of Communications No. 14 Xinzhong Road, Meijiang District, Meizhou, Guangdong Province, PRC Guangzhou Branch, Zheshang Bank No. 921 Guangzhou Dadao Nan, Guangzhou, Guangdong Province PRC Independent Financial Adviser to Euto Capital Partners Limited the Independent Board Room 2418, Wing On Centre, Committee and the 111 Connaught Road Central, Independent Shareholders Hong Kong

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APPENDIX III

14. PARTICULARS OF DIRECTORS AND SENIOR MANAGEMENT

(a) Name and address

Name Address

Executive Directors Ms. Hou Wei Room 1405, 14th Floor, Jubilee Centre, 18 Fenwick Street, Wanchai, Hong Kong Mr. Liu Xianxiu Room 1405, 14th Floor, Jubilee Centre, 18 Fenwick Street, Wanchai, Hong Kong Non-executive Directors Mr. Hou Bo Room 1405, 14th Floor, Jubilee Centre, 18 Fenwick Street, Wanchai, Hong Kong Mr. Lam On Tai Room 1405, 14th Floor, Jubilee Centre, 18 Fenwick Street, Wanchai, Hong Kong

Independent Non-executive Directors Mr. Ye Yihui Room 1405, 14th Floor, Jubilee Centre, 18 Fenwick Street, Wanchai, Hong Kong Mr. Ho Hin Yip Room 1405, 14th Floor, Jubilee Centre, 18 Fenwick Street, Wanchai, Hong Kong Mr. Hou Lianchang Room 1405, 14th Floor, Jubilee Centre, 18 Fenwick Street, Wanchai, Hong Kong

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APPENDIX III

(b) Biographical details of the Directors and senior management

Executive Directors

Ms. Hou Wei（侯薇）, aged 48, was appointed as a Director on 2 February 2015 and was re-designated as an executive Director on 5 June 2015. Ms. Hou is also the chairlady and chief executive officer of the Group. She is primarily responsible for the overall management, strategic planning, business development and cooperation of the Group. In September 1999, Ms. Hou joined Guangdong Jiyi Household Building Materials Chain Co., Ltd. (‘‘Jiyi Household’’) as the manager of Jiyi Household and she was later appointed as the executive director of Jiyi Household in May 2004, primarily responsible for the overall management, operation, strategic planning and the supervision of the finance and purchase department. She has about 18 years of experience in retail chain store operation and distribution of housewares and building materials. Prior to joining the Group, from July 1989 to July 1999, Ms. Hou served as a teacher of Meizhou Middle School of Meizhou（梅州市梅州中學）. From October 2011 to December 2016, Ms. Hou served as a member of CPPCC Guangdong Province Meixian Committee（政協廣東省梅縣委員會）. In November 2011, she received the title of ‘‘Guangdong Province Outstanding Entrepreneurs’’（廣東省優秀企業家）jointly awarded by Guangdong Entrepreneurs Council（廣東企業家理事會）and Guangdong Province Economists and Entrepreneurs Association（廣東省經濟學家企業家聯誼會）. In November 2012, she received the title of ‘‘Green Brand Advocates of Chinese Household Building Materials’’（中國建材家居綠色品牌倡導者）awarded by China Real Estate Society（中國房地產學會）and China Building Materials Daily（中國建材報）. Ms. Hou received her diploma in English from Guangdong Jiaying College（廣東嘉應學院）in the PRC in June 1989 and her graduate certificate in the advanced class of business strategy（經營方略高級研修班）from the Peking University（北京大學）in the PRC in January 2013. Ms. Hou is the sister of Mr. Hou Bo, a non-executive Director and the sister-in-law of Ms. Deng Haiming, a senior management of the Group.

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APPENDIX III

Mr. Liu Xianxiu（劉賢秀）, aged 45, was appointed as an executive Director on 5 June 2015. He is primarily responsible for overall internal control and internal audit affairs of the Group. He joined the Group in July 2011 and served as an account manager and warehouse logistics manager of Jiyi Household until February 2013, primarily responsible for accounting and auditing and management of warehouse logistics. He was re-designated as a deputy chief financial officer of Jiyi Household from March 2013 to June 2013, and was appointed as the chief financial officer of Jiyi Household in July 2013, primarily responsible for the overall management of financial affairs. He was re-designated as the chief internal audit officer of Jiyi Household in September 2017, primarily responsible for the overall internal control and internal audit affairs. Prior to joining the Group, from July 1995 to November 2001, he served as the accountant of Meizhou Gas Company Limited（梅州市管道煤氣有限公司）, a company which is principally engaged in supply of towngas in Meizhou, where he was primarily responsible for accounting. From November 2001 to November 2004, he was the finance manager of Meizhou Yanming Lake Tourist Resorts Company Limited（梅縣雁鳴湖旅遊度假村有限公司）, a company which is principally engaged in the management of Yanming Lake Tourist Resorts（雁鳴湖旅遊度假村）, primarily responsible for accounting and finance of such company. From November 2004 to July 2011, he served as the head of finance of Meizhou New Weima Ceramics Company Limited（梅州市新威馬陶瓷有限公司）, a company which is principally engaged in the production of ceramics, primarily responsible for accounting and finance of such company. Mr. Liu received his diploma in financial management and computer application from South China Agricultural University（華南農業大學）in the PRC in July 1995. He received his qualification certificate of specialty and technology (intermediate accounting)（專業技術資格證書（中級會計））from the Ministry of Finance of the PRC in May 2002.

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APPENDIX III

Non-executive Directors

Mr. Hou Bo（侯波）, aged 50, was appointed as a non-executive Director on 5 June 2015. He is primarily responsible for the risk management and providing supervision in the business of the Group. From September 2010 to December 2011, he has been the supervisor of Jiyi Household and from December 2011 onwards, was then appointed as the non-executive director of Jiyi Household, primarily responsible for the risk management and providing supervision in the business of Jiyi Household. Since June 2002, he has been the managing director of Meizhou Xikang Real Estate Investment Company Limited（梅州市禧康房地產投資有限公司）, a company which is principally engaged in property investments, where he is primarily responsible for the overall business management. From October 2011 onwards, he also serves as the managing director of Meizhou Xikang Estate Management Company Limited（梅州市禧康物業管理有限公司）, a company which is principally engaged in estate management, where he is primarily responsible for the overall business management. He received a diploma in electronics from Meizhou West Vocational and Technical College（梅州城西職業技術學校）in the PRC in July 1984. Mr. Hou is the brother of Ms. Hou Wei. He was qualified as a senior industrial construction engineer（工業建築高級工程師）recognised by the Department of Personnel of Guangdong Province（廣東省人事廳）in March 2006, and was registered as an architect with the Department of Housing and Urban Rural Construction of Guangdong Province（廣東省住房和城鄉建設廳）in August 2010.

Mr. Lam On Tai（林安泰）, aged 46, was appointed as our non-executive Director on 5 June 2015. He is primarily responsible for advising on finance and investor relationship of the Group. Mr. Lam has more than 19 years of experience in banking and securities industry, in which over 16 years of experience was accumulated in advising on corporate finance relating to various listing and restructuring transactions. Mr. Lam currently serves as the managing director of Red Solar Capital Limited（綽耀資本有限公司）, a company which is principally engaged in securities services, which he is primarily responsible for advising on corporate finance. Mr. Lam was also appointed as an independent non-executive director of Oi Wah Pawnshop Credit Holdings Limited (stock code: 1319), a company listed on the Main Board of the Stock Exchange, since 1 April 2017. Mr. Lam received his diploma in general business management from the Lingnan College（嶺南學院）(now known as the Lingnan University（嶺南大學）in Hong Kong in November 1994, and his master’s degree in business administration from the University of Sheffield in the United Kingdom in December 1996. He also obtained his bachelor’s degree in law from the University of Wolverhampton in the United Kingdom in July 1998 through a distance learning course.

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APPENDIX III

Independent Non-executive Directors

Mr. Ye Yihui（葉義輝）, aged 54, was appointed as an independent nonexecutive Director on 6 October 2015. He has been the independent director of Jiyi Household from July 2013 onwards, primarily responsible for providing independent view and advice to the board of directors of Jiyi Household including the effectiveness of the internal control system and the audit process of Jiyi Household. Mr. Ye has over 27 years of experience in areas of finance, audit and tax. Prior to joining the Group, Mr. Ye served in various positions where he was primarily responsible for the overall management of financial affairs, operation and audit management. He worked with the Audit Bureau of Meizhou Province（梅縣審計局）from 1988 to 1998, during 1995 to 1998, he served as the supervisor, where he was primarily responsible for the audit of finance and infrastructure projects; the deputy manager of Zhuhai Huacheng Certified Public Accountants（珠海華誠會計師事務所）from February 2001 onwards, where he was primarily responsible for the management of financial affairs and operation; and the manager of Meizhou Zhengde Tax Agent Office（梅州正德稅務師事務所）from November 2010 onwards, where he was primarily responsible for the overall management and operation. He received his diploma in economics and industrial enterprise management from Guangdong Radio and TV University（廣東廣播電視大學）now known as the Open University of Guangdong（廣東開放大學）in the PRC in July 1986 and his diploma in economic management from CPC Guangdong Provincial Party Committee Party School（中共廣東省委黨校）in the PRC in July 2005 through a distance learning course. He is an auditor registered with the National Audit Office of the PRC（中華人民共和國審計署）since November 1992 and an accountant registered with Ministry of Finance of the PRC（中華人民共和國財政部）since December 1992. He has been admitted as a registered certified public accountant of Chinese Institute of Certified Public Accountants（中國註冊會計師協會）since April 1996 and a registered tax agent of Management Center of Certified Tax Agent of Guangdong Province（廣東省註冊稅務師協會）since June 1999. He has been a member of the Council of Management Center of Certified Tax Agent of Guangdong Province（廣東省註冊稅務師協會）since March 2011.

III – 17

GENERAL INFORMATION

APPENDIX III

Mr. Ho Hin Yip（何衍業）, aged 44, was appointed as an independent nonexecutive Director on 6 October 2015. Mr. Ho has more than 19 years of financial and auditing experience. Since April 2012, he is the financial controller and joint company secretary of Dukang Distillers Holdings Limited (stock code: BKV), a company listed on the Singapore Exchange Limited, where he is responsible for the finance and accounting functions, statutory compliance and corporate governance affairs. Mr. Ho was also appointed as an independent non-executive director of each of China Ever Grand Financial Leasing Group Co., Ltd (formerly known as PME Group Limited) (stock code: 379) and Xinhua News Media Holdings Limited (stock code: 309), both are companies listed on the Main Board of the Stock Exchange, since December 2012 and December 2014, respectively. Mr. Ho received his bachelor’s degree in business administration from the Chinese University of Hong Kong in December 1997. He was admitted as a member and a fellow member of The Association of Chartered Certified Accountants in August 2000 and August 2005, respectively. He has also been registered as a certified public accountant (Practising) of the Hong Kong Institute of Certified Public Accountants since February 2005.

Mr. Hou Lianchang（侯聯昌）, aged 50, was appointed as an independent nonexecutive Director on 6 October 2015. He has over 17 years of experience in legal work focusing on corporate finance practice. Since April 2000, Mr. Hou has been a lawyer with Jing Tian Law Office of Guangdong（廣東經天律師事務所）, specializing in areas such as foreign investment, mergers and acquisitions, venture capital financing, asset and shareholding restructuring, and initial public offerings in overseas markets. He is also well versed in corporate structure and governance matters. From March 2012 onwards, he serves as a board member of Shenzhen Association of Trade in Services（深圳市服務貿易協會理事）. Mr. Hou received his bachelor’s degree in international law and his graduate certificate in the professional graduate course of economic law（經濟法專業研究生課程進修班）from Wuhan University（武漢大學）in the PRC, in December 1989 and December 2003, respectively. He is a lawyer registered with the Ministry of Justice of the PRC（中華人民共和國司法部）since September 1995. Mr. Hou was a director of New Heng Ye Investment Development Limited（新恒業投資發展有限公司）, a limited liability company incorporated in Hong Kong with a principal business of investment holding and dissolved by deregistration by the Registrar of Companies in Hong Kong as a defunct company pursuant to section 291 of the Predecessor Companies Ordinance. The aforesaid company was inactive prior to its dissolution and was dissolved in 2009.

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GENERAL INFORMATION

APPENDIX III

Senior Management

Mr. Leung Wai Hong（梁偉康）, aged 35, was appointed as our chief financial officer and company secretary of the Company on 26 May 2015. He is primarily responsible for the financial and audit management, budgeting, administration and company secretarial matters of the Group. From the period of January 2014 to February 2015 and August 2014 to May 2015, he served as the financial manager and company secretary of Zhuoxin International Holdings Limited (formerly known as Gold Tat Group International Limited) (stock code: 8266), a company listed on the Growth Enterprise Market of the Stock Exchange, respectively, where he was primarily responsible for the finance and accounting functions, statutory compliance and corporate governance affairs. Mr. Leung has more than 11 years of financial and auditing experience. Prior to joining the Group, from October 2011 to January 2014, he served as a manager of BDO Limited（香港立信德豪會計師事務所）, an accounting firm, where he was primarily responsible for accounting and auditing work. Mr. Leung received his bachelor’s degree in business administration in accountancy from the City University of Hong Kong in November 2006. He has been admitted as a member of the Hong Kong Institute of Certified Public Accountants since January 2010.

Mr. Ling Yongshan（淩勇山）, aged 46, was appointed as the executive vice president of the Group on 1 January 1999, primarily responsible for managing human resources, warehousing logistics and information technology of the Group. Since January 1999, he has been the deputy general manager of Jiyi Household and is primarily responsible for its overall management, including human resources management, sales and marketing, warehouse logistics and customer services. Since 9 January 2015, Mr. Ling has been a director of Meizhou Jisheng Household Building Materials Company Limited, an indirect wholly owned subsidiary of the Company. Mr. Ling received his graduate certificate in the advanced class of innovative entrepreneur （企業家自主創新高級研修班）from the School of Continuing Education, Tsinghua University（清華大學繼續教育學院）in the PRC in August 2012.

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GENERAL INFORMATION

APPENDIX III

Ms. Deng Haiming（鄧海鳴）, aged 61, was appointed as the chief purchasing officer of the Group on 1 February 2012 and was re-designated as the vice president of the Group in June 2016. She is primarily responsible for managing and coordinating the procurement of raw materials and equipments of the Group. From October 1998 to January 2012, she served as the general manager of various branches of Jiyi Household and was primarily responsible for its overall operation and management. From February 2012 onwards, Ms. Deng serves as the chief purchasing officer of Jiyi Household and is primarily responsible for supervising the procurement of building materials and the selection of suppliers. Since 6 April 2015, Ms. Deng has been a director of Jiyi Household. She has nearly 14 years of experience in procurement and trading of building materials. Prior to joining the Group, Ms. Deng served as the labour statistics officer of Dongfeng Enterprise Group of Guangdong Meizhou Province（廣東梅州東風企業集團）from October 1979 to May 1998, where she was primarily responsible for personnel administration. Ms. Deng received her diploma in Financial Accounting from Guangdong Radio and TV University（廣東廣播電視大學）(currently known as the Open University of Guangdong（廣東開放大學）in the PRC in July 1991. Ms. Deng is the sister-in-law of Ms. Hou Wei.

Mr. Shu Peng（舒鵬）, aged 38, was appointed as the chief sales officer of the Group on 1 January 2014, primarily responsible for the marketing and sales management of the Group. He joined the Group in October 1999 and served as an accountant of Jiyi Household until June 2001, primarily responsible for financial accounting. From July 2001 to September 2004, he was redesignated as a purchasing manager of Jiyi Household, where he was primarily responsible for managing and coordinating the procurement of the Group. Mr. Shu then served in various positions where he was primarily responsible for the marketing and sales management. He was the sales manager of Jiyi Household from October 2004 to October 2009, the ceramic sales manager of the flagship mall under Jiyi Household from November 2009 to December 2012, and the general manager of the flagship mall under Jiyi Household from January 2013 to December 2013. From January 2014 onwards, he has been the chief marketing officer of Jiyi Household, primarily responsible for strategic planning and marketing of the Group. Mr. Shu has been a director of Shanghang County Jiyi Household Building Materials Company Limited, an indirect wholly owned subsidiary of the Company, since November 2011. Mr. Shu received his diploma in Electric Accounting from Hunan Technology College of Electrical Engineering（湖南省機電工程技術學校）in the PRC in July 1999, and a diploma in accounting from the Open University of China（中央廣播電視大學）in the PRC in July 2006.

III – 20

GENERAL INFORMATION

APPENDIX III

15. AUDIT COMMITTEE

The Company has an audit committee established with written terms of reference in compliance with the Listing Rules. The audit committee currently comprises three members, namely Mr. Ye Yihui, Mr. Ho Hin Yip, and Mr. Hou Lianchang, all of whom are independent non-executive Directors. Mr. Ye Yihui is the chairman of the audit committee. The audit committee’s principal duties, amongst other things, are to review and supervise the financial reporting process, internal control procedures and risk management systems of the Group.

16. MISCELLANEOUS

(1) The registered office of Xinling is situated at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. The sole director of Xinling is Ms. Hou Wei. The registered office of Jiesi Global is situated at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. The sole director of Jiesi Global is Mr. Hou Bo. They are the principal members of parties acting in concert with Xinling.
(2) The principal share registrar and transfer office of the Company in the Cayman Islands is Estera Trust (Cayman) Limited at Clifton House 75 Fort Street, P.O. Box 1350 Grand Cayman KY1-1108 Cayman Islands.
(3) The Hong Kong branch share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor Hopewell Centre 183 Queen’s Road East, Wanchai, Hong Kong.
(4) The secretary of the Company is Mr. Leung Wai Hong, who is a member of the Hong Kong Institute of Certified Public Accountants.
(5) The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

17. DOCUMENTS AVAILABLE FOR INSPECTIONS

Copies of the following documents will be available for inspection at Room 1405, 14th Floor, Jubilee Centre 18 Fenwick Street, Wanchai Hong Kong during normal business hours from 9:30 a.m. to 5:30 p.m. on any Business Day, and on the websites of the Company (http:// www.jiyihousehold.com/) and the SFC (www.sfc.hk) between the period from the date of this circular up to and including the date of the EGM:

(a) the articles of association of the Company;
(b) the annual reports of the Company for the three years ended 31 December 2015, 31 December 2016 and 2017;

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GENERAL INFORMATION

APPENDIX III

(c) the material contracts (including the Underwriting Agreement) as referred to in the paragraph headed ‘‘Material Contracts’’ in this appendix;
(d) the written consents referred to in the paragraph headed ‘‘Experts and Consents’’ in this appendix;
(e) the accountant’s report on the unaudited pro forma financial information of the Group from Moore Stephens CPA Limited as set out in appendix II of this circular;
(f) the letter from the Board, the text of which is set out from pages 12 to 33 of this circular.
(g) the letter from the Independent Board Committee, the text of which is set out on pages 34 to 35 of this circular;
(h) the letter from Euto Capital Partners Limited, the text of which is set out on pages IFA-1 to IFA-33 of this circular; and
(i) this circular.

III – 22

NOTICE OF EGM

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Jiyi Household International Holdings Limited 集一家居國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1495)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (‘‘EGM’’) of Jiyi Household International Holdings Limited (the ‘‘Company’’) will be held at 2/F., J Plus, 35-45B Bonham Strand, Sheung Wan, Hong Kong on Thursday, 14 June 2018 at 11:00 a.m., for the purposes of considering and, if thought fit, passing with or without modifications, the following resolutions which will be proposed as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

‘‘THAT subject to the granting of the Whitewash Waiver (as defined below) by the Executive Director of the Corporate Finance Division of the Securities and Futures Commission of Hong Kong (or any delegate of the Executive Director) (the ‘‘Executive’’), the waiver of the obligation on the part of Xinling Limited to make a mandatory general offer to shareholders of Company for all the issued ordinary shares of the Company not already owned or agreed to be acquired by the Concert Group (as defined in the circular of the Company dated 25 May 2018 (‘‘Circular’’)) upon the Rights Issue (as defined in the Circular) pursuant to Note 1 on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers (the ‘‘Whitewash Waiver’’) be and is hereby approved.’’

EGM – 1

NOTICE OF EGM

‘‘THAT conditional upon (i) the grant of the Whitewash Waiver by the Executive and the fulfilment of all conditions (if any) attached to it; and (ii) the fulfilment of the conditions of the Underwriting Agreement (as defined in the Circular, a copy of which has been produced to this meeting marked ‘‘A’’ and signed by the chairperson of this meeting for the purpose of identification, and such agreement not being terminated in accordance with its terms,
(a) the allotment and issue by way of rights issue of 172,800,000 Rights Shares (as defined in the Circular) at HK$0.60 per Rights Share to the Qualifying Shareholders (as defined in the Circular) whose names appear on the register of members of the Company on 27 June 2018 on the basis of two Rights Share for every five existing Shares held on the Record Date (as defined in the Circular) (the ‘‘Rights Issue’’) and otherwise on the terms and conditions as set out in the Circular be and is hereby approved;
(b) the Directors be and are hereby authorised to allot and issue the Rights Shares pursuant to or in connection with the Rights Issue to the Qualifying Shareholders and, in particular, the Directors may make such exclusion or other arrangements in relation to the Non-Qualifying Shareholders (as defined in the Circular) as they deem necessary or expedient having regard to any restrictions or obligations under the laws and/or regulations of, or the rules and/or requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong; and
(c) any one Director be and is hereby authorised to sign and execute such documents (including but not limited to deeds) and do all such acts and things incidental to the Rights Issue as he/she considers necessary or otherwise expedient in connection with the implementation of or giving effect.’’
‘‘THAT subject to the passing of each of the resolutions numbered 1 and 2 set out in this notice of meeting:
(a) the entering into the Underwriting Agreement by the Company be and is hereby approved, confirmed and ratified and the performance of the transactions contemplated thereunder by the Company (including but not limited to the arrangements for taking up of the underwritten Rights Shares, if any, by Xinling Limited, the sole underwriter) be and are hereby approved; and

EGM – 2

NOTICE OF EGM

(b) any one Director be and is hereby authorised to sign and execute such documents (including but not limited to deeds) and do all such acts and things incidental to the Underwriting Agreement as he/she considers necessary or otherwise expedient in connection with the implementation of or giving effect to the Underwriting Agreement (including without limitation entering into supplemental agreement(s) in relation to the Underwriting Agreement) and the transactions contemplated thereunder or in this resolution.’’

By Order of the Board of JIYI HOUSEHOLD INTERNATIONAL HOLDINGS LIMITED Hou Wei

Chairlady

Hong Kong, 25 May 2018

Registered Office: Head office and principal place of Clifton House business in Hong Kong: 75 Fort Street Room 1405, 14/F. P.O. Box 1350 Jubilee Centre Grand Cayman 18 Fenwick Street KY1-1108 Wanchai, Cayman Islands Hong Kong

Notes:

A member of the Company entitled to attend and vote at the EGM convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the Articles of Association, to vote on his behalf. A proxy need not be a member of the Company but must be present in person at the EGM to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of Shares in respect of which each such proxy is so appointed.
Where there are joint registered holders of any Share, any one of such persons may vote at the EGM, 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 EGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.
The transfer books and register of members of the Company will be closed from Friday, 8 June 2018 to Thursday, 14 June 2018, both days inclusive, to determine the entitlement of shareholders to attend and vote at the EGM, during which period no share transfers can be registered. All transfers accompanied by the relevant share certificates must be lodged with the Hong Kong branch share registrar and transfer office of the Company, Computershare Hong Kong Investor Services Limited at shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, for registration not later than 4:30 p.m. on Thursday, 7 June 2018.

EGM – 3

NOTICE OF EGM

In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the Hong Kong branch share registrar and transfer office of the Company, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not less than 48 hours before the time for holding the EGM or any adjournment thereof.
Completion and return of a form of proxy will not preclude a shareholder of the Company from attending in person and voting at the EGM or any adjournment thereof, should he/she/it so wish.
If Typhoon Signal no. 8 or above, or a ‘‘black’’ rainstorm warning is in effect any time after 7:00 a.m. on the date of the EGM, the meeting will be postponed. The Company will post an announcement on the website of Company at http://www.jiyihousehold.com and on the HKExnews website of the Stock Exchange at www.hkexnews.hk to notify Shareholders of the date, time and place of the rescheduled meeting.

EGM – 4

AI assistant

Jiyi Holdings Limited — Proxy Solicitation & Information Statement 2018

49958_rns_2018-05-24_0c303d0a-360e-49c2-9d74-02de7f4fcb28.pdf

Jiyi Household International Holdings Limited 集一家居國際控股有限公司

(1) PROPOSED RIGHTS ISSUE OF 172,800,000 RIGHTS SHARES AT HK$0.60 PER RIGHTS SHARE ON THE BASIS OF

TWO(2) RIGHTS SHARES FOR EVERY FIVE(5) EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER AND (3) NOTICE OF EGM

CONTENTS

DEFINITIONS

DEFINITIONS

‘‘EGM’’

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE RIGHTS SHARES AND FOR APPLICATION AND PAYMENT FOR EXCESS RIGHTS SHARES

SUMMARY OF THE RIGHTS ISSUE

SUMMARY OF THE RIGHTS ISSUE

Jiyi Household International Holdings Limited 集一家居國際控股有限公司

(Stock Code: 1495)

(1) PROPOSED RIGHTS ISSUE OF 172,800,000 RIGHTS SHARES AT HK$0.60 PER RIGHTS SHARE ON THE BASIS OF TWO(2) RIGHTS SHARES FOR EVERY FIVE(5) EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER AND (3) NOTICE OF EGM

I. INTRODUCTION

LETTER FROM THE BOARD

II. PROPOSED RIGHTS ISSUE

LETTER FROM THE BOARD

Qualifying Shareholders

LETTER FROM THE BOARD

Closure of Register of Members

Non-Qualifying Shareholders

LETTER FROM THE BOARD

Odd Lot Arrangement

LETTER FROM THE BOARD

Terms of the Rights Issue

Subscription Price

LETTER FROM THE BOARD

Basis of Provisional Allotments

Fractional Entitlements to the Rights Shares

Status of the Rights Shares

Application for Excess Rights Shares

LETTER FROM THE BOARD

Share Certificates and Refund Cheques for the Rights Issue

LETTER FROM THE BOARD

Application for Listing

Rights Shares will be Eligible for Admission into CCASS

Stamp Duty and Other Applicable Fees and Charges

Underwriting Arrangements

Principal Terms of the Underwriting Agreement

Conditions of the Rights Issue and the Underwriting Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

Warning of the Risks of Dealing in Shares and Rights Shares in Nil-Paid Form

LETTER FROM THE BOARD

Changes in the Shareholding Structure

LETTER FROM THE BOARD

Reasons for the Rights Issue and Use of Proceeds

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Takeovers Code Implications and Application for Whitewash Waiver

LETTER FROM THE BOARD

Information on Xinling and the Concert Group

LETTER FROM THE BOARD

Information on the Group

Independent Board Committee

Independent Financial Adviser

Listing Rules Implications

LETTER FROM THE BOARD

III. EGM

LETTER FROM THE BOARD

IV. RECOMMENDATIONS

V. ADDITIONAL INFORMATION

Jiyi Household International Holdings Limited 集一家居國際控股有限公司

(Stock Code: 1495)

(1) PROPOSED RIGHTS ISSUE OF 172,800,000 RIGHTS SHARES AT HK$0.60 PER RIGHTS SHARE ON THE BASIS OF TWO(2) RIGHTS SHARES FOR EVERY FIVE(5) EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER AND (3) NOTICE OF EGM

(1) PROPOSED RIGHTS ISSUE OF 172,800,000 RIGHTS SHARES AT HK$0.60 PER RIGHTS SHARE ON THE BASIS OF TWO (2) RIGHTS SHARES FOR EVERY FIVE (5) EXISTING SHARES HELD ON THE RECORD DATE; AND

(2) APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

Jiyi Holdings Limited Proxy Solicitation & Information Statement 2018