Kingwisoft Technology Group Company Limited — Proxy Solicitation & Information Statement 2020

Sep 17, 2020

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in the Company, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker 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 Hong Kong 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 the securities mentioned herein.

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ZZ CAPITAL INTERNATIONAL LIMITED 中 植 資 本 國 際 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 08295)

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET COMPANY

(2) ISSUE OF ORDINARY SHARES PURSUANT TO SPECIFIC MANDATE

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE CONTRACTUAL ARRANGEMENTS AND

(4) NOTICE OF EGM

Financial Adviser to the Company

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Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

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Capitalised terms used in this cover shall have the same meanings as defined in this circular.

A letter from the Board is set out on pages 22 to 53 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders is set out on pages 54 to 55. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 56 to 127 of this circular.

A notice convening the EGM to be held at 11/F, 8 Queen’s Road Central, Hong Kong on Monday, 12 October 2020 at 11:00 a.m. is set out on pages EGM-1 to EGM-5 of this circular.

A form of proxy for use at the EGM is enclosed. If you wish to appoint proxy(ies), you are requested to complete and sign the enclosed form of proxy in accordance with theCentre,instructions183 Queenprinted’s Roadthereon,East, Hongand returnKong itnottolessthe thanHong48Konghoursbranchbefore ofthethetimeShareappointedRegistrarfor holdingof the Company,the EGM orTricorany adjournmentInvestor Servicesthereof.Limited,Completionat Leveland54,returnHopewellof the form of proxy will not preclude you from subsequently attending and voting in person at the EGM or any adjourned meeting if you so wish and in such event, the form of proxy shall be deemed to be revoked.

This circular will remain on the ‘‘Latest Listed Company Information’’ page of the website of the GEM of the Hong Kong Stock Exchange at www.hkgem.com for at least 7 days from the date of its publication and on the website of the Company at www.zzcapitalinternational.com.

PRECAUTIONARY MEASURES FOR THE EGM

To safeguard the health and safety of the Shareholders and to prevent the spreading of the COVID-19 pandemic, the following precautionary measures will be implemented at the EGM:

(1) Compulsory body temperature screening/checks

(2) Submission of Health Declaration Form

(3) Wearing of surgical face mask

(4) No provision of refreshments or drinks Attendees who do not comply with the precautionary measures referred to in (1) to (3) above may be denied entry to the EGM venue, at the absolute discretion of the Company as permitted by law.

For the health and safety of Shareholders, the Company would like to encourage Shareholders to exercise their right to vote at the EGM by appointing the chairman of the EGM as their proxy and to return their proxy forms by the time specified above, instead of attending the EGM in person.

Hong Kong, 18 September 2020

CHARACTERISTICS OF GEM OF THE HONG KONG STOCK EXCHANGE

GEM has been positioned as a market designed to accommodate small and mid-sized companies to which a higher investment risk may be attached than other companies listed on the Hong Kong Stock Exchange. Shareholders should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration.

Given that the companies listed on GEM are generally small and mid-sized companies, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

– i –

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Directors and Parties Involved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	56
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	128
Contractual Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	169
Regulatory Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	191
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	206
History, Development and Reorganisation of the Target Group . . . . . . . . . . . . . . . .	218
Business of the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	234
Directors and Senior Management of the Target Group . . . . . . . . . . . . . . . . . . . . . . . .	291
Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	298
Waiver from Strict Compliance with the GEM Listing Rules . . . . . . . . . . . . . . . . . . .	300
Management Discussion and Analysis of Financial Information
on the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	305
Appendix I — Accountants’ Report on the Target Group . . . . . . . . . . . . . . . . . .	I-1
Appendix II — Financial Information on the Group . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III — Unaudited Pro forma Financial Information . . . . . . . . . . . . . . . .	III-1
Appendix IV — Valuation Report of the Target Group . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V — Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– ii –

DEFINITIONS

Unless the context otherwise requires, the following expressions have the following meanings in this circular:

• ‘‘Acquisition’’

• the acquisition of the entire issued share capital of the Target Company by the Company from the Sellers pursuant to the terms and conditions of the Share Purchase Deed

• ‘‘Additional Shares’’

• the new Shares that may be allotted and issued by the Company to the Founders SPV as consideration in accordance with the Share Purchase Deed in the event that the sum of the actual amount of the audited consolidated net profit attributable to equity holders of the Target Company in accordance with HKFRS for each Guarantee Period, i.e. the Entire Guarantee Period, is equal to or more than RMB1 billion

• ‘‘Ancillary Documents’’ each other agreement, document, instrument and/or certificate contemplated by the Share Purchase Deed to be entered into in connection with the transactions contemplated thereunder, including the Contractual Arrangements

• ‘‘Announcement’’ the announcement published by the Company on 10 September 2020 in relation to, among others, the Share Purchase Deed and the transactions contemplated thereunder

• ‘‘Authorisation Agreement’’

• the shareholders’ voting right authorisation agreement entered into by and among the WFOE, the Registered Shareholders and DaLian Kingwisoft on 12 June 2020 pursuant to which the Powers of Attorney were granted, details of which are set out in the section headed ‘‘Contractual Arrangements’’ in this circular

• ‘‘Baihe Guoli’’

• Sichuan Baihe Guoli Information Network Co., Ltd.* (四川 佰合國利信息網絡有限公司), a limited liability company established in the PRC on 26 July 2007 and directly and wholly-owned by the WFOE as at the Latest Practicable Date

• ‘‘Beijing Nanyou’’

• Beijing Nanyou Information Technology Co., Ltd.* (北京 南郵信息技術有限公司), a limited liability company established in the PRC on 18 November 2011 and directly and wholly-owned by DaLian Kingwisoft as at the Latest Practicable Date

– 1 –

DEFINITIONS

• ‘‘Beijing Tongguan’’

Beijing Tongguan Capital Management Co., Ltd.* (北京通 冠資本管理有限公司), a limited liability company established in the PRC on 20 May 2015 and indirectly wholly-owned by Zhongzhi Capital as at the Latest Practicable Date

• ‘‘Board’’ the board of Directors

• ‘‘Business Day’’

• any day, other than a Saturday or Sunday, on which commercial banks in Hong Kong or PRC are not required or authorised to close

• ‘‘BVI’’ the British Virgin Islands

• ‘‘CAICT’’

• China Academy of Information and Communications Technology (中國信息通信研究院)

• ‘‘Cash Consideration’’

• the aggregate of the Tranche I Cash Consideration, the Tranche II Cash Consideration, the Tranche III Cash Consideration, the Tranche IV Cash Consideration and the Tranche V Cash Consideration

• ‘‘Changzhou Jingjiang’’

• Changzhou Jingjiang Capital Management Co., Ltd.* (常州 京江資本管理有限公司), a limited liability company established in the PRC on 23 April 2014, a wholly-owned subsidiary of Zhongzhi Capital, an associate of Mr. Xie and a connected person of the Company as at the Latest Practicable Date

• ‘‘Chengdu Kingwisoft’’

• Chengdu Kingwisoft Data Services Co., Ltd.* (成都金慧融 智數據服務有限公司), a limited liability company established in the PRC on 22 February 2012 and directly and wholly-owned by DaLian Kingwisoft as at the Latest Practicable Date

• ‘‘China Insights Consultancy’’ China Insights Consultancy, a market research and or ‘‘CIC’’ consulting company which is an independent third party

• ‘‘CIC Report’’

• the industry report, dated 10 September 2020, prepared and provided by CIC, which was commissioned by the Company in relation to, among other things, the customer service outsourcing, Internet data centre value-added services and digital marketing industry in the PRC

• ‘‘Closing’’

• the closing of the Acquisition in accordance with the terms and conditions of the Share Purchase Deed

– 2 –

DEFINITIONS

• ‘‘Closing Fund’’

• ‘‘Company’’

• ‘‘Conditions’’

• ‘‘Consideration’’

• ‘‘Consideration Shares’’

• ‘‘Contractual Arrangements’’

• ‘‘Corporate Restructuring’’

• ‘‘CSRC’’

• ‘‘DaLian Kingwisoft’’ or ‘‘OPCO’’

• an amount equal to the Debt Note to be provided by the Company or its subsidiaries to DaLian Kingwisoft within three Business Days after Closing

• ZZ Capital International Limited 中植資本國際有限公司, an exempted company incorporated in the Cayman Islands on 5 January 2010 with limited liability and the Shares of which are listed on GEM (Stock Code: 08295)

• the conditions precedent to Closing as stipulated under the Share Purchase Deed

• the total consideration for the Acquisition, comprising the Cash Consideration, Consideration Shares and the Closing Fund

• an aggregate of 638,022,754 Shares to be issued and allotted to the Sellers by the Company as part of the consideration for the Acquisition pursuant to the Share Purchase Deed

• the series of contractual arrangements entered into between the WFOE, the OPCO and the Registered Shareholders (as applicable), details of which are set out in the section headed ‘‘Contractual Arrangements’’ in this circular

• the OPCO Minority Acquisitions, the Privatisation, the OPCO Share Repurchase and the Target Group Reorganisation

• China Securities Regulatory Commission (中國證券監督管 理委員會)

• DaLian Kingwisoft Technology Co., Ltd.* (大連金慧融智 科技股份有限公司), formerly known as 大連金慧融智科技 有限公司, a joint stock limited company established under the PRC laws on 18 May 2016 (its predecessor was a limited liability company established under the PRC laws on 27 November 2013 before it was converted into a joint stock limited company on 18 May 2016), the issued shares of which were quoted on the NEEQ (stock code: 871759) before it ceased having its shares quoted thereon on 16 December 2019

– 3 –

DEFINITIONS

• ‘‘Dalian Xinrui’’

• Dalian Xinrui Enterprise Management Partnership (Limited Partnership)* (大連新睿企業管理合夥企業(有限合夥)), a limited partnership established in the PRC on 18 June 2015, being the employee shareholding platform of DaLian Kingwisoft immediately prior to the OPCO Minority Acquisitions

• ‘‘Dalian Zhiyin’’

• Dalian Zhiyin Internet Technology Co., Ltd.* (大連智銀互 聯網科技有限公司), a limited liability company established in the PRC on 19 September 2019 and owned as to 60% by DaLian Kingwisoft and 40% by SoftBank as at the Latest Practicable Date

• ‘‘Dalian Zhirui’’

• Dalian Zhirui Enterprise Management Limited Partnership* ( 大 連 智 睿 企 業 管 理 合 夥 企 業 ( 有 限 合 夥 )), a limited partnership established in the PRC on 16 August 2019 and owned as to 99.8% by Mr. Hu as the general partner and as to 0.2% by Ms. Liu as the limited partner, which was used as a shareholding platform of DaLian Kingwisoft prior to the completion of the OPCO Share Repurchase

• ‘‘Debt Note’’

• the interest-free debt note issued by DaLian Kingwisoft in an amount of RMB250 million to Dalian Zhirui as consideration for the OPCO Share Repurchase

• ‘‘Director(s)’’ the director(s) of the Company

• ‘‘EGM’’

• the extraordinary general meeting to be convened to consider and, if thought fit, approve, among others, the Share Purchase Deed and the transactions contemplated thereunder

• ‘‘Enlarged Group’’

• the Group as enlarged by the transactions under the Share Purchase Deed immediately after Closing

• ‘‘Entire Guarantee Period’’

• the period commenced on the first day of the first Guarantee Period and ending on the last day of the last Guarantee Period, i.e. 1 April 2019 to 31 March 2024

• ‘‘Exclusive Business Cooperation Agreement’’

• the exclusive business cooperation agreement entered into between the WFOE and the OPCO on 12 June 2020, details of which are set out in the section headed ‘‘Contractual Arrangements’’ in this circular

– 4 –

DEFINITIONS

• ‘‘Exclusive Call Option Agreement’’

• the exclusive call option agreement entered into by and among the WFOE, the OPCO and the Registered Shareholders on 12 June 2020, details of which are set out in the section headed ‘‘Contractual Arrangements’’ in this circular

• ‘‘Financial Adviser’’ or

• ‘‘Dongxing Securities’’

• Dongxing Securities (Hong Kong) Company Limited, a corporation licensed to conduct type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO

• ‘‘Founders’’ Mr. Hu and Ms. Liu

• ‘‘Founders SPV’’

• NINEGO Corporation, a company incorporated in the BVI on 21 November 2019 and held by Mr. Hu as to 40.60% and Ms. Liu as to 59.40% as at the Latest Practicable Date

• ‘‘GEM Listing Committee’’

• the GEM Listing Committee of the Hong Kong Stock Exchange

• ‘‘GEM Listing Rules’’

• the rules governing the listing of securities on GEM made by the Hong Kong Stock Exchange

• ‘‘Group’’ the Company and its subsidiaries

• ‘‘Guarantee Period’’

means each of the following periods:

• (a) the financial year of the Target Group commenced on 1 April 2019 and ended on 31 March 2020;

• (b) the financial year of the Target Group commenced on 1 April 2020 and ending on 31 March 2021;

• (c) the financial year of the Target Group commencing on 1 April 2021 and ending on 31 March 2022;

• (d) the financial year of the Target Group commencing on 1 April 2022 and ending on 31 March 2023; and

• (e) the financial year of the Target Group commencing on 1 April 2023 and ending on 31 March 2024.

– 5 –

DEFINITIONS

‘‘Guaranteed Profit’’

means the audited consolidated net profit attributable to the equity holders of the Target Company in accordance with HKFRS:

• (a) in respect of the Guarantee Period commenced on 1 April 2019 and ended on 31 March 2020, RMB60 million;

• (b) in respect of the Guarantee Period commenced on 1 April 2020 and ending on 31 March 2021, RMB90 million;

• (c) in respect of the Guarantee Period commencing on 1 April 2021 and ending on 31 March 2022, RMB120 million;

• (d) in respect of the Guarantee Period commencing on 1 April 2022 and ending on 31 March 2023, RMB150 million; and

• (e) in respect of the Guarantee Period commencing on 1 April 2023 and ending on 31 March 2024, RMB180 million.

• ‘‘Guarantors’’

Mr. Hu, Ms. Liu and Ms. Zhou

• ‘‘HK$’’

Hong Kong dollars, the lawful currency of Hong Kong

• ‘‘HKFRS’’

• Hong Kong Financial Reporting Standards

• ‘‘HK SPV’’

• KingNine Holdings HK Limited, a company incorporated in Hong Kong on 23 December 2019 and directly and wholly-owned by the Target Company as at the Latest Practicable Date

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

• ‘‘Hong Kong Stock Exchange’’ The Stock Exchange of Hong Kong Limited

• ‘‘Independent Board Committee’’

the independent committee of the Board, comprising all the independent non-executive Directors, namely Mr. Stephen Markscheid, Mr. Zhang Weidong (張衛東) and Mr. Zhang Longgen (張龍根), established to advise the Independent Shareholders in relation to, among other things, the Acquisition

– 6 –

DEFINITIONS

• ‘‘Independent Financial Adviser’’

• ‘‘Independent Shareholders’’

• ‘‘independent third party’’

• ‘‘Issue Price’’

• ‘‘Kang Bang (HK)’’

• ‘‘Kunhe Investment’’

• ‘‘Kunshan Kingwisoft’’

• ‘‘Last Trading Day’’

• ‘‘Latest Practicable Date’’

• Lego Corporate Finance Limited, a corporation licensed to conduct Type 6 (advising on corporate finance) regulated activity under the SFO, being independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to, among others, the Acquisition

• the Shareholders, excluding those who are required to abstain from voting at the EGM to be convened in accordance with the GEM Listing Rules and other applicable laws, rules and regulations

• an independent third party who is, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, independent of and not connected with the Company and its connected persons

• the per share price of HK$0.32 for the issue of each Consideration Share

• Kang Bang Qi Hui (HK) Company Limited, a company incorporated in Hong Kong on 10 September 2015 and indirectly and wholly-owned by Mr. Xie as at the Latest Practicable Date

• Ningbo Meishan Duty-Free Port Zone Kunhe Equity Investment Limited Partnership (寧波梅山保稅港區琨合 股權投資合夥企業(有限合夥)), a private equity fund established in the PRC on 30 June 2017, which is owned as to 1.66% by Dagzê District Dingcheng Capital Investment Co., Ltd. (達孜縣鼎誠資本投資有限公司) as the general partner and as to 98.34% by 15 individuals as the limited partners, an associate of Mr. Xie and a connected person of the Company as at the Latest Practicable Date

• Kunshan Kingwisoft Information Technology Co., Ltd.* (昆山金慧信息科技有限公司), a limited liability company established in the PRC on 11 April 2019 and directly and wholly-owned by DaLian Kingwisoft as at the Latest Practicable Date

• 10 September 2020, being the last trading day for the Shares before entering into the Share Purchase Deed

• 10 September 2020, being the latest practicable date prior to the printing of this circular for ascertaining certain information set out herein

– 7 –

DEFINITIONS

• ‘‘Law’’

• ‘‘Leshan Kingwisoft’’

• ‘‘Long Stop Date’’

• ‘‘Luzhou Kingwisoft’’

• ‘‘M&A Rules’’

• ‘‘MIIT’’

• ‘‘MOFCOM’’

• ‘‘Mr. Hu’’

• ‘‘Ms. Liu’’

• ‘‘Mr. Xie’’

any law (including any common law), statute, legally binding rule, ordinance, Order, decree or regulation

• Leshan Kingwisoft Technology Co., Ltd.* (樂山金慧融智 科技有限公司), a limited liability company established in the PRC on 7 December 2017 and directly and whollyowned by DaLian Kingwisoft as at the Latest Practicable Date

• 9 March 2021, being the date upon expiry of the six-month period from the date of the Share Purchase Deed, which may be extended to such date as the Company may decide and notify the Sellers and the Guarantors in writing

• Luzhou Kingwisoft Data Services Co., Ltd.* (瀘州金慧融 智數據服務有限公司), a limited liability company established in the PRC on 20 March 2018 and whollyowned by DaLian Kingwisoft as at the Latest Practicable Date

• Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors 《( 關於外國投資者併購境 內企業的規定》), which were jointly promulgated by MOFCOM, t he State Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Market Regulation (formerly known as the ‘‘State Administration for Industry and Commerce of the PRC’’ (SAIC)), the CSRC, and the SAFE on 8 August 2006, and came into effect on 8 September 2006 and subsequently amended on 22 June 2009, as amended, supplemented or otherwise modified from time to time

• the Ministry of Industry and Information Technology of the PRC

• the Ministry of Commerce of the PRC (中華人民共和國商 務部)

• Mr. Hu Shilong (胡仕龍), one of the Founders

• Ms. Liu Yingying (劉瑩瑩), one of the Founders

• Mr. Zhikun Xie (解直錕), a controlling shareholder and a connected person of the Company who, as at the Latest Practicable Date, indirectly holds approximately 73.66% of the total issued share capital of the Company

– 8 –

DEFINITIONS

• ‘‘Ms. Zhou’’

• Ms. Zhou Fang (周芳)

• ‘‘Ms. Zhou SPV’’

• FUNGHWA Ltd., a company incorporated in the BVI on 21 November 2019 and wholly-owned by Ms. Zhou as at the Latest Practicable Date

• ‘‘NPC’’

• the National People’s Congress of the PRC

• ‘‘NDRC’’

• the National Development and Reform Commission of the PRC (中華人民共和國國家發展和改革委員會)

• ‘‘NEEQ’’

• The National Equities Exchange and Quotations Co., Ltd. (NEEQ), a Chinese over-the-counter system for trading the shares of a public limited company (Chinese: 股份有限公 司; literally: ‘‘Company Limited by Shares’’) that is not listed on either the Shenzhen or Shanghai stock exchanges

• ‘‘OPCO Business’’

• the business operated by the OPCO Group, mainly the provision of back-office services (primarily provision of customer service solutions, and setting up of contact service system and centres)

• ‘‘OPCO Group’’

• the OPCO and its subsidiaries, controlled by the Target Company through the Contractual Arrangements

• ‘‘OPCO Minority Acquisitions’’

• the acquisition by Dalian Zhirui of all of the shares of DaLian Kingwisoft held by the shareholders of DaLian Kingwisoft (excluding the shares of DaLian Kingwisoft held by the Founders (other than 1,000 shares of DaLian Kingwisoft held by Mr. Hu), Ms. Zhou and Xiangjia Zhongzhou)

• ‘‘OPCO Share Repurchase’’

• DaLian Kingwisoft’s repurchase of 15,820,000 shares held by Dalian Zhirui after the completion of each of the OPCO Minority Acquisitions and the Privatisation and transfer of 774,000 shares of DaLian Kingwisoft held by Ms. Zhou to Mr. Hu

• ‘‘Privatisation’’ the cessation of the quote of DaLian Kingwisoft’s issued shares on the NEEQ

• ‘‘Powers of Attorney’’

• the irrevocable powers of attorney granted by each of the Registered Shareholders in favour of the WFOE pursuant to the Authorisation Agreement, details of which are set out in the section headed ‘‘Contractual Arrangements’’ in this circular

– 9 –

DEFINITIONS

• ‘‘PRC’’ or ‘‘China’’

• the People’s Republic of China, excluding, for the purposes of this circular, Hong Kong, Taiwan and the Macau Special Administrative Region

• ‘‘PRC Legal Adviser’’

• Shihui Partners

• ‘‘Qingdao Kingwisoft’’

• Qingdao Kingwisoft Boshang Media Co., Ltd.* (青島金慧 播商傳媒有限公司), a limited liability company established in the PRC on 6 January 2020 and owned as to 60% by DaLian Kingwisoft and 40% by Su Xiaoyan (蘇小龑), an independent third party as at the Latest Practicable Date

• ‘‘Qualification Requirement of VATS’’

• a proven track record of good performance, and operating experience, in carrying on value-added telecommunications services business of a foreign investor as required under relevant PRC Laws

• ‘‘Registered Shareholders’’

• the persons, in aggregate, holding the entire issued shares in DaLian Kingwisoft, namely Mr. Hu, Ms. Liu, Ms. Zhou and Xiangjia Zhongzhou

• ‘‘RMB’’ or ‘‘Renminbi’’

• Renminbi, the lawful currency of the PRC

• ‘‘Rongzhi Hudong’’

• Chengdu Rongzhi Hudong Technology Co., Ltd.* (成都融 智互動科技有限公司), a limited liability company established in the PRC on 24 April 2017 and directly and wholly-owned by the WFOE as at the Latest Practicable Date

• ‘‘SAFE’’ State Administration of Foreign Exchange (國家外匯管理 局)

• ‘‘SAFE Circular 37’’

• Circular on Relevant Issues Concerning Foreign Exchange Administration on Domestic Residents ’ Overseas Investment, Financing and Roundtrip Investment via Special Purpose Vehicles 《( 關於境內居民通過特殊目的公 司 境 外 投 融 資 及 返 程 投 資 外 匯 管 理 有 關 問 題 的 通 知 》) promulgated by SAFE and which became effective on 4 July 2014

• ‘‘SAFE Notice 13’’

• Notice on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies 《( 關於進一步簡化和改進直接投資外匯管理政策 的通知》) promulgated by SAFE on 13 February 2015

• ‘‘SFO’’

• the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

– 10 –

DEFINITIONS

• ‘‘Sellers’’

Founders SPV, Ms. Zhou SPV and Zhongzhi Xinzhuo

• ‘‘Share(s)’’

• ordinary share(s) of HK$0.01 each in the share capital of the Company

• ‘‘Share Pledge Agreement’’

• the share pledge agreement dated 12 June 2020 entered into by and among the WFOE, the Registered Shareholders and DaLian Kingwisoft in respect of the charge over the Registered Shareholders’ respective shareholding in DaLian Kingwisoft in favour of the WFOE, details of which are set out in the section headed ‘‘Contractual Arrangements’’ in this circular

• ‘‘Share Purchase Deed’’

• the Share Purchase Deed dated 10 September 2020 entered into by and among the Company, the Sellers and the Guarantors in relation to the Acquisition

• ‘‘Shareholder(s)’’ holder(s) of the Share(s)

• ‘‘Shenzhen Kingwisoft’’

• Shenzhen Kingwisoft Data Services Co., Ltd.* (深圳市金慧 融智數據服務有限公司), a limited liability company established in the PRC on 23 March 2011 and directly and wholly-owned by the WFOE as at the Latest Practicable Date

• ‘‘SoftBank’’ SoftBank Solutions China Co., Ltd.* (軟銀科技有限公司), an independent third party

• ‘‘Spouse Consent Letter(s)’’

• the spouse consent letter(s) entered into by each of Mr. Hu, Ms. Liu and the spouse of Ms. Zhou, details of which are set out in the section headed ‘‘Contractual Arrangements’’ in this circular

• ‘‘Specific Mandate’’

• the specific mandate to be granted to the Directors by the Independent Shareholders at the EGM to allot and issue the Consideration Shares and the Additional Shares

• ‘‘Takeovers Code’’

• The Codes on Takeovers and Mergers and Share Buy-backs published by the Securities and Futures Commission of Hong Kong

• ‘‘Target Company’’ KingNine Holdings Limited, a company incorporated in the Cayman Islands on 4 December 2019

• ‘‘Target Group’’

• the Target Company and its subsidiaries, including the OPCO Group

– 11 –

DEFINITIONS

• ‘‘Target Group Reorganisation’’

• ‘‘Tibet Kangbang’’

• ‘‘Tibet Shangtian’’

• ‘‘Tongguan Loan Agreements’’

• ‘‘Track Record Period’’

• ‘‘Tranche I Cash Consideration’’

• ‘‘Tranche II Cash Consideration’’

• ‘‘Tranche III Cash Consideration’’

• ‘‘Tranche IV Cash Consideration’’

the transfer of Baihe Guoli, Rongzhi Hudong and Shenzhen Kingwisoft to WFOE

Tibet Kangbang Shengbo Business Management Company Limited* (西藏康邦勝博企業管理有限公司), a whollyowned subsidiary of Zhongzhi Capital, and an associate of Mr. Xie and a connected person of the Company as at the Latest Practicable Date

• Tibet Shangtian Ruige Enterprise Management Co., Ltd.* ( 西 藏 尚 天 瑞 格 企 業 管 理 有 限 公 司 ), a wholly-owned subsidiary of Zhongzhi Capital, and an associate of Mr. Xie and a connected person of the Company as at the Latest Practicable Date

• a loan agreement entered into on 23 August 2019 between Beijing Tongguan (as lender), the OPCO (as borrower) and the Founders, Ms. Zhou and Dalian Zhirui (as guarantors), in respect of a facility in the principal amount of RMB30 million for DaLian Kingwisoft’s operational use and a supplemental agreement entered into on 23 August 2019 in respect of such loan

• the period comprising the three financial years ended 31 March 2018, 2019 and 2020

• RMB140 million, being the first tranche of the consideration to be settled in cash by the Company and payable to the Sellers upon Closing pursuant to the Share Purchase Deed

• RMB70 million, being the second tranche of the consideration to be settled in cash by the Company and payable to the Sellers on 31 July 2021 pursuant to the Share Purchase Deed

• RMB70 million, being the third tranche of the consideration to be settled in cash by the Company and payable to the Sellers on 31 July 2022 pursuant to the Share Purchase Deed

• RMB70 million, being the fourth tranche of the consideration to be settled in cash by the Company and payable to the Sellers on 31 July 2023 pursuant to the Share Purchase Deed

– 12 –

DEFINITIONS

• ‘‘Tranche V Cash Consideration’’

• RMB70 million, being the fifth tranche of the consideration to be settled in cash by the Company and payable to the Sellers on 31 July 2024 pursuant to the Share Purchase Deed

• ‘‘Transaction Documents’’

• the Share Purchase Deed and the Ancillary Documents

• ‘‘U.S.’’

• the United States of America, its territories, its possessions and all areas subject to its jurisdiction

• ‘‘US$’’ or ‘‘USD’’

• United States dollars, the lawful currency of the United States of America

• ‘‘Valuer’’ AVISTA Valuation Advisory Limited, an independent valuer appointed by the Company

• ‘‘WFOE’’ Kingwisoft Technology Co., Ltd.*（金慧融智科技有限公 司）, a limited liability company established in the PRC on 9 May 2020 and indirectly and wholly-owned by the Target Company

• ‘‘WFOE Group’’

• the WFOE, Baihe Guoli, Rongzhi Hudong and Shenzhen Kingwisoft

• ‘‘Wuhan Kingwisoft’’

• Wuhan Kingwisoft Technology Co., Ltd.* (武漢金慧融智 科技有限公司), a limited liability company established in the PRC on 24 August 2017 and directly and wholly-owned by DaLian Kingwisoft as at the Latest Practicable Date

• ‘‘Xiangjia Zhongzhou’’ Changzhou Xiangjia Zhongzhou Investment Centre Limited Partnership* (常州翔嘉中舟投資中心(有限合夥)), a limited partnership established in the PRC on 25 September 2015 which was owned as to 3.03% by Changzhou Jingjiang as the general partner, and as to 96.97% by Tibet Shangtian, as limited partner, and an associate of Mr. Xie and a connected person of the Company as at the Latest Practicable Date

• ‘‘Xiangyang Kingwisoft’’

• Xiangyang Kingwisoft Internet Technology Co., Ltd.* (襄 陽金慧互聯網科技有限公司), a limited liability company incorporated in the PRC on 28 June 2018 and indirectly and wholly-owned by DaLian Kingwisoft

– 13 –

DEFINITIONS

• ‘‘Rongzhi Outsourcing’’

• DaLian Kingwisoft Internet Service Outsourcing Co., Ltd. (大連金慧融智網絡服務外包有限公司), formerly known as Dalian Zhiyun Consulting Services Co., Ltd. (大連智雲諮 詢服務有限公司), a limited liability company established in the PRC on 8 March 2016 and directly and whollyowned by DaLian Kingwisoft as at the Latest Practicable Date

• ‘‘Zhongzhi Capital’’

• Zhongzhi Capital Management Company Limited* (中植資 本管理有限公司), a company indirectly wholly-owned by Mr. Xie, an associate of Mr. Xie and a connected person of the Company as at the Latest Practicable Date

• ‘‘Zhongzhi Capital (HK)’’

• Zhongzhi Capital (HK) Company Limited, an indirectly and wholly-owned subsidiary of Zhongzhi Capital, an associate of Mr. Xie and a connected person of the Company as at the Latest Practicable Date

• ‘‘Zhongzhi Enterprise Group’’ Zhongzhi Enterprise Group Co., Ltd.* (中植企業集團有限 公司) which is owned as to 76% by Zhonghai Shengfeng, and an associate of Mr. Xie and a connected person of the Company as at the Latest Practicable Date

• ‘‘Zhongzhi Xinzhuo’’

• Zhong Zhi Xin Zhuo Capital Company Limited, a company incorporated in the BVI on 19 December 2018 and indirectly and wholly-owned by Mr. Xie, and directly holding approximately 60.82% of the total issued share capital of the Company as at the Latest Practicable Date

• ‘‘Zhonghai Shengfeng’’

• Zhonghai Shengfeng (Beijing) Capital Management Co., Ltd.* (中海晟豐(北京)資本管理有限公司), a limited liability company established in the PRC on 12 March 2014 and directly and wholly-owned by Mr. Xie as at the Latest Practicable Date

• ‘‘%’’

per cent

• English translation of the company’s name is for reference only. The official name of the company is in Chinese.

– 14 –

DEFINITIONS

The terms ‘‘associate’’, ‘‘connected person’’, ‘‘connected transaction’’, ‘‘controlling shareholder’’, ‘‘percentage ratio’’, ‘‘subsidiary’’ and ‘‘substantial shareholder’’ have the meanings given to such terms under the GEM Listing Rules, unless the context otherwise requires.

Certain amounts and percentage figures included in this circular have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.

For the purposes of this circular, the exchange rate of RMB0.88163 = HK$1.00 has been used, where appropriate, for the purposes of illustration only and does not constitute a representation that any amount has been, could have been or may be exchanged at the above rate or at any other rates or at all.

– 15 –

GLOSSARY OF TECHNICAL TERMS

This glossary contains explanations of certain terms used in this circular in connection with the Target Group and its businesses.

‘‘24/7’’	24 hours a day, seven days a week
‘‘5G’’	the fifth generation wireless technology for digital cellular
	networks
‘‘AI’’	artificial intelligence
‘‘BPO services’’	business process outsourcing services
‘‘CAGR’’	compound annual growth rate
‘‘cloud computing’’	a computing model in which dynamically scalable		and
	virtualized resources are provided as a service over the
	internet
‘‘COPC’’	customer operations performance centre
‘‘CRM’’	customer relationship management
‘‘CTI’’	computer telephony integration
‘‘ERP’’	enterprise resource planning
‘‘ICP Licence’’	value-added telecommunications	business licence	(call
	centre services)
‘‘IDC’’	internet data centre
‘‘IoT’’	internet of things
‘‘IT’’	information technology
‘‘IVR’’	interactive voice response
‘‘predictive dialer algorithm’’	a proprietary algorithm developed by the Target Group		that
	automatically makes an appropriate number of outbound
	calls in advance by predicting the	number to be dialed by
	its contact service staff based on certain past calling
	statistics
‘‘SMS’’	short message service

– 16 –

FORWARD-LOOKING STATEMENTS

This circular contains forward-looking statements that state the intentions, beliefs, expectations or predictions of the Group, the Target Group and the Enlarged Group for the future that are, by their nature, subject to significant risks and uncertainties, including the risk factors described in this circular. These forward-looking statements include all statements in this circular that are not historical facts, including, without limitation, statements relating to:

• (a) the Enlarged Group’s operations and business prospects;

• (b) the Enlarged Group’s scale, nature, potential and future developments;

• (c) the Enlarged Group’s business, results of operations, anticipated financial matters and financial position;

• (d) the Enlarged Group’s future capital needs and capital expenditure plans;

• (e) the strategies, plans, purpose, goals, implementation strategies, ability of achieving the plans, purpose and goals of the Enlarged Group;

• (f) the Target Group’s strategies related to its specific business;

• (g) the future development, trends and conditions of the general political and economic environment;

• (h) the future development, trends, conditions and competitive environment of industries in which the Target Group operates; and

• (i) the regulatory environment and overall prospects.

When used in this circular, the words ‘‘aim’’, ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘going forward’’, ‘‘intend’’, ‘‘may’’, ‘‘ought to’’, ‘‘plan’’, ‘‘project’’, ‘‘seek’’, ‘‘should’’, ‘‘will’’, ‘‘would’’ and similar expressions, as they relate to the Group, the Target Group and/or the Enlarged Group, are intended to identify forward-looking statements. Such forward-looking statements reflect the views of the management of the Group or the Target Group (as the case may be) as at the Latest Practicable Date with respect to future events and are subject to certain risks, uncertainties and assumptions, including the risk factors described in this circular. Although the Directors believe that the expectations reflected in such forward-looking statements are reasonable, actual results and events may differ materially from information contained in the forward-looking statements as these statements are subject to uncertainties and assumptions, some of which are beyond the control of the Directors. Should one or more of these uncertainties materialise, or should the underlying assumptions prove to be incorrect, the results of operations and financial condition of the Group, the Target Group and/or the Enlarged Group may be adversely affected and may vary materially from those described herein as anticipated, believed or expected. Accordingly, such statements are not a guarantee of future performance and you should not place undue reliance on such forward-looking information. Moreover, the inclusion of forward-looking statements should not be regarded as representations by the Company that its plans and objectives will be achieved or realised.

– 17 –

FORWARD-LOOKING STATEMENTS

The forward-looking statements in this circular reflect the views of the management of the Company as at the Latest Practicable Date and are subject to change in light of future developments. Subject to the requirements of the GEM Listing Rules, the Company does not intend to update or otherwise revise the forward-looking statements in this circular, whether as a result of new information, future events or otherwise.

– 18 –

DIRECTORS AND PARTIES INVOLVED

The current members of the Board are as follows:

Name	Business Address	Nationality
Executive Directors
Mr. NIU Zhanbin (牛占斌)	11/F, 8 Queen’s Road Central	Chinese
(Chairman)	Hong Kong
Mr. JIANG Yulin (蔣玉林)	11/F, 8 Queen’s Road Central	Chinese
(Chief Executive Officer)	Hong Kong
Mr. WU Hui (吳輝)	11/F, 8 Queen’s Road Central	Chinese
(Chief Operating Officer)	Hong Kong
Independent Non-Executive
Directors
Mr. Stephen MARKSCHEID	11/F, 8 Queen’s Road Central	American
	Hong Kong
Mr. ZHANG Weidong (張衛東)	11/F, 8 Queen’s Road Central	Chinese
	Hong Kong
Mr. ZHANG Longgen (張龍根)	11/F, 8 Queen’s Road Central	American
	Hong Kong

There will be no change to the Board immediately before and after the Closing.

– 19 –

DIRECTORS AND PARTIES INVOLVED

Financial Adviser to the Company Dongxing Securities (Hong Kong) Company Limited 6805–6806A, 68/F International Commerce Centre 1 Austin Road West Kowloon Hong Kong Independent Financial Adviser to the Lego Corporate Finance Limited Independent Board Committee and Room 1601, 16/F, China Building the Independent Shareholders 29 Queen’s Road Central Hong Kong Legal advisers to the Company As to Hong Kong Laws: Linklaters 11th Floor, Alexandra House 18 Chater Road Hong Kong As to PRC Laws: Shihui Partners Suite 1606, Tower A, Borui Plaza No. A26 East 3rd Ring North Road Chaoyang District Beijing 100026 PRC As to Cayman Islands Laws: Walkers (Hong Kong) 15/F, Alexandra House 18 Chater Road Central Hong Kong Legal adviser to the Financial As to Hong Kong Laws: Adviser Jingtian & Gongcheng LLP Suites 3203–3207, 32/F, Edinburgh Tower The Landmark, 15 Queens Road Central Hong Kong Legal Adviser to the Sellers As to PRC Laws: EY Chen & Co. Law Firm 51/F, Shanghai World Financial Center 100 Century Avenue, Shanghai PRC

– 20 –

DIRECTORS AND PARTIES INVOLVED

Auditors to the Group and the Deloitte Touche Tohmatsu reporting accountants for the Certified Public Accountants unaudited pro forma financial 35/F, One Pacific Place information of the Enlarged Group 88 Queensway Hong Kong Reporting accountants for the Deloitte Touche Tohmatsu financial information of the Target Certified Public Accountants Group 35/F, One Pacific Place 88 Queensway Hong Kong Valuer AVISTA Valuation Advisory Limited 23rd Floor, Siu On Centre No. 188 Lockhart Road Wanchai Hong Kong Industry Consultant China Insights Consultancy 10/F, Jing’an International Center 88 Puji Road Jing’an District Shanghai PRC

– 21 –

LETTER FROM THE BOARD

==> picture [57 x 62] intentionally omitted <==

ZZ CAPITAL INTERNATIONAL LIMITED 中 植 資 本 國 際 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 08295)

Executive Directors Mr. NIU Zhanbin (Chairman) Mr. JIANG Yulin (Chief Executive Officer) Mr. WU Hui (Chief Operating Officer)

Independent Non-Executive Directors Mr. Stephen MARKSCHEID Mr. ZHANG Weidong Mr. ZHANG Longgen

Registered Office P.O. Box 309 Ugland House Grand Cayman, KY1–1104 Cayman Islands Head office and principal place of business in Hong Kong 11/F, 8 Queen’s Road Central Hong Kong

18 September 2020

To the Shareholders,

Dear Sir or Madam,

• (1) VERY SUBSTANTIAL ACQUISITION

AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET COMPANY

• (2) ISSUE OF ORDINARY SHARES PURSUANT TO SPECIFIC MANDATE

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE CONTRACTUAL ARRANGEMENTS AND

(4) NOTICE OF EGM

– 22 –

LETTER FROM THE BOARD

INTRODUCTION

Reference is made to the Announcement, in which it was announced that on 10 September 2020 (after trading hours), the Company entered into the Share Purchase Deed with the Sellers and the Guarantors, pursuant to which, among others, the Company has conditionally agreed to acquire, and the Sellers have conditionally agreed to sell, the entire issued share capital of the Target Company, subject to the terms and conditions therein.

The Acquisition constitutes a very substantial acquisition for the Company as one or more of the relevant percentage ratios under Rule 19.07 of the GEM Listing Rules for the Acquisition are over 100%. Accordingly, the Acquisition is subject to the reporting, announcement, circular, Shareholders’ approval and accountants’ report requirements under the GEM Listing Rules. Further, as one of the Sellers is a connected person of the Company, the Acquisition will also constitute a connected transaction of the Company under Chapter 20 of the GEM Listing Rules, thus subject to Independent Shareholders’ approval requirements under the GEM Listing Rules. The GEM Listing Committee has determined that the Acquisition is an extreme transaction under Rule 19.06C of the GEM Listing Rules which is not subject to the reverse takeover rules. Enhanced disclosure comparable to the standard for listing documents for new listing applicants is required in this circular. Dongxing Securities has been appointed as the financial adviser to the Company to conduct due diligence on the Target Group in accordance with Practice Note 2 of the GEM Listing Rules.

This circular provides you with, among other things: (i) further information on the Acquisition, the Share Purchase Deed, the Specific Mandate and the transactions contemplated thereunder; (ii) further information on the Target Group; (iii) further information on the industry in which the Target Group operates and the relevant regulations applicable to that industry; (iv) risk factors; (v) an accountants’ report on the Target Group; (vi) management discussion and analysis of the financial information on the Target Group; (vii) unaudited pro forma financial information of the Enlarged Group; (viii) further details of the proposed Contractual Arrangements and the proposed transactions thereunder; (ix) the recommendation of the Independent Board Committee to the Independent Shareholders in respect of the Acquisition, the Contractual Arrangements and the Specific Mandate; (x) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, the Contractual Arrangements and the Specific Mandate; and (xi) a notice of the EGM.

– 23 –

LETTER FROM THE BOARD

THE SHARE PURCHASE DEED

Date

10 September 2020

Parties

• (a) the Company (as purchaser);

• (b) the Sellers (as vendors); and

• (c) the Guarantors (as guarantors).

The Acquisition

The Company has conditionally agreed to acquire, and the Sellers have conditionally agreed to sell, the entire issued share capital of the Target Company, free from all encumbrances, together with all rights attaching to them, and the Guarantors have agreed to guarantee the performance by the Founders SPV and Ms. Zhou SPV of their obligations under the Share Purchase Deed.

The following table sets out the number of shares of and percentage of shareholding in the Target Company to be acquired by the Company from each Seller:

Seller Founders SPV Ms. Zhou SPV Zhongzhi Xinzhuo Total	Number of shares of the Target Company to be acquired 10,640,000 2,240,000 2,600,000 15,480,000	Percentage of shareholding in the Target Company 68.73% 14.47% 16.80%
		100%

Consideration

The total Consideration for the entire issued share capital of the Target Company is RMB850 million, of which approximately RMB180 million will be settled by allotment and issuance of the Consideration Shares, RMB420 million will be settled in the form of Cash Consideration, and RMB250 million will be settled in the form of Closing Fund.

– 24 –

LETTER FROM THE BOARD

Consideration Shares

An aggregate of 638,022,754 Consideration Shares will be allotted and issued to the Sellers by the Company upon Closing at the Issue Price of HK$0.32 per Consideration Share, of which 274,190,219 Consideration Shares will be allotted and issued to the Founders SPV, 113,560,919 Consideration Shares will be allotted and issued to Ms. Zhou SPV and 250,271,616 Consideration Shares will be allotted and issued to Zhongzhi Xinzhuo.

The Consideration Shares represent (i) approximately 17.97% of the issued share capital of the Company as at the Latest Practicable Date and (ii) approximately 15.23% of the issued share capital of the Company as enlarged by the allotment and issuance of the Consideration Shares. Based on the current shareholding structure of the Company, the Company will continue to be able to satisfy the public float requirement under the GEM Listing Rules following the allotment and issuance of the Consideration Shares.

The Consideration Shares, when issued, will rank pari passu in all respects among themselves and with all the Shares in issue as at the date of the allotment and issuance of the Consideration Shares. Holders of such Consideration Shares shall be entitled to receive all future dividends and distributions that are declared after the date of the allotment and issuance of the Consideration Shares.

Cash Consideration

The Cash Consideration of RMB420 million will be settled by the Company in five instalments in the following manner:

• (1) Tranche I Cash Consideration of RMB140 million (or in an equivalent amount in US$ or HK$) will be paid by the Company upon Closing to the Founders SPV and Ms. Zhou SPV, or persons designated by the Founders SPV and Ms. Zhou SPV.

• (2) Tranche II Cash Consideration of RMB70 million (or in an equivalent amount in US$ or HK$) will be paid by the Company on 31 July 2021 (the ‘‘First Anniversary’’) to the Founders SPV and Ms. Zhou SPV, or persons designated by the Founders SPV and Ms. Zhou SPV.

• (3) Tranche III Cash Consideration of RMB70 million (or in an equivalent amount in US$ or HK$) will be paid by the Company on 31 July 2022 (the ‘‘Second Anniversary’’) to the Founders SPV and Ms. Zhou SPV, or persons designated by the Founders SPV and Ms. Zhou SPV.

• (4) Tranche IV Cash Consideration of RMB70 million (or in an equivalent amount in US$ or HK$) will be paid by the Company on 31 July 2023 (the ‘‘Third Anniversary’’) to the Founders SPV and Ms. Zhou SPV, or persons designated by the Founders SPV and Ms. Zhou SPV.

– 25 –

LETTER FROM THE BOARD

• (5) Tranche V Cash Consideration of RMB70 million (or in an equivalent amount in US$ or HK$) will be paid by the Company on 31 July 2024 (the ‘‘Fourth Anniversary’’) to the Founders SPV and Ms. Zhou SPV, or persons designated by the Founders SPV and Ms. Zhou SPV.

The Cash Consideration will be paid out of the internal resources of the Group. No Cash Consideration will be paid to Zhongzhi Xinzhuo.

Closing Fund

The Company has conditionally agreed to provide, or procure its subsidiary to provide, the Closing Fund in an amount equal to the Debt Note to DaLian Kingwisoft within three Business Days after Closing. The Company, Founders SPV, Ms. Zhou SPV and the Guarantors have agreed to procure DaLian Kingwisoft to use such Closing Fund to settle the outstanding Debt Note issued by DaLian Kingwisoft to Dalian Zhirui. The Closing Fund will be paid out of the internal resources of the Group.

The table below sets out the Consideration payable to each of the Sellers by the Company and the manner in which such Consideration will be settled:

		Settlement		Amount payable
Sellers	Cash Consideration	Consideration Shares	Closing Fund	by the Company
Founders SPV	RMB391,207,317 (or	274,190,219	RMB250,000,000	RMB718,562,300
	in an equivalent	Consideration Shares	(to be provided to
	amount in US$ or	(equivalent to	DaLian Kingwisoft to
	HK$)	RMB77,354,983)	settle the Debt Note
			issued by DaLian
			Kingwisoft to Dalian
			Zhirui, which is
			wholly-owned by the
			Founders)
Ms. Zhou SPV	RMB28,792,683	113,560,919	N/A	RMB60,830,671
	(or in an equivalent	Consideration Shares
	amount in US$ or	(equivalent to
	HK$)	RMB32,037,988)
Zhongzhi Xinzhuo	N/A	250,271,616	N/A	RMB70,607,029
		Consideration Shares
		(equivalent to
		RMB70,607,029)
Total	RMB420,000,000	638,022,754	RMB250,000,000	RMB850,000,000
		Consideration Shares
		(equivalent to
		RMB180,000,000)

– 26 –

LETTER FROM THE BOARD

The Consideration payable to each of the Sellers is determined after arm’s length negotiation between the Company and the Sellers, and based on their or their associates’ corresponding equity interest in the OPCO immediately after the OPCO Minority Acquisitions, which was owned as to 84.53%, 7.16% and 8.31% by the Founders, Ms. Zhou and Xiangjia Zhongzhou, respectively.

Issue Price

The Issue Price of HK$0.32 per Consideration Share is determined after arm’s length negotiation between the Company and the Sellers, with reference to, among others, (i) the then market prices of the Shares at the time of negotiating the terms of the memorandum of understanding (the ‘‘MOU’’) in relation to the possible acquisition of the Target Group dated 19 August 2019, whereas the Company started the negotiation of the Consideration including the Issue Price of the Consideration Shares with the Founders and Ms. Zhou in the end of May 2019; and (ii) the relatively thin trading volume of the Shares. The Directors considered that the Issue Price is fair and reasonable and is in the interest of the Shareholders as a whole.

As set out in the annual report of the Company for the year ended 31 March 2019, the Group experienced a major decline in its principal business and the operating results for the year ended 31 March 2019. As set out in the latest annual report of the Company for the year ended 31 March 2020, although the Group’s financial performance improved as compared to the year ended 31 March 2019, the Group’s business was nevertheless affected by, among others, the global novel coronavirus (COVID-19) pandemic. Though the Directors intend to continue and improve the current core businesses of the Group, volatility of the financial markets resulting from the combined effect of, among others, the continuous global trade tensions, slowdown in the global economy and the outbreak of COVID-19, caused increasing uncertainty in the business of the Group. Under this background, the Group is committed to its diversified development strategies by way of, among others, potential strategic investment in or acquisition of suitable businesses or targets with sizeable operations. The Directors are of the view that the Issue Price is fair and reasonable after considering: (i) the Issue Price is similar to the market prices of the Shares in the end of May 2019 when the Company started the negotiation of the Consideration with the Founders and Ms. Zhou before entering into the MOU; (ii) the relatively low liquidity of the Shares; (iii) the premium of the Issue Price over the consolidated net asset value per Share is within the market range; (iv) continual profitable financial performance of the Target Group, which will provide stable source of income to the Group and improve the financial performance of the Group; and (v) the issue of Consideration Shares is a preferred means to partially settle the Consideration by minimising cash outflow. Given the reasons stated above and that the Target Group holds an established business model with sizeable operation, the Directors consider it reasonable to provide an appropriate discount on the Issue Price when negotiating with the Sellers, so as to bring about potential financial and operational benefits to the Company following the successful completion of the Acquisition. The Issue Price represents:

• (a) a discount of approximately 43.9% over the closing price of HK$0.570 per Share as quoted on the Hong Kong Stock Exchange on the Latest Practicable Date;

– 27 –

LETTER FROM THE BOARD

• (b) a premium/discount of approximately 43.9% over the closing price of HK$0.570 per Share as quoted on the Hong Kong Stock Exchange on the Last Trading Day;

• (c) a premium/discount of approximately 45.6% over the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the five consecutive trading days up to and including the Last Trading Day of approximately HK$0.588 per Share;

• (d) a premium/discount of approximately 47.5% over the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the 10 consecutive trading days up to and including the Last Trading Day of approximately HK$0.610 per Share;

• (e) a premium/discount of approximately 50.3% over the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the 30 consecutive trading days up to and including the Last Trading Day of approximately HK$0.644 per Share;

• (f) a premium of approximately 60.0% to the audited consolidated net asset value of the Company of approximately HK$0.20 per Share as at 31 March 2020 (based on the number of issued Shares as at the Latest Practicable Date).

The Consideration was agreed after arm’s length negotiations between the parties to the Share Purchase Deed, and was determined after taking into account, among other things, (i) the historical financial information of the Target Group during the Track Record Period as illustrated and explained in detail in ‘‘Management Discussion and Analysis of Financial Information of the Target Group’’; (ii) valuation of companies principally engaged in business comparable to the Target Group and listed on the Hong Kong and U.S. stock exchanges; (iii) the business prospects of the Target Group as elaborated in ‘‘Industry Overview’’ and ‘‘Business of the Target Group — Business Strategies’’ below, coupled with the leading position of the Target Group and the growth of the contact service centre industry in the PRC driven by booming demand from downstream industries in reference to the industry report issued by CIC; and (iv) the risks associated with the Target Group and the OPCO Business as elaborated in the section headed ‘‘Risk Factors’’ below. In addition, the Company also engaged the Valuer to provide an independent valuation report and understand that the reasonable valuation of the Target Group is over RMB915 million using the ‘‘comparable company method’’ under the ‘‘market approach’’, with reference to the enterprise value/ earnings before interest, taxes, depreciation and amortisation (‘‘EV/EBITDA’’) multiples of comparable companies. The valuation report prepared by the Valuer is set out in Appendix IV to this circular.

The Directors have considered the competence and independence of the Valuer before engaging the Valuer. Having considered that (i) the Valuer is an experienced advisory and valuation firm in the Greater China Region based on its track records and (ii) the person in charge of the appraisal has over 20 years of experience in financial valuation and business consulting in Hong Kong and the PRC, the Directors believe that the Valuer has sufficient qualification, reputation and experience in performing the appraisal of the Target Group and has the relevant expertise and adequate resources to perform its role as an independent valuer

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properly. To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, the Valuer is independent from the Group, the Sellers, the Target Company and their respective connected persons.

In arriving at the appraised value of the Target Group, the comparable company method under the market approach was considered appropriate and adopted by the Valuer. The Valuer derived the estimated 100% enterprise value of the Target Group by multiplying the earnings before interests, taxes, depreciation and amortization (‘‘EBITDA’’) of the Target Group by the median of the EV/EBITDA multiple of comparable companies, being approximately 8.49, adjusted by (i) cash or cash equivalent; (ii) debts; (iii) minority interest; (iv) lack of marketability discount (‘‘LOMD’’); and (v) control premium. The EV/EBITDA multiple of approximately 8.49 was based on the median EV/EBITDA multiple before LOMD and control premium of ten publicly listed companies that are comparable to the Target Group and selected for the purpose of the appraisal of the Target Group by the Valuer. Furthermore, the Valuer had deducted the amount of LOMD from the appraised value of the Target Group which reflects the fact that there is no ready market for shares in a closely held company, and shares in a privately held company is usually worth less than an otherwise comparable share in a publicly listed company. Given that the EV/EBITDA multiple adopted in the valuation was calculated from the publicly listed companies, which represents the minority interest, the Valuer had also added the control premium to the appraised value of the Target Group to reflect the amount that a buyer is willing to pay over the minority equity value of the company in order to acquire a controlling interest in that company. The control premium of 25.6% adopted by the Valuer represents the overall median control premium suggested in the report ‘‘Control Premium Study: 4th Quarter 2019’’ published by FactSet Mergerstat, LLC, a reputable research company, and is appropriate and suitable for the valuation of the Target Group.

In assessing the fairness and reasonableness of the appraised value of the Target Group, the Directors considered the following factors:

With respect to the adoption of the market approach, the Directors understand that the Valuer had considered three approaches that are generally accepted in business valuation, namely the cost approach, the income approach and the market approach. The Valuer considered that the fair value arrived from the market approach reflects the market expectations over the industry of the OPCO Business as the price multiples of the comparable companies were arrived at based on market consensus. Since there are sufficient publicly listed companies in similar nature and business to that of the Target Group, their market values are good indicators of the industry of the OPCO Business. The Valuer also considered the comparable transactions method under the market approach. However, since there are only limited number of recent comparable transactions the can be identified, the Valuer considered that the multiple derived based on comparable transactions may not be representable for the appraisal of the Target Group and thus, the comparable transactions method was not considered as an appropriate method for the appraisal of the Target Group. Nevertheless, the median of the implied EV/EBITDA from comparable companies is still within the range of the independent comparable transactions identified by the Valuer. The cost approach was not adopted because it assumed the assets and liabilities of the Target Group are separable and can be sold separately and the Valuer considered that the cost approach is not appropriate in

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the appraisal of the Target Group. The income approach was not adopted because if the income approach was adopted, plenty of assumptions would be involved in formulating the financial projection of the Target Group, and the assumptions might not be able to reflect the uncertainties in the future performance of the Target Group. Given that improper assumptions will impose significant impact on the fair value of the Target Group, the Valuer considered that the income approach is not appropriate for the appraisal of the Target Group.

Having discussed with the Valuer regarding the selection of comparable companies, the Directors understand that the comparable companies were selected mainly with reference to the following selection criteria: (a) the primary industry of the comparable companies is the provision of BPO services, call centre services or customer service solutions, (b) the comparable companies are listed on major exchange markets in the U.S. or Hong Kong and (c) the financial information of the companies is available to the public. The Directors understand that Valuer has considered comparable companies listed in major exchange markets in the U.S. and Hong Kong, while the principal businesses of some of the comparable companies are based outside the PRC, mainly due to the following reasons: (i) given the nature of BPO services, call centre services or customer service solutions are not materially different among the markets worldwide, the comparable companies are considered to be confronted with similar industry risks and rewards; (ii) the major exchange markets in the U.S. and Hong Kong have higher market liquidity which can reflect the intrinsic value of the listed companies; and (iii) by selecting and considering the comparable companies listed in the major exchange markets in the U.S. and Hong Kong, there are sufficient and representative number of comparable companies to perform the valuation. Further, the Directors understand from the Valuer that the Valuer had made best efforts to search for and identify appropriate comparable companies through publicly available sources. The Valuer went through the following steps to identify the comparable companies: (i) firstly, it is focused to identify companies listed on major exchange markets in the U.S. or Hong Kong which principally engaged in the provision of BPO services, call centre services or customer service solutions; (ii) secondly, the financial information of the comparable companies is available to the public; (iii) thirdly, there are sufficient data, including the trailing 12-month EV/EBITDA ratios as at the valuation date, of the comparable companies. Based on the above steps, ten comparable companies are selected. The Valuer considered that the ten comparable companies selected represent fair and reasonable samples, and are sufficient for the purpose of the appraisal of the Target Group. Having considered the comparable companies selected by the Valuer, the Directors are of the view that the comparable companies have suitably similar characteristics to the Target Group and constitute a fair and representative sample. As the EV/EBITDA multiples of comparable companies show a range of values, the adoption of the median of the EV/EBITDA multiples disregards extreme values and is a better mid-point measure for skewed number distributions. The Directors are of the opinion that the adoption of the median is a reasonable approach to minimise the impact of outliers to the valuation result.

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In respect of the selection of the valuation multiple, the Directors understand that the Valuer has considered price-to-earnings (‘‘P/E’’), price-to-book (‘‘P/B’’), price-to-sales (‘‘P/S’’), enterprise value/sales (‘‘EV/S’’), enterprise value/earnings before interests and taxes (‘‘EV/EBIT’’) and eventually adopted the EV/EBITDA multiples. As disclosed in the valuation report of the Target Group as set out in Appendix IV to this circular, P/B multiple is considered not appropriate for the valuation of the Target Group because book value captures only the tangible assets of a company which, if a company creates any added market value (as reflected by a P/B ratio of larger than one), should have its own intangible competencies and advantages. These intangible company-specific competencies and advantages are not captured in the P/B ratio and so in general, the equity’s book value has little bearing with its fair value. Thus, the P/B multiple is not a good measurement of the fair value of a company. P/S and EV/S multiples are considered not appropriate for the valuation of the Target Group because they do not consider the profitability of the Target Group. As both P/S and EV/S multiples only focus on the sales amounts but not the margin, the result will be easily distorted if the cost structure is not being taken into account. P/E multiple is considered not appropriate for the valuation of the Target Group because it does not capture differences in financial leverage and related risk features across the companies. Similar with EV/EBIT multiple, they also comprise non-cash items in earnings, such as depreciation and amortization of fixed assets. Accordingly, EV/EBITDA multiple is considered to be the most appropriate indicator of the fair values of the comparable companies as it eliminates the difference in capital structure, taxation and deprecation methods as compared to EV/EBIT multiple, and after taking into consideration (i) that the nature of the business operations of the Company is not capital intensive; and (ii) the value of the Target Group lies in its profits generating ability rather than in the value of its assets. On the basis of the above, the Directors are of the view that the selection of the EV/EBITDA multiple is appropriate for the valuation of the Target Group. Having discussed with the Valuer, the Directors understand that the LOMD of 20.6% and the control premium of 25.6% are both suggested by independent and reputable reports and consider the deduction of the LOMD and the addition of the control premium fair and reasonable in the valuation of the Target Group.

With respect to the use of market capitalisation, the Directors understand from the Valuer that enterprise value is generally derived based on the market capitalisation of a company, plus net debt (total debt minus cash and short-term investment), minority interest and preferred shares and therefore, consider that the use of market capitalisation appropriate in the context of the appraisal of the Target Group.

Having considered the above factors and the assumptions made by the Valuer, the Directors concurred with the Valuer’s view that the bases, valuation methodology, selection basis of comparables companies, limiting conditions and assumptions adopted in the Valuation Report are appropriate under the current circumstances.

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Conditions

The obligations of each party to effect the transactions contemplated under the Share Purchase Deed at Closing shall be subject to the fulfilment or waiver (as the case may be) at or prior to Closing of, among others, the following Conditions:

• (a) the Independent Shareholders having passed the relevant resolutions at the EGM approving, among others, the Share Purchase Deed and transactions contemplated thereunder, the Specific Mandate to allot and issue the Consideration Shares and the Additional Shares and the Contractual Arrangements and transactions contemplated thereunder;

• (b) the Hong Kong Stock Exchange having granted the approval for the listing of and permission to deal in the Consideration Shares and such approval or permission not having been revoked;

• (c) the Hong Kong Stock Exchange having granted a waiver from strict compliance with certain requirements under the GEM Listing Rules relating to the Contractual Arrangements and transactions contemplated thereunder, including fixing the term of the Contractual Arrangements for a period of not exceeding three years and setting a maximum aggregate annual cap for the service fees under the Contractual Arrangements;

• (d) the Company being reasonably satisfied with the results of the due diligence review on the Target Group in respect of matters or events occurring on or after the date of the Share Purchase Deed;

• (e) there having been no material adverse change in the Target Group since 31 December 2018 and up to the Closing;

• (f) the representations and warranties given by the Sellers and the Guarantors in the Share Purchase Deed remaining true, accurate, complete and not misleading, and there being no matters or events that might lead to the breach of the representations and warranties given by the Sellers and the Guarantors;

• (g) each Seller having duly performed its pre-Closing obligations under the Share Purchase Deed and not having breached any term or condition under the Share Purchase Deed;

• (h) the Company having obtained a legal opinion (in form and substance reasonably satisfactory to the Company) issued by a PRC law firm in relation to the Target Group and the transactions contemplated under the Transaction Documents;

• (i) each of the following subsidiaries of DaLian Kingwisoft having obtained relevant ICP Licence: (i) Kunshan Kingwisoft, (ii) Luzhou Kingwisoft, (iii) Xiangyang Kingwisoft, (iv) Beijing Nanyou, (v) Rongzhi Outsourcing, (vi) Dalian Zhiyin and (vii) Qingdao Kingwisoft;

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• (j) there not having enacted any new laws or occurred or come into effect any change or development in or affecting existing laws or the interpretation or application of existing laws by any court or other competent authority in relevant jurisdiction, which individually or in aggregate may affect the legality or compliance of the Share Purchase Deed or any transaction contemplated under the Transaction Documents, or would or may prohibit, restrict or delay the execution, delivery or performance of the any Transaction Document or the completion of the Acquisition or any transaction contemplated under any Transaction Document; and

• (k) having obtained all necessary approvals or permits from relevant authorities in relation to the Share Purchase Deed and the transactions contemplated under the Transaction Documents.

The Company may at any time waive Conditions (d), (e), (f), (g), (h), (i), (j) and (k) above by notice in writing to the Sellers. Conditions (a), (b) and (c) above cannot be waived. If the Conditions above are not satisfied or waived (as the case may be) on or before the Long Stop Date, the Company may terminate the Share Purchase Deed.

As at the Latest Practicable Date, condition (c) above has been satisfied. As at the Latest Practicable Date, the Company has no intention of waiving any of the Conditions (d), (e), (f), (g), (h), (j) and (k) above.

The members of the OPCO Group which are currently providing value-added telecommunications services have obtained the ICP Licences required to carry out their business. The remaining members of the OPCO Group which have yet obtained relevant ICP Licences currently do not provide any value-added telecommunications services. In the event that certain members of the OPCO Group could not obtain relevant ICP Licences, thus condition (i) is not satisfied, before early-October 2020, the Company may consider waiving condition (i). Pursuant to the Share Purchase Deed, if condition (i) is waived by the Company, the Sellers and the Guarantors shall use their best efforts to provide any and all assistance to the remaining members of the OPCO Group which have not obtained relevant ICP Licences in order to obtain such ICP Licences as soon as possible after Closing. It is expected that the waiver of condition (i), if it is not satisfied by early-October 2020, would not have a material impact on the current overall operation of the OPCO Group. These members of the OPCO Group will only commence the provision of value-added telecommunications services after relevant ICP Licences are obtained in order to prevent non-compliance.

Closing

Closing is scheduled to take place on the 5th Business Day after the date on which all the Conditions (other than Conditions (e), (f), (g) and (j)) are satisfied or waived, or any other date as the parties to the Share Purchase Deed may agree in writing.

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Following Closing, the Company will be: (i) the legal and beneficial owner of the entire issued share capital of the Target Company; and (ii) entitled, through the Contractual Arrangements, to exercise control over the operation of the OPCO Group and to enjoy the entire economic benefits generated by the OPCO Group. The Target Company will become a wholly-owned subsidiary of the Company following Closing, and the financial results, assets and liabilities of the Target Group will be consolidated into the accounts of the Group.

Following Closing, (i) each of Ms. Liu, Ms. Liu Xiaochen and Ms. Xu Dongyu will resign as director of DaLian Kingwisoft (Ms. Liu Xiaochen and Ms. Xu Dongyu will remain as senior management of DaLian Kingwisoft), and (ii) the Company will appoint Mr. Niu Zhanbin, Mr. Wu Hui and Mr. Liu Yang as directors of the Target Company and DaLian Kingwisoft. None of the directors of the Target Company or DaLian Kingwisoft will become a Director of the Company upon Closing. For more information on the current directors and senior management of the Target Company and DaLian Kingwisoft, please refer to the section headed ‘‘Directors and Senior Management of the Target Group’’ in this circular. Save as aforesaid, it is expected that there will be no change in other directors and senior management of the Target Company and DaLian Kingwisoft after Closing.

In light of the above, the Board is of the view that the Target Group will continue to operate smoothly and there will be no material impact on the overall business and operations of the Target Group as a result of the Acquisition.

Guarantees by the Guarantors

The Guarantors unconditionally and irrevocably guarantee to the Company the due and timely performance and compliance by the Founders SPV and Ms. Zhou SPV of all obligations, covenants, undertakings, warranties and indemnities that ought to be observed and performed under the Transaction Documents, and agree to indemnify the Company in full against all losses arising as a result of any failure of the Founders SPV or Ms. Zhou SPV to perform or comply with their obligations under the Transaction Documents.

Post-Closing Undertakings

Each Guarantor has undertaken to the Company, among others, that he/she, unless with the prior written consent of the Company, during the Entire Guarantee Period:

• (a) will:

• (i) remain as an employee of the Target Group (except if he/she is dismissed by the Target Group); and

• (ii) perform his/her obligations as an employee of the Target Group in good faith; and

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• (b) will not:

• (i) carry on any other business which is the same as, similar to, or is or is likely to be in competition with, the business of the Target Group; or

• (ii) be employed by any other third party which carries on any business which is the same as, similar to, or is or is likely to be in competition with, the business of the Target Group.

The Company has undertaken, among others, to retain Mr. Hu as a director of the OPCO during the Entire Guarantee Period, unless:

• (a) Mr. Hu’s employment is terminated in accordance with the terms and conditions of his employment contract or applicable laws;

• (b) Mr. Hu has ceased to be qualified, or has become unsuitable, to be a director of the OPCO in accordance with applicable laws; or

• (c) Mr. Hu and the Company agree otherwise.

Indemnities

The Share Purchase Deed contains several indemnities by each of the Sellers and each of the Guarantors to indemnify the Company and/or the Target Group against any loss which may be suffered by the Company and/or the Target Group in connection with, among others:

• (a) the OPCO Minority Acquisitions, the Privatisation, the OPCO Share Repurchase and the Target Group Reorganisation;

• (b) any pre-Closing tax liabilities of the Target Group;

• (c) the failure by certain members of the Target Group to obtain ICP Licences and the impact of such failure on the operation of the Target Group;

• (d) the failure by the Target Group to make adequate contributions to the social insurance and housing provident funds for its employees; and

• (e) the failure by the Target Group to register certain lease contracts.

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Termination

The Share Purchase Deed may be terminated at any time prior to Closing by the Company, by giving written notice to the Sellers and the Guarantors, in the following circumstances, among others:

• (a) if any of the following events occurs:

• (i) any material breach by a Seller or a Guarantor of the Share Purchase Deed;

• (ii) any of the representations or warranties of the Sellers or the Guarantors are not true, accurate and complete or are misleading in any material respect; or

• (iii) any material adverse change in the Target Group or the ability of any Seller, Guarantor or member of the Target Group to perform any obligation under the Share Purchase Deed or any Transaction Document; or

• (b) if any of the Conditions is not satisfied or waived (as the case may be) on or before the Long Stop Date,

provided that, subject to the terms of the Share Purchase Deed, the Share Purchase Deed shall cease to have effect and that such termination shall not affect the rights of the parties accrued thereunder.

Lock-up Undertaking

Each of Founders SPV and Ms. Zhou SPV has undertaken to the Company pursuant to the Share Purchase Deed that it will not dispose of or transfer in any manner the Consideration Shares to be allotted and issued to it, and it shall be released from the lock-up restrictions in the following manner:

• (a) as to 25% of the aggregate number of the Consideration Shares allotted and issued to it ending on the expiry of the First Anniversary;

• (b) as to 25% of the aggregate number of the Consideration Shares allotted and issued to it ending on the expiry of the Second Anniversary;

• (c) as to 25% of the aggregate number of the Consideration Shares allotted and issued to it ending on the expiry of the Third Anniversary; and

• (d) as to 25% of the aggregate number of the Consideration Shares allotted and issued to it ending on the expiry of the Fourth Anniversary.

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Profit Guarantee

The Founders have undertaken to the Company pursuant to the Share Purchase Deed that the audited consolidated net profit attributable to the equity holders of the Target Company in accordance with HKFRS for any given Guarantee Period would not be less than the Guaranteed Profit in respect of such Guarantee Period. The Company has undertaken to the Founders that subject to the compliance of all applicable Laws and regulations (including the GEM Listing Rules and the directors’ fiduciary duties and duties of skill, care and diligence), it will use reasonable endeavours to procure the directors of DaLian Kingwisoft nominated by it to act in the interests of the Group as a whole during the Entire Guarantee Period.

The amount of the Guaranteed Profit for each Guarantee Period is arrived after arm’s length negotiations between the Company and the Founders and is determined based on (i) overview of the contact service centre industry and customer service outsourcing industry in the PRC, (ii) the position of the Target Group as an emerging leading service provider in the customer service outsourcing industry in the PRC, and (iii) the business prospects of the Target Group as elaborated in section headed ‘‘Business of the Target Group — Business Strategies’’ in this circular.

Details of the Guaranteed Profit are set out below:

• (a) in respect of the Guarantee Period commenced on 1 April 2019 and ended on 31 March 2020, RMB60 million;

• (b) in respect of the Guarantee Period commenced on 1 April 2020 and ending on 31 March 2021, RMB90 million;

• (c) in respect of the Guarantee Period commencing on 1 April 2021 and ending on 31 March 2022, RMB120 million;

• (d) in respect of the Guarantee Period commencing on 1 April 2022 and ending on 31 March 2023, RMB150 million; and

• (e) in respect of the Guarantee Period commencing on 1 April 2023 and ending on 31 March 2024, RMB180 million;

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According to the CIC Report, the revenues of customer service outsourcing industry is expected to grow at a CAGR of approximately 14.1% during the period from 2019 to 2024 and increase to approximately as much as RMB80.0 billion by 2024 from RMB41.3 billion in 2019, with this growth trend mainly being attributable to healthy growth in the Chinese economy and the continuous development of downstream industries, in particular, the financial industry, telecommunications, internet-based services and logistics and transportation market, along with the trading up of Chinese consumers, all of which create more opportunities for expanding customer service and marketing activities in China. It is noted that the expected net profits of the Target Company/amount of the Guaranteed Profit during Guarantee Period represents a CAGR of approximately 24.6% (the ‘‘Guaranteed Profits CAGR’’), which is higher than the expected CAGR of the overall market growth.

The Target Group recorded a net profit after tax of approximately RMB41.2 million and RMB65.3 million for the years ended 31 March 2019 and 2020, respectively, representing a significant increment of approximately 58.5%, which is materially higher than the Guaranteed Profits CAGR.

In addition, according to the CIC Report, the Target Group ranked 16th among all outsourced customer care service providers in China and was one of the top ten local privately owned outsourced customer care service providers, both in terms of revenue in 2019. The Target Group is among the two providers established after 2010 that ranked as China’s top 20 outsourced customer care service providers, in terms of revenue, in 2019. It is also China’s first local outsourced customer care service provider with COPC certification for two of its contact service centres. With this background and experience accumulated, the Directors are of the view that, despite the fact that the Guaranteed Profits CAGR is higher than the expected CAGR of the overall market growth, the Target Group will be able to successfully carry out and execute the business plans as stated in the section headed ‘‘Business of the Target Group — Business Strategies’’ in this circular and take advantage of the overall market growth in the industry in order to achieve Guaranteed Profits CAGR.

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In consideration of the above, the Directors are of the view that determination of the respective Guaranteed Profit for each Guarantee Period is fair and reasonable.

In the event that the actual amount of the audited consolidated net profit attributable to the equity holders of the Target Company for any Guarantee Period is less than the Guaranteed Profit in respect of such Guarantee Period in accordance with HKFRS, the Founders are expected to compensate the Company by paying the Company an amount in cash equal to (((A – B)/C) x D) – E

where:

• A = the sum of: (i) the amount of the Guaranteed Profit in respect of such Guarantee Period; and (ii) the amount of the Guaranteed Profit in respect of each Guarantee Period preceding such Guarantee Period;

• B = the sum of: (i) the actual amount of the audited consolidated net profit/net loss attributable to equity holders of the Target Company for such Guarantee Period; and (ii) the actual amount of the audited consolidated net profit/net loss attributable to equity holders of the Target Company for each Guarantee Period preceding such Guarantee Period;

• C = RMB600,000,000 (i.e. the sum of the amount of the Guaranteed Profit in respect of each Guarantee Period);

• D = RMB779,392,971 (i.e. the Consideration less the amount of the Consideration paid, or payable, by the Company to Zhongzhi Xinzhuo);

• E = the sum of the amount of any such compensation which has been paid by the Founders in respect of each Guarantee Period preceding such Guarantee Period.

If the actual audited consolidated net profit attributable to the equity holders of the Target Company in accordance with HKFRS as shown in its audited accounts (the ‘‘Actual Net Profit’’) for any Guarantee Period is less than the Guaranteed Profit in respect of such Guarantee Period (the ‘‘Shortfall’’), the Founders shall compensate the Company the Shortfall in cash (the ‘‘Compensation’’) in accordance with the formula above. The Compensation paid will not be returned by the Company to the Founders in the subsequent Guarantee Period even if the Actual Net Profit in the subsequent Guarantee Period is higher than the Guaranteed Profit in respect of such subsequent Guarantee Period.

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In the event that the accumulated amount of Actual Net Profit for the Entire Guarantee Period is zero and the Shortfall for the Entire Guarantee Period is therefore RMB600,000,000, the Compensation obliged to be paid by the Founders for the Shortfall equals the amount of Consideration paid by the Company (other than the amount of the Consideration paid by the Company to Zhongzhi Xinzhuo).

In the event that the Target Company records an accumulated actual audited consolidated net loss attributable to the equity holders of the Target Company in accordance with HKFRS for the Entire Guarantee Period and the Shortfall for the Entire Guarantee Period is therefore greater than RMB600,000,000, the amount of Compensation obliged to be paid by the Founders will exceed the Consideration paid by the Company (other than the amount of the Consideration paid by the Company to Zhongzhi Xinzhuo).

It is agreed that the Compensation payable in respect of any Guarantee Period as referred to above shall be settled by the Founders within ten Business Days after the signed or certified audited consolidated financial statements of the Target Company in respect of such Guarantee Period is approved by the board of directors of the Target Company.

The Share Purchase Deed provides for an express set-off right of the Company which allows the Company to set off any Compensation against any Cash Consideration which has not been paid to the Founders SPV.

In respect of the Guarantee Period commenced on 1 April 2019 and ended on 31 March 2020, the audited consolidated net profit attributable to the equity holders of the Target Company in accordance with HKFRS was approximately RMB65.3 million, and is more than the Guaranteed Profit in respect of this Guarantee Period (i.e. RMB60 million).

Additional Shares

Subject to the compliance of all applicable Laws and regulations (including the GEM Listing Rules and the Takeovers Code), in the event that the sum of the actual amount of the audited consolidated net profit attributable to equity holders of the Target Company for each Guarantee Period, i.e. the Entire Guarantee Period, is equal to or more than RMB1 billion, it is expected that:

• (a) the Company would pay the Founders SPV an additional consideration in the amount of RMB150 million and subject to the Hong Kong Stock Exchange’s grant of the approval for the listing of and permission to deal in the Additional Shares, would settle such payment by issuing the Additional Shares to the Founders SPV on the 10th Business Day after the date on which the signed or certified audited consolidated financial statements of the Target Company for the last Guarantee Period is approved by the board of directors of the Target Company; and

• (b) such Additional Shares would be issued at an issue price per Share equal to the volume weighted average price per Share for the 30 consecutive trading days up to and including the last trading day that is five Business Days immediately prior to the date on which such Additional Shares are allotted and issued to the Founders SPV.

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The Additional Shares will not be allotted and issued unless and until it is evidenced from the signed or certified audited consolidated financial statements of the Target Company that the sum of the actual amount of the audited consolidated net profit attributable to equity holders of the Target Company for each Guarantee Period, i.e. the Entire Guarantee Period, is equal to or more than RMB1 billion. Further, according to the terms of the Share Purchase Deed: (i) the obligation of the Company to issue the Additional Shares to the Founders SPV is subject to conditions, including, among others, the issuance of any Additional Shares not triggering any mandatory general offer under Rule 26 of the Takeovers Code or resulting in the breach of the public float requirement under the GEM Listing Rules and the Hong Kong Stock Exchange having granted the approval for the listing of and permission to deal in the Additional Shares, and (ii) to the extent that any Additional Shares cannot be allotted and issued subject to (i) above, the Company has the sole and absolute discretion to settle the remaining additional consideration in cash.

Solely for the purpose of illustration, assuming that the Additional Shares are fully issued and the issue price per share of the Additional Shares is HK$0.6315, being the volume weighted average closing price per Share for the 30 consecutive trading days up to and including the Last Trading Day, the aggregate number of the Additional Shares that may be allotted and issued by the Company to the Founders SPV would be approximately 269,421,062, representing (i) approximately 7.59% of the issued share capital of the Company as at the Latest Practicable Date, (ii) approximately 6.43% of the issued share capital of the Company as enlarged by the allotment and issuance of the Consideration Shares and (iii) approximately 6.04% of the issued share capital of the Company as enlarged by the allotment and issuance of the Consideration Shares and the Additional Shares.

In the event that the Additional Shares were issued, the Additional Shares when issued, would rank pari passu in all respects among themselves and with all the Shares in issue as at the date of the allotment and issuance of the Additional Shares. Holders of such Additional Shares shall be entitled to receive all future dividends and distributions that are declared after the date of the allotment and issuance of the Additional Shares.

Specific Mandate

The Consideration Shares and the Additional Shares will be allotted and issued under the Specific Mandate to be obtained from the Independent Shareholders at the EGM by an ordinary resolution.

Application for listing of the Consideration Shares and the Additional Shares

The Company will apply to the GEM Listing Committee for the listing of, and permission to deal in, the Consideration Shares to be allotted and issued pursuant to the Share Purchase Deed and the Additional Shares which may be allotted and issued pursuant to the Share Purchase Deed.

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LETTER FROM THE BOARD

EFFECT OF THE ACQUISITION ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

As at the Latest Practicable Date, the Company has 3,550,496,836 Shares in issue. As at the Latest Practicable Date, the Company does not have any outstanding convertible securities, options, warrants or other derivatives in issue which are convertible or exchangeable into Shares.

The following table illustrates the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after Closing (assuming there is no change in the issued share capital of the Company since the Latest Practicable Date and up to Closing) (Note):

Non-public Shareholders Zhongzhi Xinzhuo Kang Bang (HK) Founders SPV Public Shareholders Ms. Zhou SPV Other public shareholders Total	As at the Latest Practicable Date Number of Shares % 2,159,552,102 60.82% 455,820,525 12.84% — — — — 935,124,209 26.34% 3,550,496,836 100%	Immediately after Closing Number of Shares % 2,409,823,718 57.53% 455,820,525 10.88% 274,190,219 6.55% 113,560,919 2.71% 935,124,209 22.33% 4,188,519,590 100%	Immediately after Closing Number of Shares % 2,409,823,718 57.53% 455,820,525 10.88% 274,190,219 6.55% 113,560,919 2.71% 935,124,209 22.33% 4,188,519,590 100%
			100%

Note: Pursuant to the terms of the Share Purchase Deed, in the event that the sum of the actual amount of the audited consolidated net profit attributable to equity holders of the Target Company for each Guarantee Period, i.e. the Entire Guarantee Period, is equal to or more than RMB1 billion, the Company would pay the Founders SPV an additional consideration in the amount of RMB150 million and would settle such payment by issuing the Additional Shares to the Founders SPV. Further, according to the terms of the Share Purchase Deed: (i) the obligation of the Company to issue the Additional Shares to the Founders SPV is subject to conditions, including, among others, the issuance of any Additional Shares not triggering any mandatory general offer under Rule 26 of the Takeovers Code or resulting in the breach of the public float requirement under the GEM Listing Rules and the Hong Kong Stock Exchange having granted the approval for the listing of and permission to deal in the Additional Shares, and (ii) to the extent that any Additional Shares cannot be allotted and issued subject to (i) above, the Company has the sole and absolute discretion to settle the remaining additional consideration in cash.

The Acquisition will not result in a change of control of the Company.

For more information on Zhongzhi Xinzhuo and Kang Bang (HK), please refer to the section headed ‘‘Appendix V — Statutory and General Information — 3. Disclosure of Interests’’ in this circular.

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LETTER FROM THE BOARD

CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE CONTRACTUAL ARRANGEMENTS

The Target Group is principally engaged in the provision of: (i) the OPCO Business; (ii) comprehensive marketing services; and (iii) data centre services. Such businesses are carried out through the OPCO Group and the WFOE Group respectively. The OPCO Group operates the OPCO Business, whereas, the WFOE Group operates comprehensive marketing services and data centre services businesses. The Target Company conducts the OPCO Business through the OPCO Group under a series of Contractual Arrangements entered into by and among the Registered Shareholders, the WFOE and the OPCO. Please refer to the section headed ‘‘Contractual Arrangements’’ in this circular for reasons for adopting the Contractual Arrangements and details of the principal terms of the Contractual Arrangements.

Immediately before Closing, the Sellers exercise effective control over the operations of the OPCO Group through these Contractual Arrangements. The Contractual Arrangements enable (i) the Sellers to enjoy the entire economic benefits from the OPCO Group in consideration for the services provided by the WFOE to the OPCO Group; (ii) the Sellers to exercise effective control over the OPCO Group; and (iii) the WFOE to hold an exclusive option to purchase all or part of the shares in and/or assets of the OPCO when and to the extent permitted by PRC Laws. The financial results of the OPCO Group have been consolidated into the consolidated financial statements of the Target Group under the prevailing accounting principles since the establishment of the Contractual Arrangements.

Immediately after Closing, the Target Company will become a wholly-owned subsidiary of the Company. The Company has discussed with its auditors and confirms that the financial results of the Target Group, including the OPCO Group, will be consolidated into the consolidated financial statements of the Enlarged Group under prevailing accounting principles immediately after Closing. On the basis of the aforesaid confirmation and pursuant to Rule 1.01 of the GEM Listing Rules, the OPCO will become an indirect wholly-owned subsidiary of the Company through the Contractual Arrangements immediately after Closing.

Further, given that Mr. Hu will remain as a director of the OPCO and that each of Mr. Hu, Ms. Liu and Xiangjia Zhongzhou will become a substantial shareholder of OPCO by virtue of legally holding more than 10% shares in the OPCO, each of Mr. Hu, Ms. Liu and Xiangjia Zhongzhou will become a connected person of the Company immediately after Closing solely for the purpose of Chapter 20 of the GEM Listing Rules. Xiangjia Zhongzhou is also a connected person of the Company at the issuer level by virtue of being indirectly wholly-owned by Mr. Xie, who is a controlling shareholder of the Company, holding approximately 73.66% of the total issued share capital of the Company as at the Latest Practicable Date through Zhongzhi Xinzhuo and Kang Bang (HK). Accordingly, the transactions contemplated under the Contractual Arrangements will constitute continuing connected transactions of the Company immediately after Closing pursuant to Chapter 20 of the GEM Listing Rules.

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LETTER FROM THE BOARD

As the highest applicable percentage ratio in respect of the transactions contemplated under the Contractual Arrangements is more than 5%, the transactions contemplated thereunder are subject to announcement, shareholders’ approval, reporting and annual review requirements under Chapter 20 of the GEM Listing Rules.

The Company has applied for, and the Hong Kong Stock Exchange has granted, a waiver from (i) fixing the term of the Contractual Arrangements for a period of not exceeding three years pursuant to Rule 20.50 of the GEM Listing Rules, and (ii) setting a maximum aggregate annual cap pursuant to Rule 20.51 of the GEM Listing Rules for the service fees payable by the OPCO to the WFOE under the Contractual Arrangements, subject to the conditions as set out more particularly in the section headed ‘‘Waiver from Strict Compliance with the GEM Listing Rules’’ in this circular.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Directors consider the Acquisition (including the allotment and issuance of the Consideration Shares and the Additional Shares under the Specific Mandate), the transactions contemplated under the Transaction Documents and the transactions contemplated under the Contractual Arrangements are fair and reasonable, and in the interests of the Company and the Shareholders as a whole for the following reasons:

• (i) As set out in the annual report of the Company for the year ended 31 March 2019, the Group experienced a major decline in its principal business and the operating results for the year end 31 March 2019. As set out in the latest annual report of the Company for the year ended 31 March 2020, although the Group’s financial performance improved as compared to the year ended 31 March 2019, the Group’s business was nevertheless affected by, among others, the COVID-19 pandemic. Though the Directors have no plan to discontinue or dispose its existing business, in light of the volatility of the financial markets and uncertainty in connection with the trade dispute between the PRC and the U.S. and the heightened geopolitical tensions in certain regions, the Directors have continuously been exploring opportunities for legitimate business expansion or diversification to broaden and strengthen the income stream of the Group by way of, among others, potential strategic investment in or acquisition of suitable businesses or targets with sizeable operations, with a view to promoting the growth in revenue and profits of the Group which will be beneficial to the Shareholders;

• (ii) The Target Group is an emerging leading service provider in the PRC customer service outsourcing industry, has benefited from the growth, and is well-positioned to capture expected future growth, in the PRC customer service outsourcing industry, has achieved stable and continued growth in its business and financial performance, and has a high-quality customer base. The contact service centre industry in the PRC has experienced growth in the recent years due to the continued economic growth in the PRC as a whole, especially the rapid development of the financial, telecom, Internet-based services, logistics and transportation industries as well as the increasing penetration rate of customer service outsourcing solutions in the PRC. The PRC government also has issued a number of favourable policies and

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LETTER FROM THE BOARD

regulations to accelerate the development of the contact service centre industry. The Company is optimistic towards the growth potential and prospect in the contact service centre industry in the PRC. Through the Acquisition, the Company will be able to immediately gain control over a well-established business and enjoy the benefit of an expansion of scope of business and existing business portfolio upon Closing;

• (iii) As at 31 March 2020, the Group has a healthy net cash position. Therefore, it is advisable through the Acquisition to efficiently utilise the resources available to the Group for broadening the source of revenue, thus, improving the operating results of the Group as a whole;

• (iv) The Directors expect that the Acquisition (including the allotment and issuance of the Consideration Shares and the Additional Shares under the Specific Mandate) will not cause material dilution impact on the existing shareholder structure. The issue of the Consideration Shares also allows the Company to minimise its funding costs in satisfying the Consideration. Therefore, the structure of the Acquisition is also considered to be beneficial to the Shareholders as a whole; and

• (v) The Consideration in the amount of RMB850 million was determined and agreed after considering the factors set out in the section headed ‘‘Letter from the Board — Issue Price’’ and represents a discount of approximately 7.1% of appraised value of the Target Group. The Directors consider that the Consideration is fair and reasonable. Although the Directors are confident in the potential and future development of the Target Group, the Company has agreed on the following measures with the Sellers after arm’s length negotiation in order to provide additional protection for the interest of the Company and the Shareholders as a whole: (a) the Guaranteed Profit, which provides extra protection to the Group against the risk of the Target Group not sustaining its business growth and financial performance and other unforeseeable circumstances (for the avoidance of doubt, even if the Guaranteed Profit is not fulfilled at the end, the valuation of the Target Group will not be affected by such failure), (b) the lock-up restrictions on the Consideration Shares provided by Founders SPV and Ms. Zhou SPV, pursuant to which Founders SPV and Ms. Zhou SPV shall not directly or indirectly sell, transfer, pledge, mortgage or otherwise dispose of the Consideration Shares within specified periods, providing recourse to the Company in the event that the Guaranteed Profit is not fulfilled, (c) the deferred payment of the Cash Consideration (other than the Tranche I Cash Consideration which shall be settled at Closing), providing recourse to the Company in the event that the Guaranteed Profit is not fulfilled, and (d) the arrangements in relation to the Guaranteed Profit will also provide incentive to the Founders, of whom Mr. Hu will remain as a director of the Target Company and DaLian Kingwisoft after Closing, to align their interest with that of the Company after Closing so as to encourage the Founders to continue working towards enhancing the value of the Company.

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LETTER FROM THE BOARD

INFORMATION ON THE COMPANY, THE SELLERS, THE GUARANTORS, XIANGJIA ZHONGZHOU AND THE TARGET GROUP

The Company

The principal activity of the Company is investment holding. Its subsidiaries are principally engaged in investment holding, provision of corporate advisory services, investment advisory and asset management services, proprietary investments and money lending.

The Sellers and the Guarantors

The Founders SPV is a company incorporated under the Laws of BVI on 21 November 2019 with limited liability. As at the Latest Practicable Date, the Founders SPV is owned as to 40.60% by Mr. Hu and 59.40% by Ms. Liu. The Ms. Zhou SPV is a company incorporated under the Laws of BVI on 21 November 2019 with limited liability. As at the Latest Practicable Date, the Ms. Zhou SPV is wholly-owned by Ms. Zhou. The Founders SPV and the Ms. Zhou SPV are principally engaged in investment holding. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, each of the Founders SPV, Ms. Zhou SPV, Mr. Hu, Ms. Liu and Ms. Zhou is an independent third party.

Zhongzhi Xinzhuo is a company incorporated in the BVI on 19 December 2018 with limited liability and is principally engaged in investment management. As at the Latest Practicable Date, Zhongzhi Xinzhuo holds approximately 60.82% of the total issued share capital of the Company and is a connected person of the Company. As at the Latest Practicable Date, Zhongzhi Xinzhuo is indirectly and wholly-owned by Mr. Xie, who is a controlling shareholder of the Company, holding approximately 73.66% of the total issued share capital of the Company through Zhongzhi Xinzhuo and Kang Bang (HK).

Xiangjia Zhongzhou

Xiangjia Zhongzhou is a limited partnership established under the PRC Laws on 25 September 2015 and is principally engaged in investment, investment management, asset management, investment consulting (except investment consulting in securities and futures). As at the Latest Practicable Date, Xiangjia Zhongzhou is indirectly wholly-owned by Mr. Xie and therefore, is a connected person of the Company. As at the Latest Practicable Date, Zhongzhi Xinzhuo and Xiangjia Zhongzhou have invested, in aggregate, approximately RMB52 million in the Target Group.

The Target Group

The Target Group, through the WFOE Group and the OPCO Group, is principally engaged in the provision of: (i) the OPCO Business; (ii) comprehensive marketing services; and (iii) data centre services. For more information on the business of the Target Group, please refer to the section headed ‘‘Business of the Target Group’’ in this circular. For the financial information of the Target Group for the three years ended 31 March 2018, 31 March

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LETTER FROM THE BOARD

2019 and 31 March 2020, please refer to the sections headed ‘‘Management Discussion and Analysis of the Financial Information on the Target Group’’ and ‘‘Appendix I — Accountants’ Report on the Target Group’’ in this circular.

The Target Company is a company incorporated under the Laws of the Cayman Islands on 4 December 2019 with limited liability. The principal activity of the Target Company is investment holding.

The WFOE is a company established under the PRC Laws on 9 May 2020 with limited liability. As at the Latest Practicable Date, the WFOE is an indirect wholly-owned subsidiary of the Target Company. It mainly engages in comprehensive marketing services and data centre services businesses through its subsidiaries.

The OPCO is a joint stock limited company established under the PRC Laws on 18 May 2016. Its predecessor was a limited liability company established under the PRC Laws on 27 November 2013, before it was converted into a joint stock limited company on 18 May 2016. The Group does not own any shares in the OPCO, which is currently held by the Registered Shareholders. The OPCO Group mainly engages in the OPCO Business. The issued shares of the OPCO were quoted on the NEEQ (stock code: 871759) before the completion of the Privatisation on 16 December 2019.

FINANCIAL INFORMATION OF THE TARGET GROUP

The following is the audited financial information of the Target Group for each of the two financial years ended 31 March 2019 and 31 March 2020 in accordance with HKFRS:

		For the year ended	31 March
		2019	2020
		(audited)	(audited)
		RMB’000	RMB’000
Profit	before tax	49,971	73,621
Profit	for the year	41,202	65,277

The audited consolidated net asset value of the Target Group as at 31 March 2020 amounted to approximately RMB278.5 million.

For the years ended 31 March 2018, 2019 and 2020, the Target Group’s revenue was RMB325.7 million, RMB405.2 million and RMB429.5 million, respectively; the revenue from the OPCO Business under the Contractual Arrangements was RMB269.6 million, RMB375.6 million and RMB412.6 million, respectively.

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LETTER FROM THE BOARD

FINANCIAL IMPACT OF THE ACQUISITION

Upon Closing, the Target Company will become a wholly-owned subsidiary of the Company and the financial results, assets and liabilities of the Target Group will be consolidated into the consolidated financial statements of the Company. The unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to this circular has been prepared to illustrate the financial effect of the Acquisition.

With reference to the unaudited pro forma financial information of the Enlarged Group for the year ended 31 March 2020 and as at 31 March 2020 as set out in Appendix III to this circular, it is expected that members of the Target Group, as subsidiaries of the Group, will provide a stable source of revenue to the Group and will be accretive to the Company’s net asset value per Share.

Possible effect on net asset value

As set out in the unaudited pro forma consolidated statement of financial position of the Enlarged Group in Appendix III to this circular, as if the Acquisition had taken place on 31 March 2020, the total assets of the Group (following the Closing, the Enlarged Group) will increase from HK$731.9 million to HK$1,646.3 million and the total liabilities of the Group (following the Closing, the Enlarged Group) will increase from HK$22.0 million to HK$482.3 million. Based on the above, the net assets of the Group (following the Closing, the Enlarged Group) will increase from HK$709.9 million to HK$1,164.0 million as a result of the Acquisition.

Possible effect on earnings

For the financial year ended 31 March 2020, the profit for the year attributable to owner of the Company was HK$1.6 million. As presented in the unaudited pro forma consolidated statement of profit or loss and other comprehensive income of the Enlarged Group as set out in Appendix III to this circular, had the Acquisition been completed on 31 March 2020, the Target Group would increase the revenue for the year of the Group from approximately HK$17.0 million to approximately HK$498.4 million.

Further information regarding the financial performance, financial position as well as the management discussions and analysis and other information of the Target Group can be found in the section headed ‘‘Management Discussion and Analysis of the Financial Information on the Target Group’’ in this circular.

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LETTER FROM THE BOARD

GEM LISTING RULES IMPLICATIONS

The Acquisition constitutes a very substantial acquisition for the Company as one or more of the relevant percentage ratios under Rule 19.07 of the GEM Listing Rules for the Acquisition are over 100%. Accordingly, the Acquisition is subject to the reporting, announcement, circular, Shareholders’ approval and accountants’ report requirements under the GEM Listing Rules.

The GEM Listing Committee has determined that the Acquisition is an extreme transaction under Rule 19.06C of the GEM Listing Rules which is not subject to the reverse takeover rules. Enhanced disclosure comparable to the standard for listing documents for new listing applicants is required in this circular. Dongxing Securities has been appointed as the financial adviser of the Company to conduct due diligence on the Target Group in accordance with Practice Note 2 of the GEM Listing Rules.

Further, as Zhongzhi Xinzhuo, one of the Sellers, is a connected person of the Company by virtue of being a controlling shareholder of the Company holding approximately 60.82% of the total issued share capital of the Company as at the Latest Practicable Date, the Acquisition will also constitute a connected transaction of the Company under Chapter 20 of the GEM Listing Rules, thus subject to Independent Shareholders’ approval requirements under the GEM Listing Rules.

As illustrated in the section headed ‘‘Letter from the Board — The Continuing Connected Transactions in relation to the Contractual Arrangements’’ above, the transactions contemplated under the Contractual Arrangements will constitute continuing connected transactions of the Company upon Closing.

As the highest applicable percentage ratio in respect of the transactions contemplated under the Contractual Arrangements is more than 5%, the transactions contemplated thereunder are subject to announcement, independent shareholders’ approval, reporting and annual review requirements under Chapter 20 of the GEM Listing Rules.

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LETTER FROM THE BOARD

Mr. Niu Zhanbin, Mr. Jiang Yulin and Mr. Wu Hui are Directors nominated by the controlling shareholder of the Company and have abstained from voting on the board resolutions. Save for the aforesaid and to the best of the Directors’ knowledge, as at the Latest Practicable Date, no other Director has a material interest in the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, Contractual Arrangements and the Specific Mandate, and therefore, no other Director is required to abstain from voting on the proposed resolutions to approve the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, Contractual Arrangements and the Specific Mandate at the EGM.

The Company has applied for, and the Hong Kong Stock Exchange has granted, a waiver from (i) fixing the term of the Contractual Arrangements for a period of not exceeding three years pursuant to Rule 20.50 of the GEM Listing Rules, and (ii) setting a maximum aggregate annual cap pursuant to Rule 20.51 of the GEM Listing Rules for the service fees payable by the OPCO to the WFOE under the Contractual Arrangements, subject to the conditions as set out more particularly in the section headed ‘‘Waiver from Strict Compliance with the GEM Listing Rules’’ in this circular.

As at the Latest Practicable Date, Beijing Tongguan is indirectly wholly-owned by Zhongzhi Capital, which is in turn indirectly wholly-owned by Mr. Xie, a controlling shareholder of the Company; Mr. Xie holds approximately 73.66% of the total issued share capital of the Company through Zhongzhi Xinzhuo and Kang Bang (HK). Therefore, Beijing Tongguan is a connected person of the Company.

The Tongguan Loan Agreements were entered into on 23 August 2019 among Beijing Tongguan (as lender), the OPCO (as borrower) and the Founders, Ms. Zhou and Dalian Zhirui (as guarantors), pursuant to which Beijing Tongguan has provided a facility in the principal amount of RMB30 million, with a term of two years upon drawdown and at the interest rate of 13% per annum, to the OPCO for its general corporate purposes.

As the OPCO will become a wholly-owned subsidiary of the Company immediately after Closing and the facility under the Tongguan Loan Agreements is expected to last after Closing, the facility under the Tongguan Loan Agreements will constitute a connected transaction of the Company immediately after Closing. As the facility under the Tongguan Loan Agreements is conducted on normal commercial terms and is not secured by the assets of the Target Group (or the Enlarged Group after Closing), it is fully exempt under Chapter 20 of the GEM Listing Rules.

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LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising all the independent non-executive Directors has been formed pursuant to the GEM Listing Rules. After considering the advice from the Independent Financial Adviser, the Independent Board Committee will advise the Independent Shareholders on the fairness and reasonableness of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate, as well as whether they are in the interests of the Company and the Shareholders as a whole, and how to vote. Each of the independent non-executive Directors has confirmed that he has no material interest in the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate.

Lego Corporate Finance Limited has been appointed as the Independent Financial Adviser by the Company to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate, as well as whether they are in the interests of the Company and the Shareholders as a whole.

EGM

A notice convening the EGM to be held at 11/F, 8 Queen’s Road Central, Hong Kong on Monday, 12 October 2020 at 11:00 a.m. is set out on pages EGM-1 to EGM-5 of this circular.

A form of proxy for use at the EGM is enclosed with this circular and published o n t h e G E M w e b s i t e ( w w w . h k g e m . c o m ) a n d t h e C o m p a n y ’s w e b s i t e (www.zzcapitalinternational.com). If you wish to appoint a proxy(ies), you are requested to complete and sign the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Hong Kong Branch Share Registrar of the Company, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from subsequently attending and voting in person at the EGM or any adjourned meeting if you so wish, and in such event, the form of proxy shall be deemed to be revoked.

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LETTER FROM THE BOARD

Given that Zhongzhi Xinzhuo, one of the Sellers, is indirectly wholly-owned by Mr. Xie who in turn wholly owns Xiangjia Zhongzhou, one of the Registered Shareholders, and that Kang Bang (HK) is also indirectly wholly-owned by Mr. Xie, both Zhongzhi Xinzhuo and Kang Bang (HK), holding approximately 73.66% of the total issued share capital of the Company in aggregate as at the Latest Practicable Date, are considered to have material interests in the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate, thus shall abstain from voting at the EGM in respect of resolutions relating thereto.

Save for the aforesaid and to the best of the Directors’ knowledge, as at the Latest Practicable Date, no other Shareholder has a material interest in the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate and therefore, no other Shareholder is required to abstain from voting on the proposed resolutions to approve the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed and the Contractual Arrangements as well as the Specific Mandate at the EGM.

Pursuant to Rule 17.47(4) of the GEM Listing Rules and Article 13.6 of the articles of association of the Company, any vote of Shareholders at a general meeting must be taken by poll. An announcement on the poll results will be published by the Company after the EGM in the manner prescribed under the GEM Listing Rules.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on pages 54 to 55 of this circular and the letter from the Independent Financial Adviser set out on pages 56 to 127 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed and the Contractual Arrangements as well as the Specific Mandate.

On the basis of the information set out in this circular, the Directors (including the Independent Board Committee after considering the advice of the Independent Financial Adviser) consider that terms and conditions of the Acquisition are on normal commercial terms and that the Acquisition (including the allotment and issuance of the Consideration Shares and the Additional Shares under the Specific Mandate) and the transactions contemplated under the Contractual Arrangements are fair and reasonable and in the interests of the Company and its Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of all the proposed resolutions set out in the notice of the EGM.

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LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is also drawn to the information set out in the appendices to this circular on the Target Group, the Enlarged Group and other information required to be disclosed under the GEM Listing Rules. You should consider carefully all the information set out in the section headed ‘‘Risk Factors’’ in this circular before making any decision in relation to the Acquisition at the EGM or dealing in the Shares of the Company.

Yours faithfully

By order of the Board ZZ Capital International Limited 中植資本國際有限公司 NIU Zhanbin

Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in respect of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed and the Contractual Arrangements, and the Specific Mandate.

==> picture [57 x 63] intentionally omitted <==

ZZ CAPITAL INTERNATIONAL LIMITED 中 植 資 本 國 際 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 08295)

18 September 2020

To the Independent Shareholders,

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET COMPANY (2) ISSUE OF ORDINARY SHARES PURSUANT TO SPECIFIC MANDATE AND

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE CONTRACTUAL ARRANGEMENTS

We refer to the circular of the Company dated 18 September 2020 (the ‘‘Circular’’), of which this letter forms part. Unless otherwise indicated, capitalised terms used herein shall have the same meanings as those defined in the Circular.

The Independent Board Committee has been formed to advise you in respect of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed and the Contractual Arrangements, as well as the Specific Mandate, details of which are set out in the ‘‘Letter from the Board’’ contained in the Circular. Lego Corporate Finance Limited has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this regard. The text of the letter of advice from the Independent Financial Adviser containing its recommendations and the principal factors and reasons it has taken into consideration in arriving at its recommendations is set out on pages 56 to 127 of the Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms and conditions of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate, and after taking into account the principal factors and reasons and the advice of the Independent Financial Adviser as set out in the ‘‘Letter from the Independent Financial Adviser’’, contained in the Circular, we consider that the terms of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate are fair and reasonable so far as the Independent Shareholders are concerned, and the Acquisition is on normal commercial terms and has been entered into in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM in respect of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate.

Yours faithfully,

For and on behalf of the Independent Board Committee ZZ Capital International Limited

Stephen MARKSCHEID ZHANG Weidong ZHANG Longgen Independent Independent Independent non-executive Director non-executive Director non-executive Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from Lego Corporate Finance Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate.

==> picture [324 x 34] intentionally omitted <==

18 September 2020

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET COMPANY (2) ISSUE OF ORDINARY SHARES PURSUANT TO SPECIFIC MANDATE AND

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE CONTRACTUAL ARRANGEMENTS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate. Details of the Acquisition are set out in the ‘‘Letter from the Board’’ (the ‘‘Letter from the Board’’) contained in the circular of the Company (the ‘‘Circular’’) to the Shareholders dated 18 September 2020, of which this letter forms part. Unless otherwise defined, terms used in this letter shall have the same meanings as those defined in the Circular.

On 10 September 2020 (after trading hours), the Company entered into the Share Purchase Deed with the Sellers and the Guarantors, pursuant to which, among others, the Company has conditionally agreed to acquire and the Sellers have conditionally agreed to sell, the entire issued share capital of the Target Company, subject to the terms and conditions therein. The Target Company is an investment holding company. The Target Group is principally engaged in the provision of: (i) the OPCO Business; (ii) comprehensive marketing services; and (iii) data centre services. Such businesses are carried out through the OPCO Group and the WFOE Group respectively. The OPCO Group operates the OPCO Business, whereas, the WFOE Group operates comprehensive marketing services and data centre services businesses. The Target Company conducts the OPCO Business through the OPCO

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Group under a series of Contractual Arrangements entered into between the WFOE, Registered Shareholders and the OPCO. Immediately after Closing, the Target Company will become a wholly-owned subsidiary of the Company. Thus, the Company will have effective control over the financing and operations of the OPCO, and enjoy the economic interest and benefits of the OPCO Group.

The Acquisition constitutes a very substantial acquisition for the Company as one or more of the relevant percentage ratios under Rule 19.07 of the GEM Listing Rules for the Acquisition are over 100%. Accordingly, the Acquisition is subject to the reporting, announcement, circular, Shareholders’ approval and accountants’ report requirements under the GEM Listing Rules. The GEM Listing Committee has determined that the Acquisition is an extreme transaction under Rule 19.06C of the GEM Listing Rules which is not subject to the reverse takeover rules.

As Zhongzhi Xinzhuo, one of the Sellers, is a connected person of the Company by virtue of being a controlling shareholder of the Company holding approximately 60.82% of the total issued share capital of the Company as at the Latest Practicable Date, the Acquisition will also constitute a connected transaction of the Company under Chapter 20 of the GEM Listing Rules, thus subject to Independent Shareholders’ approval requirements under the GEM Listing Rules.

Further, given that Mr. Hu will remain as a director of the OPCO and that each of Mr. Hu, Ms. Liu and Xiangjia Zhongzhou will become a substantial shareholder of OPCO by virtue of legally holding more than 10% shares in the OPCO, each of Mr. Hu, Ms. Liu and Xiangjia Zhongzhou will become a connected person of the Company immediately after Closing solely for the purpose of Chapter 20 of the GEM Listing Rules. Xiangjia Zhongzhou is also a connected person of the Company at the issuer level by virtue of being indirectly wholly-owned by Mr. Xie, who is a controlling shareholder of the Company, holding approximately 73.66% of the total issued share capital of the Company as at the Latest Practicable Date through Zhongzhi Xinzhuo and Kang Bang (HK). Accordingly, the transactions contemplated under the Contractual Arrangements will constitute continuing connected transactions of the Company immediately after Closing pursuant to Chapter 20 of the GEM Listing Rules.

As the highest applicable percentage ratio in respect of the transactions contemplated under the Contractual Arrangements is more than 5%, the transactions contemplated thereunder are subject to announcement, Independent Shareholders’ approval, reporting and annual review requirements under Chapter 20 of the GEM Listing Rules. The Company has applied for, and the Hong Kong Stock Exchange has granted, the waiver in respect of the Contractual Arrangements from (i) fixing the term of the Contractual Arrangements for a period of not exceeding three years pursuant to Rule 20.50 of the GEM Listing Rules, and (ii) setting a maximum aggregate annual cap pursuant to Rule 20.51 of the GEM Listing Rules for the service fees payable by the OPCO to the WFOE under the Contractual Arrangements, subject to the conditions as set out more particularly in the section headed ‘‘Waiver from Strict Compliance with the GEM Listing Rules’’ in the Circular.

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The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Stephen Markscheid, Mr. Zhang Weidong and Mr. Zhang Longgen, has been established to advise the Independent Shareholders as to whether the terms of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate are on normal commercial terms and are fair and reasonable so far as Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole, and to advise the Independent Shareholders as to whether to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate. As the Independent Financial Adviser, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders in such regard.

As at the Latest Practicable Date, Lego Corporate Finance Limited did not have any relationships or interests with the Company or any other parties that could reasonably be regarded as relevant to the independence of Lego Corporate Finance Limited. In the last two years, there was no engagement between the Group and Lego Corporate Finance Limited. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangement exist whereby we had received or will receive any fees or benefits from the Company or any other party to the transactions. Accordingly, we are qualified to give independent advice in respect of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate.

BASIS OF OUR OPINION

In formulating our opinion and advice, we have relied on (i) the information and facts contained or referred to in the Circular; (ii) the information supplied by the Group and its advisers; (iii) the opinions expressed by and the representations of the management of the Company (the ‘‘Management’’); and (iv) our review of the relevant public information. We have assumed that all the information provided and representations and opinions expressed to us by the Directors and/or the Management for which they are solely and wholly responsible for, or contained or referred to in the Circular were true, accurate and complete in all respects as at the date hereof and may be relied upon. We have also assumed that all statements contained and representations made or referred to in the Circular are true at the time they were made and continue to be true as at the date thereof and may be relied upon. We have also assumed that all such statements of belief, opinions and intentions of the Management and those as set out or referred to in the Circular were reasonably made after due and careful enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Management and/or the advisers of the Company. We have also sought and received confirmation from the Management that no material facts have been withheld or omitted from the information provided and referred to in the Circular and that all information or representations provided to us by the Management are true, accurate, complete and not misleading in all respects at the time they were made and continued to be so until the date of the EGM.

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We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided, representations made or opinion expressed by the Management, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospects of the Company, the Target Company, and any of their respective subsidiaries and associates.

This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate and, except for its inclusion in the Circular and for the purpose of the EGM, 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.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation with regard to the Acquisition and the Contractual Arrangements, we have considered the following principal factors and reasons:

A. The Acquisition

1. Information and background on the Company and the Acquisition

1.1. Background

As disclosed in the Letter from the Board, the principal activity of the Company is investment holding. Its subsidiaries are principally engaged in investment holding, provision of corporate advisory services, investment advisory and asset management services, proprietary investments and money lending.

In order to achieve a diversification by across geographies, sectors, and asset classes, as stated in the annual report of the Company for the year ended 31 March 2019 (the ‘‘2018/2019 Annual Report’’), the Company will re-emphasise its strategic Hong Kong location and connectivity with China. With a view to improve its state of operation, the Company endeavors to achieve a more integrated Greater China strategy at a more balanced and steadier pace. With growing investment opportunities in the Greater Bay Area, the Group will leverage on its local knowledge and expertise to drive its business growth, and will achieve a synergistic business by cooperating with domestic and overseas partners.

As stated in the annual report of the Company for the year ended 31 March 2020 (the ‘‘2019/2020 Annual Report’’), the Company intends to acquire the Target Company which will support the development of the Group’s business and provide potential opportunities to the Group for the diversification of its business and source of revenue. Completion of the Acquisition is expected to bring more stable revenue and more

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development opportunities for the Group, which is in line with the Company’s primary objective to drive business growth by adopting business strategies to integrate with Greater China.

1.2. Financial information of the Group

Set out below is the summary of the Group’s financial information for the years ended 31 March 2018, 2019 and 2020 and the three months ended 30 June 2019 and 2020 as extracted from the 2018/2019 Annual Report, the 2019/2020 Annual Report and the first quarterly report of the Company for the three months ended 30 June 2020 (the ‘‘2019/2020 First Quarterly Report’’), respectively.

Revenue — Corporate advisory income — Loan interest income — Investment advisory and management income Total Profit (loss) before tax Profit (loss) for the year/ period	Year ended 31 March 2018 2019 2020 HK$’000 HK$’000 HK$’000 (Audited) (Audited) (Audited) 16,148 1,630 15,388 — 2,305 1,581 230,299 — — 246,447 3,935 16,969 26,822 (283,896) 1,780 20,802 (284,709) 1,589	Three months ended 30 June 2019 2020 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,638 150 366 405 — — 3,004 555 (11,270) (11,680) (11,271) (11,680)

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Assets Non-current assets Current Assets Total assets Liabilities Non-current liabilities Current liabilities Total liabilities	As at 31 March 2018 2019 HK$’000 HK$’000 (Audited) (Audited) 481,710 19,194 528,865 695,690 1,010,575 714,884 — — 20,161 9,702 20,161 9,702	2020 HK$’000 (Audited) 26,559 705,292
		731,851
		3,007 18,950
		21,957

For the three months ended 30 June 2019 and 2020

As depicted in the table above, total revenue of the Group decreased from approximately HK$3.0 million for the three months ended 30 June 2019 to approximately HK$0.6 million for the three months ended 30 June 2020, which was primarily attributable to the decrease in revenue generated from corporate advisory income of approximately HK$2.5 million.

The Group’s net loss increased from approximately HK$11.3 million for the three months ended 30 June 2019 to approximately HK$11.7 million for the three months ended 30 June 2020. Such increase was mainly attributable to (i) the decrease in revenue as discussed above; (ii) the increase in operating expenses of approximately HK$6.8 million as a result of the increase in professional fees incurred for the Acquisition and staff costs; and (iii) the decrease in interest income of approximately HK$0.5 million. The effect of which was partially mitigated by (i) the decrease in loss on exchange difference of HK$7.1 million; and (ii) the net investment income of approximately HK$0.8 million for the three months ended 30 June 2020 as compared to the net investment loss of approximately HK$1.3 million for the three months ended 30 June 2019.

For the years ended 31 March 2019 and 2020

As illustrated in the table above, total revenue of the Group increased from approximately HK$3.9 million for the year ended 31 March 2019 to approximately HK$17.0 million for the year ended 31 March 2020. As advised by the Management, such increase was mainly attributable to the increase in revenue generated from investment advisory business as a result of new institutional customers.

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Based on the foregoing and taking into account (i) the decrease in operating expenses from approximately HK$186.9 million for the year ended 31 March 2019 to approximately HK$64.4 million for the year ended 31 March 2020 as a result of the significant reduction in staff costs, rental related expenses and professional fee; and (ii) recognition of fair value gain on convertible loan receivable at fair value through profit or loss of approximately HK$57.4 million for the year ended 31 March 2020 as compared to fair value loss of approximately HK$81.4 million for the year ended 31 March 2019, the Group recorded a net profit of approximately HK$1.6 million for the year ended 31 March 2020 as compared to the net loss of approximately HK$284.7 million for the year ended 31 March 2019.

As at 31 March 2020, total assets of the Group amounted to approximately HK$731.9 million, representing a slight increase of approximately 2.4% from approximately HK$714.9 million as at 31 March 2019, which was mainly due to (i) the increase in other assets and receivables of approximately HK$181.0 million mainly in connection with the assignment of the Group’s convertible loan receivable; and (ii) recognition of right-of-use assets of approximately HK$6.9 million as a result of the adoption of HKFRS 16 for the year ended 31 March 2020, the effect of which was partially offset by the decrease in convertible loan receivable at fair value through profit or loss of approximately HK$168.0 million.

As at 31 March 2020, total liabilities of the Group amounted to approximately HK$22.0 million, representing an increase of approximately 126.3% from approximately HK$9.70 million as at 31 March 2019, which was mainly due to the increase in lease liabilities of approximately HK$6.9 million as a result of the adoption of HKFRS 16 for the year ended 31 March 2020 and increase in other payables and accruals of approximately HK$6.2 million.

For the years ended 31 March 2018 and 2019

As illustrated in the table above, total revenue of the Group declined significantly from approximately HK$246.4 million for the year ended 31 March 2018 to approximately HK$3.9 million for the year ended 31 March 2019. As disclosed in the 2018/2019 Annual Report, such decrease was primarily attributable to the absence of investment advisory and management income for the year ended 31 March 2019 as compared to that of approximately HK$230.3 million for the year ended 31 March 2018 as the investment advisory and management agreement with Zhongzhi Capital had expired on 31 March 2018.

The Group recorded a net loss of approximately HK$284.7 million for the year ended 31 March 2019 as compared to a net profit of approximately HK$20.8 million for the year ended 31 March 2018, which was primarily attributable to (i) the decrease in revenue of approximately HK$242.5 million; and (ii) the net investment loss on financial assets of approximately HK$85.0 million as compared to a net investment income of approximately HK$6.3 million, mainly because of the fair value loss on convertible loan receivable at fair value through profit or loss of HK$81.4 million recognised during the year ended 31 March 2019. The effect of the

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above was partially mitigated by the decrease in operating expenses of the Group of approximately HK$42.3 million as a result of decrease in staff costs, rental expenses and professional fee.

As at 31 March 2019, total assets of the Group amounted to approximately HK$714.9 million, representing a decrease of approximately 29.3% from approximately HK$1,010.6 million as at 31 March 2018, which was mainly due to (i) the decrease in trade receivables of approximately HK$233.0 million; (ii) the decrease in deposit of approximately HK$205.2 million; and (iii) the decrease in convertible loan receivable at fair value through profit or loss of approximately HK$81.4 million, while partially offset by the increase in bank balances and cash of approximately HK$232.4 million.

As at 31 March 2019, total liabilities of the Group amounted to approximately HK$9.7 million, representing a decrease of approximately 51.9% from approximately HK$20.2 million as at 31 March 2018, which was mainly due to (i) the decrease in other payables and accruals of approximately HK$9.0 million; and (ii) the decrease in tax payable of approximately HK$1.4 million.

2. Information on the Target Group

2.1. Background

As disclosed in the Letter from the Board, the Target Company is a company incorporated under the Laws of the Cayman Islands on 4 December 2019 with limited liability. The principal activity of the Target Company is investment holding.

As set out in the Letter from the Board, the Target Group, through the WFOE Group and the OPCO Group, is principally engaged in the provision of: (i) the OPCO Business; (ii) comprehensive marketing services; and (iii) data centre services. For more information on the business of the Target Group, please refer to the section headed ‘‘Business of the Target Group’’ in the Circular.

As disclosed in the Letter from the Board, the WFOE is a company established under the PRC Laws on 9 May 2020 with limited liability. As at the Latest Practicable Date, the WFOE is an indirect wholly-owned subsidiary of the Target Company. It mainly engages in comprehensive marketing services and data centre services businesses through its subsidiaries.

2.2. Information of the OPCO Group

As disclosed in the letter from the Board of the Circular, the OPCO is a joint stock limited company established under the PRC Laws on 18 May 2016. Its predecessor was a limited liability company established under the PRC Laws on 27 November 2013, before it was converted into a joint stock limited company on 18 May 2016. The Group does not own any shares in the OPCO, which is currently held by the Registered Shareholders.

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The OPCO Group mainly engages in the OPCO Business. The issued shares of the OPCO were quoted on the NEEQ (stock code: 871759) before the completion of the Privatisation on 16 December 2019.

2.3. Financial information of the Target Group

The following table sets out the summary of financial performance of the Target Group for the years ended 31 March 2018, 2019 and 2020 based on the accountants’ report set out in Appendix I to the Circular.

Revenue — Back-office services — Comprehensive marketing services — Data centre services Total Gross profit Profit before tax Profit for the year Assets Non-current assets Current Assets Total assets Liabilities Non-current liabilities Current liabilities Total liabilities		Year ended March 2018 2019 RMB’000 RMB’000 (Audited) (Audited) 269,613 375,631 10,516 17,748 45,524 11,845 325,653 405,224 92,651 103,726 33,594 49,971 28,984 41,202 As at March 31 2018 2019 RMB’000 RMB’000 (Audited) (Audited) 38,520 43,780 169,724 235,833 208,244 279,613 1,059 2,261 48,598 76,803 49,657 79,064	31 2020 RMB’000 (Audited) 412,575 5,001 11,882
			429,458 109,309 73,621 65,277 2020 RMB’000 (Audited) 82,444 321,588
			404,032
			34,124 91,395
			125,519

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For the years ended 31 March 2019 and 2020

As illustrated in the table above, total revenue of the Target Group increased from approximately RMB405.2 million for the year ended 31 March 2019 to approximately RMB429.5 million for the year ended 31 March 2020, representing an increase of approximately 6.0%. As disclosed in the section headed ‘‘Management discussion and analysis of financial information on the Target Group’’ in the Circular, such increase was primarily due to an increase in the revenue derived from its back-office services and, partially offset by a decrease in the revenue derived from its comprehensive marketing services segments. The Target Group’s gross profit increased by approximately RMB5.6 million, or 5.4%, from approximately RMB103.7 million for the year ended 31 March 2019 to approximately RMB109.3 million for the year ended 31 March 2020. The Target Group’s gross profit margin remained relatively stable at approximately 25.5% in 2020 as compared to approximately 25.6% in 2019.

The Target Group recorded a net profit of approximately RMB65.3 million for the year ended 31 March 2020, representing an increase of approximately 58.4% as compared to that of approximately RMB41.2 million for the year ended 31 March 2019. Such increase was mainly attributable to (i) the increase in gross profit as discussed above; and (ii) the increase in other income of approximately RMB7.0 million.

The total assets of the Target Group increased from approximately RMB279.6 million as at 31 March 2019 to approximately RMB404.0 million as at 31 March 2020, representing an increase of approximately 44.5%. Such increase was mainly attributable to (i) the increase in accounts and other receivables of approximately RMB34.8 million; (ii) the increase in right-of-use assets of approximately RMB26.4 million; and (iii) the increase in bank balances and cash of approximately RMB51.2 million; (iv) the increase in intangible asset of approximately RMB8.1 million; and (v) the increase in equity instrument at fair value through other comprehensive income of approximately RMB4.6 million.

The total liabilities of the Target Group increased from approximately RMB79.1 million as at 31 March 2019 to approximately RMB125.5 million as at 31 March 2020, representing an increase of approximately 58.7%. Such increase was mainly attributable to (i) the increase in borrowings of approximately RMB24.0 million; and (ii) the increase in lease liability of approximately RMB26.0 million.

For the years ended 31 March 2018 and 2019

As illustrated in the table above, total revenue of the Target Group increased significantly from approximately RMB325.7 million for the year ended 31 March 2018 to approximately RMB405.2 million for the year ended 31 March 2019, representing an increase of approximately 24.4%. As disclosed in the section headed ‘‘Management discussion and analysis of financial information on the Target Group’’ in the Circular, such increase was primarily due to the increase in the

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revenue derived from its back-office services and comprehensive marketing services segments, partially offset by a decrease in the revenue derived from its data centre services segment.

The Target Group’s gross profit increased by approximately RMB11.1 million, or 12.0%, from approximately RMB92.7 million for the year ended 31 March 2018 to approximately RMB103.7 million for the year ended 31 March 2019. The Target Group’s gross profit margin decreased from approximately 28.5% for the year ended 31 March 2018 to approximately 25.6% for the year ended 31 March 2019, which was primarily due to a decrease in the profit margin in the Target Group’s backoffice services for the year ended 31 March 2019 as compared to the year ended 31 March 2018.

The Target Group recorded a net profit of approximately RMB41.2 million for the year ended 31 March 2019, representing an increase of approximately 42.2% as compared to that of approximately RMB29.0 million for the year ended 31 March 2018. Such increase was mainly attributable to (i) the increase in gross profit as discussed above; (ii) the decrease in net impairment losses of approximately RMB5.2 million; (iii) the decrease in administrative expense of approximately RMB2.8 million; and (iv) the decrease in marketing expense of approximately RMB0.6 million, which was partially offset by (i) the decrease in other income of approximately RMB1.4 million; and (ii) the increase in research and development expenses of approximately RMB1.6 million.

The total assets of the Target Group increased from approximately RMB208.2 million as at 31 March 2018 to approximately RMB279.6 million as at 31 March 2019, representing an increase of approximately 34.3%. Such increase was mainly attributable to (i) the increase in accounts and other receivables of approximately RMB77.0 million; (ii) the increase in property and equipment of approximately RMB7.1 million; and (iii) the increase in bank balances and cash of approximately RMB3.9 million, partially offset by (i) the absence of contract assets of approximately RMB16.6 million; and (ii) the decrease in intangible assets of approximately RMB1.5 million.

The total liabilities of the Target Group increased from approximately RMB49.7 million as at 31 March 2018 to approximately RMB79.1 million as at 31 March 2019, representing an increase of approximately 59.2%. Such increase was mainly attributable to (i) the recognition of borrowings and lease liabilities of approximately RMB23.6 million as at 31 March 2019 as compared to that of nil as at 31 March 2018; (ii) the increase in tax payable of approximately RMB1.4 million; and (iii) the increase in accounts and other payables of approximately RMB6.9 million, the effect of which was partially offset by the decrease in contract liabilities of approximately RMB2.3 million.

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3. Reasons for and benefits of the Acquisition

As disclosed in the Letter from the Board, the Board considered the Acquisition to be in the interests of the Company and the Shareholders as a whole after considering the following reasons:

(i) The unfavourable macro economy

As set out in the 2019/2020 Annual Report, although the Group’s financial performance for the year ended 31 March 2020 improved as compared to that for the year ended 31 March 2019, the Group’s business was nevertheless affected by, among others, the novel coronavirus (‘‘COVID-19’’) pandemic. Having considered that (i) the Directors have no plan to discontinue or dispose its existing business; (ii) the volatility of the financial markets and uncertainty in connection with the trade dispute between the PRC and the U.S. (the ‘‘Trade Dispute’’); and (iii) the heightened geopolitical tensions in certain regions as a result of the Trade Dispute, the Directors have continuously been exploring opportunities for legitimate business expansion or diversification, as discussed in the paragraph headed ‘‘1.1. Background’’ above, to broaden and strengthen the income stream of the Group, by way of, among others, potential strategic investment in or acquisition of suitable businesses or targets with sizeable operations, with a view to promoting the growth in revenue and profits of the Group which will be beneficial to the Shareholders.

(ii) The Target Group has been consistently generating profit which the Directors believe would improve the financial performance and condition of the Group

As disclosed in the section headed ‘‘Business of the Target Group’’ in the Circular, the Target Group is committed to building a multilingual and multichannel outsourced service platform with a nationwide footprint. It is fully equipped to provide customer service solutions, including contact services and BPO services, through various channels such as telephone, live chat on various online platforms including apps, social media and customers’ websites and other cloud-based audio and video communication methods. The Target Group also helped its customers to set up their contact service systems and centres during the Track Record Period. As at 31 March 2020, the Target Group had 12 selfoperated contact service centres in eight cities across China with approximately 6,341 workstations. Together with another eight contact service centres operated by its subcontractors as at 31 March 2020, the Target Group’s services covered all regions in China. In most of the cases, the Target Group charges fees in relation to its provision of customer service solutions based on a fixed-fee approach, which is calculated based on the budgeted headcounts involved in the project, multiplied by predetermined fees. We have reviewed sample agreements and noted such predetermined fees are charged based on the grading of the designated staffs. In other occasions, the customers adopt a performance-based charging scheme based on (1) the number of inbound or outbound calls handled by the Target Group’s contact service staff in a period; or (2) a commission based on the total sales made through the outgoing calls. We have also discussed with the Management regarding the pricing policy and procedure and were given to understand that whether to adopt the fixed fees or the performance-based charging scheme generally

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depends on the preferences of the customers and is a result of arm’s length negotiations between the Target Group and its customers. As the Target Group generally prices its services based on a cost-plus approach, the Target Group carefully evaluates the cost of such services based on the estimated demand of its services, the costs of labour and skilled workers (based on the level of skills required), the costs of required equipment and technologies, expected project duration and estimated time costs. Then, with the added mark-up margin, the Target Group carefully considers whether the charging scheme as requested by the customers is an economically viable option for the Target Group and negotiates with its customers to find a win-win solution for both sides. The majority of the key customers of the Target Group are major Chinese internet-based service providers that are household brands in China and leaders in areas such as e- commerce, financial services, education and transportation services. The Target Group also maintains strong relationship with customers in the traditional finance and telecommunication industries, including over 30 securities houses and one of the largest telecommunication service providers in China during the Track Record Period. The Target Group believes that the value of the services it provides to its customers have been recognised by its customers and increases their stickiness to the Target Group, providing the Target Group with a reliable source of revenue. The Management is of the view that the Target Group’s business model is stable and competitive.

The Target Group continually recorded the profit attributable to owners of the Target Company of approximately RMB29.2 million, RMB41.2 million and RMB65.3 million for the years ended 31 March 2018, 2019 and 2020, respectively. The Acquisition will be accretive to the Group’s net asset value per Share. Based on the unaudited pro forma financial information of the Enlarged Group set out in Appendix III to the Circular, the Group’s net assets, after factoring in the estimated goodwill of approximately HK$755.1 million arising from the Acquisition, would increase by approximately 64.0% from approximately HK$709.9 million to approximately HK$1,164.0 million assuming completion of the Acquisition had taken place on 31 March 2020. In light of the above and taking into account the Target Group recorded revenue and net profit of approximately RMB429.5 million and RMB65.3 million for the year ended 31 March 2020, respectively, it is expected that the Acquisition would gear up the Enlarged Group with a stable growing revenue stream and improve its profitability, thereby delivering better returns to the Shareholders and is therefore a viable option for the Company to ameliorate its business operation.

(iii) The Enlarged Group would continue to expand and is expected to have favourable growth after acquiring the Target Group

Based on the information provided in the section headed ‘‘Business of the Target Group’’ in the Circular which made references to the statistics from CIC, an independent market research and consulting company, the Target Group is an emerging leading service provider in the PRC customer service outsourcing industry which ranked the 16th among approximately 2,700 outsourced customer care service providers in China and was one of the top ten local privately-owned outsourced customer care service providers, both in terms of revenue in 2019. The Target Group has benefited from the growth, and is well-positioned to capture expected future growth, in the PRC customer service

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outsourcing industry, has achieved stable and continued growth in its business and financial performance, and has a high-quality customer base. The Management believes that with the prevailing status and reputation of the Target Group in the PRC customer service outsourcing industry, the Enlarged Group can continue to expand and grow, and the Group will be benefited by gaining access to a business with an established track record.

As set out in the section headed ‘‘Industry Overview’’ in the Circular, the revenue generated by the customer service outsourcing industry in China increased from approximately RMB14.1 billion in 2014 to approximately RMB41.3 billion in 2019, growing at a CAGR of 24.0%. This growth has been driven by the continued economic growth in China, a booming demand from downstream industries, such as financial, telecom, internet-based services, logistics and transportation industries as well as an increasing penetration rate for the customer service outsourcing solutions in the PRC. Further, according to CIC, the revenue of customer service outsourcing industry is expected to grow at a CAGR of approximately 14.1% during the period from 2019 to 2024 up to as much as approximately RMB80.0 billion by 2024. Such growing trend is mainly attributable to healthy growth in the Chinese economy and the continuous development of downstream industries, along with the trading up of Chinese consumers, all of which create more opportunities for expanding customer service and marketing activities in China. With a proven business model, the Target Group believes that it is well-positioned to capture the further growth in the customer service outsourcing industry.

As disclosed in the section headed “Industry Overview” in the Circular, the COVID19 outbreak is expected to bring limited impacts to the PRC customer service outsourcing industry in the long run. We have reviewed an article from Xinhua News Agency, an official state-run press agency of the PRC, that the Ministry of Commerce of the PRC has rolled out favourable policies to ensure the stable development of the service outsourcing sector including the BPO services in fighting the epidemic, which include helping the sector benefit more from the country’s new supportive tax, financial and human resources policies, supplying the disease prevention gear, and streamlining administrative services. Moreover, to assess the impact of the COVID-19 outbreak on the Target Group and its business, we reviewed the accountants’ report on the Target Group as set out in Appendix I to the Circular and noted that the revenue of the Target Group increased from approximately RMB405.2 million for the year ended 31 March 2019 to approximately RMB429.5 million for the year ended 31 March 2020, whereas the total projects handled by the Target Group were 71 and 77 as at 31 March 2019 and 31 March 2020, respectively. Furthermore, we have discussed with the Management and were given to understand that having considered (a) the cash and cash equivalents of the Target Group as at 31 March 2020 available for general working capital purpose; and (b) the estimated operating expenses, including fixed overhead costs, staff costs, repayment of bank loan and interest and cash expense items, it is expected that the Target Group could support its minimal operations for at least two years, assuming the worst case scenario that COVID-19 outbreak will continue, and the Target Group had to suspend indefinitely the operations of all contact service centres. In light of the above, we concur with the

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Management’s view that the COVID-19 outbreak will not have material adverse impact on the Target Group’s overall business operations and financial performance, and the outlook for the demand for customers services in the PRC will remain positive.

Having taking into account the above and in particular that (i) the contact service centre industry in the PRC has experienced growth in the recent years due to the continued economic growth in the PRC as a whole, especially the rapid development of the financial, telecom, internet-based services and logistics and transportation industries; (ii) more and more client companies prefer to make use of customer service outsourcing solutions due to their cost-effectiveness and scalability; and (iii) the PRC Government has also issued a number of favourable policies and regulations to accelerate the development of the contact service centre industry as set out in the section headed ‘‘Industry Overview — Drivers for the Growth of the Contact Service Centre Industry in China’’ in the Circular, which would provide further financial support for contact service centres, and help ensure the rapid and healthy development of the contact service centre industry in the PRC, we consider the growth potential and prospect in the contact service centre industry in the PRC to be positive in the near future. It is therefore expected that, through the Acquisition, the Company can control a well-established business and enjoy the benefit of an expansion of scope of business and existing business portfolio upon Closing.

(iv) Safeguard measures provide additional protection to the Company

As disclosed in the Letter from the Board, despite the Directors are confident in the potential and future development of the Target Group irrespective of its short track record since its establishment in 2013, the Company has agreed on the following measures with the Sellers after arm’s length negotiation in order to provide additional protection for the interest of the Company and the Shareholders as a whole: (a) the profit guarantee provided by the Founders (the ‘‘Profit Guarantee’’), which provides extra protection to the Group against the potential risk of the Target Group not sustaining its business growth and financial performance and other unforeseeable circumstances (for the avoidance of doubt, even if the Guaranteed Profit is not fulfilled at the end, the valuation of the Target Group will not be affected by such failure); (b) the lock-up restrictions on the Consideration Shares provided by the Founders SPV and Ms. Zhou SPV, pursuant to which the Founders SPV and Ms. Zhou SPV shall not directly or indirectly sell, transfer, pledge, mortgage or otherwise dispose of the Consideration Shares within specified periods, providing recourse to the Company in the event that the Guaranteed Profit is not fulfilled; (c) the deferred payment of the Cash Consideration (other than the Tranche I Cash Consideration which shall be settled at Closing), providing recourse to the Company in the event that the Guaranteed Profit is not fulfilled; and (d) the arrangements in relation to the Guaranteed Profit will also provide incentive to the Founders, of whom Mr. Hu will remain as a director of the Target Company and DaLian Kingwisoft after Closing, to align their interest with that of the Company after Closing so as to encourage the Founders to continue working towards enhancing the value of the Company. Having considered the above and reviewed the mechanism of the Profit Guarantee as discussed in the paragraph headed ‘‘Profit Guarantee’’ below, we concur with the view of the Management that the above measures

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provide additional protection for the Company against the potential risk of the Target Group in the event that it is not sustaining its business growth and financial performance and other unforeseeable circumstances.

In light of the above and having considered (i) the unfavourable macro economy; (ii) the Acquisition would create positive financial impacts on the Group; (iii) the historical financial performance of the Target Group; (iv) the Target Group will provide a stable source of revenue; (v) the positive outlook of the contact service centre industry in the PRC; (vi) the business development and prospects of the Target Group; and (vii) the Profit Guarantee provides protection to the Company, we concur with the view of the Management that the Acquisition is in the interests of the Company and the Shareholders as a whole.

4. Principal terms of the Share Purchase Deed

Pursuant to the Share Purchase Deed, the Company has conditionally agreed to acquire and the Sellers have conditionally agreed to sell the entire issued share capital of the Target Company, free from all encumbrances, together with all rights attaching to them, and the Guarantors have agreed to guarantee the performance by the Founders SPV and Ms. Zhou SPV of their obligations under the Share Purchase Deed. Details of the terms to the Share Purchase Deed are set out in the section headed ‘‘The Share Purchase Deed’’ in the Letter from the Board.

4.1. Consideration and the settlement method

The total Consideration for the entire issued share capital of the Target Company is RMB850 million, of which approximately RMB180 million will be settled by allotment and issuance of the Consideration Shares, RMB420 million will be settled in the form of Cash Consideration, and RMB250 million will be settled in the form of Closing Fund.

Cash Consideration

The Cash Consideration of RMB420 million will be paid by the Company upon Closing to the Founders SPV and Ms. Zhou SPV, or persons designated by the Founders SPV and Ms. Zhou SPV. The Cash Consideration will be settled by the Company in five instalments and payable upon Closing and on 31 July 2021, 2022, 2023 and 2024. The Cash Consideration will be paid out of the internal resources of the Group. No Cash Consideration will be paid to Zhongzhi Xinzhuo.

Closing Fund

The Company has conditionally agreed to provide, or procure its subsidiary to provide, the Closing Fund in an amount equal to the Debt Note to DaLian Kingwisoft within three Business Days after Closing. The Company, Founders SPV, Ms. Zhou SPV and the Guarantors have agreed to procure DaLian Kingwisoft to use such Closing Fund to settle the outstanding Debt Note issued by DaLian Kingwisoft to Dalian Zhirui. The Closing Fund will be paid out of the internal resources of the Group.

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As disclosed in the Letter from the Board, the Consideration was agreed after arm’s length negotiations between the parties to the Share Purchase Deed, and was determined after taken into account, among other things, (i) the historical financial information of the Target Group during the Track Record Period as illustrated and explained in detail in the section headed ‘‘Management Discussion and Analysis of Financial Information of the Target Group’’ in the Circular; (ii) valuation of companies principally engaged in business comparable to the Target Group and listed on the Hong Kong and U.S. stock exchanges; and (iii) the business prospects of the Target Group as elaborated in the sections headed ‘‘Industry Overview’’ and ‘‘Business of the Target Group — Business Strategies’’ in the Circular, coupled with the leading position of the Target Group and the growth of the contact service centre industry in the PRC driven by booming demand from downstream industries with reference to the industry report issued by CIC; and (iv) the risks associated with the Target Group and the OPCO Business as elaborated in the section headed ‘‘Risk Factors’’ in the Circular.

Based on the 2019/2020 Annual Report, the Group recorded bank balances and cash of approximately HK$474.1 million as at 31 March 2020 and a net profit of approximately HK$1.6 million for the year ended 31 March 2020 and net cash outflows in operating activities of approximately HK$21.8 million for the year ended 31 March 2020.

In light of the above and taking into account (i) both Cash Consideration and Closing Fund will be settled by internal resources of the Group; and (ii) the sum of the first instalment of the Cash Consideration and the Closing Fund amounting to RMB390 million (equivalent to approximately HK$426.6 million), representing 90.0% of the bank balances and cash as at 31 March 2020, we consider that partial settlement by the Consideration Shares will (i) reduce the immediate cash outflow of the Group; and (ii) enable the Group to preserve cash for financing its daily operations, future capital requirements and settlement of the remaining instalments of the Cash Consideration. As such, we are of the view that the settlement method is in the interests of the Company and the Shareholders.

4.2. Profit Guarantee

As disclosed in the Letter from the Board, the Founders have undertaken to the Company pursuant to the Share Purchase Deed that the audited consolidated net profit attributable to the equity holders of the Target Company in accordance with HKFRS for any given Guarantee Period would not be less than the Guaranteed Profit in respect of such Guarantee Period as detailed below. The Company has undertaken to the Founders that subject to the compliance of all applicable Laws and regulations (including the GEM Listing Rules and the directors’ fiduciary duties and duties of skill, care and diligence), it will use reasonable endeavours to procure the directors of DaLian Kingwisoft nominated by it to act in the interests of the Group as a whole during the Entire Guarantee Period.

The amount of the Guaranteed Profit for each Guarantee Period is arrived after arm’s length negotiations between the Company and the Founders and is determined based on (i) overview of the contact service centers industry and customer service

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outsourcing industry in the PRC; (ii) the position of the Target Group as an emerging leading service provider in the customer service outsourcing industry in the PRC; and (iii) the business prospects of the Target Group as elaborated in section headed ‘‘Business of the Target Group — Business Strategies’’ in the Circular.

For the year ended 31 March 2020 For the year ending 31 March 2021 For the year ending 31 March 2022 For the year ending 31 March 2023 For the year ending 31 March 2024 Aggregated Guaranteed Profits	Guaranteed Profit (RMB million) 60 90 120 150 180
	600

According to the CIC Report, the revenue of customer service outsourcing industry is expected to grow at a CAGR of approximately 14.1% during the period from 2019 to 2024 and increase to as much as approximately RMB80.0 billion by 2024 from RMB41.3 billion in 2019, with this growth trend mainly being attributable to healthy growth in the Chinese economy and the continuous development of downstream industries, in particular, the financial industry, telecommunications, internet-based services and logistics and transportation market, along with the trading up of Chinese consumers, all of which create more opportunities for expanding customer service and marketing activities in China. It is noted that the amount of the Guaranteed Profit during the Guarantee Period represents a CAGR of approximately 24.6% (the ‘‘Guaranteed Profits CAGR’’), which is higher than the expected CAGR of the overall market growth.

Based on the accountants’ report on the Target Group as set out in Appendix I to the Circular, we noted that the Target Group recorded a net profit after tax of approximately RMB41.2 million and RMB65.3 million for the years ended 31 March 2019 and 2020, respectively, representing a significant increment of approximately 58.5%, which is higher than the Guaranteed Profits CAGR.

We were given to understand that, having made reasonable enquiry with the Management, notwithstanding the outbreak of the COVID-19 in 2020, the Management still considered that the Target Group can be profit making subsequent to 31 March 2020 and therefore can continue to achieve the Guaranteed Profit.

In addition, according to the CIC Report, the Target Group ranked 16th among all outsourced customer care service providers in China and was one of the top ten local privately owned outsourced customer care service providers, both in terms of revenue in 2019. The Target Group is among the two providers established after 2010 that ranked as China’s top 20 outsourced customer care service providers, in terms of revenue, in 2019. It is also China’s first local outsourced customer care service provider with COPC certification for two of its contact service centres. With this background and experience

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accumulated, the Directors are of the view that, despite the fact that the Guaranteed Profits CAGR is higher than the expected CAGR of the overall market growth, the Target Group will be able to successfully carry out and execute the business plans as stated in the section headed ‘‘Business of the Target Group — Business Strategies’’ in the Circular and take advantage of the overall market growth in the industry in order to achieve Guaranteed Profits CAGR.

Having considered that (i) the significant increase of net profit after tax of the Target Group for the year ended 31 March 2020 as compared to that of 2019 is higher than the Guaranteed Profits CAGR; (ii) the Management is not aware of any material adverse change in the operation of the Target Group subsequent to 31 March 2020 that may result in its failure to achieve the Guaranteed Profit; (iii) the net profit of the Target Group amounted to approximately RMB65.3 million for the year ended 31 March 2020, which superseded the Guaranteed Profit of RMB60 million for the year ended 31 March 2020 by approximately 8.8% notwithstanding the COVID-19 outbreak in 2020; and (iv) the prospect of the Target Group and the customer service outsourcing industry, we concur with the Management’s view that the determination of the respective Profit Guarantee for each Guarantee Period is fair and reasonable, despite the fact that the Guarantee Profit CAGR is higher than the expected CAGR of the overall market growth.

Taking into account that, in the event that the actual amount of the audited net profit attributable to the equity holders of the Target Company for any Guarantee Period is less than the Guaranteed Profit in respect of such Guarantee Period in accordance with HKFRS, the Founders are expected to compensate the Company by paying the Company an amount in cash equal to (((A-B)/C) x D)-E, where:

• A = the sum of: (i) the amount of the Guaranteed Profit in respect of such Guarantee Period; and (ii) the amount of the Guaranteed Profit in respect of each Guarantee Period preceding such Guarantee Period;

• B = the sum of: (i) the actual amount of the audited consolidated net profit/net loss attributable to equity holders of the Target Company for such Guarantee Period; and (ii) the actual amount of the audited consolidated net profit/net loss attributable to equity holders of the Target Company for each Guarantee Period preceding such Guarantee Period;

• C = RMB600,000,000 (i.e. the sum of the amount of the Guaranteed Profit in respect of each Guarantee Period);

• D = RMB779,392,971 (i.e. the Consideration less the amount of the Consideration paid, or payable, by the Company to Zhongzhi Xinzhuo); and

• E = the sum of the amount of any such compensation which has been paid by the Founders in respect of each Guarantee Period preceding such Guarantee Period.

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As disclosed in the Letter from the Board, if the actual audited consolidated net profit attributable to the equity holders of the Target Company in accordance with HKFRS as shown in its audited accounts (the ‘‘Actual Net Profit’’) for any Guarantee Period is less than the Guaranteed Profit in respect of such Guarantee Period (the ‘‘Shortfall’’), the Founders shall compensate the Company the Shortfall in cash (the ‘‘Compensation’’) in accordance with the formula above. The Compensation paid will not be returned by the Company to the Founders in the subsequent Guarantee Period even if the Actual Net Profit in the subsequent Guarantee Period is higher than the Guaranteed Profit in respect of such subsequent Guarantee Period.

In the event that the accumulated amount of Actual Net Profit for the Entire Guarantee Period is zero and the Shortfall for the Entire Guarantee Period is therefore RMB600,000,000, the Compensation obliged to be paid by the Founders for the Shortfall equals the amount of Consideration paid by the Company (other than the amount of the Consideration paid by the Company to Zhongzhi Xinzhuo).

In the event that the Target Company records an accumulated actual audited consolidated net loss attributable to the equity holders of the Target Company in accordance with HKFRS for the Entire Guarantee Period and the Shortfall for the Entire Guarantee Period is therefore greater than RMB600,000,000, the amount of Compensation obliged to be paid by the Founders will exceed the Consideration paid by the Company (other than the amount of the Consideration paid by the Company to Zhongzhi Xinzhuo).

It is agreed that payable in respect of any Guarantee Period as referred to above shall be settled by the Founders within ten Business Days after the issue of the signed or certified audited consolidated financial statements of the Target Group in respect of such Guarantee Period is approved by the board of directors of the Target Company.

The Share Purchase Deed provides for an express set-off right of the Company which allows the Company to set off any Compensation against any Cash Consideration which has not been paid to the Founders SPV.

In respect of the Guarantee Period commenced on 1 April 2019 and ended on 31 March 2020, the audited consolidated net profit attributable to the equity holders of the Target Company in accordance with HKFRS was approximately RMB65.3 million, and is more than the Guaranteed Profit in respect of this Guarantee Period (i.e. RMB60 million).

In light of the above and given that (i) the Profit Guarantee would mitigate the business risks and provide a compensation to the Group in the event that the Target Group is underperformed; (ii) the Target Company has been consistently generating profit as discussed in the paragraphs headed ‘‘2.3. Financial information of the Target Group’’ and ‘‘3. Reasons for and benefits of the Acquisition’’ above, respectively; and (iii) the Consideration Shares will be fully issued before the Guaranteed Profit is fulfilled which would align the interest of the Founders with the Shareholders and provide incentive for the Founders to continue to develop the Target Company’s business to achieve the Profit Guarantee, thereby delivering better returns to the Shareholders, we

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concur with the Management’s view that the Profit Guarantee for each of the years from the year ended 31 March 2020 up to the year ending 31 March 2024 and such payment terms are in the interest of the Company and the Shareholders as a whole.

4.3. Additional Shares

As disclosed in the Letter from the Board, subject to the compliance of all applicable Laws and regulations (including the GEM Listing Rules and the Takeovers Code) in the event that the sum of the actual amount of the audited consolidated net profit attributable to equity holders of the Target Company for each Guarantee Period, i.e. the Entire Guarantee Period, is equal to or more than RMB1 billion (the ‘‘Aggregated Net Profit’’), it is expected that:

• (a) the Company would pay the Founders SPV an additional consideration in the amount of RMB150 million (the ‘‘Additional Consideration’’) and subject to the Hong Kong Stock Exchange’s grant of the approval for the listing of and permission to deal in the Additional Shares, would settle such payment by issuing the Additional Shares to the Founders SPV on the 10th Business Day after the date on which the signed or certified audited financial statements of the Target Company for the last Guarantee Period is approved by the board of directors of the Target Company; and

• (b) such Additional Shares would be issued at an issue price per Share equal to the volume weighted average price per Share for the 30 consecutive trading days up to and including the last trading day that is five Business Days immediately prior to the date on which such Additional Shares are allotted and issued to the Founders SPV.

The Additional Shares will not be allotted and issued unless and until it is evidenced from the signed or certified audited consolidated financial statements of the Target Company that the sum of the actual amount of the audited consolidated net profit attributable to equity holders of the Target Company for each Guarantee Period, i.e. the Entire Guarantee Period, is equal to or more than RMB1 billion. Further, according to the terms of the Share Purchase Deed: (i) the obligation of the Company to issue the Additional Shares to the Founders SPV is subject to conditions, including, among others, the issuance of any Additional Shares not triggering any mandatory general offer under Rule 26 of the Takeovers Code or resulting in the breach of the public float requirement under the GEM Listing Rules and the Hong Kong Stock Exchange having granted the approval for the listing of and permission to deal in the Additional Shares, and (ii) to the extent that any Additional Shares cannot be allotted and issued subject to (i) above, the Company has the sole and absolute discretion to settle the remaining additional consideration in cash.

As set out in the Letter from the Board, solely for the purpose of illustration, assuming that the Additional Shares are fully issued and the issue price per share of the Additional Shares is HK$0.6315, being the volume weighted average closing price per Share for the 30 consecutive trading days up to and including the Last Trading Day, the aggregate number of the Additional Shares that may be allotted and issued by the

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Company to the Founders SPV would be approximately 269,421,062, representing (i) approximately 7.59% of the issued share capital of the Company as at the Latest Practicable Date, (ii) approximately 6.43% of the issued share capital of the Company as enlarged by the allotment and issuance of the Consideration Shares and (iii) approximately 6.04% of the issued share capital of the Company as enlarged by the allotment and issuance of the Consideration Shares and the Additional Shares.

In the event that the Additional Shares were issued, the Additional Shares when issued, would rank pari passu in all respects among themselves and with all the Shares in issue as at the date of the allotment and issuance of the Additional Shares. Holders of such Additional Shares shall be entitled to receive all future dividends and distributions that are declared after the date of the allotment and issuance of the Additional Shares.

The Additional Shares will be allotted and issued under the Specific Mandate to be obtained from the Independent Shareholders at the EGM by an ordinary resolution.

The Company will apply to the GEM Listing Committee for the listing of, and permission to deal in, the Additional Shares which may be allotted and issued pursuant to the Share Purchase Deed.

Taking into account that (i) the Additional Consideration is conditional upon the Target Company achieves the Aggregated Net Profit; (ii) the sum of the Consideration of RMB850 million and the Additional Consideration of RMB150 million (the ‘‘Aggregated Consideration’’) is equivalent to the Aggregated Net Profit of RMB1 billion, i.e. the payback period for the Aggregated Consideration will be 5 years; (iii) as illustrated in the comparable analysis in paragraph headed ‘‘5.2 Comparables evaluation’’ below, the payback period of 5 years is below the range of price-to-earnings multiple (the ‘‘P/E Multiple(s)’’) of comparable companies of approximately 6.51 times to 9.41 times; and (iv) there is no upward adjustment of the Additional Consideration in the event that the Aggregated Net Profit exceeds RMB1 billion, we are of the view that such mechanism is in the interest of the Company and the Shareholders as it provides incentive for the Founders, who are the directors of the Target Company, to continue to develop the Target Company’s business, thereby putting their interests in line with the Shareholders and delivering better returns to the Shareholders.

5. Evaluation of the Consideration

5.1. The Valuation

To assess the fairness and reasonableness of the Consideration, we have reviewed the valuation report (the ‘‘Valuation Report’’) prepared by AVISTA Valuation Advisory Limited (the ‘‘Valuer’’), which sets out independent valuation (the ‘‘Valuation’’) on the market value of 100% equity interest in the Target Group as at 31 May 2020 (the ‘‘Valuation Date’’) for acquisition reference. We noted from the Valuation Report that has been prepared by the Valuer in accordance with the International Valuation Standards as set out by the Internationals Valuation Standard Council.

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Independent Shareholders’ attention is drawn to the total appraised value of the Target Group of RMB915 million (equivalent to approximately HK$1,038 million) as set out in the Valuation Report. The Consideration of RMB850 million represents a discount of approximately 7.1% to such appraised value.

We have reviewed the Valuation Report and interviewed the relevant staff members of the Valuer as to its expertise, independence and details in relation to the Valuation Report, particularly (i) the Valuer’s terms of engagement with the Company; (ii) the Valuer’s qualification and experience in relation to the preparation of the Valuation Report; and (iii) the steps and due diligence measures taken by the Valuer in performing the Valuation. From our review of the engagement letter between the Company and the Valuer, we are satisfied that the terms of engagement between the Company and the Valuer are appropriate to the opinion the Valuer is required to give. The Valuer has confirmed that it is independent from the Company and the Target Group and its related persons. We further understand that the Valuer is certified with the relevant professional qualifications required to perform the Valuation and the person-in-charge of the Valuation has approximately over 20-year experience in financial valuation and business consulting in Hong Kong and the PRC. We note that the Valuer mainly carried out its due diligence through discussion with the Management as well as the management of the Target Group and conducted its own proprietary research and has relied on public information obtained through its own research as well as the financial and operational information provided by the Management. We were advised by the Valuer that it has assumed such information to be true, complete and accurate and has accepted it without verification.

We noted that the Valuation was primarily based on the market approach. The market approach refers to valuation by comparing the Target Group with similar assets, which can be found with comparable companies, with adjustment made to the recent market prices to reflect the condition and utility of the appraised assets held by the Target Group relative to the market comparative.

We have discussed with the Valuer the methodologies, bases and assumptions adopted during the course of conducting the market approach. As discussed with the Valuer, given the unique characteristics business of which the Target Group is engaged in, it considers the market approach to be the most appropriate valuation approach over the income approach and the cost approach as (i) the income approach requires subjective assumptions to which the valuation is highly sensitive and detailed operational information and long-term financial projections are also needed to arrive at an indication of value; and (ii) the cost approach does not directly incorporate information about the economic benefits contributed by the business the Target Group is engaged in. The Valuer also highlighted other benefits of the market approach, including its simplicity, clarity and the need for few or no assumptions. The market approach invoices objectivity in application as publicly available inputs are used under this approach. Having considered the above, we concur with the Valuer’s adoption of the market approach as the primary valuation methodology.

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The key procedures of valuation of the Target Group are set out below:

As advised by the Valuer, the comparable company method (the ‘‘Comparable Companies Method’’) and comparable transaction method (the ‘‘Comparable Transactions Method’’) are the two common methods to carry out the valuation by the market approach. The Comparable Companies Method was considered as more appropriate and was applied by the Valuer for valuation of the Target Group as the Target Group has sufficient track records and the Target Group is expected to sustain its existing business operations in the foreseeable future.

For the valuation of the Target Group, the Valuer identified 10 comparable companies that, among others, (i) over 50% of revenue are generated from provision of BPO services, call centre services or customer service solutions, which are considered to be confronted with similar industry risks and rewards; (ii) are listed in all major exchange markets in the United States of America (‘‘US’’) or Hong Kong; and (iii) the financial information of the companies is available to the public. We have discussed with the Valuer and were given to understand that the Valuer had made their best efforts to search for and identify appropriate comparable companies, that are listed in major exchange markets in the U.S. and Hong Kong, while the principal businesses of some of the comparable companies are based outside the PRC, through publicly available sources after taking into account that (i) the Target Group has focused on back-office services, primarily consisting of provision of customer service solutions (which in turn include contact services as well as call centre-related BPO services) and have made significant achievements as stated in the paragraph headed “4.2 Profit Guarantee” above during the Track Record Period; (ii) given the nature of BPO services, call centre services or customer service solutions are not materially different among the markets worldwide, the comparable companies are considered to be confronted with similar industry risks and rewards; (iii) the major exchange markets in the US and Hong Kong generally have higher market liquidity with free fund flow which can reflect the intrinsic value of the listed companies; and (iv) there are sufficient data, including the trailing 12-month EV/ EBITDA Multiples (as defined below) as at the valuation date, of which the comparable companies were listed in the major exchange markets in the US or Hong Kong. In light of the above and having considered that the principal business of the comparable companies is similar to that of the Target Group with sufficient and representative number of comparable companies, we are satisfied with the selection of the 10 comparable companies used in the Valuation Report is fair and representative.

For the selection of the valuation multiple, we were given to understand that the Valuer has considered price-to-earnings (‘‘P/E’’), price-to-book (‘‘P/B’’), price-to-sales (‘‘P/S’’), enterprise value/sales (‘‘EV/S’’), enterprise value/earnings before interests and taxes (‘‘EV/EBIT’’) multiples and eventually adopted the enterprise value/earnings before interests, taxes, depreciation and amortization multiples (‘‘EV/EBITDA Multiple(s)’’).

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As disclosed in the valuation report of the Target Group as set out in Appendix IV to the Circular, P/B multiple is considered not appropriate for the Valuation because book value captures only the tangible assets of a company which, if a company creates any added market value (as reflected by a P/B ratio of larger than one), should have its own intangible competencies and advantages. These intangible company-specific competencies and advantages are not captured in the P/B ratio and so in general, the equity’s book value has little bearing with its fair value. Thus, the P/B multiple is not a good measurement of the fair value of a company.

P/S and EV/S multiples are considered not appropriate for the Valuation because they do not consider the profitability of the Target Group. As both P/S and EV/S multiples only focus on the sales amounts but not the margin, the result will be easily distorted if the cost structure is not being taken into account. Thus, P/S and EV/S multiples are not adopted in the Valuation.

P/E multiple is considered not appropriate for the Valuation because it does not capture differences in financial leverage and related risk features across the companies. Similar with EV/EBIT multiple, they also comprise non-cash items in earnings, such as depreciation and amortization of fixed assets.

Accordingly, EV/EBITDA Multiple is considered to be the most appropriate indicator of the fair values of the comparable companies as it eliminates the difference in capital structure, taxation and deprecation methods as compared to EV/EBIT multiple, and after taking into consideration (i) that the nature of the business operations of the Company is not capital intensive; and (ii) the value of the Target Group lies in its profits generating ability rather than in the value of its assets. Based on the above, and we concur with the Valuer that the selection of the EV/EBITDA Multiples as valuation multiple for the Valuation to reflect the relationship between value of companies which are not capital intensive and their earning capabilities.

In arriving at the appraised value of the Target Group of approximately RMB915 million (equivalent to approximately HK$1,038 million), the Valuer derived the estimated 100% enterprise value of the Target Group by multiplying the earnings before interests, taxes, depreciation and amortization of the Target Group by the median of the EV/EBITDA Multiple of comparable companies, adjusted by (i) cash or cash equivalent; (ii) debts; (iii) minority interest; (iv) lack of marketability discount (‘‘LOMD’’); and (v) control premium. We have discussed with the Valuer in relation to the adoption of the LOMD and the control premium. The Valuer explained that the amount of LOMD is deducted from the appraised value of the Target Group which reflects the fact that there is no ready market for shares in a closely held company, and shares in a privately held company is usually worth less than an otherwise comparable share in a publicly listed company. Given that the EV/EBITDA multiple adopted in the valuation was calculated from the publicly listed companies, which represents the minority interest, the Valuer had also added the control premium to reflect the amount that a buyer is willing to pay over the minority equity value of the company in order to acquire a controlling interest in that company.

– 80 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed an extract of the report ‘‘Stout Restricted Stock Study Companion Guide (2019 edition)’’ (the ‘‘Study’’) by Stout Risius Ross, LLC, an independent and reputable research company, which is one of the national preeminent firms that offers a broad range of financial advisory services to private and public companies, and noted that the average marketability discount of 20.6%, which is based on 751 private placement transactions of unregistered common issued by publicly traded companies from July 1980 through June 2018 is the same as adopted in the Valuation. We understand from the Valuer that the Study represents one of the most widely used and accepted databases available for determination of LOMD for valuation practice, in which the statistics are updated on an annual basis. We were given to understand that the discount rate that derived from transactions within a long time span would include sufficient samples and take market fluctuations into account. Having considered the above, we concur with the Valuer’s view that LOMD of 20.6% is fair and reasonable.

Given that (i) the average marketability discount of 20.6% is the same as adopted in the Valuation; (ii) the control premium of 25.6% represents the overall median control premium suggested in the report ‘‘Control Premium Study: 4th Quarter 2019’’ published by FactSet Mergerstat, LLC (‘‘FSM Report’’), an independent and reputable provider for merger and acquisition transaction data, which we have reviewed an extract of the FSM Report and indicated the same. Based on our discussion with the Valuer, we understand that the control premium is determined with reference to FactSet Mergerstat, LLC, an independent provider for merger and acquisition transaction data, a widely accepted reference for control premium applied on business valuation, in which its statistics are updated quarterly; (iii) control premium and LOMD are commonly adopted assumptions in other valuation exercise in Hong Kong; and (iv) the Valuer’s qualification and experience as discussed above, we concur with Valuer that the application of the LOMD and the control premium is amongst common market practice.

Having discussed the above market approach adopted by the Valuer and reviewed, among others, the reasons for adopting such valuation methodology and the bases and assumption used for valuing the market value of the Target Group, we are of the opinion that the valuation methodology in establishing the Valuation to be appropriate and that the application of LOMD and control premium is fair and reasonable.

– 81 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5.2. Comparables evaluation

To further assess the fair and reasonableness of the Consideration, we have, on a best-effort and exhaustive bases, reviewed the P/E Multiples of the companies that (i) are listed in the major exchange markets in the US and the Hong Kong Stock Exchange; (ii) are principally engaged in BPO services, call centre services or customer service solutions which contributed over 50% of their respective revenue in their latest annual report which is similar to the principal business of the Target Group, in particular its back-office services (primarily provision of customer service solutions) which contributed over 50% of the revenue of the Target Group for the year ended 31 March 2020; and (iii) are primarily operating in the PRC (which is the jurisdiction in which the Target Group currently operates) or Hong Kong (the ‘‘P/E Comparables’’) as at 10 September 2020, being the Last Trading Day. Based on the aforesaid criteria and using our best effort, four P/E Comparables have been identified in our research through public information. Shareholders should note that the businesses, operations, prospects and scale of the Target Group may not be the same as, or even substantially vary from, those of the P/E Comparables; and we have not conducted any detailed investigation into the respective businesses and operations of the P/E Comparables. Thus, we have not relied only on the result of this P/E Comparables analysis to form our view. Instead, we have taken all the relevant factors and analysis (of which this analysis formed part) as a whole when making our recommendation contained in this letter.

It is noted that comparable companies listed on NEEQ, which the issued shares of OPCO were previously listed on NEEQ (Stock Code: 871759) before it delisted on 16 December 2019, are not included in the analysis below, as NEEQ has a higher investors requirement and are for specific qualified investors only, resulting in less participants and lower liquidity as compared to major exchange markets in the US or Hong Kong. We have also considered to use other comparable companies listed on Shenzhen Stock Exchange or Shanghai Stock Exchange. However, they are not fully open markets with free fund flow, thus we consider these markets could not fully reflect the intrinsic value of the comparable on a free flow market and did not use them in our comparable analysis.

– 82 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Despite the market capitalisation of the P/E Comparable are different from the Target Group, taking into account that (i) the P/E Comparables are listed in the major exchange markets in the US and the Hong Kong Stock Exchange that shall have higher market liquidity which can reflect the market sentiment and the intrinsic value and the prospect of the listed companies on share price; and (ii) save for the P/E Comparables, there were no other public companies listed on the major exchange markets in the US and the Hong Kong Stock Exchange that could meet our selection criteria, we consider that the P/E Comparables form a representative reference for Shareholders to assess the fairness and reasonableness of the Consideration, and the P/E Comparables are fair, representative and exhaustive. Our analysis on the P/E Comparables is set out below:

		Percentage of revenue
		contribution by the BPO
		services, call centre
		services and customer	Geographical
		service solutions	location of	Market	P/E	Then P/E
Company	Business description	related segment	the business	Capitalisation	Multiple	Multiple
		(Note 1)	(Note 2)	(Note 3)	(Note 4)	(Note 9)
		(%)		HK$ million	(x)	(x)
Computer And	The company is an investment holding company, provides	59.6	Hong Kong	513.9	9.20	12.65
Technologies	information technology (IT) solutions for enterprises,		and PRC
Holdings Limited	multinational corporations, and government organizations
(0046.HK)	primarily in Hong Kong and China. The company operates in
	three segments: Application Services, Solutions and
	Integration Services, and Investments. The Application
	Services segment primarily provides enterprise applications
	software and e-business services for enterprises, including the
	provision of enterprise application software with
	implementation and ongoing support services; and government
	electronic trading services, cloud services, and other related
	services. The Solutions and Integration Services segment
	offers IT solutions implementation and application software
	development; provision of IT and related operation/
	infrastructure outsourcing services; business process
	outsourcing services; and IT systems and network
	infrastructure with related design, implementation, and
	ongoing support services.
ETS Group Ltd	The company is a Hong Kong-based investment holding	81.0	Hong Kong	71.4	9.41	35.48
(8031.HK)	company principally engaged in the provision of multimedia		(Note 8)
	contact services. The company operates through five business
	segments: outsourcing inbound contact service segment,
	outsourcing outbound contact service segment, staff
	insourcing service segment, contact service centre facilities
	management service segment and others segment. The Others
	segment is principally engaged in the licensing and sales of
	system and software, as well as the maintenance of system.
Goldstream	The company is principally engaged in the support services	76.2	Hong Kong,	816.9	N/A	N/A
Investment Ltd	businesses. The company operates through three business		PRC and		(Note 5)	(Note 5)
(1328.HK)	segments. The Inbound Services segment is engaged in the		Macau
	provision of customer hotline services and built-in secretarial
	services, which are personalized message taking services. The
	Outbound Services segment is engaged in the provision of
	telesales services and market research services. The Radio-
	Frequency Subscriber Identity Module (RF-SIM) Business
	segment is engaged in the research and development,
	production and sales of RF-SIM products, the licensing of the
	RF-SIM operation rights and the research and development
	and technology transfer of certificate authority subscriber
	identity module (CA-SIM) application rights to customers.

– 83 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

												Percentage of revenue
												contribution by the BPO
												services, call centre
												services and customer	Geographical
												service solutions	location of	Market	P/E	Then P/E
Company	Business description											related segment	the business	Capitalisation	Multiple	Multiple
												(Note 1)	(Note 2)	(Note 3)	(Note 4)	(Note 9)
												(%)		HK$ million	(x)	(x)
China Customer	The company		provides		BPO services			for	telecommunications			100	PRC	663.4	6.51	11.56
Relations Centers,	companies	in	the	PRC.	It	offers	voice-based and			online-based
Inc. (NASDAQ:	customer	care		services,		including		customer		relationship
CCRC)	management,		technical		support,		sales,		customer		retention,
	marketing	surveys, and			research.
For the P/E Comparables
Maximum															9.41	35.48
Minimum															6.51	11.56
Average															8.37	19.90
The Acquisition														RMB850	13.02	13.02
														million	(Note 7)	(Note 7)
														(Note 6)

• Source: Website of the Hong Kong Stock Exchange (https://www.hkex.com.hk/) and website of Nasdaq (https://www.nasdaq.com)

Notes:

1. The percentage of revenue contribution by the BPO services, call centre services and customer service solutions related segment was derived from their respective latest published annual report.

2. The geographical location as stated in their respective latest published annual report.

3. The market capitalisation was based on the closing price and the total shares in issue as at 10 September 2020.

4. The P/E Multiple was based on the then market capitalisation of the respective companies as at 10 September 2020, divided by the net profit attributable to equity holders of the respective companies as stated in their respective then latest published annual report.

5. The company recorded net loss for the year ended 31 December 2019.

6. Being the size of the Target Group implied by the Consideration.

7. The P/E Multiple was based on the Consideration divided by the net profit attributable to the owners of the Target Company of approximately RMB65.3 million for the year ended 31 March 2020.

8. Despite most of ETS Group Ltd’s revenue is mainly derived in Hong Kong, it is expected that most of its customers are located in the Greater China Area, as such, we are of the view that ETS Group Ltd shall also be included as one of the P/E.

9. The then P/E Multiple was based on the then market capitalisation of the respective companies as at 19 August 2019, being the date of the MOU Announcement (as defined and explained below), divided by the net profit attributable to equity holders of the respective companies as stated in their respective then latest published annual report.

– 84 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the above table, it is noted that the then P/E Multiples of the P/E Comparables ranged from approximately 11.56 times to 35.48 times with the average of approximately 19.90 times and the P/E Multiples of the P/E Comparables ranged from approximately 6.51 times to 9.41 times with the average of approximately 8.37 times. Despite the P/E Multiple of the Acquisition of approximately 13.02 times is above the range of the P/E Comparables, after taking into consideration that (i) the P/E Multiple of the Acquisition of approximately 13.02 times is within the range of the then P/E Comparables based on the date of the MOU Announcement (as defined and explained below); (ii) the net profit of the Target Group amounted to approximately RMB65.3 million for the year ended 31 March 2020, which superseded the Guaranteed Profit of RMB60 million for the year ended 31 March 2020 by approximately 8.8%; (iii) Hang Seng Index dropped from 26,291.84 as at 19 August 2019 to 24,313.54 as at 10 September 2020, being the Last Trading Day, and the poor market sentiment due to lockdown of most of the countries as a result of the outbreak of COVID-19 and leading to a decrease in share price of the listed companies in Hong Kong in general; (iv) the higher Guaranteed Profits CAGR of approximately 24.6%, surpassing the expected revenue of customer service outsourcing industry with a CAGR of approximately 14.1% from 2019 to 2024; and (v) the growth potential of the Target Group as stated in the paragraph headed ‘‘3. Reasons for and benefits of the Acquisition’’, we are of the view that the Consideration is fair and reasonable.

6. Consideration Shares

Pursuant to the Share Purchase Deed, an aggregate of 638,022,754 Consideration Shares will be allotted and issued to the Sellers by the Company upon Closing at the Issue Price of HK$0.32 per Consideration Share, representing:

• (a) a discount of approximately 43.9% to the closing price of HK$0.570 per Share as quoted on the Hong Kong Stock Exchange on the Latest Practicable Date;

• (b) a discount of approximately 43.9% over the closing price of HK$0.570 per Share as quoted on the Hong Kong Stock Exchange on the Last Trading Day;

• (c) a discount of approximately 45.6% over the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the five consecutive trading days up to and including the Last Trading Day of approximately HK$0.588 per Share;

• (d) a discount of approximately 47.5% over the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the 10 consecutive trading days up to and including the Last Trading Day of approximately HK$0.610 per Share;

• (e) a discount of approximately 50.3% over the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the 30 consecutive trading days up to and including the Last Trading Day of approximately HK$0.644 per Share; and

• (f) a premium of approximately 60.0% over the audited consolidated net asset value of the Company of approximately HK$0.20 per Share as at 31 March 2020 (based on the number of issued Shares as at the Latest Practicable Date).

– 85 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the Letter from the Board, the Issue Price was determined after arm’s length negotiation between the Company and the Sellers, with reference to, among others, (i) the then market prices of the Shares at the time of negotiating the terms of the memorandum of understanding in relation to the possible acquisition of the Target Group dated 19 August 2019, whereas the Company started the negotiation of the Consideration including the Issue Price of the Consideration Shares with the Founders and Ms. Zhou in the end of May 2019; and (ii) the relatively thin trading volume of the Shares. The Directors considered that the Issue Price is fair and reasonable and is in the interest of the Shareholders as a whole.

As set out in the 2019/2020 Annual Report, although the Group’s financial performance improved for the year ended 31 March 2020 as compared to that for the year ended 31 March 2019, the Group’s business was nevertheless affected by, among others, the COVID-19 pandemic. Though the Directors intend to continue and improve the current core businesses of the Group, volatility of the financial markets resulting from the combined effect of, among others, the continuous global trade tensions, slowdown in the global economy and the outbreak of COVID-19, caused increasing uncertainty in the business of the Group. Under this background, the Group is committed to its diversified development strategies by way of, among others, potential strategic investment in or acquisition of suitable businesses or targets with sizeable operations. Given the Target Group holds an established business model with sizeable operation, the Directors consider it is reasonable to provide an appropriate discount on the Issue Price when negotiating with the Sellers, so as to bring about potential financial and operational benefits to the Company following the successful completion of the Acquisition.

Based on the current shareholding structure of the Company, the Company will continue to be able to satisfy the public float requirement under the GEM Listing Rules following the allotment and issuance of the Consideration Shares.

The Consideration Shares will be allotted and issued under the Specific Mandate to be obtained from the Independent Shareholders at the EGM by an ordinary resolution.

The Company will apply to the GEM Listing Committee for the listing of, and permission to deal in, the Consideration Shares to be allotted and issued pursuant to the Share Purchase Deed.

Further details of the Consideration Shares are set out under the section headed ‘‘Consideration Shares’’ in the Letter from the Board.

– 86 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6.1. Review on historical Share price performance

In order to assess the fair and reasonableness of the Issue Price, we have compared the daily closing price of the Shares as quoted on the Hong Kong Stock Exchange from 20 February 2019, being approximately six months prior to the date of the MOU Announcement (as defined and explained below), up to and including the Last Trading Day (the ‘‘Review Period’’) against the Issue Price. We consider that the approximate one-year-and-seven-month period is reasonable and representative for Shareholders’ reference in regard to the Issue Price as (i) a one-year-and-seven-month period represents a reasonable period to reflect the performance of the closing price of the Shares in response to the prevailing market condition and operating condition; (ii) a shorter review period can only demonstrate the Share price performance in a limited and specific time which may be distorted by specific events; and (iii) it is commonly used for analysis purpose. The comparison of daily closing prices of the Shares during the Review Period and the Issue Price is shown in the chart below:

==> picture [411 x 151] intentionally omitted <==

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

Historical daily closing price per Share during the Review Period
0.9
0.8
Appointment Announcement High ConcentrationAnnouncement I MOU Announcement
0.7
0.6
0.5
0.4
0.3
0.2 First quarterly results Change of executive Directors, chairman High Concentration
announcement of the Board, chief executive office, Announcement II HK$0.32
0.1 composition of committees,
compliance officer and authorised
0 representative announcement
Closing price Issue Price
02/2
0/9102 2019/02/26 2019/03/04 2019/03/08 2019/03/14 2019/03/20 2019/03/26 2019/04/01 2019/04/08 2019/04/12 2019/04/18 2019/04/26 2019/05/03 2019/05/09 2019/05/16 2019/05/22 2019/05/28 2019/06/03 2019/06/10 2019/06/14 2019/06/20 2019/06/26 2019/07/03 2019/07/09 2019/07/15 2019/07/19 2019/07/25 2019/07/31 2019/08/06 2019/08/12 2019/08/16 2019/08/22 2019/08/28 2019/09/03 2019/09/09 2019/09/13 2019/09/19 2019/09/25 2019/10/02 2019/10/09 2019/10/15 2019/10/21 2019/10/25 2019/10/31 2019/11/06 2019/11/12 2019/11/18 2019/11/22 2019/11/28 2019/12/04 2019/12/10 2019/12/16 2019/12/20 2019/12/30 2020/01/06 2020/01/10 2020/01/16 2020/01/22 2020/01/30 2020/02/05 2020/02/11 2020/02/17 2020/02/21 2020/02/27 2020/03/04 2020/03/10 2020/03/16 2020/03/20 2020/03/26 2020/04/01 2020/04/07 2020/04/15 2020/04/21 2020/04/27 2020/05/05 2020/05/11 2020/05/15 2020/05/21 2020/05/27 2020/06/02 2020/06/08 2020/06/12 2020/06/18 2020/06/24 2020/07/02 2020/07/08 2020/07/14 2020/07/20 2020/07/24 2020/07/30 2020/08/05 2020/08/11 2020/08/17 2020/08/21 2020/08/27 2020/09/02 2020/09/08
----- End of picture text -----

Source: Website of the Hong Kong Stock Exchange (https://www.hkex.com.hk/)

During the Review Period, the daily closing price per Share ranged from HK$0.075 to HK$0.820, with an average of approximately HK$0.557 per Share.

As shown in the chart above, the closing price of the Shares generally fluctuated within a relatively narrow range between HK$0.075 per Share and HK$0.125 per Share, during the period from 20 February 2019 to 28 March 2019, being the date of the announcement of the appointment of Mr. Fu Chi King Johnson, who is and was the director of several listed companies, as a non-executive Director (the ‘‘Appointment Announcement’’). Closing price of the Shares then exhibited a general upward trend since the publication of the Appointment Announcement. The closing price of the Shares increased a further 10.6% on the following trading week, being 9 April 2019. Trading in the Shares continued its rise and hit HK$0.51 on 30 April 2019. Closing price of the Shares decreased by approximately 20.6% to HK$0.405 each on 22 May 2019 following the announcement of high concentration of shareholding of the Company (the ‘‘High Concentration Announcement I’’).

– 87 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Since then Share closing prices fluctuated within the range between HK$0.335 and HK$0.440 until after the announcement in relation to the annual results announcement for the year ended 31 March 2019 was published on 21 June 2019. The Share closing price gradually increased from HK$0.44 each on 12 August 2019 and hit HK$0.54 each on 29 August 2019 following the publication of announcements of (i) first quarterly results announcement for the three months ended 30 June 2019 on 12 August 2019; (ii) inside information regarding memorandum of understanding (the ‘‘MOU’’ and the ‘‘MOU Announcement’’) in respect of the possible acquisition of a public company established in the PRC and resumption of trading on 19 August 2019; and (iii) change of executive Directors, chairman of the Board, chief executive office, composition of committees, compliance officer and authorised representative on 28 August 2019, representing an increase of approximately 22.7%. Share closing prices then further increased from HK$0.52 and HK$0.74 during the period from 23 August 2019 up to 4 November 2019, then rebounded by approximately 10.4% to HK$0.67 on the date of the publication of the interim results announcement for the six months ended 30 September 2019 on 8 November 2019. We observed that the Share closing price gradually increased from HK$0.67 on 8 November 2019 by around 10.4% to HK$0.74 on 11 December 2019 prior to the publication of announcement in respect of high concentration of shareholding (the ‘‘High Concentration Announcement II’’) on 12 December 2019, hitting HK$0.82 each on 23 December 2019 and then dropped by around 11.0% to HK$0.73 on 16 January 2020 and continue to hover between HK$0.57 and HK$0.76 since then.

In view of the circumstances that (i) as advised by the Management, the Consideration and the Issue Price have generally been agreed between the Company and the Sellers at the time of entering into of the MOU with reference to, among others, the then Share price and the Valuation; (ii) the Share price performance has possibly reacted and/or distorted following the MOU Announcement; (iii) the High Concentration Announcement I and the High Concentration Announcement II stating that Shareholders and prospective investors should be aware that the price of the Shares could fluctuate substantially even with a small number of Shares traded; and (iv) the scale of operations of the Company remained relatively small between the date of MOU Announcement and the Latest Practicable Date, we consider it is reasonable and more appropriate to make references to Share price performance during the undisturbed period (i.e. between 20 February 2019 and 19 August 2019, being six months prior to the date of the MOU Announcement) (the ‘‘Undisturbed Period’’) in conducting our analyses for assessing the fairness and reasonableness of the Issue Price.

During the Undisturbed Period, the daily closing price per Share ranged from HK$0.075 to HK$0.51, with an average of approximately HK$0.300 per Share (the ‘‘UP Average Closing Price’’).

– 88 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Against such backdrop, we note that the Issue Price represents:

• (a) a discount of approximately 34.7% to the closing price of HK$0.490 per Share as quoted on the Hong Kong Stock Exchange as at the date of the MOU Announcement;

• (b) a discount of approximately 29.2% to the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the five consecutive trading days up to and including the date of the MOU Announcement of approximately HK$0.452 per Share;

• (c) a discount of approximately 27.4% to the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the 10 consecutive trading days up to and including the date of the MOU Announcement of approximately HK$0.441 per Share;

• (d) a discount of approximately 17.7% to the average closing price of the Shares as quoted on the Hong Kong Stock Exchange for the 30 consecutive trading days up to and including the date of the MOU Announcement of approximately HK$0.389 per Share; and

• (e) a premium of approximately 6.7% over the UP Average Closing Price.

Despite the Issue Price represents a discount to the recent closing prices of the Shares, it is noted that the Issue Price (i) falls within the range of the closing prices of the Shares as quoted on the Hong Kong Stock Exchange during the Review Period and the Undisturbed Period; (ii) represents a premium of approximately 326.7% and 326.7% over the lowest daily closing price during the Review Period and the Undisturbed Period, respectively; (iii) represents a premium of approximately 60.0% over the audited consolidated net asset value of the Company of approximately HK$0.20 per Share as at 31 March 2020; and (iv) a premium of approximately 6.7% over the UP Average Closing Price of approximately HK$0.300 per Share.

– 89 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6.2. Review on trading liquidity of the Shares

The following table sets out (i) the average daily trading volume of the Shares; and (ii) the percentage of the average daily trading volume of the Shares to total number of issued Shares as at the end of the month/period (the ‘‘Liquidity’’) during the Review Period:

				Percentage of	Percentage of
					the average
				daily trading
					volume to
			Average daily	total number
			trading		of issued
	Total trading		volume of the	Shares as at
	volume of the	Number of	Shares for the	the end of the
	Shares	trading days	month/period	month/period
2019
February	3,751,600	17	220,682		0.006%
March	11,140,000	21	530,476		0.015%
April	152,001,640	19	8,000,086		0.225%
May	157,844,685	21	7,516,414		0.212%
June	33,740,000	19	1,775,789		0.050%
July	48,850,000	22	2,220,455		0.063%
August	202,100,000	22	9,186,364		0.259%
September	188,670,000	21	8,984,286		0.253%
October	99,100,000	21	4,719,048		0.133%
November	75,540,000	21	3,597,143		0.101%
December	38,825,000	20	1,941,250		0.055%
2020
January	7,410,000	20	370,500		0.010%
February	29,560,000	20	1,478,000		0.042%
March	97,040,000	22	4,410,909		0.124%
April	28,500,000	19	1,500,000		0.042%
May	49,500,000	20	2,475,000		0.070%
June	97,120,000	21	4,624,762		0.130%
July	9,950,000	22	452,273		0.013%
August	7,820,000	21	372,381		0.010%
September (up to and
including the date of
the Share Purchase
Deed)	4,140,000	8	517,500		0.015%
Maximum	202,100,000	22	9,186,364		0.259%
Minimum	3,371,600	7	370,500		0.010%
Average	67,111,146	19	3,257,715		0.092%

Source: Website of the Hong Kong Stock Exchange (https://www.hkex.com.hk/)

– 90 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the above table, the average daily trading volume was low during the Review Period, with a range of approximately 370,500 Shares to approximately 9,186,364 Shares, representing 0.010% to approximately 0.259% of the number of Shares in issue as at the end of relevant month/period. It illustrates that the trading volume of the Shares is relatively thin, which might be affected by various factors such as market sentiment. The relatively low trading volume suggests that it would be difficult for the Company to pursue sizeable equity financing alternative in stock market without providing considerable discount.

We have also made reference to the market statistics of GEM published on the website of GEM (https://www.hkgem.com/) and noted the proportion of the average daily trading volume of the shares traded during the month in GEM to total number of issued shares in GEM as at the end of the month during the Review Period which ranged from approximately 0.081% to 0.192% (the ‘‘GEM Range’’). Out of 19 months during the Review Period, the Liquidity of four of them are within the GEM Range, four of them are higher than the GEM Range and 11 of them are lower than the GEM Range. As such, despite the trading volume of the Shares of 11 of the months were below the GEM Range during the Review Period, it is still representative.

6.3. Share Comparables

As part of our analysis, we have, on a best effort and exhaustive bases, conducted an analysis of the acquisition transactions involve issue of new shares for acquisition of the issued share capital of the company (excluding transactions involving (i) A-share, B- share and H-share companies whose share capital structure is different from that of the Company as not all the issued shares of A-share, B-share and H-share company can be traded in the Hong Kong Stock Exchange such as its A-share or domestic shares); and (ii) whitewash waiver applications under the Hong Kong Code on Takeovers and Mergers or general offer obligations pursuant to the Takeovers Code which we consider these transactions are different from the Company’s circumstance and the structure of the Acquisition to avoid misalignment) announced by companies listed on the Hong Kong Stock Exchange since 20 February 2019 (i.e. six months prior to the MOU Announcement) and up to the date of the Share Purchase Deed (the ‘‘Comparables’’), being approximate one-year-and-seven-month period prior to the date of the Share Purchase Deed. The approximate one-year-and-seven-month timeframe was adopted to demonstrate the recent market trends with sufficient and representative number of Comparables and thus, we consider the timeframe is reasonable and representative. Based on the aforesaid criteria and using our best effort, we have identified 70 Comparables which we consider to be exhaustive.

In addition, Independent Shareholders should note that the businesses, operations, financial positions and prospects of the Company are not the same as those of the Comparables. We have not conducted any independent investigation with regards to the businesses, operations, financial positions and prospects of the companies. Despite the subject companies constituting the Comparables may have different principal activities, market capitalisation, profitability and financial position as compared with those of the Company, we would still consider, in light of our selection criteria, capturing recent

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

issues of consideration shares by listed companies for acquiring companies under similar market conditions and sentiments can provide us with a general reference on the recent market trend of the premium/discount of issue prices of consideration shares (being shares of the listed companies) over/to the market prices of the relevant shares for this type of transaction on the equity capital market in Hong Kong.

As discussed with the Management, we were given to understand that the Issue Price of HK$0.32 per Consideration Share is determined with reference to, among others, the then market prices of the Shares at the time of negotiating the terms of the memorandum of understanding in relation to the possible transaction of the Target Group dated 19 August 2019 and other factors as disclosed in the Letter from the Board. Amongst the Comparables, we noted that two out of 70 of them (the ‘‘MOU Comparables’’) have determined their issue price with reference to the then market price of their respective shares prior to the entering into the memorandum of understanding. Given the small sample size of the MOU Comparables, we are of the view that it is not representative. As such, we have also relied upon the comparison between the Issue Price and the consolidated net asset value (‘‘NAV’’) per Share for the purpose of our further assessment. We consider that the NAV per share, which represents a proxy for the recent financial performance and position of the Group that is independent of the fluctuation of the share price and the trading liquidity of the Shares and, provides a relatively fair view of the valuation of the Shares and hence the comparison between the Issue Price and the NAV per Share represents a relatively appropriate methodology for assessing the fairness and reasonableness of the Issue Price.

				Premium/(Discount)
				of the issue price
			Premium/	over/to the average
			(Discount) of	closing price over	Premium/
			the issue price	the last 5	(Discount) of
			over/to the	consecutive trading	the issue price
			closing price	days prior to/up to	over/to the
Date of	Stock		prior to/on last	and including the	NAV per share
Announcement	Code	Company name	trading day	last trading day	(Note 3)
			(%)	(%)	(%)
4-Sep-2020	1341	Hao Tian International	(21.90)	(22.60)	27.82
		Construction Investment
		Group Limited
24-Aug-20	2183	Sansheng Holdings	1.59	0.34	107.57
		(Group) Co. Ltd.			(Note 4)
18-Aug-20	8377	Shen You Holdings	2.38	(7.33)	0.91
		Limited
31-Jul-20	2048	E-House (China)	(15.57)	(10.12)	45.16
		Enterprise Holdings
		Limited

– 92 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Premium/(Discount)
				of the issue price
			Premium/	over/to the average
			(Discount) of	closing price over	Premium/
			the issue price	the last 5	(Discount) of
			over/to the	consecutive trading	the issue price
			closing price	days prior to/up to	over/to the
Date of	Stock		prior to/on last	and including the	NAV per share
Announcement	Code	Company name	trading day	last trading day	(Note 3)
			(%)	(%)	(%)
29-Jul-20	379	China Ever Grand	(11.43)	(15.07)	(64.07)
		Financial Leasing Group
		Co., Ltd
28-Jul-20	2183	Sansheng Holdings	0.74	0.29	130.49
		(Group) Co. Ltd.			(Note 4)
24-Jul-20	1246	Boill Healthcare Holdings	(10.26)	(14.63)	(22.01)
		Limited
20-Jul-20	2138	Union Medical Healthcare	4.20	(1.18)	320.13
		Limited			(Note 4)
14-Jul-20	938	Man Sang International	(9.76)	(9.09)	61.00
		Limited
26-Jun-20	3963	China Rongzhong	(8.33)	(8.33)	60.86
		Financial Holdings
		Company Limited
17-Jun-20	2699	Xinming China Holdings	(4.76)	(4.76)	(10.81)
		Limited
8-Jun-20	2863	Golden Faith Group	1.75	1.40	(25.61)
		Holdings Limited
4-Jun-20	1495	Jiyi Household	(7.14)	(5.25)	(24.88)
		International Holdings
		Limited
25-May-20	61	Green Leader Holdings	8.30	0.00	N/A
		Group Limited			(Note 5)
14-May-20	613	Planetree International	29.90	10.10	(44.05)
		Development Limited
11-May-20	8195	L & A International	(6.25)	0.75	78.16
		Holdings Limited

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Premium/(Discount)
				of the issue price
			Premium/	over/to the average
			(Discount) of	closing price over	Premium/
			the issue price	the last 5	(Discount) of
			over/to the	consecutive trading	the issue price
			closing price	days prior to/up to	over/to the
Date of	Stock		prior to/on last	and including the	NAV per share
Announcement	Code	Company name	trading day	last trading day	(Note 3)
			(%)	(%)	(%)
29-Apr-20	8360	AL Group Limited	37.93	26.58	65.15
24-Apr-20	1566	CA Cultural Technology	(1.52)	0.2	191.68
		Group Limited			(Note 4)
9-Apr-20	1717	Ausnutria Dairy	0.20	4.50	359.58
		Corporation Ltd			(Note 4)
3-Apr-20	8536	TL Natural Gas Holdings	6.67	3.23	(6.32)
		Limited
25-Mar-20	8242	New Western Group	(3.40)	0.63	(79.53)
		Limited
23-Mar-20	1106	Ming Lam Holdings	25.00	25.00	(84.75)
		Limited
23-Mar-20	8347	F8 Enterprises (Holdings)	3.96	4.06	74.06
		Group Limited
13-Mar-20	0007	Hong Kong Finance	11.84	8.42	6.28
		Investment Holding Group
		Limited
24-Feb-20	8292	Worldgate Global	6.62	4.17	(27.28)
		Logistics Ltd
22-Jan-20	636	Kerry Logistics Network	(0.79)	(0.85)	(55.73)
		Limited
14-Feb-20	1010	PacRay International	2.67	1.32	135.61
		Holdings Limited			(Note 4)
6-Feb-20	3344	GTI Holdings Limited	1.25	—	8,100.00
					(Note 4)
19-Jan-20	8536	TL Natural Gas Holdings	6.12	6.85	(9.94)
		Limited

– 94 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Premium/(Discount)
				of the issue price
			Premium/	over/to the average
			(Discount) of	closing price over	Premium/
			the issue price	the last 5	(Discount) of
			over/to the	consecutive trading	the issue price
			closing price	days prior to/up to	over/to the
Date of	Stock		prior to/on last	and including the	NAV per share
Announcement	Code	Company name	trading day	last trading day	(Note 3)
			(%)	(%)	(%)
31-Dec-19	2227	Solis Holdings Limited	0.34	1.17	60.92
24-Dec-19	195	Greentech Technology	(0.21)	0.00	143.46
		International Limited			(Note 4)
20-Dec-19	663	King Stone Energy Group	(14.60)	(13.80)	(8.51)
		Limited
17-Dec-19	8536	TL Natural Gas Holdings	(16.57)	(19.34)	(24.14)
		Limited
6-Dec-19	8513	IAG Holdings Limited	(3.23)	(4.76)	430.63
					(Note 4)
21-Oct-19	8370	Zhi Sheng Group Holdings	9.09	5.17	(5.51)
		Limited
4-Oct-19	8179	Food Idea Holdings	—	(7.89)	(68.94)
		Limited
27-Sep-19	2183	Sansheng Holdings	(0.90)	—	253.07
		(Group) Co. Ltd.			(Note 4)
27-Sep-19	1323	Newtree Group Holdings	(3.85)	(3.85)	217.56
		Limited			(Note 4)
24-Sep-19	309	Xinhua News Media	55.28	58.03	189.43
		Holdings Limited			(Note 4)
18-Sep-19	2337	United Strength Power	(23.08)	(12.92)	315.78
		Holdings Limited			(Note 4)
10-Sep-19	1561	Manfield Chemical	(25.59)	(25.59)	218.16
		Holdings Limited	(Note 6)	(Note 6)	(Note 4)
28-Aug-19	1357	Meitu, Inc.	102.02	99.60	330.92
					(Note 4)

– 95 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Premium/(Discount)
				of the issue price
			Premium/	over/to the average
			(Discount) of	closing price over	Premium/
			the issue price	the last 5	(Discount) of
			over/to the	consecutive trading	the issue price
			closing price	days prior to/up to	over/to the
Date of	Stock		prior to/on last	and including the	NAV per share
Announcement	Code	Company name	trading day	last trading day	(Note 3)
			(%)	(%)	(%)
15-Aug-19	860	We Solutions Limited	38.67	27.76	(9.07)
19-Jul-19	1069	China Agroforestry Low-	(10.00)	22.73	(55.75)
		Carbon Holdings Limited
12-Jul-19	474	Hao Tian Development	(9.38)	(10.22)	(54.25)
		Group Limited
8-Jul-19	1717	Ausnutria Dairy	(4.03)	(4.55)	582.57
		Corporation Ltd			(Note 4)
2-Jul-19	3313	Artgo Holdings Limited	(57.14)	(58.46)	35.69
			(Note 6)	(Note 6)
28-Jun-19	910	China Sandi Holdings	(14.80)	(13.90)	(26.08)
		Limited
11-Jun-19	1116	Mayer Holdings Limited	(21.56)	(20.00)	(6.89)
11-Jun-19	8175	China Digital Culture	16.79	15.11	(59.80)
		(Group) Limited
10-Jun-19	1466	Affluent Partners Holdings	(8.05)	(7.42)	830.00
		Limited			(Note 4)
5-Jun-19	8156	China Vanguard You	2.13	6.67	N/A
		Champion Holdings			(Note 5)
		Limited
3-Jun-19	8037	China Biotech Services	51.51	54.80	497.79
		Holdings Limited			(Note 4)
24-May-19	8147	Millenium Pacific Group	(15.15)	(15.15)	3335.57
		Holdings Limited			(Note 4)
16-May-19	860	We Solutions Limited	4.00	9.01	(13.92)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Premium/(Discount)
				of the issue price
			Premium/	over/to the average
			(Discount) of	closing price over	Premium/
			the issue price	the last 5	(Discount) of
			over/to the	consecutive trading	the issue price
			closing price	days prior to/up to	over/to the
Date of	Stock		prior to/on last	and including the	NAV per share
Announcement	Code	Company name	trading day	last trading day	(Note 3)
			(%)	(%)	(%)
14-May-19	1450	Century Sage Scientific	11.00	11.56	(9.96)
		Holdings Limited
8-May-19	8260	Yin He Holdings Limited	(18.42)	(17.78)	(62.77)
29-Apr-19	2211	Universal Health	(5.33)	—	(83.31)
		International Group
		Holding Limited
26-Apr-19	2768	Jiayuan International	(3.76)	(4.65)	4.61
		Group Limited
24-Apr-19	484	Forgame Holdings Limited	(8.20)	(9.17)	4.01
15-Apr-19	8202	Inno-tech Holdings	(3.85)	(8.76)	N/A
		Limited			(Note 5)
10-Apr-19	2310	Forebase International	20.00	8.76	276.21
		Holdings Limited			(Note 4)
3-Apr-19	8200	Sau San Tong Holdings	23.33	23.33	(76.95)
		Limited
3-Apr-19	574	Pa Shun International	29.41	17.77	(18.77)
		Holdings Limited
29-Mar-19	164	China Baoli Technologies	(6.98)	(7.75)	(10.61)
		Holdings Limited
26-Mar-19	485	China Sinostar Group	(3.58)	8.29	(57.04)
		Company Limited
25-Mar-19	3709	Koradior Holdings Limited	2.15	3.22	238.48
					(Note 4)
12-Mar-19	8480	Furniweb Holdings	(11.03)	(4.87)	587.31
		Limited			(Note 4)

– 97 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Premium/(Discount)	Premium/(Discount)
				of	the issue price
			Premium/	over/to the average
			(Discount) of	closing price over		Premium/
			the issue price		the last 5	(Discount) of
			over/to the	consecutive trading		the issue price
			closing price	days prior to/up to		over/to the
Date of	Stock		prior to/on last	and including the		NAV per share
Announcement	Code	Company name	trading day	last trading day		(Note 3)
			(%)		(%)	(%)
8-Mar-19	574	Pa Shun International	7.84		4.17	(12.62)
		Holdings Limited
3-Mar-19	526	Lisi Group (Holdings)	14.94		17.92	202.70
		Limited				(Note 4)
		Maximum	102.02		99.60	78.16
		Minimum	(57.14)		(58.46)	(84.75)
For the SPA Comparables		(as defined below)
		Maximum	102.02		99.60	78.16
		Minimum	(23.08)		(22.60)	(84.75)
		The Consideration Shares	(43.86)		(45.58)	60.00
		(Note 1)
		The Consideration Shares	(34.69)		(29.20)	60.80
		(Note 2) (using the
		Undisturbed Scenario)

Source: Website of the Hong Kong Stock Exchange (https://www.hkex.com.hk/)

Notes:

1. Being 10 September 2020, is taken as the Last Trading Day.

2. The date of the MOU Announcement was 19 August 2019, which is taken as the last trading day (the ‘‘Undisturbed Scenario’’).

3. The NAV per share was based on the then latest available NAV attributable to equity holders of the respective companies and the then total shares in issue as at the date of their respective announcements.

4. The figure has been excluded from the computations as it appears to be abnormally high as compared to the rest of the Comparables and is considered as outlier which may skew the overall results.

5. The companies recorded net liabilities.

6. For illustrative purpose, the figure has been excluded from the computations for the SPA Comparables as explained below, being the MOU Comparables.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As demonstrated by the above table, the issue price of the Comparables ranged from (i) a discount of approximately 57.14% to a premium of approximately 102.02% to/over the respective closing price of shares on their respective last trading days prior to/on the date of the announcement/agreement in relation to the relevant acquisition (the ‘‘Market Range’’); (ii) a discount of approximately 58.46% to a premium of approximately 99.60% to/over the respective average closing price of shares on their respective last five consecutive trading days prior to/on the date of the announcement/agreement in relation to the relevant acquisition (the ‘‘5-Day Range’’); and (iii) a discount of approximately 84.75% to a premium of approximately 78.16% to/over the respective NAV per share (the ‘‘NAV Range’’). Both the discount of the Issue Price to the Last Trading Day, the discount of the Issue Price to the last five consecutive trading days prior to the date of the Share Purchase Deed and the premium of the Issue Price over the NAV per Share fall within the Market Range, the 5-Day Range and the NAV Range, respectively.

Nevertheless, for illustrative purpose, the shortlisted Comparables if excluding the MOU Comparables, which only comprised of two comparables (the ‘‘SPA Comparables’’), ranged from (i) a discount of approximately 23.08% to a premium of approximately 102.02% to/over the respective closing price of shares on their respective last trading days prior to/on the date of the announcement/agreement in relation to the relevant acquisition (the ‘‘SPA Market Range’’); (ii) a discount of approximately 22.60% to a premium of approximately 99.60% to/over the respective average closing price of shares on their respective last five consecutive trading days prior to/on the date of the announcement/agreement in relation to the relevant acquisition (the ‘‘SPA 5-Day Range’’); and (iii) a discount of approximately 84.75% to a premium of approximately 78.16% to/over the respective NAV per share (the ‘‘SPA NAV Range’’). Both the discount of the Issue Price to the Last Trading Day and the discount of the Issue Price to the last five consecutive trading days prior to the date of the Share Purchase Deed exceed the SPA Market Range and the SPA 5-Day Range, respectively, yet the premium of the Issue Price over the NAV per Share is within the SPA NAV Range.

6.4. NAV Comparables

Given the above, in order to further assess the fairness and reasonableness of the issue of the Consideration Shares at a premium to the NAV per Share, we have, on a best effort and exhaustive bases, conducted a further analysis on the premium/discount of the closing price over/to the NAV per share of the companies that (i) are listed on the Hong Kong Stock Exchange (excluding A-share, B-share and H-share companies whose share capital structure is different from that of the Company as not all the issued shares of A- share, B-share and H-share company can be traded in the Hong Kong Stock Exchange such as its A-share or domestic shares); and (ii) are licensed with the Securities and Futures Commission of Hong Kong for carrying on Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities which is similar to the principal business of the Group (the ‘‘NAV Comparables’’) as at 10 September 2020, being the Last Trading Day, which we consider such methodology is commonly adopted to justify the valuation of the financial services companies.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the aforesaid criteria and using our best effort, 27 NAV Comparables have been identified in our research through public information. Shareholders should note that the businesses, operations, prospects and scale of the Group may not be the same as, or even substantially vary from, that of the NAV Comparables, and we have not conducted any detailed investigation into the respective businesses and operations of the NAV Comparables. Thus we have not relied only on the result of this NAV Comparables analysis to form our view. Instead, we have taken all the relevant factors and analysis (of which this analysis formed part) as a whole when making our recommendation contained in this letter.

Despite the subject companies constituting the NAV Comparables may have different market capitalisation, profitability and financial position as compared with those of the Company, we would still consider, in light of our selection criteria, capturing companies carrying same types of regulated activities which is similar to the principal business of the Group under similar market conditions and sentiments can provide us with a general reference on the recent market trend of the premium/discount of the closing price over/to the NAV per share. Based on the aforesaid, despite the large range of discount/premium represented by the respective closing price under the NAV Comparables, we consider that the NAV Comparables are exhaustive, meaningful and representative samples for assessing the fairness and reasonableness of the Issue Price. Our analysis on the NAV Comparables is set out below:

			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
Cinda	The company is a Hong Kong-based investment holding company	256.5	(71.82)
International	principally engaged in financial businesses. The company operates
Holdings Limited	through three segments. Asset Management segment is engaged in
(111.HK)	the provision of private fund advisory and management services and
	auxiliary services. Corporate Finance segment is engaged in the
	provision of corporate finance and advisory services. Brokerage
	segment is engaged in the provision of brokering services in
	securities, equity linked products, unit trusts and stock options, as
	well as commodities and futures contracts traded in Hong Kong and
	selected overseas markets. The segment is also engaged in the
	provision of underwriting, placing and margin financing services to
	broking clients, as well as the agency for sales of savings plans,
	general and life insurances and other investment linked insurance
	products.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
Sunwah	The company is a Hong Kong-based investment holding company	320.7	(68.91)
Kingsway	principally engaged in financial businesses. The company has six
Capital Holdings	segments. Investment in securities invests in securities for treasury
Limited	and liquidity management. Structured investment is engaged in
(188.HK)	investment in structured deals, including listed and unlisted equities,
	debt securities and investment properties. Brokerage is engaged in
	the provision of securities, options, funds, futures and commodities
	brokerage services, margin and other financing services, as well as
	other related services. corporate finance and capital markets is
	engaged in the provision of financial advisory services and
	underwriting and placing agency. Asset management is engaged in
	asset management and related advisory services to private equity
	funds and private clients. Others is engaged in the provision of
	management, administrative and corporate secretarial services,
	internal loan financing and internal leasing services.
First Shanghai	The company is a Hong Kong-based investment holding company	482.5	(81.08)
Investments	principally engaged in financial investment, property investment and
Limited	hotel investment. The company mainly operates through four
(227.HK)	segments. The financial services segment is engaged in securities
	investment, securities broking, margin financing, corporate financing,
	underwriting and placements, as well as asset management. The
	property development segment is engaged in property development.
	The property investment and hotel segment is engaged in the
	investment and operation of residential, office, hotel and vacational
	village properties. The direct investment segment is engaged in the
	investment in pharmaceutical and healthcare industries.
Ping An	The company is an investment holding company principally engaged	124.0	N/A
Securities Group	in the provision of securities dealing and financial services. Along		(Note 5)
(Holdings)	with subsidiaries, the company operates its business through five
Limited	segments. The financial services segment is involved in the dealing
(231.HK)	of securities and the provision of financial services including
	securities brokerage, securities underwriting and placements, asset
	management and financial advisory services. The loan financing
	segment is involved in provision of loan financing services. The data
	verification services segment is involved in provision of data
	verification service. The insurance brokerage segment is involved in
	provision of insurance referral services. The property development
	segment is involved of development of primarily hotel and
	commercial properties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
Freeman FinTech	The company is a Hong Kong-based investment holding company	N/A	N/A
Corporation	principally engaged in financial businesses. The company operates	(Note 6)	(Note 6)
Limited	through six segments. Trading of Securities and Futures segment is
(279.HK)	engaged in the trading of securities and futures investment. Provision
	of Finance segment is engaged in the provision of financing services
	in Hong Kong. Insurance Brokerage segment is engaged in the
	insurance brokerage businesses and the provision of financial
	planning and related services. Securities and Futures Brokerage
	segment is engaged in the brokerage, placing, underwriting and
	margin financing of securities and futures in Hong Kong. Investment
	Holding segment is engaged in holding investments for capital
	appreciation. Corporate Finance Advisory segment is engaged in the
	provision of corporate finance advisory services, among others.
China Fortune	The company is a Hong Kong-based investment holding company	686.5	112.20
Financial Group	principally engaged in financial businesses. The company operates
Limited	through five segments. The brokerage and margin financing segment
(290.HK)	is engaged in securities businesses and margin financing in Hong
	Kong. The proprietary trading segment is engaged in the proprietary
	trading of securities. The corporate finance segment is engaged in
	the provision of corporate finance services in Hong Kong. The
	money lending and factoring segment is engaged in the provision of
	money lending and factoring services in Hong Kong. The
	consultancy and insurance segment is engaged in the provision of
	consultancy services and insurance brokerage services in Hong Kong.
Upbest Group	The company is an investment holding company principally engaged	2,226.3	(15.49)
Limited	in the investment of property. Together with its subsidiaries, the
(335.HK)	company operates business through seven segments. The property
	investment segment is involved in the rental and management of the
	property. The financing segment is involved in the securities margin
	financing and money lending. The broking segment is involved in
	the securities brokerage and futures brokerage. The assets
	management segment is involved in the assets management for
	companies. The corporate finance segment is involved in the
	advisory, placing and underwriting of corporate finance. The precious
	metal trading segment is involved in the trading of precious metal.
	The investment holding segment is involved in the investment of
	share.

– 102 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
Power Financial	The company is a Hong Kong-based investment holding company	236.6	(82.90)
Group Limited	principally engaged in financial businesses. The company operates
(397.HK)	through four segments. Assets Investment segment is engaged in the
	investment in listed and unlisted securities and funds investment.
	Green Energy segment is engaged in the provision of green energy-
	related consultancy services and the sales of electricity in China.
	Money Lending segment is engaged in the provision of loan
	financing in Hong Kong. Financial Services segment is engaged in
	the provision of financial services, including the broking, placing
	and underwriting of securities in Hong Kong.
CASH Financial	The company is a Hong Kong-based investment holding company	114.0	(75.60)
Services Group	principally engaged in the provision of financial services. The
(510.HK)	businesses of the company include broking businesses, investment
	banking, asset management, wealth management, financial technology
	(FinTech). The company provides internet finance trading platform
	and mobile trading services including stocks and futures trading apps
	available on iOS and Android operating systems for both brokerage
	and asset management services.
South China	The company is a Hong Kong-based investment holding company	84.4	(87.05)
Financial	principally engaged in financial businesses. The company operates
Holdings Limited	through seven segments. The broking segment is engaged in the
(619.HK)	brokerage of securities, commodities and futures. The trading and
	investment segment is engaged in the trading and investment of
	securities, foreign exchanges, bullions and futures. The margin
	financing and money lending segment is engaged in the provision of
	margin and personal loan financing services. The corporate advisory
	and underwriting segment is engaged in the provision of corporate
	advisory and underwriting services. The wealth management segment
	is engaged in the provision of insurance brokerage services. The
	property investment segment is engaged in the investment in
	properties. The other business segment is engaged in the provision
	of clearing and custodian services.
Oshidori	The company is an investment holding company principally engaged	5,502.2	(18.08)
International	in securities trading and investments. Along with subsidiaries, the
Holdings Limited	company operates its business through three segments. The securities
(622.HK)	trading and investments segment is involved in the trading and
	investment of listed securities and unlisted securities. The financial
	services segment is engaged in the provision of securities brokerage
	services and financial, consultancy and corporate financial advisory
	services. The money lending segment is engaged in money lending
	businesses.

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			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
Haitong	The company is an investment holding company mainly engaged in	11,347.7	(58.21)
International	the brokerage business. Along with subsidiaries, the company
Securities Group	operates its business through six segments: the brokerage segment,
Limited	the corporate finance segment, the fixed income, currency and
(665.HK)	commodities segment, the Institutional equities segment, the
	investment holdings segment, and the asset management segment
	The brokerage segment is engaged in securities, futures, options and
	bullion contracts brokerage and dealing, provision of margin
	financing, and provision of custodian and other services. The
	corporate finance segment is engaged in provision of corporate
	advisory, placing and underwriting services and provision of
	financing solutions to corporate clients. The fixed income, currency
	and commodities segment is engaged in trading and market making
	in debt securities, bullion contracts and leveraged foreign exchange
	trading.
Emperor Capital	The company is a Hong Kong-based investment holding company	923.5	(80.95)
Group Limited	principally engaged in financial businesses. The company operates
(717.HK)	through four segments. Financing segment is engaged in the
	provision of margin financing and money lending services. Brokerage
	segment is engaged in the provision of broking services for
	securities, options, futures, insurances and other assets and wealth
	management products, as well as their related handling services.
	Placing and underwriting segment is engaged in the provision of
	placing and underwriting services. Corporate Finance segment is
	engaged in the provision of corporate finance advisory services.
Southwest	The company is a Hong Kong-based investment holding company	673.8	128.54
Securities	principally engaged in financial businesses. The company operates
International	through four segments. Brokerage and margin financing segment is
Securities	engaged in the provision of brokerage services for the trading of
Limited	securities, futures contracts and options and margin finance services,
(812.HK)	as well as the provision of underwriting and placements services.
	wealth management segment is engaged in the provision of
	brokerage services in distribution of mandatory provident fund
	products, investment-linked products and insurance products, as well
	as the provision of investment immigration consulting services.
	Corporate finance segment is engaged in the provision of corporate
	finance advisory services. proprietary trading segment is engaged in
	the proprietary trading in securities, futures and options, as well as
	fund investments.

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			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
Value	The company is a Hong Kong-based investment holding company	598.3	(18.03)
Convergence	principally engaged in the provision of financial services. The
Holdings Limited	company operates through three segments. The brokerage and
(821.HK)	financing segment is engaged in the brokerage and dealing of
	securities, futures and options, the provision of margin financing and
	money lending, as well as the provision of placing and underwriting
	services. The corporate finance segment is engaged in the provision
	of corporate financial advisory services. The asset management
	segment is engaged in the provision of asset management services.
	The company mainly operates businesses in China.
China Tonghai	The company is an investment holding company mainly engaged in	1,611.2	(71.34)
International	brokerage business. The company has five segments. The brokerage
Financial	segment is engaged in the provision of discretionary and non-
Limited	discretionary dealing services for securities, futures and options, the
(952.HK)	placing and underwriting services of securities, margin financing and
	money lending services, insurance broking services and wealth
	management services. The advisory segment is engaged in the
	provision of corporate finance advisory and general advisory
	services. The asset management segment is engaged in the provision
	of fund management, discretionary portfolio management and
	portfolio management advisory services. The website management
	segment is engaged in the provision of investor relation, online
	advertizing and financial information services. The Investments
	segment is engaged in investment holding and securities trading.
Huarong	The company is a Hong Kong-based investment holding company	933.0	(60.07)
International	principally engaged in financial businesses. The company operates
Financial	through three segments. The securities segment is engaged in the
Holdings Limited	broking and dealing of securities, futures and options contracts, as
(993.HK)	well as the provision of margin financing services. The corporate
	finance segment is engaged in the provision of underwriting,
	sponsoring and financial advisory services of securities to
	institutional clients. The asset management and direct investment
	segment is engaged in the provision of asset management services,
	as well as the direct investments in equities, bonds, funds, derivative
	instruments and other financial products. The company mainly
	operates businesses in Hong Kong. The company is also involved in
	money lending, the provision of pawn loan services and the
	provision of financial lease services through its subsidiaries.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
Kingston	The company is an investment holding company principally engaged	9,394.0	(56.85)
Financial Group	in the financial services business. The company operates through
Limited	seven business segments. The securities brokerage, underwriting and
(1031.HK)	placements segment is involved in the provision of brokerage,
	underwriting and placements services for dealings in securities on
	recognized stock exchanges. The margin and initial public offers
	(IPO) financing segment is involved in the provision of credits
	services in related transactions. The other financial services segment
	is mainly engaged in the provision of corporate finance advisory
	services, futures brokerage and asset management services. The hotel
	ownership and management segment is engaged in the operation of
	hotels and provision of hotel management services. The food and
	beverage segment is engaged in the operation of restaurants in
	hotels. The casino segment is engaged in the operation of casino in
	hotels.
Da Yu Financial	The company is an investment holding company principally engaged	341.8	(20.91)
Holdings Limited	in the provision of corporate finance advisory services and asset
(1073.HK)	management services. The corporate finance advisory services include
	the financial advisory services, compliance advisory services, placing
	agency and underwriting services and the investment business. The
	asset management services include the investment advisory services
	and others.
CMBC Capital	The company is an investment holding company principally engaged	7,576.8	259.10
Holdings Limited	in the provision of brokerage and related services. The company		(Note 4)
(1141.HK)	operates through five business segments. The Supply and
	Procurement segment is engaged in the supply and procurement of
	metal minerals, recyclable metal materials and timber logs. The
	securities investment segment is engaged in the investment and
	trading activities in listed equity securities, warrants, convertible
	bonds and interest bearing notes. The Provision of Finance segment
	is engaged in the provision of short-term loan financing activities.
	The Real Estate segment is engaged in the trading of properties,
	property investment and letting of properties. The provision of
	brokerage and Related Services segment is engaged in the
	proprietary trading business and the provision of brokerage services,
	securities margin financing services, as well as futures and options
	contracts dealing services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
Innovax	The company is an investment holding company mainly engaged in	152.0	(33.53)
Holdings Limited	the provision of corporate finance advisory services. The corporate
(2680.HK)	finance advisory services include initial public offerings (IPO)
	sponsorship services, financial and independent financial advisory
	services and compliance advisory services, among others. In addition,
	the company is also involved in the provision of placing and
	underwriting services, securities dealing and brokerage services,
	securities financing services as well as asset management services. It
	provides placing and underwriting services by acting as placing or
	sub-placing agent for issue of new shares by listed companies; and
	global coordinator or bookrunner or lead manager or underwriter for
	IPOs of listing applicants.
BOCOM	The company is principally engaged in the provision of financial	2,789.1	(57.76)
International	related services. the company mainly operates through six segments.
Holdings	The Brokerage segment is mainly engaged in the provision of
Company	securities trading and brokerage services. The Corporate Finance and
Limited	Underwriting segment is mainly engaged in the provision of
(3329.HK)	corporate finance services, including underwriting, sponsor and
	financial advisory services to institutional clients. The Asset
	Management and Advisory segment is mainly engaged in the
	traditional asset management and portfolio management businesses.
	The Margin Financing segment is mainly engaged in the provision of
	financial leverage for customers. The Investment and Loans segment
	is mainly engaged in direct investment in debt, entity securities and
	companies. The Others segment is mainly engaged in the headquarter
	operations businesses.
LFG Investment	The company is an investment holding company principally engaged	527.8	202.21
Holdings Limited	in the provision of corporate finance advisory services. the company		(Note 4)
(3938.HK)	operates its business through four segments. The Corporate Finance
	Advisory Services segment provides initial public offering (IPO)
	sponsorship services, financial advisory services, independent
	financial advisory services and compliance advisory services. The
	Underwriting Services segment engages in the acting as an
	underwriter for listing applicants in IPOs and acting as an
	underwriter or placing agent for secondary market transactions. The
	Securities Dealing and Brokerage Services segment provides
	securities dealing, brokerage services and other related services for
	trading in securities on the stock exchange and in other overseas
	markets. Securities Financing Services segment engages in the
	providing margin financing for securities purchases on the secondary
	market and IPO financing for new share subscriptions in IPOs.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			Premium/(Discount)
			of the closing price
		Market	over/to the NAV
		Capitalisation	per share
Company	Business description	(Note 1)	(Note 2)
		HK$ million	(%)
China Industrial	The company is a Hongkong-based company principally engaged in	1,160.0	(67.36)
Securities	the provision of financial services. the company mainly operates
International	through five segments. The Brokerage segment is engaged in the
Financial Group	provision of securities, futures and options, and insurance brokerage.
Limited	The Loans and Financing segment is engaged in the provision of
(6058.HK)	margin financing and secured or unsecured loans to customers. The
	Investment Banking segment is involved in the provision of financial
	advisory, sponsor, placing and underwriting services. The Asset
	Management segment is engaged in the provision of fund
	management, wealth management and investment advisory services.
	The Proprietary Trading segment is involved in the trading of debt
	and equity securities. the company’s subsidiaries include CISI
	Brokerage, CISI Futures, CISI Capital, CISI Asset Management, CISI
	Finance, CISI Investment and CISI Wealth Management.
Astrum Financial	The company and its subsidiaries are principally engaged in the	88.8	(50.43)
Holdings Limited	provision of securities dealing and brokerage services, placing and
(8333.HK)	underwriting services, corporate finance advisory services, financing
	services and asset management services. The company mainly
	operates its business through its principal subsidiary, Astrum Capital.
	The company’s subsidiaries include Major Harvest Investments
	Limited and Astrum Capital Management Limited. The Company
	mainly operates its business in Hong Kong.
Somerley Capital	The company is principally engaged in (i) corporate finance advisory	220.5	123.07
Holdings Limited	services in Hong Kong and through its subsidiaries in Hong Kong
(8439.HK)	and Beijing; and (ii) asset management services in Hong Kong. The
	company’s finance advisory services mainly include: acting as
	financial adviser to Hong Kong public listed companies, major
	shareholders and investors of these companies and parties seeking to
	control or invest in listed companies in Hong Kong, which includes
	acting as arranger in connection with the introduction of investors to
	listed companies in Hong Kong and/or their major shareholders in a
	takeover transaction; acting as independent financial adviser to
	independent board committees and/or independent shareholders of
	listed companies in Hong Kong; acting as compliance adviser,
	mostly for newly listed companies in Hong Kong. The company also
	acts as sponsor to initial public offerings in Hong Kong and has
	managed and underwritten secondary equity issues in Hong Kong.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Premium/(Discount)
				of the closing price
			Market	over/to the NAV
			Capitalisation	per share
Company	Business description		(Note 1)	(Note 2)
			HK$ million	(%)
Victory	The company is principally engaged in the provision	of securities	250.1	18.84
Securities	broking services. Along with its subsidiaries, the company operate
(Holdings)	its business through three segments. The Securities Broking Services
Company	segment offers securities broking services through the	multi-platform
Limited	online trading system. In addition, the segment provides placing
(8540.HK)	services and ancillary services including settlement services, account
	servicing, corporate-action-related services and other	miscellaneous
	services. The Financing Services segment involves in	the provision
	of margin financing and short-term initial public offering financing
	services. The Asset Management Services segment	offers asset
	management services on a discretionary account basis.	The company
	has successfully obtained a license for advising on corporate finance
	(Type 6) from the Securities and Futures Commission in August
	2019.
The Issue	Price		2,023.8	60.00
			(Note 3)
For the NAV Comparables
Maximum				128.54
Minimum				(87.05)
Average				(30.16)
Source:	Website of the Hong Kong Stock Exchange (https://www.hkex.com.hk/)
Notes:

1. The market capitalisation was based on the closing price and the total shares in issue as at 10 September 2020.

2. The NAV per share was based on the then latest available NAV attributable to equity holders of the respective companies and the total shares in issue as at the Last Trading Day.

3. 3 Being the market capitalisation of the Company as at 10 September 2020.

4. The figure has been excluded from the computations as it appears to be abnormally high as compared to the rest of the NAV Comparables and is considered as outlier which may skew the overall results.

5. The company recorded net liabilities. 6. Trading of the shares of the company has been suspended since 28 February 2020.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated by the above table, the closing price of the NAV Comparables as at the Last Trading Day ranged from a discount of approximately 87.05% to a premium of approximately 128.54% to/over the respective NAV per share (the ‘‘NAV Market Range’’) with an average of a discount of approximately 30.16% to the NAV per share (the ‘‘NAV Average’’).

As demonstrated above, we note that the Issue Price, which represents a premium of approximately 60.00% over the NAV per Share is better than the NAV Average and falls within the NAV Market Range, all of which are of the similar business nature as the Company.

Despite the fact that the discount of the Issue Price to the closing price is more than the SPA Comparables, after considering (i) the Share price has significantly increased two months prior to the entering into the MOU as illustrated in the paragraph headed ‘‘6.1. Review on historical Share price performance’’; (ii) the relatively low liquidity of the Shares as discussed in the paragraph headed ‘‘6.2. Review on trading liquidity of the Shares’’ above; (iii) in addition to P/E Multiple analysis, we have also compared the Issue Price to NAV per Share against the Comparables and NAV Comparables, and we noted a premium of approximately 60.00% of the Issue Price over the NAV per Share; (iv) the premium of approximately 60.00% of the Issue Price over the NAV per Share is within the NAV Range and SPA NAV Range; (v) the premium of approximately 60.00% of the Issue Price over the NAV per Share is within the NAV Market Range and better than the NAV Average, of which NAV is commonly adopted to justify the valuation of the financial services companies; (vi) the bases taken into account when determining the Issue Price after arm’s length negotiations between the Company and the Sellers as stated in the Letter from the Board; (vii) the reasons for and benefits of the Acquisition as discussed above, in particular, the unfavourable macroeconomy and continual profitable financial performance of the Target Group and the Target Group will provide a stable source of revenue to the Group and improve its financial performance; and (viii) the issue of Consideration Shares is a preferred means to partially settle the Consideration by minimising cash outflow, we are of the view that the Issue Price appears to be fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

7. Effect on the shareholding structure of the Company

As disclosed in the Circular, the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after Closing (assuming there is no change in the issued share capital of the Company since the Latest Practicable Date and up to Closing) (Note 1):

Non-public Shareholders Zhongzhi Xinzhuo Kang Bang (HK) Founders SPV Public Shareholders Ms. Zhou SPV Other public shareholders Total	As at the Latest Practicable Date Number of Shares % 2,159,552,102 60.82 455,820,525 12.84 — — — — 935,124,209 26.34 3,550,496,836 100	Immediately after Closing (Note 2) Number of Shares % 2,409,823,718 57.53 455,820,525 10.88 274,190,219 6.55 113,560,919 2.71 935,124,209 22.33 4,188,519,590 100	Immediately after Closing (Note 2) Number of Shares % 2,409,823,718 57.53 455,820,525 10.88 274,190,219 6.55 113,560,919 2.71 935,124,209 22.33 4,188,519,590 100
			100

Notes:

1. Pursuant to the terms of the Share Purchase Deed, in the event that the sum of the actual amount of the audited consolidated net profit attributable to equity holders of the Target Company for each Guarantee Period, i.e. the Entire Guarantee Period, is equal to or more than RMB1 billion, the Company would pay the Founders SPV an additional consideration in the amount of RMB150 million and would settle such payment by issuing the Additional Shares to the Founders SPV. Further, according to the terms of the Share Purchase Deed: (i) the obligation of the Company to issue the Additional Shares to the Founders SPV is subject to conditions, including, among others, the issuance of any Additional Shares not triggering any mandatory general offer under Rule 26 of the Takeovers Code or resulting in the breach of the public float requirement under the GEM Listing Rules and the Hong Kong Stock Exchange having granted the approval for the listing of and permission to deal in the Additional Shares, and (ii) to the extent that any Additional Shares cannot be allotted and issued subject to (i) above, the Company has the sole and absolute discretion to settle the remaining additional consideration in cash.

2. The number of Additional Shares in the table above is solely for illustration purpose. The actual number of Additional Shares to be allotted and issued to the Founders SPV will be subject to certain conditions and depend on the issue price to be determined.

As shown in the table above, the shareholding of the existing public Shareholders will decrease from approximately 26.34% to approximately 25.04% upon the allotment and issue of the Consideration Shares, representing a dilution by approximately 1.30%. We note that the issue of the Consideration Shares will result in a dilution effect for the public Shareholders. Nonetheless, having considered (i) the reasons for and benefits of the Acquisition as discussed in paragraph headed ‘‘3. Reasons for and benefits of the Acquisition’’ above; (ii) the Consideration and Issue Price being fair and reasonable as discussed above; (iii) the allotment and issuance of the Additional Shares shall be subject to the compliance of all applicable

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Laws and regulations, including the GEM Listing Rules and the Takeovers Code; and (iv) that no material adverse impacts on the financial position and performance of the Group immediately upon Closing, which is summarised in paragraph headed ‘‘8. Financial effects’’ below, we are of the opinion that the dilution effects are acceptable.

8. Financial effects

Upon Closing, the Target Company will become a wholly-owned subsidiary of the Company and the financial results, assets and liabilities of the Target Group will be consolidated into the consolidated financial statements of the Company. The unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to the Circular has been prepared to illustrate the financial effect of the Acquisition.

With reference to the unaudited pro forma financial information of the Enlarged Group for the years ended 31 March 2019 and 2020 as set out in Appendix III to the Circular, it is expected that members of the Target Group, as subsidiaries of the Group, will provide a stable source of revenue to the Group and will be accretive to the Company’s NAV per Share.

NAV

As set out in the unaudited pro forma consolidated statement of financial position of the Enlarged Group in Appendix III to the Circular, as if the Acquisition had taken place on 31 March 2020, the total assets of the Group (following the Closing, the Enlarged Group) will increase from HK$731.9 million to HK$1,646.3 million and the total liabilities of the Group (following the Closing, the Enlarged Group) will increase from HK$22.0 million to HK$482.3 million. Based on the above, the net assets of the Enlarged Group will increase from HK$709.9 million to HK$1,164.0 million as a result of the Acquisition.

Earnings

For the year ended 31 March 2020, the profit for the year attributable to owner of the Company was HK$1.6 million. As presented in the unaudited pro forma consolidated statement of profit or loss and other comprehensive income of the Enlarged Group as set out in Appendix III to the Circular, had the Acquisition been completed on 31 March 2020, the Target Group would increase the revenue for the year of the Group from approximately HK$17.0 million to HK$498.4 million.

It should be noted that the aforementioned analyses are for illustrative purpose only and do not purport to represent how the financial position/results of the Group will be upon Closing and the issue of the Consideration Shares and Additional Shares pursuant to the Acquisition.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

B. The Contractual Arrangements

Information of the Contractual Arrangements

Reasons for the use of Contractual Arrangements

As disclosed in the Letter from the Board, the OPCO Group operates OPCO Business, whereas, the WFOE Group operates comprehensive marketing services and data centre services businesses through its subsidiaries. As the OPCO Business involves the provision of value-added telecommunications services and is subject to restrictions imposed by relevant PRC Laws on foreign investors of foreign-invested telecommunication enterprises which engage in the provision of value-added telecommunications services, it is currently conducted by the OPCO Group (the ‘‘Restrictions’’). As each of the Contact Services, the Call Center-related BPO Services and the Contact Service System and Centres Set-up Services involves the provision of services by the OPCO Group on behalf of an entity for the customers of such entity through public communication network by: (i) utilising call centre system which is connected to public communication network or the Internet; (ii) utilising database technology; and (iii) establishing information base through information collection, processing and storage, the provision of the OPCO Business by the OPCO Group constitutes the provision of call centre services, one type of VAT Services, by the OPCO Group. Therefore, in accordance with the Telecommunication Regulations, the OPCO Group is required to hold VATS Licences in order to operate the OPCO Business.

Moreover, according to the FITE Regulations and the Telecommunication Measures, (i) the establishment of a foreign-invested telecommunication enterprise which engages in the provision of any VAT Services in China must be approved by the MIIT or its authorised local counterparts; (ii) the holder of a VATS Licence is required to obtain the approval of the MIIT and/or its authorised local counterparts if there is any change to the shareholders of such holder; and (iii) the main foreign investor in a foreign-invested telecommunication enterprise which engages in the provision of VAT Services must satisfy the Qualification Requirement of VATS, including, a proven track record of good performance, and operating experience, in carrying on value-added telecommunication business. Due to the Restrictions under the relevant PRC Laws, and as advised by the PRC Legal Adviser, it was not viable for the Target Company to directly hold any equity ownership in the OPCO Group, and the Contractual Arrangements were therefore adopted for the control over the OPCO Group to receive the entire economic benefits generated by the OPCO Group.

Furthermore, under the FITE Regulations, the Telecommunication Measures and other applicable PRC Laws: (i) any direct or indirect transfer of any equity interest in any member of the OPCO Group to a foreign investor constitutes the conversion of such member of the OPCO Group into a foreign-invested telecommunication enterprise; and (ii) in order for the members of the OPCO Group to be converted into foreign-invested telecommunication enterprises which engage in the provision of VAT Services, the main foreign investor in such members of the OPCO Group is required to satisfy the Qualification Requirement of VATS and such members of the OPCO Group are required

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to obtain the approval of the MIIT and/or its authorised local counterparts. As further described in the section headed ‘‘Contractual Arrangements — Qualification Requirement of VATS’’ in the Circular, there is no clear guidance or interpretation on the Qualification Requirement of VATS and the foreign investor’s fulfilment of Qualification Requirement of VATS remains ultimately subject to substantive examination and discretion by the MIIT. Given no applicable PRC Law, regulation or rule has provided any clear guidance or interpretation on the Qualification Requirement of VATS, the PRC Legal Adviser consulted with an officer in the Market Division of Information and Communication Administration (信息通信管理局市場處) of the MIIT (the ‘‘MIIT Officer’’) on 24 December 2019 (the ‘‘MIIT Consultation’’). The MIIT Officer has confirmed during the MIIT Consultation that:

• (i) in order for a foreign investor to acquire, directly or indirectly, the members of the OPCO Group which engage in the provision of VAT Services (which would result in the conversion of such members of the OPCO Group into foreigninvested telecommunication enterprises which engage in the provision of VAT Services), the main foreign investor in such members of the OPCO Group is required to satisfy the Qualification Requirement of VATS and such members of the OPCO Group are required to obtain the approval of the MIIT and/or its authorised local counterparts;

• (ii) as no applicable PRC Law, regulation or rule has provided any clear guidance or interpretation on the Qualification Requirement of VATS, the MIIT and/or its authorised local counterparts have considerable substantive discretion in determining whether such main foreign investor satisfies the Qualification Requirement of VATS and in granting any such approval;

• (iii) the MIIT Officer is not aware of the MIIT or any of its authorised local counterparts having granted any approval to or for any foreign-invested telecommunication enterprise which engages in the provision of call centre services (within the meaning of the Telecommunication Catalogue); and

• (iv) the Contractual Arrangements do not require any prior approval from, or any registration or filing with, the MIIT and do not violate any PRC Law, regulation or rule in relation to VAT Services.

As disclosed in the section headed ‘‘Contractual Arrangements’’ in the Circular, the PRC Legal Adviser has advised that (i) the MIIT (being the department in charge of the supervision and substantive examination of foreign investments in VAT Services) is the competent authority, and (ii) the MIIT Officer (being an officer in the division of the MIIT in charge of the supervision of the operation of VAT Services and the acceptance of applications for VATS Licence) is a competent person with appropriate authority, to give the above confirmations. As further advised by the PRC Legal Adviser, based on the MIIT Consultation and the current regulatory practice, the MIIT will not approve any application by any member of the OPCO Group to be converted into a foreign-invested telecommunication enterprise which engages in the provision of VAT Services even if the main foreign investor in such member of the OPCO Group currently satisfies the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Qualification Requirement of VATS. Hence, we concur with the Management’s view that no applicable PRC law, regulation or rule has provided any clear guidance or interpretation on the Qualification Requirements.

We also understand that the Company has discussed with its auditors and confirms that the financial results of the Target Group, including the OPCO Group, will be consolidated into the consolidated financial statements of the Enlarged Group under prevailing accounting principles immediately after Closing. Therefore, the OPCO Group through the Contractual Arrangements will bring an additional revenue stream to the Group. Taking into account the Contractual Arrangements were adopted to enable the Target Group to conduct the OPCO Business that are subject to the Restrictions under the relevant PRC Laws as it is necessary for the Group to exert effective control over and receive the entire economic benefits generated by the OPCO Group, which is in line with the Group’s business strategy to broaden and strengthen the income stream of the Group by immediately gaining control over a well-established business and enjoying the benefit of an expansion of scope of business and existing business, we therefore concur with the Management’s view that the entering into of the Contractual Arrangements is in the ordinary and usual course of business of the Company.

In light of the above and taking into account (i) on the basis of the applicable PRC laws and regulations, the prevailing regulatory policy or practice of the MIIT, the MIIT Consultation and the advice of the PRC Legal Adviser as set out above, the Management believes that it is not feasible for the Company to acquire, directly or indirectly, any member of the OPCO Group which engages in the provision of VAT Services and thereby converting such member of the OPCO Group into a foreign-invested telecommunication enterprise which engages in the provision of VAT Services; (ii) in order to address such foreign ownership restrictions, (a) the OPCO Group will engage in the provision of the OPCO Business; and (b) while the Target Company and the WFOE will not have any direct ownership of the OPCO Group, the Target Company and the WFOE will exercise control over the operations of, and enjoy the entire economic benefits generated by, the OPCO Group through the Contractual Arrangements; and (iii) as part of the Corporate Restructuring, the WFOE has been established and has acquired the entire equity interest in the registered capital of each of the entities in the Target Group which is not involved in the OPCO Business (i.e. comprehensive marketing services and data centre services), we concur with the Management’s view that the Contractual Arrangements are narrowly tailored which enable the Target Group to conduct the OPCO Business in compliance with the applicable PRC Laws and regulations, and gain effective control over the entire equity interest of the OPCO Group, and therefore the adoption of Contractual Arrangements is in the interests of the Company and the Shareholders as a whole despite the lack of registered equity ownership.

Contractual Arrangements

A summary of the principal terms of the Contractual Arrangements is set out below. Independent Shareholders may also refer to the section headed ‘‘Contractual Arrangements’’ in the Circular for further details.

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The Exclusive Business Cooperation Agreement

Parties: WFOE and DaLian Kingwisoft

Term:

Ten years and shall be automatically extended upon expiry unless the WFOE confirms a new renewal term in writing.

Subject matter:

DaLian Kingwisoft agrees to engage the WFOE as its exclusive provider of business support, technical and consulting services, including technical services, network support, business consultation, intellectual property licensing, equipment leasing, market consultancy, system integration, product research and development and system maintenance, in exchange for service fees.

The WFOE enjoys the entire economic benefits derived from the businesses of DaLian Kingwisoft and its subsidiaries, and bears relevant risks of DaLian Kingwisoft and its subsidiaries. If DaLian Kingwisoft runs into financial deficit or suffers severe operation difficulties, the WFOE will provide financial support to DaLian Kingwisoft.

In line with the services it provides, the WFOE has employed relevant personnel primarily providing consulting and technical services to DaLian Kingwisoft. In addition, the WFOE’s primary operating assets will be IT facilities, network and equipment, which support its provision of services to DaLian Kingwisoft under the Exclusive Business Cooperation Agreement. The WFOE and its subsidiaries also engage in comprehensive marketing services and data centre services businesses.

Intellectual property rights are developed during the normal course of business of DaLian Kingwisoft and its subsidiaries. Pursuant to the Exclusive Business Cooperation Agreement, the WFOE will have the exclusive and proprietary rights to all intellectual properties developed by DaLian Kingwisoft and its subsidiaries, given that the WFOE provides consultation services to DaLian Kingwisoft and its subsidiaries during the term of the Exclusive Business Cooperation Agreement. Part of the economic benefits generated by DaLian Kingwisoft and its subsidiaries will be intellectual properties developed or created during the normal business operation of DaLian Kingwisoft and its subsidiaries. Though it is not intended to transfer any existing intellectual property rights held by DaLian Kingwisoft to the WFOE, DaLian Kingwisoft is required under the Contractual Arrangements to obtain the WFOE’s prior written consent before it transfers, assigns or disposes of any of the intellectual properties to any third party.

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Fee: Subject to the WFOE’s adjustment, the service fees charged under the Exclusive Business Cooperation Agreement, are equal to the net profit of DaLian Kingwisoft and its subsidiaries. The WFOE may adjust the service fees at its sole discretion, after taking into account certain factors, including but not limited to the deduction of necessary costs, expenses, taxes and other statutory contribution for the corresponding fiscal year, and may also include accumulated losses of DaLian Kingwisoft and its subsidiaries from previous financial periods.

The Exclusive Call Option Agreement

Parties: WFOE, the Registered Shareholders and DaLian Kingwisoft

Term: Ten years and shall be automatically extended upon expiry unless the WFOE confirms a new renewal term in writing.

Subject matter:

WFOE (or the Target Company or any subsidiary of the Target Company, the ‘‘designee’’) has been granted an irrevocable and exclusive right to purchase all of the shares in and/or assets of DaLian Kingwisoft for a nominal price, unless the relevant government authorities or the PRC Laws request that another amount be used as the purchase price, in which case the purchase price shall be the lowest amount under such request. Subject to relevant PRC Laws and regulations, the Registered Shareholders and/or DaLian Kingwisoft shall return any amount of purchase price they have received to the WFOE. At the WFOE’s request, the Registered Shareholders and/or DaLian Kingwisoft will promptly and unconditionally transfer their respective shareholding in and/or the relevant assets of DaLian Kingwisoft to the WFOE (or its designee) after the WFOE exercises its call option.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In order to prevent the flow of the relevant assets and value of DaLian Kingwisoft and its subsidiaries to the Registered Shareholders, during the term of the Exclusive Call Option Agreement, DaLian Kingwisoft is not allowed to, and shall procure its subsidiaries not to, sell, transfer, mortgage or otherwise dispose of any of its assets (exceeding the value of RMB1 million) without the prior written consent of the WFOE. In addition, DaLian Kingwisoft is not allowed to, and shall procure its subsidiaries not to, make any distributions to its shareholder(s) without prior written consent of the WFOE. In the event that the Registered Shareholders receive any distribution from DaLian Kingwisoft and/or its subsidiaries and subject to the PRC Laws, the Registered Shareholders must immediately pay or transfer such distribution to the WFOE (or its designee). If the WFOE exercises the call option all or any part of the shareholding in and/or assets of DaLian Kingwisoft acquired would be transferred to the WFOE, and the benefits of the equity ownership and/or assets, as applicable, would flow to the Target Company and its shareholders.

Without the prior written consent of the WFOE, DaLian Kingwisoft shall not, and shall procure its subsidiaries not to, among other things, (i) sell, transfer, pledge or dispose of in any manner any of its assets of more than RMB1 million; (ii) execute any material contract for a value more than RMB1 million, except any contracts in the ordinary course of business and any contracts entered into with any members of the Target Group (or the Enlarged Group immediately after Closing); (iii) provide any loan, financial support, pledge or guarantees in any form to any third party, or allow any third party to create any pledge or other security interest over its assets or equity; (iv) incur, inherit, guarantee or allow any debt that is not incurred in the ordinary course of business of DaLian Kingwisoft or not disclosed and consented to by the WFOE; (v) enter into any consolidation or merger with any third party, or acquire or invest in any third party; (vi) increase or reduce its registered capital, or alter the structure of the registered capital in any other manner.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Registered Shareholders and DaLian Kingwisoft shall procure the subsidiaries of DaLian Kingwisoft to comply with the above undertakings as if they are parties to the Exclusive Call Option Agreement. Therefore, due to the relevant restrictive provisions in the agreement, the potential adverse effect on the WFOE and the Target Group (or the Enlarged Group immediately after Closing) in the event of any loss suffered from DaLian Kingwisoft and/or its subsidiaries can be limited to a certain extent. In addition, in relation to the above restrictive provisions specified in the Exclusive Call Option Agreement, the asset disposals or value of contracts will be aggregated if such asset disposals or value of contracts (i) are entered into by the Target Group with the same party or parties; or (ii) involve the disposal or contracts which relate to the whole or parts of the asset or securities or interests in a company or group of companies. Further, as advised by the PRC Legal Adviser, any transfer of shares in DaLian Kingwisoft pursuant to the terms of the Exclusive Call Option Agreement will need to be filed with relevant government authorities upon the exercise of the call option thereunder.

The Share Pledge Agreement

Parties: WFOE, the Registered Shareholders and DaLian Kingwisoft Term: The Share Pledge Agreement will remain in effect till the earlier of (i) all obligation of DaLian Kingwisoft and the Registered Shareholders under the Exclusive Business Cooperation Agreement, the Exclusive Call Option Agreement and the Authorisation Agreement are performed in full; (ii) the WFOE exercises its exclusive option to purchase the entire shareholding held by the Registered Shareholders in DaLian Kingwisoft and/or the assets of DaLian Kingwisoft pursuant to the terms of the Exclusive Call Option Agreement when it is permitted to do so under the applicable PRC Laws; (iii) the WFOE exercises its unilateral and unconditional right of termination; and (iv) the agreement is required to be terminated in accordance with applicable PRC Laws and regulations.

Subject matter:

The Registered Shareholders pledge as first charge all of their respective shareholding in DaLian Kingwisoft to the WFOE as collateral security for any or all of the payments due to the WFOE and to secure performance of their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Call Option Agreement and the Authorisation Agreement.

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In addition, under the Exclusive Call Option Agreement, none of the Registered Shareholders may transfer or create any encumbrance on any of their shareholding in and the relevant assets of DaLian Kingwisoft (including any equity interests in and relevant assets of the subsidiaries of DaLian Kingwisoft) without the WFOE’s prior written consent.

Furthermore, under the Exclusive Business Cooperation Agreement, the WFOE is entitled to retain and exercise physical control of company seals and certificates that are crucial to the daily operation of DaLian Kingwisoft, which further strengthens the protection of the WFOE’s interests over DaLian Kingwisoft under the Contractual Arrangements. Should an event of default (as provided in the Share Pledge Agreement) occur, unless it is successfully resolved to the WFOE’s satisfaction within 30 days upon being notified by the WFOE, the WFOE may demand that the Registered Shareholders and/or DaLian Kingwisoft immediately pay all outstanding payments due under the Exclusive Business Cooperation Agreement, repay any loans and make all other payments due to it, and/or dispose of the pledged shareholding and use the proceeds to repay any outstanding amount due to the WFOE.

The Powers of Attorney

Parties: WFOE, the Registered Shareholder and DaLian Kingwisoft Term: Automatically terminate once the WFOE (or any member of the Target Group (or any member of the Group after Closing) other than DaLian Kingwisoft and its subsidiaries) directly holds the entire shareholding in and/or the entire assets of DaLian Kingwisoft permitted under the then PRC Laws and regulations and the WFOE (or its subsidiaries) is allowed to conduct the OPCO Business under the then PRC Laws and regulations, following which the WFOE is registered as the sole shareholder of DaLian Kingwisoft.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Subject matter:

The Registered Shareholders have appointed the WFOE or a director of its offshore holding company or its/his/her successor (including a liquidator replacing the WFOE’s director) as their exclusive agent and attorney to act on their behalf on all matters concerning DaLian Kingwisoft and to exercise all of their rights as registered shareholders of DaLian Kingwisoft. These rights include (i) the right to propose, convene and attend shareholders’ meetings; (ii) the right to sell, transfer, pledge or dispose of shares; (iii) the right to exercise shareholders’ voting rights; and (iv) the right to act as the legal representative (chairperson), the director, supervisor, the chief executive officer (or general manager) and other senior management members of DaLian Kingwisoft. The authorised person is entitled to sign minutes, file documents with the relevant companies registry and exercise voting rights on the winding up of DaLian Kingwisoft on behalf of the Registered Shareholders.

The Registered Shareholders have undertaken to transfer all assets obtained by them after the winding up of DaLian Kingwisoft to the WFOE at nil consideration or the lowest price permissible by the then applicable PRC Laws and regulations. As a result of the Powers of Attorney, the Target Company (or the Company immediately after Closing), is able to exercise management control over the activities that have significant impact on the economic performance of DaLian Kingwisoft.

In order to avoid potential conflicts of interest, where the Registered Shareholders are officers or directors of the Target Group, the powers of attorney are granted in favour of other unrelated officers or directors of the Target Company (the unrelated directors of the holding company of the Target Company).

The Spouse Consent Letter

Parties: Mr. Hu, Ms. Liu and the spouse of Ms. Zhou

Subject matter: Mr. Hu, Ms. Liu and the spouse of Ms. Zhou expressly and irrevocably acknowledge and undertake that (i) any shareholding interest held by Mr. Hu, Ms. Liu and Ms. Zhou in DaLian Kingwisoft do not fall within the scope of their communal properties; (ii) they will not have any claim on the interests of DaLian Kingwisoft obtained through the Contractual Arrangements in their capacity as spouse; (iii) in relation to Ms. Zhou’s spouse, he has never participated and will not participate in the operation or management of DaLian Kingwisoft.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have reviewed the Contractual Arrangements and legal opinion provided by the PRC Legal Adviser and understand that the Contractual Arrangements do not violate any PRC Laws, rules and regulations and applicable to the OPCO Business and would not be deemed as ‘‘concealing illegal intentions with a lawful form’’ and void under the PRC Contract Law. The PRC Legal Adviser also indicated that, each of the Contractual Arrangements is legal, valid and binding on each party to such agreements under the PRC Laws, admissible as evidence and enforceable in accordance with its terms except for the provision in relation to arbitration tribunal and the available interim remedies. We understand the Contractual Arrangements have been constructed to give the WFOE effective control over the financial and operation of the OPCO Group and act as if the shareholders of the OPCO. To ensure sound and effective operation and further avoid disputes, which may trigger certain non-legally enforceable term under the PRC Laws and regulations, the Management plans to take the measures which will be put in place after Closing as set out in the paragraph headed ‘‘Internal Control’’ below.

We further understand that (i) the Exclusive Business Cooperation Agreement allows the WFOE to undertake all economics benefits and related risks of the OPCO, and allows the Group to diversify its business operation by participating in the back-office services business; (ii) the Exclusive Call Option Agreement allows the WFOE to have the ultimate control over the shareholding of the OPCO and that it minimises the potential risk of unforeseen shareholding change that would otherwise affect the effectiveness of the Contractual Arrangements; (iii) the Powers of Attorney enable the Company to exercise the voting rights at the shareholders’ meeting of the OPCO and exercise its power as a shareholder of the OPCO, and the Powers of Attorney also provided that, in order to avoid potential conflicts of interest, where the Registered Shareholders are officers or directors of the Target Group, the Powers of Attorney are granted in favour of other unrelated officers or directors of the Target Company (the unrelated directors of the holding company of the Target Company); (iv) the Share Pledge Agreement pursuant to which the WFOE has a first priority pledge on equity interests in the OPCO serves as a protection mechanism for the Group; and (v) the Spouse Consent Letter provides protection to the Target Group (or the Enlarged Group after Closing) that (a) any shareholding interest held by Mr. Hu, Ms. Liu and Ms. Zhou in DaLian Kingwisoft do not fall within the scope of their communal properties; (b) they will not have any claim on the interests of DaLian Kingwisoft obtained through the Contractual Arrangements in their capacity as spouse; (c) in relation to Ms. Zhou’s spouse, he has never participated and will not participate in the operation or management of DaLian Kingwisoft. As such, the Contractual Arrangements ensure that the Group shall have effective control of the day-to-day operations and management of the business operated by the OPCO to protect the economic interests of the Group and no approval from the authority is required for the execution of the Contractual Arrangements except that (i) the pledges under the Share Pledge Agreement are required to be registered with the competent authority; and (ii) any transfer of equity interests in OPCO pursuant to the terms of the Exclusive Call Option Agreement, which needs to be filed with the relevant governmental authorities upon the exercise of the call option under the Exclusive Call Option Agreement; and there is no prohibitive or restrictive requirement with respect to the Contractual Arrangements under current PRC Laws.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the listing decision HKEx-LD43-3 and the guidance letter HKExGL77-14 and the terms of the Contract Arrangements, given that (i) the Contractual Arrangements are narrowly tailored to achieve the business purpose of the Company and minimise the potential of conflict with relevant PRC Laws and regulations as aforementioned; (ii) based on the MIIT Consultation and the current regulatory practice, the MIIT will not approve any application by any member of the OPCO Group to be converted into a foreign-invested telecommunication enterprise which engages in the provision of VAT Services even if the main foreign investor in such member of the OPCO Group currently satisfies the Qualification Requirement of VATS; (iii) no applicable PRC law, regulation or rule has provided any clear guidance or interpretation on the Qualification Requirements; (iv) the Contractual Arrangements would not be deemed as “concealing illegal intentions with a lawful form” and void under the PRC Contract Law; (v) each of the Contractual Arrangements, taken individually and collectively, constitutes legal, valid and binding obligations of the parties thereto and will be enforceable under applicable PRC Laws and regulations except that (a) a arbitral tribunal normally would not grant injunctive relief or winding up order of the OPCO and (b) interim remedies or enforcement orders granted by overseas courts such as the courts of Hong Kong and the Cayman Islands may not be recognisable or enforceable in the PRC; (vi) none of the Contractual Arrangements violates any provisions of respective articles of association of the WOFE, each of the OPCO and its respective subsidiaries; (vii) the execution, effectiveness and enforceability of the Contractual Arrangements do not require any approvals from any PRC governmental authority, except that the pledges under the Share Pledge Agreement is subject to registration requirements with the relevant authorities and the exercising of the exclusive option by the WFOE according to the Exclusive Call Option Agreement shall be subject to the then effective PRC Laws and regulations and relevant approval procedures (if applicable); (viii) the WFOE may and the Company will unwind the Contractual Arrangements as soon as relevant PRC rules and regulations allow the WFOE to register itself as the shareholder of the OPCO; (ix) the Contractual Arrangements (a) include the Powers of Attorney by which the Registered Shareholders authorise the WFOE, and the WFOE undertakes that the authorisation under the Powers of Attorney will be granted to officers of the Company who are unrelated to the Registered Shareholders; (b) contain dispute resolution clauses that provide for arbitration and that arbitrators may reward remedies over the shares and/or assets of the OPCO Group, injunctive reliefs and/or winding up of any of the companies in the OPCO Group and provide the courts in the PRC, Hong Kong and Cayman Islands with the power to grant interim remedies in support of the arbitration pending formation of an arbitral tribunal; (x) the Contractual Arrangements encompass dealing with the OPCO’s assets, and not only the right to manage its business but also the right to collect revenue; and (xi) we have reviewed the prospectus (the ‘‘Prospectus’’) of Renrui Human Resources Technology Holdings Limited (stock code: 6919) (‘‘Renrui’’), a listed company listed on the Hong Kong Stock Exchange whose principal business provides

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one-stop human resources solutions including provision of call center services which is one type of VAT Services and thus requires the obtaining of VATS Licence to carry out its business, being subject to the FITE Regulations and approval by MIIT or its authorised local counterparts. According to the FITE Regulations, foreign investor who intends to invest in VATS in the PRC must possess the Qualification Requirement of VATS. According to the Prospectus and consultations with the Market Division of Information and Communication Administration of the MIIT by the sponsor and the PRC legal adviser of Renrui (the ‘‘Renrui MIIT Consultation’’), there is no clear guidance or interpretation on the VATS Qualification Requirement and the determination of whether a foreign investor satisfies the VATS Qualification Requirement is subject to substantive discretion by the MIIT on a case-by-case basis; and if the holding company of the operating subsidiaries introduces a foreign investor, even if such foreign investor fulfils the VATS Qualification Requirement, VATS Licence(s) cannot be granted to holding company of the operating subsidiaries or its subsidiaries. In light of the above applicable PRC laws and regulations and policy of the relevant government authorities as set out above and the Renrui MIIT Consultation, it is not feasible for Renrui or its subsidiaries to hold the maximum equity interest permissible under current PRC laws and regulations in holding company of the operating subsidiaries and/or its subsidiaries through the form of a sino-foreign equity joint venture or wholly-owned foreign investment entity structure. Accordingly, Renrui adopted contractual arrangements in connection with Renrui’s operating subsidiaries. Similar to Renrui, the OPCO Group operates OPCO Business under the VATS Licence and is subject to MIIT approval if there is any change to the shareholders of such holder. As advised by the PRC Legal Adviser, the MIIT will not approve any application by any member of the OPCO Group to be converted into a foreign-invested telecommunication enterprise which engages in the provision of VAT Services. For further details, please refer to the section headed ‘‘Contractual Arrangements’’ in the Circular. Based on the above, we are of the view that the terms herein are commonly adopted and narrowly tailored, and that the Contractual Arrangements have taken into account of the principles as set out in the listing decision HKLD-43-3 and have complied with the requirements under the guidance letter HKExGL-77-14, in particular the conditions under paragraph 16(a)(i) are met, and the Contractual Arrangements are on normal commercial terms and the terms are fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Waiver from strict compliance with the GEM Listing Rules

As disclosed in the Letter from the Board, the Company has applied for, and the Hong Kong Stock Exchange has granted, a waiver from (i) fixing the term of the Contractual Arrangements for a period of not exceeding three years pursuant to Rule 20.50 of the GEM Listing Rules, and (ii) setting a maximum aggregate annual cap pursuant to Rule 20.51 of the GEM Listing Rules for the service fees payable by the OPCO to the WFOE under the Contractual Arrangements, subject to the conditions as set out more particularly in the section headed ‘‘Waiver from Strict Compliance with the GEM Listing Rules’’ in the Circular.

In view of (i) it is essential for WFOE to operate the back-office services business in the PRC through the Contractual Arrangements given that it was not viable for the Target Company to directly hold any equity ownership in the OPCO Group; and (ii) the WFOE will manage to exercise effective control and to safeguard the assets of the OPCO through the Contractual Arrangements and internal control measures as set out in the section headed ‘‘Waiver from Strict Compliance with the GEM Listing Rules’’ in the Circular, we consider that although there will be a lack of equity ownership in the OPCO, the Contractual Arrangements allow the Group to be entitled to the economic benefits generated by the OPCO through the WFOE. The long-term contractual arrangement under the Contractual Arrangements is fundamental and is vital to the stability of the business operations and financial performance of the Group. It is commercially desirable and essential for the WFOE to enter into the Contractual Arrangements with a duration of more than three years to secure a revenue stream from the provision of the back-office services for the Group in the medium to long term until acquisition of the equity interests of the OPCO by the WFOE or the registration of the WFOE as equity owner of the OPCO is permitted under the relevant PRC Laws and regulations. The durations of the Contractual Arrangements ranged from ten years to no definite term. We have reviewed other comparable Contractual Arrangements structure and noted the terms herein are commonly adopted.

As disclosed in the section headed ‘‘Contractual Arrangements’’ in the Circular, under the Exclusive Business Cooperation Agreement, the service fees, subject to the WFOE’s adjustment, are equal to the net profit of DaLian Kingwisoft and its subsidiaries. The WFOE may adjust the service fees at its sole discretion, after taking into account certain factors, including but not limited to the deduction of necessary costs, expenses, taxes and other statutory contribution for the corresponding fiscal year, and may also include accumulated losses of DaLian Kingwisoft and its subsidiaries from previous financial periods. The service fees shall be transferred to the designated account of the WFOE upon issuance of payment notification by the WFOE. This arrangement is equivalent to the Group operating the OPCO as its own subsidiary and the Group can fully enjoy the economic benefits generated by the OPCO. Setting maximum annual caps for such service fees will limit the ability of the Group to operate the business and receive the economic benefits generated by the OPCO. We further understand from the Management that (i) it would be unduly burdensome and would incur unnecessary administrative costs to set maximum aggregate annual caps for the service fees under the Exclusive Business Cooperation Agreement; (ii) the intention of the Exclusive Business

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Cooperation Agreement is to enable the Group to receive the entire economic benefits derived by the OPCO; (iii) the Registered Shareholders do not intend to and will not receive any economic benefits from the operation by the OPCO in excess of any maximum aggregate annual caps; and (iv) the long-term arrangement of the Contractual Arrangements is fundamental and is vital to the stability of the operation of OPCO Business and financial performance of the Group. Therefore, we concur with the Management’s view that it is commercially desirable and essential for the services fees payable by the OPCO to the WFOE not subject to a maximum aggregate annual caps for the services fees payable by the OPCO to the WFOE and for the Contractual Arrangements to have a term more than three years.

Internal control measures

As set out in the section headed ‘‘Waiver from Strict Compliance with the GEM Listing Rules’’ in the Circular, the Management plans to take the following measures which will be put in place after Closing so as to ensure sound and effective operation of the Group after Closing:

• (a) as part of the internal control measures, major issues arising from implementation and performance of the Contractual Arrangements will be reviewed by the Board on a regular basis which will be no less frequent than on a quarterly basis. The Board will determine, as part of its periodic review process, whether legal advisers and/or other professional will need to be retained to assist our Group to deal with specific issues arising from the Contractual Arrangements;

• (b) matters relating to compliance and regulatory enquiries from governmental authorities, if any, will be discussed by the Board on a regular basis which will be no less frequent than on a quarterly basis;

• (c) the relevant business units and operation divisions of the Group will report regularly, which will be no less frequent than on a monthly basis, to the senior management of the Company on the compliance and performance conditions under the Contractual Arrangements and other related matters; and

• (d) the Company shall comply with the conditions prescribed under the waiver granted by the Hong Kong Stock Exchange in connection with the continuing connected transactions under the Contractual Arrangements.

Based on the above, we believe that the Board is able to supervise the internal control manner of the Company appropriately while the Management would cooperate with the related internal control measures and the review procedures with the relevant business units and operation divisions of the Group, as well as facilitating the provision of any necessary updates or information to the Board. We consider that the Company has adopted adequate internal control measures to be able to comply with the Listing Rules requirements with respect to the supervision and monitoring of the transactions contemplated under the Contractual Arrangements.

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RECOMMENDATION

Having taken into account the principal factors and reasons as discussed above, we are of the view that (i) the entering into the Share Purchase Deed and the transactions contemplated thereunder are in the ordinary and usual course of business of the Company and the terms of the Share Purchase Deed are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole; (ii) the entering into of the Contractual Arrangements and the transactions contemplated thereunder as for completion of the Acquisition are in the ordinary and usual course of business of the Company and are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole; (iii) the durations of the Contractual Arrangements ranged from ten years to no definite term are in line with the normal business practice for similar contractual arrangements; and (iv) the business structure under which the entire profit generated by the OPCO Group is substantially retained by the Group, such that no annual cap shall be set on the amount of service fees payable to the WFOE by the OPCO Group under the Exclusive Business Cooperation Agreement. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM in respect of the Share Purchase Deed, the transactions contemplated under the Share Purchase Deed, the Contractual Arrangements and the Specific Mandate.

Yours faithfully, For and on behalf of Lego Corporate Finance Limited Stanley Ng Managing Director

Mr. Stanley Ng is a licensed person registered with the Securities and Futures Commission and a responsible officer of Lego Corporate Finance Limited to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong). He has over 15 years of experience in the accounting and investment banking industries.

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RISK FACTORS

Shareholders should carefully consider all information set out in this circular and, in particular, should evaluate the following risks described below and associated with an investment in the Target Group before making any investment decision regarding the Target Group. Some risks may be unknown to the Target Group and other risks, currently believed to be immaterial, could in fact be material. Any of these could materially and adversely affect the business, financial condition and results of operations of the Target Group. The Target Group does not represent that the statements below regarding the risk factors are exhaustive. Shareholders should also read the detailed information set out elsewhere in this circular and reach their own views prior to making any investment decisions. This circular also contains forward-looking statements that involve risks and uncertainties. The actual results of the Target Group could differ materially from those anticipated in these forwardlooking statements as a result of certain factors, including the risks described below and elsewhere in this circular.

RISKS RELATING TO THE ACQUISITION

Closing is subject to the fulfilment of conditions precedent and there is no assurance that they can be fulfiled and/or the Acquisition will be completed as contemplated.

A number of the conditions precedent to Closing as set out in the section headed ‘‘Letter from the Board’’ in this circular involve the performance of the Sellers and Guarantors of their obligations under the Share Purchase Deed and the decisions of third parties, including approvals by the Independent Shareholders at the EGM and the approval of the new listing application by the Listing Committee. As fulfilment of these conditions precedent are not within the control of the Target Group, there is no assurance that they can be fulfiled and/or the Acquisition will be completed as scheduled and contemplated, or at all.

There are inherent limitations on the extent and quality of information provided by the Target Group which could render the due diligence performed by the Company and its advisers inaccurate or inadequate.

The Company and its advisers do not have access to all of the non-public information and materials of the Target Group to undertake a complete due diligence, hence there may be risks associated with the Target Group which the Company is not aware of. The Company and its advisers have relied on information that has been made available to it in its due diligence on the Target Group and which information may not be complete and which accuracy could not be independently verified by the Company or its advisers. Therefore, the Company and its advisers may not have access to all non-public price-sensitive information or other material non-public information of the Target Group (including any financial forecast information produced by the Target Group).

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Any inaccuracy in the information provided by the Target Group may adversely affect the anticipated prospects and benefits of the Acquisition and results of the Restructured Group. Any discovery of adverse information concerning the Target Group after the completion of the Acquisition may result in the information contained in this circular being inaccurate or inadequate and may materially and adversely affect the Enlarged Group’s business, financial condition and results of operations.

RISKS RELATING TO THE TARGET GROUP’S BUSINESS AND INDUSTRY

The Target Group’s business, financial condition and results of operations may be susceptible to fluctuations in the economic conditions of the PRC.

Substantially all of the Target Group’s customers are PRC entities and all of its premises are located in the PRC. Moreover, the primary customers the Target Group provides services to are major PRC Internet-based service providers whose business is significantly influenced by PRC’s macro-economic factors, including changes in national, regional and local economic conditions, employment levels and consumer demands. Accordingly, the business, financial condition and results of operations of the Target Group are closely affected by the macroeconomic conditions in the PRC. Growth of the PRC economy has slowed in recent years and is expected to remain slow in the foreseeable future as the PRC Government focuses on more sustainable economic development. According to CIC, PRC’s real GDP growth rate slowed to 6.7% and 6.1% for the year of 2018 and 2019. The slowdown of the PRC economy growth together with a slowdown in the growth in disposable consumer income, fear of a recession or decreases in consumer confidence may lead to a reduction of consumer traffic and average spending per consumer with the customers of the Target Group, which could in turn materially and adversely affect the business, financial condition and results of operations of the Target Group.

The Target Group’s business, financial condition and results of operations may be susceptible to uncertainties in the global market conditions.

The Target Group’s business, financial condition and results of operations are also affected by changes in foreign trade relations, policies and uncertainties in global economic, geopolitical and market conditions. For example, the ongoing PRC and U.S. trade war has led to adverse changes to U.S. and international trade policies, which could lead to a further deterioration of global and the Chinese economy. Any deterioration of global and the Chinese market could adversely and materially affect the business of the Target Group’s customers and could in turn materially and adversely affect the business, financial condition and results of operations of the Target Group.

Moreover, the Target Group itself is actively exploring opportunities abroad. The Target Group established a strategic alliance with SoftBank in July 2018. If the Target Group plans to continue to expand internationally in the future, any unfavourable government policies on international trade, such as capital controls or tariffs, may materially and adversely affect the Target Group’s business, financial condition results of operations and prospects.

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The Target Group is exposed to concentration risks of heavy reliance on its key customers.

For each of the years ended 31 March 2018, 2019 and 2020, revenue attributable to the top five customers amounted to RMB226.0 million, RMB321.9 million and RMB329.2 million, respectively, which accounted for 69.4%, 79.4% and 76.6% of its total revenue for the same periods. In particular, the revenue contributed by the Target Group’s largest customer amounted to RMB99.3 million, RMB171.9 million and RMB148.9 million, respectively, which accounted for 30.5%, 42.4% and 34.7% of its total revenue for the same periods. The Target Group will continue to derive a significant portion of its revenue from a limited number of key customers in the future. As such, the Target Group may be subject to concentration and counter-party risks from these customers. There is no assurance that the Target Group will be able to maintain its relationships with its key customers in the future. The key customers are not obligated in any way to continue to provide the Target Group with business at a level in the future that is similar to that in the past or at all. Should any of the key customers reduce substantially the demands for services offered by the Target Group or terminate the business relationship with the Target Group entirely or fails to settle for the customer service on time, the Target Group may not be able to secure new business from other customers to compensate for such reduction in sales demand or loss of business entirely. In addition, there can be no assurance that the Target Group can secure new business from other customers for replacement. Should its relationship with such key customers deteriorates, the Target Group’s business, financial condition and results of operations may be materially and adversely affected.

The Target Group may fail to obtain, renew or maintain certain qualification certificates.

The Target Group may need to obtain and renew other permits, qualifications, certificates and licenses as long as it operates its business. For example, in order to conduct the backoffice services business, the Target Group needs to obtain ICP License according to the Telecommunication Regulations of the PRC 《( 中華人民共和國電信條例》) for its subsidiaries conducting the relevant business. These subsidiaries thereafter have to submit their annual reports timely, pass annual inspections and the permits must be renewed periodically. The application of the permit generally takes 180 business days. During the Track Record Period, each of Kunshan Kingwisoft, Luzhou Kingwisoft, Leshan Kingwisoft and Xiangyang Kingwisoft operated its back-office services without ICP License. Leshan Kingwisoft obtained its ICP License in November 2019. The non-compliance was primarily due to (i) the Target Group’s misunderstanding of the relevant laws and regulations towards the need to obtain ICP License; and (ii) the lack of professional legal advice at the material time. Each of Kunshan Kingwisoft, Luzhou Kingwisoft, Xiangyang Kingwisoft, Beijing Nanyou, Rongzhi Outsourcing, Dalian Zhiyin and Qingdao Kingwisoft has currently filed application with relevant authority for an ICP Licence, and notice of acceptance from MIIT in relation to the application has been obtained by each of Kunshan Kingwisoft, Luzhou Kingwisoft, Xiangyang Kingwisoft, Beijing Nanyou, Rongzhi Outsourcing, Dalian Zhiyin and Qingdao Kingwisoft. Due to the outbreak of the COVID-19, there is an expected delay in general government administrative works. However, it is expected that such ICP Licence will still be obtained by

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each of Kunshan Kingwisoft, Luzhou Kingwisoft, Xiangyang Kingwisoft, Beijing Nanyou, Rongzhi Outsourcing, Dalian Zhiyin and Qingdao Kingwisoft in a few months, although the exact timing is unsure.

As advised by the PRC Legal Adviser, if an entity operates value-added telecommunications services without an ICP License, the fine or penalty for similar noncompliance is (i) in the event that there is illegal income, rectification of the non-compliance, confiscation of such illegal income and a fine of three to five times of the total illegal income generated, or (ii) in the event that no illegal income was generated or such revenue is lower than RMB50,000, a fine of between RMB100,000 and RMB1,000,000, and (iii) for material non-compliances, the relevant business shall be suspended and the non-compliances rectified. Please refer to the section headed ‘‘Business of the Target Group — Legal and Regulatory Compliance’’ for further details.

There is no assurance that the Target Group can obtain, renew or maintain its permits, qualifications, certificates and licenses in time or at all, which could materially and adversely affect the Target Group’s business, financial condition, results of operations and prospects.

In addition, the Target Group has achieved many third-party certifications, which the directors of the Target Group believe set itself apart from its competitors and demonstrate the Target Group’s ability to provide quality services to its customers. Please refer to the section headed ‘‘Business of the Target Group — Certifications and Awards’’ for a list of these certifications. However, there is no assurance that the Target Group will be able to maintain all of these certifications or renew them once they expire. There is also no assurance that the Target Group will obtain additional third-party certifications to demonstrate its abilities should the need arises. Any such failure could materially and adversely affect the Target Group’s business, financial condition, results of operations, reputation and prospects.

The Target Group may be adversely affected by events that affect its customers.

As a customer care service provider, the success of the Target Group is highly dependent on the success of its customers. The Target Group’s customers are mainly Chinese internetbased service providers that are leading companies in their respective industries. Thus, fluctuations in the PRC economy will affect the Target Group’s customers’ business, financial condition and results of operations. Furthermore, the competition in the Target Group’s customers’ respective industries is generally intense. If the customers cannot stay competitive in their respective industries, or if the industries that the customers are in become obsolete, the customers’ business, financial condition and results of operations may be adversely affected. The customers may also be affected by negative publicity or disputes in the PRC or overseas. Any adverse development related to the Target Group’s customers could also materially and adversely affect the Target Group’s business, financial condition and results of operations.

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The Target Group’s operating history may not be indicative of its future prospects.

The Target Group was established in 2013 and reorganised in 2016. The Target Group’s operating history and the early stage of development of the industry in which it operates make it difficult to evaluate its business and may not be indicative of its future prospects. Although the Target Group’s revenues are expected to grow, the profitability is not assured. Any significant failure to realise anticipated revenue growth could result in significant operating losses. In addition, the Target Group faces numerous risks, uncertainties, expenses and difficulties frequently encountered by companies at an early stage of development. It will continue to encounter risks and difficulties in implementing its business model, including (among other risks and difficulties) potential failure to:

• . increase revenue and market share by targeting specific markets with positive consumer demographics;

• . expand operations and service network to other provinces;

• . attract a wider customer base;

• . increase visibility of its brand and maintain customer loyalty;

• . respond to competitive market conditions;

• . anticipate and adapt to changing conditions in the markets in which it operates as well as changes in government regulations, mergers and acquisitions involving competitors, technological developments and other significant competitive and market dynamics;

• . manage risks associated with intellectual property rights;

• . maintain effective control of costs and expenses;

• . raise sufficient capital to sustain and expand business;

• . attract, train, retain and motivate qualified personnel, continue to train, motivate and retain existing employees, attract and integrate new employees, including into senior management; and

• . upgrade technology to support additional research and development of new services.

The Target Group cannot predict whether it will be successful in addressing any or all of these risks. If it is unsuccessful in addressing these risks and uncertainties, its business, financial condition and results of operations may be materially and adversely affected.

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The recent outbreak of COVID-19 has caused, and may continue to cause, damage to the economy and as a result may materially and adversely affect the Target Group’s business, financial condition and results of operations.

The outbreak of COVID-19 in early 2020 has already caused, and may continue to cause, an adverse and prolonged impact on both economic and social conditions in China, among other countries, and the exacerbation, continuance or reoccurrence of COVID-19 in the markets the Target Group operates may interrupt its business operations.

In an effort to contain COVID-19 outbreak, the PRC government has imposed, among others, the following policies: (i) extended Lunar New Year holidays in provinces other than Hubei Province; and (ii) in Hubei Province, travel restrictions and work suspension have been gradually imposed in the entire province. As at the Latest Practicable Date, travel restrictions and work suspensions have been uplifted. In particular, the lockdown in Wuhan was uplifted.

The operational impact on the Target Group’s business is set forth as follows:

• . Operations outside of Hubei Province

Among all the contact service centres outside Hubei Province, Dalian’s, Chengdu’s and Shandong’s operations were not influenced by the extended Luna New Year holidays. As some of the Target Group’s customers need to provide their end-users with 24/7 support services, these contact service centres have continued to operate during the extended Lunar New Year holidays under the authorisation of local governments.

Before the operations of these contact service centres resumed, the Target Group has implemented a work-from-home policy for the affected employees to work from home after consultation with the relevant customers. The majority of the employees from the Target Group’s contact service centres outside Hubei Province were able to take advantage of the work-from-home arrangement, through which the Target Group’s contact service staff can gain remote access to the service system to provide services before their contact service centres resumed operation. As at the Latest Practicable Date, all of the Target Group’s employees from the contact service centres outside Hubei Province have resumed work.

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. Operations in Hubei Province

As at 31 March 2020, employees based in Hubei Province only represented a small portion of the Target Group’s total employees. As of the Latest Practicable Date, the services covered by these contact service centres have not been materially affected. Services covered by the Target Group’s contact service centres in Hubei Province were either redirected to other contact service centres or covered by the Target Group’s Hubei-based contact service staff under a work-from-home arrangement, through which the Target Group’s contact service staff can gain remote access to the service system to provide services. The majority of the employees from the Target Group’s contact service centres in Hubei Province were able to take advantage of the work-from-home arrangement before their contact service centres resumed operation. The Target Group’s contact service centres in Hubei Province resumed its operation on 23 March 2020 and as at the Latest Practicable Date, all of the Target Group’s employees from the contact service centres in Hubei Province have resumed work.

As of the Latest Practicable Date, COVID-19 outbreak did not have any material adverse impact on the Target Group’s overall business, financial condition or results of operations. Please refer to the sections headed ‘‘Industry Overview — Impact of COVID-19 Outbreak on the PRC Customer Service Outsourcing Industry’’, ‘‘Business of the Target Group — Impact of COVID-19 on the Target Group’s Business’’ and ‘‘Management Discussion and Analysis of Financial Information — Recent Development and No Material Adverse Change’’ for further details of the impact of COVID-19 outbreak on the Target Group and the customer service outsourcing industry.

The Target Group has contingency measures in place to avoid material disruptions to daily operations. Please refer to the sections headed ‘‘Business of the Target Group — Impact of COVID-19 on the Target Group’s Business — Contingent measures’’ for further details. However, such measures may not be effective to avoid material disruptions to its daily operations. Furthermore, the Target Group may not be able to reduce its cash expenditure in time in a worst-case scenario, in which case the cash at hand will be spent at a much faster rate than it anticipated. If any of the foregoing events takes place, the Target Group’s business, financial condition and results of operations may be materially and adversely affected.

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In March 2020, although the COVID-19 outbreak appeared to be under control in the PRC, many other parts of the world were trying to contain the outbreak of COVID-19, including Japan, South Korea, the United States and Europe. With the infected cases rise rapidly, many countries issued travel advisories restricting travels to affected areas. Such policies have seriously undermined the local and crossborder business activities in these areas. The effect includes substantial decrease in the number of tourists, business exchange events and social functions and the slackening of the economy in the affected countries and territories. The global financial markets have experienced extreme volatilities and the risk of the world headed into a recession has significantly increased. There is no assurance that there will not be any direct or indirect adverse impact on the Target Group’s business, financial condition and results of operations arising from any effect on the PRC economy or other parts of the world as a result of any outbreak, exacerbation, continuance or reoccurrence of COVID-19. There is no assurance that the overall economic performance of the affected countries and territories will improve shortly even after the containment of COVID-19 outbreak and the withdrawal of such policies and recommendations by the governments of China and other countries and thus the Target Group’s business could be materially and adversely affected. Although the Target Group has closely tracked the health status of its employees and it has not received reports of any confirmed or suspected cases of COVID-19, there is also no assurance that its employees will not be infected, in which event the operations of the affected contact service centers might need to be suspended and its staff might need to be quarantined. Furthermore, there is no assurance that another major COVID-19 or other disease outbreak will not happen in the future. If any of these events eventuate, the Target Group’s business, financial condition and results of operations may be materially and adversely affected.

The Target Group may not successfully recruit and retain competent employees or outsourcing staff.

The directors of the Target Group believe that an integral part of its success is its ability to recruit and retain employees who have the knowledge, experience and skills in the services that the Target Group provides. Particularly for its back-office services, which is labourintensive, the Target Group must hire and retain employees with the necessary competence and knowledge of the back-office service industry so as to maintain and continue to develop the operation. Additionally, the Target Group’s employees for its back-office services are generally responsible for one project for a customer. They may need to be retrained before they can be deployed to work for another customer. If the employee turnover turns out to be high, the Target Group could incur significant expenses to train new employees.

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Nowadays, the intense market competition for talents renders the retaining of qualified employees much harder. There is a limited pool of qualified candidates for the Target Group’s business. The Target Group’s labour costs associated with its operating employees amounted to RMB121.7 million, RMB197.4 million and RMB203.0 million, respectively, for the years ended 31 March 2018, 2019 and 2020, which accounted for 52.2%, 65.5% and 63.4% of its costs of services during the same periods. In an effort to control the employee-related costs, the Target Group also retained outsourcing staff during the Track Record Period. As at 31 March 2018, 2019 and 2020, the Target Group had retained 874, 1,036 and 1,469 outsourcing staff. Please refer to the section headed ‘‘— Subcontractors’’ for further information on the Target Group’s engagement with subcontractors. While the Target Group has been able to recruit and retain competent employees and outsourcing staff during the Track Record Period, there can be no assurance that the Target Group can continue to recruit and/or retain competent employees and outsourcing staff without a substantial increase in its costs or at all in the future. If the Target Group fails to retain these personnel in the future or the cost of labour rises faster than the growth rate of the Target Group’s per capita output, the Target Group’s business, financial condition, results of operations will be materially and adversely affected.

The Target Group may not have adequate protection for the personal data collected from its customers.

The Target Group, acting as a customer service outsourcing provider, has obtained and in its possession in the form of a consolidated database a substantial amount of personal data from its customers, particularly, personal data of individuals contained in the marketing target lists of the Target Group’s customers.

Pursuant to the contracts entered into between the Target Group and its customers and in compliance with ‘‘Cybersecurity Law of the People’s Republic of China’’ 《( 中華人民共和國 網絡安全法》) and ‘‘Provisions on Protecting the Personal Information of Telecommunications and Internet Users’’ 《( 電信和互聯網用戶個人信息保護規定》), the Target Group is obliged to keep all such data confidential. Although the Target Group has implemented strict internal control procedures to safeguard the security and confidentiality of its databases, there is no assurance that there will not be any leakage of personal data or unauthorised access to the Target Group’s database to obtain personal data, in which case the Target Group may be liable to its customers as a result of the Target Group’s breach of confidentiality. This could also materially and adversely affect the Target Group’s reputation and business relationship with its customers, which would in turn materially and adversely affect the Target Group’s business, financial condition, results of operations, reputation and prospects.

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The Target Group may fail to retain its key management personnel.

To a significant extent, the success of the Target Group depends on the experience, expertise and the continuous services of its directors. Mr. Hu, together with his sales team, has been instrumental in building up and maintain customer relationship since the commencement of business. Ms. Zhou has been in charge of the Target Group’s operation since the commencement of business. Please refer to the section headed ‘‘Directors and Senior Management of the Target Group — Directors of the Target Group’’ for details in relation to its executive directors. The performance of the Target Group also depends on the ability to retain and motivate its key officers and employees as set out in the sub-section headed ‘‘Senior Management of the Target Group’’ under the section headed ‘‘Directors and Senior Management of the Target Group’’. There is no assurance that the Target Group can retain the continuous services of the executive directors and members of the senior management. The business, financial condition and results of operations of the Target Group may be materially and adversely affected if the Target Group cannot retain their services and replacement cannot be found in a timely and commercially viable manner.

The Target Group’s business is dependent on the performance of the Internet and telecommunication networks in PRC.

Since all the Target Group’s premises are located in the PRC, and the Target Group uses Internet and telecommunication networks to deliver services to its customers, its business is heavily dependent on the performance and reliability of PRC’s Internet and telecommunication infrastructure. The Target Group relies on major Chinese telecommunication companies to provide it with bandwidth for its services, and it may not have any access to comparable alternative networks or services in the event of disruptions, failures or other problems. Access to Internet and telecommunication networks may not be available in certain areas due to natural or manmade disasters. Conversely, any surge in Internet traffic or phone calls on the Target Group’s platform may seriously disrupt services it provides through its platform or cause its technology systems and platform to shut down. Any disruptions to the normal operation of the Internet and telecommunication networks in the PRC could lead to reduced demand for the Target Group’s services, lower revenues and increased costs. Consequently, the Target Group’s business, results of operations and financial condition would be materially and adversely affected.

The Target Group’s operational infrastructure may experience unexpected interruption, inadequacy, breakdown or failure.

The stability of the Target Group’s services is dependent upon the Target Group’s ability to protect its operational infrastructure including its computer system and equipment against damage or disruptions. The Target Group’s operational systems may be vulnerable to damage from fire, flood, power loss, telecommunication failures, computer virus, hackings and similar events. Any network interruption or inadequacy that causes interruptions in the connectivity of

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the system of the Target Group or deterioration in the easiness and quality of access to the system of the Target Group or failure to maintain the network and server or failure to solve such problems timely could reduce the satisfaction of the Target Group’s customers. Any network delay may also interrupt the data reconciliation process between the Target Group and the customers and will postpone the billing process. In addition, any security breach caused by hackings, which involve efforts to gain unauthorised access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could cause economic and reputational damage to the Target Group’s customers. There is no assurance that the Target Group’s systems and equipment will be completely free from any disruption, failure, breakdown or unauthorised access into the system and/or the database of the Target Group. Any damage to or failure of the Target Group’s operational infrastructure could result in interruptions in, or termination of the services provided for the Target Group’s customers and disruptions to the billing process between the Target Group and the customers, which could have a material and adverse effect on the Target Group’s business, financial condition, results of operations and reputation as an efficient provider of quality service.

The Target Group may fail to protect or enforce its intellectual property rights.

Intellectual property rights are important to the Target Group’s business. It relies on a combination of trade secrets, confidentiality procedures and contractual provisions to protect its intellectual property. As of 31 March 2020, the Target Group held 35 registered trademarks and two PRC patent applications and have been granted 113 software product registration certificates by the China State Copyright Bureau. In addition, the Target Group generally requires employees to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with the Target Group is to be kept confidential and not disclosed to third parties except under specific circumstances. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Target Group’s technology without authorisation, or to develop similar technology independently. Since the PRC’s legal system in general, and the intellectual property regime in particular, is relatively weak, it is often difficult to enforce intellectual property rights in PRC. In addition, confidentiality agreements may be breached by counterparties, and there may not be adequate remedies available to the Target Group for any such breach. Accordingly, the Target Group may not be able to effectively protect its intellectual property rights or to enforce its contractual rights in PRC or elsewhere. In addition, policing any unauthorised use of the Target Group’s intellectual property is difficult, time-consuming and costly and the steps it has taken may be inadequate to prevent the misappropriation of intellectual property. In the event that the Target Group resorts to litigation to enforce its intellectual property rights, such litigation could result in substantial costs and a diversion of its managerial and financial resources. The Target Group can provide no assurance that it will prevail in such litigation. Any failure in protecting or enforcing its intellectual property rights could have a material and adverse effect on its business, financial condition and results of operations.

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Non-compliance with, and changes to, laws, regulations and policies of the Chinese telecommunications industry may have a material and adverse effect on the Target Group’s business, financial condition and results of operations.

The Target Group is subject to PRC laws and regulations including ‘‘Telecommunication Regulations of the People’s Republic of China’’ 《( 中華人民共和國電信條例》) and ‘‘Administrative Measures for the Licensing of Telecommunication Business Operations’’ 《( 電信業務經營許可管理辦法》). There may be changes to the existing law or new regulations governing the Target Group’s business in the future. If the Target Group fails to comply with any of the laws and regulations, it may be subject to penalties, including but not limited to fines and suspension of operations.

The Target Group’s business may also be adversely affected by changes in local policies. There can be no assurance that the local governments will not change the existing laws or regulations or adopt additional or more stringent laws or regulations applicable to the Target Group. Any changes to such laws and regulations or their interpretation or enforcement may expose the Target Group to the risk of non-compliance and may require it to conform its activities and operations to comply with such laws and regulations. The Target Group’s business, financial condition and results of operations could therefore be adversely affected.

The Target Group’s profit margin may suffer if it is not able to maintain rates, handle multiple projects, utilise employees efficiently or control costs associated with its locations.

The profit margin is largely a function of the rates that the Target Group is able to charge for services, the number of projects it is able to operate, the utilisation of employees and the geographical locations from which it delivers services, which in turn are affected by a number of factors, including, without limitation:

• . customers’ perceptions of the Target Group’s ability to add value through its services;

• . the ability to objectively differentiate and verify the value offered to customers;

• . the level of competition within the industry;

• . the introduction of new services by the Target Group or its competitors;

• . the ability to estimate demand for services;

• . the ability to control costs and improve the efficiency of employees; and

• . general economic and political conditions.

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If the Target Group is not able to maintain the rates it charges to its customers or enter into sufficient number of projects, the Target Group’s revenue could decrease. Conversely, if the Target Group cannot maintain a high utilisation of its employees and control the cost associated with its service centres, its cost would rise. Any of these could materially and adversely affect the Target Group’s profit margin.

The Target Group may not maintain its competitiveness in the customer service outsourcing industry.

The Target Group faces intense competition in the customer service outsourcing industry. With the rapid development of China’s customer service outsourcing industry in recent years, many similar companies are entering into the market and quickly building up services. The directors of the Target Group expect that the competition may intensify in the future. However, there is no assurance that the Target Group can maintain competitive edges at all times and that competitors will not develop the expertise, experience, operational systems and resources to provide such services on a more competitive basis in terms of price and quality as compared to the services provided by the Target Group. The Target Group faces competition from established domestic outsourcing service providers, foreign outsourcing service providers’ PRC operations and other start-up domestic outsourcing service providers. Established domestic outsourcing service providers may have long operation history and stable customer resource; foreign providers’ PRC operations may bear stronger brand recognition and other start-up domestic outsourcing service providers may have similar technologies as the Target Group and may compete with it by driving down prices. If the Target Group is unable to stay ahead of its competitors, it will face the risk of market space shrinking and customer churn due to the increased competition in the industry. In turn, the Target Group may have to cut its prices, in which case the business, financial condition and results of operations of the Target Group may be materially and adversely affected.

The Target Group’s business, financial conditions and results of operations may be materially and adversely affected if its outbound contact services, which include telemarketing services, fall into disfavour among the public.

The growth of the Target Group’s outbound contact services may be materially and adversely affected by public concerns over the security and privacy of confidential user information transmitted over the Internet and telecommunication networks. Moreover, as part of the Target Group’s outbound contact services, telemarketing services may fall into public disfavour if the recipients of calls find them annoying, burdensome or otherwise overbearing. While the Target Group strives to render the services in a professional, polite and courteous manner, it cannot control the public perception of telemarketing generally. Moreover, the Target Group does not always have control over the nature or subject matter of outbound calls that its customers require to make. Public hostility to telemarketing services generally, or to the particular types of calls that the Target Group’s customers would like to make, could result in decreased demand for such services, and thus the business, financial condition and results of operations of the Target Group may be materially and adversely affected.

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The Target Group may fail to secure premises for its contact service centres or renew the existing leases on commercially reasonable terms or at all.

When the Target Group expands its service centre network by establishing new service centres, availability of space at suitable locations on acceptable terms is one of the key factors that the Target Group has to consider. Since significant investments are involved mainly in the installation of facilities and equipment and decoration of the service centres, the Target Group is cautious in the selection and leasing of premises for its service centres.

As at 31 March 2020, the Target Group had 30 tenancy agreements for its contact service centres in operation (with 12 back-office service centres located in eight cities). All of the tenancy agreements have an option to renew. In addition, the lease terms of the Target Group’s service centres are between seven months to ten years, while most of them are within three years. Among the tenancy agreements concerning contact service centres entered into by the Target Group, 11 will expire in 2020. The aggregate rent and property management fees for the Target Group’s contact service centres were RMB10.7 million, RMB15.2 million and RMB21.8 million for the years ended 31 March 2018, 2019 and 2020, respectively. For more details on properties leased by the Target Group for use as contact service centres, please refer to the section headed ‘‘Business of the Target Group — Geographic Coverage’’ of this circular. The Target Group may not be able to lease suitable sites for new service centres on terms that are acceptable to the Target Group on the basis of commercial considerations. In such case, the Target Group’s business, financial condition and results of operations may be materially and adversely affected.

The Target Group’s ability to renew existing leases for contact service centres upon their expiry is important to its operations. In the event of relocating contact service centre, the Target Group normally schedules relocation during non-operating hours, weekends or public holidays, in order to minimise any disruption to the existing operation. If the Target Group fails to renew leases on terms commercially acceptable to the Target Group, it may have to incur additional costs in relocating its back-office service centres to less suitable locations and renovating such premises for use as back-office service centres accordingly, which will materially and adversely affect its business, financial condition and results of operations.

The Target Group’s disaster recovery system may fail.

The Target Group provides disaster recovery service to major stock exchanges, securities firms and fund companies in PRC. While the Target Group does its utmost to ensure the security of the data and has never lost any data of its customers in its operation history, the Target Group cannot assure that its disaster recovery system is 100% reliable and will function as designed in all contingencies. Therefore, in an unlikely event that the disaster recovery system itself does not function as designed, the customers which the Target Group provides services to could suffer a significant loss. The business, financial condition, results of operations, reputations and prospects of the Target Group may also be materially and adversely affected.

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The Target Group may be exposed to third party liabilities arising from claims due to the nature of service and content of the information delivered by the Target Group externally in its daily operations.

As a customer service outsourcing provider, the Target Group may face liability or litigation for negligence, misrepresentation and other claims based on the nature of service and content of the information delivered through the Target Group’s services. For example, the Target Group may be held liable for misrepresentation or negligence in delivering relevant information or messages to the consumers of the Target Group’s customers. Third parties can lodge claims against the Target Group for losses incurred in reliance on any erroneous information distributed by the Target Group. The Target Group may incur significant costs from investigating and defending itself against these claims, even if no liability is eventually incurred or found by a court of law in a competent jurisdiction to have been incurred. The Target Group may also be subject to claims based upon, among others, unauthorised use of personal data and infringement of third-party intellectual property rights from third parties. These claims could have a material and adverse effect on the Target Group’s business, financial condition, results of operations, reputation and prospects.

Moreover, if the Target Group is found to have provided wrong, false or misleading information in delivering its services which subsequently adversely affect the business of any customer of the Target Group, the Target Group may incur additional costs in rectifying such errors. This may also affect the Target Group’s relationship with such customers and may result in negative publicity to the Target Group. Any defects or errors in the Target Group’s provision of services may result in delayed or lost revenue, adverse customer relationship, negative publicity and additional costs, in turn materially and adversely affect the Target Group’s business, financial condition, results of operations, reputation and prospects.

The Target Group may subject to risks of inadequate internal control system.

The Target Group has established risk management and internal control systems consisting of the relevant organisational framework policies, risk management policies and risk control procedures to manage the risk exposures, primarily the operational risk, legal risk and liquidity risk. However, the Target Group may not be successful in implementing the risk management and internal control systems. While it seeks to continue to enhance such systems from time to time, it cannot assure that the risk management and internal control systems are adequate or effective notwithstanding its efforts, and any failure to address any potential risks and internal control deficiencies could materially and adversely affect its business, financial condition and results of operations.

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Since the risk management and internal control systems depends on the Target Group’s implementation by its employees, it cannot assure that all of the employees will adhere to such policies and procedures, and the implementation of such policies and procedures may involve human errors or mistakes. Moreover, its growth and expansion may affect its ability to implement stringent risk management and internal control policies and procedures as its business evolves. If the Target Group fails to timely adopt, implement and modify, as applicable, its risk management and internal control policies and procedures, its business, financial condition and results of operations could be materially and adversely affected.

The Target Group may encounter difficulty in achieving its business objectives.

The business objectives as set out in this circular are based on the Target Group’s existing plans and intentions. These plans and intentions are subject to risks and uncertainties inherent in various stages of the Target Group’s development. The formulation of such plans and objectives are based on the assumptions as to the occurrence of future events (including but not limited to there being no material changes in the existing political, legal, fiscal, business, economic and/or market conditions and environment both in PRC and globally, no material changes in the bases or rates of taxation in PRC, and no significant changes in the Target Group’s business relationship with its existing customers), which may or may not happen. The formulation of such plans and objectives are also expanding the Target Group into new fields and geographical market. It is uncertain whether the firm can stay competitive in these other fields and geographical markets. There is no assurance that the future plans of the Target Group will materialise, be concluded in accordance with the Target Group’s intentions and schedule, or that the objectives of the Target Group will be fully or partially accomplished. The Target Group’s business, financial condition and results of operations may be materially and adversely affected if the Target Group’s future plans do not materialise or its business objectives are not achieved.

The Target Group may be subject to risks of negative operating cashflow.

The Target Group’s cashflows used in its operating activities for the years ended 31 March 2018 and 2019 were RMB24.1 million and RMB1.8 million. Please refer to the section headed ‘‘Management Discussion and Analysis of Financial Information on the Target Group — Liquidity and Capital Resources — Cash Flows — Net cash generated from operating activities’’ for further details. There is no assurance that the Target Group may have net cash outflows from operating activities in the future. The future liquidity and the payment of trade and other payables as and when they become due will primarily depend on the Target Group’s ability to maintain adequate cash inflows from operating activities and adequate external financing. These could be affected by numerous factors including the Target Group’s future operating performance, prevailing economic conditions such as increased market competition and decreased demand for its services, many of which are beyond the Target Group’s control. Any future negative operating cashflows may expose the Target Group to liquidity risks, which could materially and adversely affect its business, financial condition and results of operations.

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The Target Group may subject to risks of failing to recover receivables in a timely manner or at all.

The agreements between the Target Group and its customers expose the Target Group to the risks associated with its account receivables. Generally, since the Target Group consolidates data and bills its customers on a monthly bases, which may lengthen the accounts receivable collection cycle, it may take the Target Group a long time to collect the receivables since the incurrence of services. For the years ended 31 March 2018, 2019 and 2020, the Target Group’s account receivables turnover days are 91.5 days, 136.1 days and 174.3 days. As of 31 March 2018, 2019 and 2020, the Target Group’s total account and other receivables amounted to RMB133.4 million, RMB210.4 million and RMB245.2 million, respectively, along with the growth of the Target Group’s business. The arrears were also concentrated with the accounts of the top five receivables constituting 67.5% and 75.8% and 68.2% of the total account receivables as of 31 March 2018, 2019 and 2020. If the Target Group fails to take effective measures to collect its existing account receivables in a timely manner and reasonably control the growth of future account receivables, the uncollected account receivables may have a material and adverse effect on the Target Group’s business, financial condition and results of operations.

The Target Group may not keep up with rapid changes in information and communication technology.

The industry in which the Target Group operates is subject to rapid changes in information and communication technology. There can be no assurance that the Target Group can offer, or develop the expertise, experience and resources to offer, services to its customers on a timely and competitive basis with the benefit and in the context of the latest information and communication technology. The Target Group may incur significant costs in developing the operational systems and building up such resources and expertise in order to make use of the latest information and communication technology in the provision of services to its customers.

If the Target Group cannot keep abreast of technological developments in the customer service outsourcing industry and adapt its services to the latest IT technologies available, this may have a material and adverse effect on the demand for its services, its business, financial condition and results of operations.

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The Target Group may fail to maintain or enhance its brand recognition.

It is important for the Target Group to stay competitive to maintain and enhance its brand. However, the ability of the Target Group to maintain its brand recognition depends on a number of factors, some of which are beyond the control of the Target Group. The continued success in maintaining and enhancing the brands of the Target Group and its image depends to a large extent on the Target Group’s ability to further develop and maintain its hospitable services and positive publicity as well as its ability to respond to any change in the competitive environment in the PRC’s customer service outsourcing industry. For example, negative publicity associated with the Target Group and/or its team could result in the loss of customers or increase the difficulties in securing new projects. If any customer is not satisfied with the services provided by the Target Group, the Target Group’s existing or potential customers, the business, brand and reputation may be materially and adversely affected, which will in turn, materially and adversely affect the growth prospects and financial condition of the Target Group. As the Target Group continues to expand, maintaining quality and consistency may be more difficult and the Target Group cannot assure that customers’ confidence in the Target Group’s brand names will not be diminished. If the Target Group is unable to maintain its brand recognition, the value of its brands or image will be diminished and its business, financial condition, results of operations, reputation and prospects may be materially and adversely affected.

The Target Group may not be able to obtain additional funding from its operations to fund capital requirements.

In order to renovate contact service centres, set up necessary equipment and hire and train qualified personnel, the provision of customer service solutions generally requires a significant sum of upfront cost. For the years ended 31 March 2018, 2019 and 2020, the Target Group has incurred capital expenditures, which include the additions of property and equipment and intangible assets, of RMB22.1 million, RMB19.0 million and RMB24.5 million, respectively. In the past, the Target Group has funded its working capital and other capital requirements principally from cash at hand, while raising the remainder of its capital requirements through bank and other borrowings and proceedings from the NEEQ listing. In the future, the operations and development of the Target Group may require additional financing from external sources. However, there is no assurance that external sources of funds will be adequate or available to meet the needs of the Target Group, or that the Target Group will be able to obtain additional external financing on terms that are acceptable to the Target Group at all. In the event that the Target Group may require capital to finance its operation but cannot raise sufficient funds to meet its financial needs, business, financial condition and operating results of the Target Group may be materially and adversely affected.

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Services performed by outsourcing staff may adversely affect the Target Group’s business.

The Target Group incurred RMB36.0 million, RMB60.7 million and RMB62.1 million outsourcing service expenses paid to subcontractors for the years ended 31 March 2018, 2019 and 2020, respectively. The outsourcing staff do not maintain an employer-employee relationship with the Target Group and are employees of the subcontractors. Even though the outsourcing staff receive similar training as the Target Group’s employees, the Target Group cannot assure that the quality of services provided by its outsourcing staff will be the same as its employees. The outsourcing staff’s negligence or other misconducts may incur liabilities for the Target Group. If the outsourcing staff cannot work professionally and efficiently, the business, financial condition and operating results of the Target Group may be materially and adversely affected.

The loans and the conditions and restrictive covenants imposed by such loans may materially and adversely affect the Target Group’s business, financial condition and results of operations.

The Target Group has recorded bank and other borrowings of nil, RMB23.6 million and RMB47.6 million as of 31 March 2018, 2019 and 2020. In the future, it may obtain bank and other borrowings from time to time. The bank and other borrowings so far include various conditions and covenants that required the Target Group to obtain the lending bank’s prior consent for certain transactions, such as disposal of material assets, restructure, liquidation or winding-up, incurrence of securities or liens on its assets. It may be required to comply with similar restrictive covenants or other terms under any new bank borrowings and other financing agreements in the future. These conditions and covenants may have important consequences for the Target Group’s business and operations, including, but not limited to:

• . limiting or impairing the Target Group’s ability to obtain financing, refinance any of its existing indebtedness, or obtain equity or debt financing on commercially reasonable terms or at all, which could cause the Target Group to default on its obligations and materially impair its liquidity;

• . reducing the Target Group’s flexibility to respond to changing business and economic conditions or to take advantage of business opportunities that may arise;

• . requiring the Target Group to dedicate a substantial portion of its cash flow from operations to payments of principal and interest on its indebtedness, thereby reducing the availability of its cash flow for other purposes;

• . placing the Target Group at a competitive disadvantage compared to its competitors that have lower leverage or better access to capital resources;

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• . limiting the Target Group’s ability to dispose of assets that secure its indebtedness or utilise the proceeds of such dispositions and, upon an event of default under any such secured indebtedness, allowing the lenders thereunder to foreclose upon its assets pledged as collateral; and

• . increasing the Target Group’s vulnerability to downturns in general economic or industry conditions, or in its business.

Should market conditions deteriorate, or if the Target Group’s operating results were to be depressed, it may need to request amendments or waivers to the covenants and restrictions under the bank and other borrowings. Any failure to comply with the covenants or to obtain financing for business could have a material and adverse effect on the Target Group’s business, financial condition and results of operations.

The Target Group may not have sufficient insurance coverage against potential operational risks.

As at the Latest Practicable Date, the Target Group has obtained insurance policies for its employees and commercial insurance policies that it believes are customary for businesses of its size and type and in line with the industry practice in the PRC, please refer to the section headed ‘‘Business of the Target Group — Insurance’’ for details. However, there are types of losses the Target Group may incur that cannot be insured against or that the Target Group believes are not commercially reasonable to insure, such as loss of reputation. If the Target Group is held liable for uninsured losses or amounts or claims for insured losses exceeding the limits of its insurance coverage, business, financial condition and results of operations of the Target Group may be materially and adversely affected.

The Target Group may be involved in legal or other proceedings from time to time.

The Target Group may be involved in legal or other proceedings arising out of its operation. If it is found to be liable for any claim initiated, it could be subject to substantial monetary damages. In addition, the Target Group may sue others from time to time. The Target Group sued one of its customers for the unpaid service fee in 2018. Even though the case was subsequently settled, there is no assurance that the Target Group will not in the future be engaged in similar proceeds. Even if the Target Group successfully defends itself against, or successfully prosecutes, a claim, it may need to spend a substantial amount of money and time in defending or prosecuting such a claim. The adverse publicity against the Target Group may have a material adverse effect on its reputation.

The Target Group may also encounter compliance issues in the course of its operations, which may subject it to administrative proceedings, potential penalties and unfavourable results. Furthermore, the Target Group’s reputation could be negatively affected due to any negative publicity of any issues with respect to the services it provides. Any of the situations mentioned above may have a material and adverse impact on the Target Group’s business, financial condition and results of operations.

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Future acquisitions may have an adverse effect on the Target Group.

Selective acquisitions form a part of the Target Group’s strategy to further expand its business. The Target Group’s ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, the Target Group’s ability to compete effectively to attract these candidates, and the availability of financing to complete larger acquisitions. The Target Group may face significant competition in acquiring new businesses or companies, which may hinder the execution of its growth strategy. Future acquisitions or investments could result in a potential dilutive issuance of equity securities or the incurrence of debt, contingent liabilities or amortisation expenses related to goodwill and other intangible assets, any of which could adversely affect the Target Group’s business, financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop and the Target Group cannot be certain that any particular acquisition or investment will produce its intended benefits. Future acquisitions would also expose the Target Group to potential risks, including risks associated with the assimilation of new operations, technologies and personnel, unforeseen or hidden liabilities, the diversion of resources from existing businesses, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, its relationships with employees and customers as a result of the integration of new businesses. If the Target Group’s business integration related to acquisitions is not satisfactory in the future, its business, financial condition and results of operations may be materially and adversely affected.

The Target Group may not succeed in its overseas expansion.

While substantially all of the Target Group’s business is conducted in PRC, it is actively expanding into overseas market. However, the Target Group’s ability to develop and expand its existing business into overseas market depends on a variety of factors, including:

• . delays in obtaining the necessary license, permits or approvals from overseas governments;

• . delays on obtaining the necessary consents or approvals from its joint venture and business partners;

• . delays in obtaining the necessary financing;

• . shortages of contracts and skilled labour;

• . labour disputes;

• . lesser familiarity with the business operating environment in overseas market;

• . changes in government policies or relevant laws or regulations in the overseas markets; and

• . economic conditions.

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There can be no assurance that the Target Group will be able to execute its business expansion plan in overseas market successfully or fully within the expected timetable or at all, or that it will be able to manage the growth effectively, and its failure to do so may materially and adversely affect the Target Group’s business, financial condition and results of operations.

Disputes with business partners may adversely affect the Target Group’s business, financial condition and results of operations.

The Target Group have, and expect to maintain, interests in strategic alliances with other companies. Disputes with business partners may adversely affect the Target Group’s business, financial condition and results of operations. Such strategic alliances may involve risks associated with the possibility that the business partners may (i) have economic or business interests or objectives that are inconsistent with the Target Group’s, (ii) take action contrary to the Target Group’s instructions or requests or contrary to the Target Group’s policies or objectives, (iii) be unable or unwilling to fulfil their obligations under the relevant agreements that might lead to termination in strategic alliances with such companies, or (iv) experience financial or other difficulties. Disputes among the business partners over joint venture obligations or otherwise could materially and adversely affect the Target Group’s business, financial condition and results of operations.

The Target Group may subject to fines and penalties under PRC laws for failure to make full contributions for social insurance and housing provident funds for its employees.

Under the applicable PRC laws, the Target Group is required to contribute, as an employer, to social insurance (including pension fund, unemployment insurance, medical insurance, work-related injury and maternity insurance) and housing provident funds for the benefit of its employees. According to the relevant PRC laws and regulations, the amount the Target Group is required to contribute for each of its employees should be calculated based on the employee’s salary, including bonuses and allowances. The contributions are capped to a maximum amount prescribed by the local authorities from time to time at locations where the Target Group operates its businesses. In addition, with an aim to improving social insurance compliance, the Reform Plan on the National and Local Taxation Collection and Management System (the ‘‘Taxation Collection Reform Plan’’) took effect from 1 January 2019. PRC Tax Bureau will be the body responsible for calculating and collecting social insurance contributions. The impact of this newly adopted Taxation Collection Reform Plan is yet to be seen.

During the Track Record Period, the Target Group failed to make adequate contributions to the social insurance plans and the housing provident fund for its employees, please refer to the section headed ‘‘Business of the Target Group — Legal and Regulatory Compliance’’ for further details.

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However, the Target Group cannot assure you that it will not be subject to any order to rectify this non-compliance incident in the future, nor can it assure you that there are no, or will not be any, relevant employee complaints against it. Further, the local practice of contribution for social insurance and housing funds sometime differs from the national laws and regulations, where the Target Group followed the local practice, it cannot assure you that it will not receive any claims in respect of social insurance or housing provident fund under national laws and regulations. In addition, it may incur additional expenses to comply with such laws and regulations by the PRC government or relevant local authorities. Such regulatory intervention may then adversely and materially affect the Target Group’s business, financial condition and results of operations.

The emergence of AI may affect the value of the Target Group’s business.

The technology of AI has rapidly developed over the past few years. The landscapes of many industries, especially the service industry, have been adversely affected by the technology. At present, AI can replace human beings to answer basic questions and execute simple instructions. Moreover, it is much more cost-efficient than human beings. That constitutes a big challenge to labour-intensive industries, such as the customer service outsourcing industry. Right now, AI has been already adopted in the backstage of many Internet content providers and traditional service providers to interact with their users. If the Target group cannot adapt its services accordingly and utilises AI to its advantage, its market share, business, financial condition and results of operations may be materially and adversely affected. The Target Group also cannot assure that there will not be a breakthrough in AI development in the future, in which event the current business model of the Target Group’s business will be rendered obsolete. Should it happen, the Target Group’s business, financial condition and results of operations will be materially and adversely affected.

The Target Group’s customers may adopt technologies or strategies that decrease the demand for its services.

The Target Group depends on its customers’ continued demand for their services. However, over time, these customers may adopt new technologies or strategies that decrease the needs for the Target Group’s services. For example, the customers may adopt new technologies that decrease the needs for live customer interaction, which is the core of the Target Group’s back-office services, such as interactive voice response, web-based self-help and other technologies used to automate interactions with customers technologies. The customers may also set up their own customer care team, marketing team or data maintenance team, eliminating the needs for the Target Group’s services. The adoption of these technologies or strategies may reduce the demand for the Target Group’s services, create pricing pressure and materially and adversely affect its business, financial condition and results of operations.

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Significant changes in the policies or guidelines of the Target Group’s customers with respect to services provided by the Target Group may materially and adversely affect its business, financial condition and results of operations.

The Target Group’s customers may from time to time issue certain operating policies or guidelines, requesting or stating preferences for certain actions to be taken by customer service outsourcing providers. A significant change in the policies or guidelines from customers may result in lower revenues or additional costs of services to the Target Group. The Target Group cannot assure that its business, financial condition and results of operations will not be materially and adversely affected by a change in policies or guidelines by customers.

The Target Group’s growth may be limited by the non-compete provisions in the contracts with its customers.

The Target Group currently provides services to major Internet-based service providers in PRC. The companies themselves are subject to intense competition in the respective industries they operate in and thus may require a non-compete provision into the contracts signed between them and the Target Group, which restricts the Target Group from providing similar services to their competitors in the same industry. It is difficult to measure the opportunity cost associated with these non-compete provisions. However, the existence of the non-compete provisions could materially and adversely affect the Target Group’s business, financial condition, results of operations and prospects.

The shareholders, directors and executive officers of the OPCO Group may have potential conflicts of interest with it, which may materially and adversely affect its business, financial condition, results of operations.

PRC laws and regulations provide that a director or an executive officer owes a fiduciary duty to the company for which he or she is acting as a director or manager. The directors and executives of the OPCO Group must act in good faith and in the best interests of the OPCO Group and must not use their respective positions for personal gains. On the other hand, as a director of the Target Company, Mr. Hu owes fiduciary duties and a duty of skill and care to the Target Company and its shareholders as a whole under the Cayman Islands law. The Target Company controls the OPCO Group through Contractual Arrangements, and the business and operations of the OPCO Group are closely integrated with its subsidiaries’ business and operations. Nevertheless, conflicts of interest for these individuals may arise due to their dual roles both as directors and executive officers of the OPCO Group and as directors or employee of the Target Company. If the Target Company cannot resolve any conflict of interest or dispute mentioned above, it would have to rely on legal proceedings, which could result in material and adverse effect of the Target Group’s business, financial condition, results of operations.

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The Target Group may not be able to detect and prevent fraud, bribery, or other misconduct or non-compliances committed by its employees, customers, related parties or other third parties.

The Target Group may be exposed to fraud, bribery, or other misconduct or noncompliances committed by its employees, customers, related parties or third parties that could subject it to financial losses and sanctions imposed by governmental authorities, which may adversely affect its reputation. The Target Group’s internal control procedures are designed to monitor its operations and ensure overall compliance. However, its internal control procedures may be unable to identify all incidents of non-compliance or suspicious transactions or incidents of corruption, bribery or other misconduct and non-compliances in a timely manner or at all. Furthermore, it is not always possible to detect and prevent fraud, bribery and other misconduct and non-compliances, and the precautions the Target Group take to prevent and detect such activities may not be effective. The Target Group cannot assure that fraud, bribery, or other misconduct or non-compliances will not occur in the future. If such fraud, bribery, or other misconduct or non-compliances does occur, it may subject the Target Group to potential penalties and negative publicity as a result, which in turn will materially and adversely affect the Target Group’s business, financial condition and results of operations.

The Target Group may subject to accidents, natural disasters, acts of war or terrorism or other factors beyond its control.

Accidents, natural disasters, acts of war or terrorism or other factors beyond its control may adversely affect the economy, infrastructure and livelihood of the people in the regions where the Target Group conducts its business. Its operations may be under the threat of floods, earthquakes, sandstorms, snowstorms, fire or drought, power, water or fuel shortages, failures, malfunction and breakdown of information management systems, unexpected maintenance or technical problems, or may be susceptible to potential wars or terrorist attacks. Serious natural disasters may result in loss of lives, injury, destruction of assets and disruption of its business and operations. Acts of war or terrorism may also injure its employees, cause loss of lives, disrupt its business network and destroy its markets. Any of these factors and other factors beyond its control could have an adverse effect on the overall business sentiment and environment, cause uncertainties in the regions where the Target Group conducts business, cause its business to suffer losses which it cannot predict, and materially and adversely impact its business, financial condition and results of operations.

The Target Group also face risks related to health epidemics. Past occurrence of epidemics or pandemics, depending on their scale of occurrence, have caused different degrees of damage to the national and local economies in China. For example, the coronavirus outbreak in Wuhan in early 2020 has resulted in quarantines and the closure of public transportation network in Wuhan. An outbreak of any epidemics or pandemics in PRC may result in quarantines, temporary closures of its businesses or the sickness or death of key personnel. Any of the above may cause material disruptions to its operations, which in turn may materially and adversely affect its business, financial condition and results of operations.

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RISKS RELATING TO PRC IN GENERAL

PRC economic, political and social conditions as well as government policies may adversely affect the Target Group’s business and prospects.

Substantially all of the Target Group’s business and assets are located in the PRC and all of its revenues are derived from the PRC. Accordingly, results, financial position and prospects of the Target Group are subject, to a significant degree, to the economic, political and legal developments of the PRC. Political and economic policies of the PRC Government could affect business and financial performance of the Target Group and may result in the Target Group being unable to sustain its growth.

The PRC’s economic, political and social conditions differ from those of most developed countries in a number of respects, including structure, degree of government involvement, level of development, control of capital investment, growth rate, control of foreign exchange and allocation of resources. The PRC economy has been transitioning from a centrally planned economy to a more market-oriented economy. For approximately three decades, the PRC government has implemented economic reform measures to utilise market forces in the development of the PRC economy. The Target Group cannot predict whether changes in the PRC’s economic, political and social conditions and in its laws, regulations and policies will have any adverse effect on the Target Group’s business, financial condition and results of operations.

In addition, many of the economic reform measures implemented by the PRC government are unprecedented or experimental and are expected to be refined and improved over time. This refining and adjustment process may not necessarily have a positive effect on the Target Group’s business, financial condition and results of operations.

The PRC’s legal system is still evolving and the uncertainties as to the interpretation and enforcement of PRC laws may have a material adverse effect on the Target Group.

The business and operations of the Target Group are conducted in the PRC, and thus it is governed by PRC laws and regulations. Since the late 1970s, the PRC government has made significant progress in the development of its laws and regulations governing economic matters, such as foreign investment, company organisation and management, business, tax and trade. If the PRC Government imposes stricter regulations on the industry where the Target Group practices in, the Target Group may face higher costs in order to comply with those regulations, which could impact its profitability. In addition, the PRC legal system is a civil law system based on written status and past court decisions have limited precedential value and are cited for reference only. As the laws and regulations are still evolving and there are only limited number of non-binding court cases, there exist uncertainties about the interpretation and enforcement of the laws and regulations. For the same reasons, any legal protections available to the Target Group under these laws and regulations may be limited. Any litigation or regulatory enforcement action in the PRC may be protracted and could result in substantial costs and diversion of resources and management attention.

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Shareholders may experience difficulty in effecting service of legal process, enforcing foreign judgments or bringing original actions in China or Hong Kong based on foreign laws against the Target Group, its directors and senior management.

A majority of the Target Group’s existing directors and senior management members reside in the PRC and substantially all of its assets and the assets of such persons are located in the PRC. Therefore, it may not be possible for investors or shareholders from other countries or territories to effect service of process upon the Target Group or those persons inside China. China has not entered into treaties or arrangements providing for the recognition and enforcement of judgments made by courts of most other jurisdictions. On 14 July 2006 Hong Kong and China entered into the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements Between Parties Concerned (關於內地與香港特別行政區法院相互認可和執行當事人協議管 轄的民商事案件判決的安排) (the ‘‘Arrangement’’), pursuant to which a party with a final court judgment rendered by a Hong Kong court requiring payment of money in a civil and commercial case according to a choice of court agreement in writing may apply for recognition and enforcement of the judgment in China. Similarly, a party with a final judgment rendered by a PRC court requiring payment of money in a civil and commercial case pursuant to a choice of court agreement in writing may apply for recognition and enforcement of such judgment in Hong Kong. In addition, on 18 January 2019 the Supreme People’s Court of China (the ‘‘SPC’’) and the Hong Kong government signed the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region (關於內地與香港特別行 政區法院相互認可和執行民商事案件判決的安排) (the ‘‘New Arrangement’’). The New Arrangement extends the scope of judicial assistance, and the effective date shall be announced by SPC and Hong Kong after SPC issued the judicial interpretation and Hong Kong completed relevant procedures. A choice of court agreement in writing is defined as any agreement in writing entered into between the parties after the effective date of the Arrangement in which a Hong Kong court or a PRC court is expressly designated as the court having sole jurisdiction for the dispute. Therefore, it may not be possible to enforce a judgment rendered by a Hong Kong court in China if the parties in the dispute do not agree to enter into a choice of court agreement in writing. As a result, it may be difficult or impossible for investors or shareholders to effect service of process against the Target Group’s assets or directors in China in order to seek recognition and enforcement of foreign judgments in China.

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Fluctuations in the value of the Renminbi may have a material and adverse impact on the investment.

Even though substantially all of the Target Group’s revenue and expenditures are denominated in Renminbi, fluctuations in the exchange rate between Renminbi and the Hong Kong dollar may nonetheless in the future adversely affect the value of net assets and earnings of the Target Group. For the past five years, the exchange rate of Renminbi to Hong Kong dollar has dropped significantly. Movements in Renminbi exchange rates are affected by, among other things, changes in political and economic conditions and China’s foreign exchange regime and policy. Renminbi has been unpegged from US dollar since July 2005 and, although the People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rate, Renminbi may appreciate or depreciate significantly in value against the Hong Kong dollar in the medium to long term. Moreover, it is possible that the PRC authorities may lift restrictions on fluctuations in Renminbi exchange rates and lessen intervention in the foreign exchange market in the future. Appreciation or depreciation in the value of Renminbi relative to the Hong Kong dollar would affect the Target Group’s financial results expressed in Hong Kong dollar without giving effect to any underlying change in its business, financial condition and results of operations.

The PRC government’s control in foreign currency conversion may materially and adversely affect the business, financial condition, results of operations and ability to meet foreign exchange requirements of the Target Group.

Currently, the Renminbi still cannot be freely converted into any foreign currency, and conversion and remittance of foreign currencies are subject to PRC foreign exchange regulations. It cannot be guaranteed that under a certain exchange rate, the Target Group will have sufficient foreign exchange to meet its foreign exchange requirements. Under the current PRC foreign exchange control system, foreign exchange acquisition under the current account conducted by the Target Group, including the payment of dividends, do not require advance approval from the SAFE, but the Target Group is required to present documentary evidence of such acquisition and conduct such acquisition at designated foreign exchange banks within the PRC that have the licenses to carry out foreign exchange business. Control over conversion of Renminbi to foreign currencies for capital account transactions (including, for example, direct investment, loan and investment in securities) is more stringent and such conversion is subject to a number of limitations.

Under existing foreign exchange regulations, the Target Group is able to pay dividends in foreign currencies without prior approval from the SAFE by complying with certain procedural requirements. However, there is no assurance that these foreign exchange policies regarding payment of dividends in foreign currencies will continue to be in effect in the future. In addition, any insufficiency of foreign exchange may restrict the Target Group’s ability of dividend payments to Shareholders or to satisfy any other foreign exchange requirements. If the Target Group fails to convert Renminbi into any foreign exchange for any of the above purposes, its capital expenditure plans, business, financial condition and results of operations may be materially and adversely affected.

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The PRC tax authorities’ heightened scrutiny over acquisition transactions may have a negative impact on the Target Group’s business operations or its acquisitions or the value of the investment in the Target Group.

The State Administration of Taxation has promulgated several rules and notices to tighten the scrutiny over acquisition transactions in recent years, including the Notice on Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-PRC Resident Enterprises in 2015 February or SAT Circular 7 and the Announcement of the SAT on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises in 2017, or SAT Circular 37.

SAT Circular 7 provided comprehensive guidelines relating to indirect transfers by a nonresident enterprise of PRC taxable assets. Under SAT 7 Circular the PRC tax authorities are entitled to reclassify the nature of an indirect transfer of PRC taxable assets, when a nonresident enterprise transfers PRC taxable assets indirectly by disposing of equity interests in an overseas holding company directly or indirectly holding such PRC taxable assets, by disregarding the existence of such overseas holding company and considering the transaction to be a direct transfer of PRC enterprise income taxes and without any other reasonable commercial purpose. However, SAT Circular 7 contains certain exemptions, including (i) where a non-resident enterprise derives income from the indirect transfer of PRC taxable assets by acquiring and selling shares of an overseas listed holding company which holds such PRC taxable assets on a public market; and (ii) where there is an indirect transfer of PRC taxable assets, but if the non-resident enterprise had directly held and disposed of such PRC taxable assets, the income from the transfer would have been exempted from enterprise income tax in the PRC under an applicable tax treaty or arrangement.

The Target Group may conduct acquisitions or restructurings which may be governed by the aforesaid tax regulations, as well as any possible future acquisition of the Target Group. The Target Group cannot assure Shareholders that the PRC tax authorities will not, at their discretion, impose tax return filing obligations on the Target Group or its subsidiaries, require it or its subsidiaries to provide assistance to an investigation by PRC tax authorities with respect to these transactions or adjust any capital gains. Any PRC tax imposed on a transfer of the Target Group’s shares, or equity interests in the PRC subsidiaries of the Target Group or any adjustment of such gains would cause the Target Group to incur additional costs and may have a negative impact on business, financial condition and results of operations.

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PRC regulations relating to offshore investment activities by PRC residents and PRC entities may limit the PRC subsidiaries of the Target Group’s ability to increase their registered capital or distribute profits to the Target Group or otherwise expose the Target Group to liability and penalties under PRC law.

The State Administration for Foreign Exchange (‘‘SAFE’’), promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE 37 Circular in July 2014 that require PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE further enacted the Notice on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment effective from 1 June 2015, or SAFE 13 Circular which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. Failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. Failure to comply with SAFE regulations, or failure to amend the foreign exchange registrations of the PRC subsidiaries of the Target Group, could subject the Target Group to fines or legal sanctions, restrict its overseas or cross-border investment activities, limit its subsidiaries’ ability to make distributions or pay dividends or affect its ownership structure, which could adversely affect its business and prospects.

The Target Group is committed to complying with, and to ensuring that its shareholders who are subject to the regulations will comply with, the relevant rules. However, there is no assurance that the PRC Government will not have a different interpretation of the requirements of SAFE Circular 37 in the future. Moreover, the Target Group may not at all times be fully aware or informed of the identities of all of its shareholders who are PRC residents, and it may not always be able to compel its shareholders to comply with the requirements of SAFE Circular 37.

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PRC’s labour law restricts the Target Group’s ability to reduce its workforce in the PRC in the event of an economic downturn and may increase its production costs.

The PRC Labor Contract Law, effective on 1 July 2013, is considered one of the strictest labour laws in the world, which, among other things, provides for specific standards and procedures for the termination of an employment contract and places the burden of proof on the employer. The law requires the payment of a statutory severance pay upon the termination of an employment contract in most cases, including the case of the expiration of a fixed-term employment contract. Further, it requires an employer to conclude an ‘‘employment contract without a fixed-term’’ with any employee who either has worked for the same employer for 10 consecutive years or more or has had two consecutive fixed-term contracts with the same employer. An ‘‘employment contract without a fixed term’’ can no longer be terminated on the ground of the expiration of the contract, although it can still be terminated pursuant to the standards and procedures set forth under the law.

In addition, under the PRC Labor Contract Law, downsizing of either more than 20 people or more than 10% of the workforce may occur only under specified circumstances, such as a restructuring undertaken pursuant to the PRC’s Enterprise Bankruptcy Law, or where a company suffers serious difficulties in production and/or business operations, or where there has been a material change in the objective economic circumstances relied upon by the parties at the time of the conclusion of the employment contract, thereby making the performance of such employment contract not possible. All of the Target Group’s employees working exclusively within the PRC are covered by the PRC Labor Contract Law and thus, the Target Group’s ability to adjust the size of its operations when necessary in periods of recession or less severe economic downturns may be curtailed. Accordingly, if the Target Group faces future periods of decline in business activity generally or adverse economic periods specific to its business, this new law can be expected to exacerbate the material and adverse effect of the economic environment on its business, financial condition and results of operations.

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The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for the Target Group to pursue growth through acquisitions in China.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, 《( 關於外國投資者併購境內企業的規定》) or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. According to the M&A Rules, a foreign investor is required to obtain the necessary approvals when it (i) acquires the equity of a domestic enterprise so as to convert the domestic enterprise into a foreign-invested enterprise; (ii) subscribes for increased capital in a domestic enterprise so as to convert the domestic enterprise into a foreign-invested enterprise; (iii) establishes a foreign-invested enterprise through which it purchases the assets of a domestic enterprise and operates these assets; or (iv) purchases the assets of a domestic enterprise, and then invests such assets to establish a foreign-invested enterprise. There is continuous uncertainty as to how the M&A Rules will be interpreted or implemented and whether the Contractual Arrangements may subject to the M&A Rules.

Moreover, the Anti-Monopoly Law of PRC requires that MOFCOM shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the Provisions of the Ministry of Commerce on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (‘‘Security Review Provisions’’) issued by MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise ‘‘national defense and security’’ concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise ‘‘national security’’ concerns are subject to strict review by MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, the Target Group may grow business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from MOFCOM or its local counterparts may delay or inhibit its ability to complete such transactions, which could materially and adversely affect the Target Group’s business, financial condition and results of operations.

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RISKS RELATING TO THE CONTRACTUAL ARRANGEMENTS

Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to the provision of contact services in China. If the PRC government finds that the structure the Target Group has adopted for its business operations does not comply with PRC laws and regulations, the Target Group could be subject to severe penalties.

Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunications services and other related businesses. As the provision of back office services involves the provision of valueadded telecommunications services, and are subject to restrictions imposed by relevant PRC Laws on foreign investors of foreign-invested telecommunication enterprises which engage in the provision of value-added telecommunications services, it is currently conducted by the OPCO Group. Due to such restrictions under the relevant PRC Laws, and as advised by the PRC Legal Adviser, it is not viable for the Target Group to directly hold any equity ownership in the OPCO Group. Instead, the Target Group, in line with common practice in industries in the PRC subject to restrictions imposed by PRC Laws on relevant foreign investors and/or foreign ownership on foreign-invested enterprises, achieves effective control over, and receives the entire economic benefits generated by the OPCO Group through the Contractual Arrangements between the WFOE, an indirect wholly-owned subsidiary of the Target Company established in the PRC, on one hand, and each of the OPCO and the Registered Shareholders, on the other hand. Please refer to the section headed ‘‘Contractual Arrangements’’ in this circular for more details regarding the Contractual Arrangements.

Although the structure the Target Group has adopted is consistent with long-standing industry practice, and is commonly adopted by comparable companies in China, the PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies, or with requirements or policies that may be adopted in the future. The OPCO Group holds the licenses, approvals and key assets that are essential for the operations of the Target Group’s business.

In the opinion of the PRC Legal Advisor to the Company, (i) the ownership structures of our wholly foreign owned enterprise and our variable interest entities in China, both currently and immediately after the closing, are in compliance with the applicable PRC laws, regulations or rules currently in effect, and (ii) subject to the risks as disclosed in the section headed ‘‘— Risks Relating to the Contractual Arrangements’’, the Contractual Arrangements between the WFOE, the OPCO Group and its shareholders governed by PRC laws are valid, binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect and will not violate any applicable PRC laws, rule or regulation currently in effect. There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. The relevant PRC regulatory authorities have broad discretion in determining whether a particular contractual structure violates PRC laws and regulations. Thus, there is no assurance that the PRC government will not ultimately take a view contrary to the opinion of the PRC Legal Advisor to the Company. If the Contractual Arrangements that establish the structure for operating China business are found to be in violation of any PRC laws or regulations in the future or fail to obtain or

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maintain any of the required permits or approvals, the Target Group may not be able to consolidate the results of operations of the OPCO Group. The relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:

• . revoking the agreements constituting the Contractual Arrangements:

• . revoking the Target Group’s business and operating licenses;

• . requiring the Target Group to discontinue or restrict operations;

• . restricting the Target Group’s right to collect revenue;

• . shutting down all or part of the Target Group’s services;

• . levying fines on the Target Group and/or confiscating the proceeds that they deem to have been obtained through non-compliant operations;

• . requiring the Target Group to restructure the operations in such a way as to compel it to establish a new enterprise, re-apply for the necessary licenses or relocate the Target Group’s businesses, staff and assets;

• . imposing additional conditions or requirements with which the Target Group may not be able to comply;

• . restricting or prohibiting the activities to finance the Target Group’s business and operations in China; or

• . taking other regulatory or enforcement actions that could be harmful to the Target Group’s business.

Furthermore, any of the assets under the name of any record holder of equity interest in OPCO Group, including such equity interest, may be put under court custody in connection with litigation, arbitration or other judicial or dispute resolution proceedings against that record holder. The Target Group cannot be certain that the equity interest will be disposed of in accordance with the Contractual Arrangements. In addition, new PRC laws, rules and regulations may be introduced to impose additional requirements that may impose additional challenges to the Target Group’s corporate structure and Contractual Arrangements. The occurrence of any of these events or the imposition of any of these penalties may result in a material and adverse effect on the Target Group’s ability to conduct the Internet-related business. In addition, if the imposition of any of these penalties causes the Target Group to be unable to direct the activities of the OPCO Group or the right to receive their economic benefits, it would no longer be able to consolidate the OPCO Group into its financial statements, thus materially and adversely affecting its business, financial condition and results of operations.

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The Target Group relies on Contractual Arrangements with the OPCO Group and its shareholders for its business operations, which may not be as effective as direct ownership in providing operational control.

The Target Group has relied and expect to continue to rely on Contractual Arrangements with the OPCO Group and its shareholders to operate its business in China. Please refer to the section headed ‘‘Contractual Arrangements’’ in this circular for more details regarding the Contractual Arrangements. These Contractual Arrangements may not be as effective as direct ownership in providing the Target Group with control over the OPCO Group. For example, the OPCO Group and its shareholders could breach their Contractual Arrangements with the Target Group by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to the Target Group’s interests.

If the Target Group had direct ownership of the OPCO Group in China, it would be able to exercise its rights as a shareholder to effect changes in the board of directors of the OPCO Group, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current Contractual Arrangements, the Target Group relies on the performance by the OPCO Group and its shareholders of their obligations under the contracts to exercise control over the OPCO Group. The shareholders of the OPCO Group may not act in the best interests of it or may not perform their obligations under these contracts. Such risks exist throughout the period in which the Target Group intends to operate certain portions of the Target Group’s business through the Contractual Arrangements with the OPCO Group. If any dispute relating to these contracts remains unresolved, the Target Group will have to enforce its rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and, therefore, will be subject to uncertainties in the PRC legal system. Please refer to ‘‘— Risks Relating to the Contractual Arrangements — Any failure by the OPCO Group or its shareholders to perform their obligations under the Target Group’s Contractual Arrangements with them would have a material adverse effect on the Target Group’s business, and the domestic shareholder may have potential conflicts of interest with the Target Group.’’ for details. Therefore, the Target Group’s Contractual Arrangements with the OPCO Group may not be as effective in ensuring the Target Group’s control over the relevant portion of the Target Group’s business operations as direct ownership would be.

Any failure by the OPCO Group or its shareholders to perform their obligations under the Target Group’s Contractual Arrangements with them would have a material adverse effect on the Target Group’s business, and the domestic shareholder may have potential conflicts of interest with the Target Group.

If the OPCO Group or its shareholders fail to perform their respective obligations under the Contractual Arrangements, the Target Group may have to incur substantial costs and expend additional resources to enforce such arrangements. The Target Group may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which it cannot assure will be effective under PRC law. For example, if the shareholders of the OPCO Group were to refuse to transfer their equity interests in the OPCO Group to the Target Group or its designee if the Target Group exercises

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the call option pursuant to these Contractual Arrangements, or if they were otherwise to act in bad faith toward the Target Group, then the Target Group may have to take legal actions to compel them to perform their contractual obligations.

All the agreements under the Target Group’s Contractual Arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system in China is not as developed as in some other jurisdictions. As a result, uncertainties in the PRC legal system could limit the Target Group’s ability to enforce these Contractual Arrangements. Meanwhile, there are very few precedents and little formal guidance as to how Contractual Arrangements in the context of the OPCO Group should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event the Target Group is unable to enforce these Contractual Arrangements, or if the Target Group suffers significant delay or other obstacles in the process of enforcing these Contractual Arrangements, it may not be able to exert effective control over the OPCO Group, and the Target Group’s business, financial condition and results of operations may be materially and adversely affected. Please refer to ‘‘Risks Related to PRC in general — The PRC’s legal system is still evolving and the uncertainties as to the interpretation and enforcement of PRC laws may have a material adverse effect on the Target Group’’ for details.

Contractual Arrangements in relation to the OPCO Group may be subject to scrutiny by the PRC tax authorities and they may determine that the Target Group or the OPCO Group owe additional taxes, which could negatively affect the Target Group’s financial condition and the value of the investment.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. The Target Group could face material and adverse tax consequences if the PRC tax authorities determine that the Contractual Arrangements were not entered into on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust the income of the OPCO Group in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by the OPCO Group for PRC tax purposes, which could in turn increase its tax liabilities without reducing the Target Group’s PRC subsidiaries’ tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on the OPCO Group for the adjusted but unpaid taxes according to the applicable regulations. The Target Group’s business, financial condition and results of operations could be materially and adversely affected if the OPCO Group’s tax liabilities increase or if they are required to pay late payment fees and other penalties.

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The Target Group conducts the OPCO Business in the PRC through the OPCO Group by way of the Contractual Arrangements, but certain of the terms of the Contractual Arrangements may not be enforceable under PRC laws.

All the agreements which constitute the Contractual Arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these agreements would be interpreted in accordance with PRC laws and disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, and uncertainties in the PRC legal system could limit the Target Group’s ability to enforce the Contractual Arrangements. In the event that the Target Group are unable to enforce the Contractual Arrangements, or if the Target Group suffer significant time delays or other obstacles in the process of enforcing them, it would be very difficult to exert effective control over the OPCO Group, and its ability to conduct the relevant business. The Target Group’s business, financial condition and results of operations may be materially and adversely affected.

The Contractual Arrangements contain provisions to the effect that the arbitral body may award remedies over the shares and/or assets of the OPCO Group, injunctive relief and/or winding up of the OPCO Group. These agreements also contain provisions to the effect that courts of competent jurisdictions are empowered to grant interim remedies in support of the arbitration pending the formation of an arbitral tribunal. However, under PRC laws, these terms may not be enforceable. Under PRC laws, an arbitral body does not have the power to grant injunctive relief or to issue a provisional or final liquidation order for the purpose of protecting assets of or equity interests in the OPCO Group in case of disputes. In addition, interim remedies or enforcement orders granted by overseas courts such as Hong Kong and the Cayman Islands may not be recognisable or enforceable in China. PRC laws do allow the arbitral body to grant an award of a transfer of assets of or equity interests in the OPCO Group in favour of an aggrieved party. Therefore, in the event of the breach of any agreements constituting the Contractual Arrangements by the OPCO Group and/or its shareholders, and if it is unable to enforce the Contractual Arrangements, the Target Group may not be able to exert effective control over the OPCO Group, which could materially and adversely affect its business, financial condition and results of operations.

The Target Group may not be able to meet the Qualification Requirement of VATS.

According to the FITE Regulations, a foreign investor who invests in VAT Services business in the PRC must possess the Qualification Requirement of VATS. Despite the lack of clear guidance or interpretation on the Qualification Requirement of VATS, the Target Group has been gradually building up the track record of overseas VAT Services operations. Based on the foregoing and the consultation with an officer of the MIIT conducted on 24 December 2019, the PRC Legal Adviser is of the view that, subject to the discretion of the competent authority in determining whether the Qualification Requirement of VATS is fulfilled, the steps

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taken by the Target Group to build up its track record of overseas VAT Services operations may be deemed by the relevant PRC government authorities to satisfy the Qualification Requirement of VATS as the Target Group has experience in providing VAT Services in overseas market, which is in accordance with the applicable laws and regulations. Please refer to the section headed ‘‘Contractual Arrangements — Qualification Requirement of VATS’’ for further details. It remains uncertain that the Target Group will be able to meet the Qualification Requirement of VATS in the future and the plan the Target Group has adopted will be sufficient to satisfy the Qualification Requirement of VATS.

The Target Group’s exercise of the option to acquire equity ownership and assets of the OPCO Group may subject the Target Group to certain limitation and the Target Group may need to expend significant resources to acquire all or part of the equity interests in the OPCO Group from the respective equity holders.

Pursuant to the current ‘‘Provisions on the Administration of Foreign-funded Telecommunications Enterprises’’ 《( 外商投資電信企業管理規定》), the Target Group cannot directly own the OPCO Group. However, if in the future the law becomes less stringent and allows foreign investors to invest in value-added telecommunications enterprises in China, the Target Group may be able to unwind its Contractual Arrangements. However, that still depends on its capability to comply with the Qualification Requirement of VATS. Please refer to ‘‘— Risks Relating to the Contractual Arrangements — Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to the provision of contact services in China. If the PRC government finds that the structure the Target Group has adopted for its business operations does not comply with PRC laws and regulations, the Target Group could be subject to severe penalties’’ for details. If the Target Group attempts to unwind the Contractual Arrangements before it is able to comply with the Qualification Requirement of VATS, it may be ineligible to operate its current business and may be forced to suspend its operations, which could materially and adversely affect the Target Group’s business, financial condition and results of operations.

Pursuant to the Contractual Arrangements, the WFOE has the exclusive right to purchase all or any part of the equity interests in the OPCO Group from the respective equity holders for a nominal price, unless the relevant government authorities or the relevant laws and regulations request that another amount be used as the purchase price, in which case the purchase price shall be the lowest amount under such request. If the latter is the case, the purchase price may end up to be significantly higher and the WFOE may need to expend significant amount to acquire the equity interests from the respective equity holders, which could materially and adversely affect the Target Group’s business, financial condition and results of operations. Subject to relevant laws and regulations, the respective equity holders shall return any amount of purchase price they have received to the WFOE. If such a transfer takes place, the competent tax authorities may require the WFOE to pay enterprise income tax for ownership transfer income with reference to the market value, in which case the amount of tax could be substantial.

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The WFOE may lose the ability to use and enjoy assets held by its OPCO Group that are material to the operation of certain portions of its business if the OPCO Group goes bankrupt or become subject to a dissolution or liquidation proceeding.

As part of the WFOE’s Contractual Arrangements with its OPCO Group, the OPCO Group holds certain assets that are material to the operation of certain portions of the WFOE’s business, including intellectual property and premise. If the OPCO Group goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, the WFOE may be unable to continue some or all of its business activities, which could materially and adversely affect its business, financial condition and results of operations. Under the Contractual Arrangements, the OPCO Group may not, in any manner, sell, transfer, mortgage or otherwise dispose of any of its assets that exceed RMB1 million in value without the WFOE’s prior consent. If OPCO Group undergoes voluntary or involuntary liquidation proceedings, independent third-party creditors may claim rights to some or all of these assets, thereby hindering the WFOE’s ability to operate its business, which could materially and adversely affect its business, financial condition and results of operations.

Substantial uncertainties exist with respect to the interpretation and implementation of the recently passed PRC Foreign Investment Law and how it may impact the viability of the Target Group’s current corporate structure, corporate governance and business operations.

On 15 March 2019, China’s National People’s Congress passed the Foreign Investment Law of the PRC (the ‘‘FIL’’). Effective on 1 January 2020, the law replaced the three primary laws regulating foreign-invested enterprises (‘‘FIEs’’) in China: The Law on Sino-Foreign Equity Joint Ventures, the Law on Wholly Foreign-Owned Enterprises, and the Law on SinoForeign Cooperative Joint Ventures (collectively the ‘‘Three FIE Laws’’). The FIL embodies an expected PRC regulatory trend to rationalise its foreign investment regulatory regime in line with prevailing global practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. Please refer to ‘‘Regulatory Overview — Regulations relating to company establishment and foreign investment’’ for details. The FIL provides a five-year transition period, that is, a FIE established in accordance with the three laws before can maintain its original organisation form within five years after the FIL comes into force.

The FIL does not explicitly stipulate the contractual arrangements as a form of foreign investment. The FIL does not mention concepts including “de facto control” and “controlling through contractual arrangements’’ nor did it specify the regulation on controlling through contractual arrangements. Instead, the FIL stipulates that ‘‘foreign investors invest in PRC through any other methods under laws, administrative regulations, or provisions prescribed by the State Council’’. Therefore, there remains uncertainties with respect to the interpretation and implementation of the FIL and its impact to the Target Group’s Contractual Arrangements and its business, financial condition and results of operations. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a ‘‘catalogue of special administrative measures’’, which is classified into the ‘‘catalogue of prohibitions’’ and the ‘‘catalogue of restrictions’’ issued by the NDRC and MOFCOM (the ‘‘Negative Lists’’). Foreign investors are either not allowed or restricted to invest in any

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sector set forth in the Negative Lists. The Target Group’s outsourced customer care services are currently excluded from that Negative Lists. However, it is not assured that the government authority will never further revise the Negative List. Once the back office services business is included in the Negative List and restrict or prohibit the use of Contractual Arrangements to operate or hold the business, the Target Group may be required to dispose of its business under the Contractual Arrangements, and after such disposal, the Target Group’s business, financial condition and results of operations will be materially and adversely affected. If the Company no longer has a sustainable business after such disposal, the Hong Kong Stock Exchange may delist the Company.

The FIL may also materially impact the Target Group’s current corporate governance and business operations in many aspects. For instance, the FIL imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from an investment information report required at each investment, and investment amendment reports, which shall be submitted upon alteration of investment specifics, it is mandatory for entities established by foreign investors to submit an annual report, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities. In case the Target Group is subject to such fines or liabilities, its business, financial condition and results of operations will be materially and adversely affected.

RISKS RELATING TO THIS CIRCULAR

Statistics and industry information contained in this circular may not be accurate and should not be unduly relied upon.

Certain facts, statistics, and data presented in this circular relating to the industry in which the Target Group operates have been derived, in part, from various public publications and industry-related sources prepared by government officials or independent third parties. The Company believes that the sources of the information are appropriate sources for such information, and the Financial Adviser and the Directors have taken reasonable care to extract and reproduce the publications and industry-related sources in this circular. In addition, the Company has no reason to believe that such information is false or misleading or that any fact that would render such information false or misleading has been omitted. However, neither the Target Group, the Directors, the Financial Adviser, nor any parties involved in the Acquisition, except CIC, have independently verified, or make any representation as to, the accuracy of such information and statistics. It cannot be assured that statistics derived from such sources will be prepared on a comparable basis or that such information and statistics will be stated or prepared at the same standard or level of accuracy as, or consistent with, those in other publications within or outside Hong Kong. Accordingly, such information and statistics may not be accurate and should not be unduly relied upon.

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The future results may differ materially from those expressed or implied by the forwardlooking statements.

Included in this circular are various forward-looking statements that are based on various assumptions. The future results could differ materially from those expressed or implied by such forward-looking statements. For details of these statements and the associated risks, please refer to the section headed ‘‘Forward-looking statements’’ in this circular.

Shareholders should read this entire circular carefully and should not place any reliance on any information (if any) contained in press articles or other media regarding the Target Group and the Acquisition including, in particular, any financial projections, valuations or other forward-looking statement.

Prior to the publication of this circular, there may be press or other media, which contains certain information referring to the Target Group and the Acquisition that is not set out in this circular. Neither the Company nor the Target Group, the Financial Adviser, the Independent Financial Adviser, the directors, officers, employees, advisers, agents or representatives of any of them, or any other parties (collectively, the ‘‘Professional Parties’’) involved in the Acquisition has authorized the disclosure of such information in any press or media, and neither the press reports, any future press reports nor any repetition, elaboration or derivative work were prepared by, sourced from, or authorized by the Target Group or any of the Professional Parties. Neither the Company nor any of the Professional Parties accept any responsibility for any such press or media coverage or the accuracy or completeness of any such information. The Company makes no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication. To the extent that any such information is not contained in this circular or is inconsistent or conflicts with the information contained in this circular, the Target Group disclaims any responsibility, liability whatsoever in connection therewith or resulting therefrom. Accordingly, Shareholders should not rely on any such information in making your decision as to how you would cast your votes in relation to, inter alia, the Acquisition. You should rely only on the information contained in this circular.

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BACKGROUND

The Target Group is an emerging leading outsourced customer care service provider with its principal place of business located in China. Currently the OPCO Group operates OPCO Business, whereas, the WFOE Group operates comprehensive marketing services and data centre services businesses through its subsidiaries. As the OPCO Business involves the provision of value-added telecommunications services and is subject to restrictions imposed by relevant PRC Laws on foreign investors of foreign-invested telecommunication enterprises which engage in the provision of value-added telecommunications services, it is currently conducted by the OPCO Group.

Due to such restrictions under the relevant PRC Laws, and as advised by the PRC Legal Adviser, it was not viable for the Target Company to directly hold any equity ownership in the OPCO Group. Instead, the Target Company, in line with common practice in industries in the PRC subject to restrictions imposed by PRC Laws on relevant foreign investors and/or foreign ownership on foreign-invested enterprises, achieves effective control over, and receives the entire economic benefits generated by the OPCO Group through the Contractual Arrangements between the WFOE, an indirect wholly-owned subsidiary of the Target Company established in the PRC, on one hand, and each of the OPCO and the Registered Shareholders, on the other hand.

Immediately after Closing, the Target Company will become a wholly-owned subsidiary of the Company. Therefore, immediately after Closing, the Contractual Arrangements will enable the Company to (i) enjoy the entire economic benefits from the OPCO Group in consideration for the services provided by WFOE to the OPCO Group; (ii) exercise effective control over the OPCO Group; and (iii) hold an exclusive option to purchase all or part of the shares in and/or assets of the OPCO when and to the extent permitted by PRC Laws.

On the basis of the information set out in this circular, the Directors believe that the Contractual Arrangements are narrowly tailored, as they are used to enable the Target Group to conduct the OPCO Business that are subject to restrictions imposed by relevant PRC Laws on foreign investors of foreign-invested telecommunication enterprises which engage in the provision of value-added telecommunications services in the PRC. The Directors believe that the Contractual Arrangements are fair and reasonable, and are enforceable under the relevant PRC Laws, because: (i) as advised by the PRC Legal Adviser, the Contractual Arrangements are admissible as evidence and enforceable under the relevant PRC Laws, (ii) to the best knowledge, information and belief of the Directors, having made all reasonable enquiries, the OPCO Group has not encountered any interference or encumbrance from any governing bodies in operating its business as at the Latest Practicable Date, (iii) by entering into the Exclusive Business Cooperation Agreement with the WFOE, which will become an indirect whollyowned subsidiary of the Company immediately after Closing, the OPCO Group will enjoy better economic and technical support from us, as well as a better market reputation after the Acquisition, and (iv) a number of other companies use similar arrangements to accomplish the same purpose. Please refer to the section headed ‘‘History, Development and Reorganisation of the Target Group’’ in this circular for more details.

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REASONS FOR ADOPTION OF THE CONTRACTUAL ARRANGEMENTS

As advised by the PRC Legal Adviser, in accordance with the Telecommunication Regulations of the PRC 《( 中華人民共和國電信條例》) promulgated on 25 September 2000, and most recently amended on 6 February 2016, by the State Council of the PRC (the ‘‘Telecommunication Regulations’’), a service provider is required to obtain a value-added telecommunication business operating license 《( 增值電信業務經營許可證》) (‘‘VATS Licence’’) from the MIIT or its authorised local counterpart before commencing the provision of value-added telecommunication services (‘‘VAT Services’’). Further, under the Catalogue of Telecommunication Business 《( 電信業務分類目錄》) promulgated on 28 December 2015, and most recently amended on 6 June 2019, by MIIT (the ‘‘Telecommunication Catalogue’’), call centre services is a type of VAT Services, thus any provider of call centre services in China is required to obtain a VATS Licence before commencing its operation.

In accordance with the Telecommunication Catalogue:

• (i) call centre services mean business consultation, information consultation and data query services regarding an entity for the end-users of such entity through public communication network by: (a) utilising call centre system which is connected to public communication network or the Internet; (b) utilising database technology; and (c) establishing information base through information collection, processing and storage;

• (ii) users of call centre services may: (a) enter into a call centre system and gain access to the database of the call centre system through multiple channels such as telephone, fax, mobile communication terminals and computer terminals; and (b) receive information consultation services by multiple means such as voice, fax, email and text messages; and

• (iii) call centre services also include leasing of call centre system and workstations of call centre operators.

Furthermore, under the Regulations for the Administration of Foreign-Invested Telecommunication Enterprises 《( 外商投資電信企業管理規定》) promulgated on 11 December 2001, and most recently amended on 6 February 2016, by the State Council (the ‘‘FITE Regulations’’) and the Administrative Measures for Telecommunication Business Operating Permit 《( 電信業務經營許可管理辦法》) promulgated on 3 July 2017 by MIIT (the ‘‘Telecommunication Measures’’):

• (i) the establishment of a foreign-invested telecommunication enterprise which engages in the provision of any VAT Services in China must be approved by the MIIT or its authorised local counterparts;

• (ii) the holder of a VATS Licence is required to obtain the approval of the MIIT and/or its authorised local counterparts if there is any change to the shareholders of such holder; and

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• (iii) the main foreign investor in a foreign-invested telecommunication enterprise which engages in the provision of VAT Services must satisfy the Qualification Requirement of VATS, including, a proven track record of good performance, and operating experience, in carrying on value-added telecommunication business.

For further details of the limitations on foreign ownership in PRC companies conducting VAT Services, and the licensing and approval requirements applicable to the OPCO Business under the PRC Laws and regulations, please refer to the section headed ‘‘Regulatory Overview — Regulations Relating to Value-added Telecommunications Services’’ in this circular.

The OPCO Business in the PRC has been or will be mainly conducted by the OPCO Group which comprises:

OPCO Group company Business DaLian Kingwisoft back-office services Chengdu Kingwisoft back-office services Wuhan Kingwisoft back-office services Kunshan Kingwisoft back-office services Leshan Kingwisoft back-office services Luzhou Kingwisoft back-office services Xiangyang Kingwisoft back-office services Beijing Nanyou back-office services (mainly development of customer service software) Rongzhi Outsourcing back-office services (mainly development of customer service software) Dalian Zhiyin back-office services Qingdao Kingwisoft back-office services

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As advised by the PRC Legal Adviser, the OPCO Business, comprising the back-office services (primarily provision of customer service solutions and setting up of contact service system and centres), can be further categorised into:

• (i) business consultation, information consultation and data query services on behalf of an entity for the customers of such entity (such as general enquiry hotlines, customer service hotlines, post-sale follow-up services and customer satisfaction surveys) by utilising call centre system (which is connected to public communication network or the Internet) and/or database technology (the ‘‘Contact Services’’);

• (ii) information processing, business consultation and other customised business process outsourcing services on behalf of an entity for the customers of such entity (such as order processing, audio and video review and image processing) by utilising call centre system (which is connected to public communication network or the Internet) and/or database technology (the ‘‘Call Center-related BPO Services’’); and

• (iii) designing, installing, testing and trial-testing contact service systems and centres which is connected to public communication network or the Internet for an entity, and providing software and hardware support for such contact service system and centres, in each case with a view to, or in connection with, providing Contact Services on behalf of such entity for the customers of such entity (the ‘‘Contact Service System and Centres Set-up Services’’).

As each of the Contact Services, the Call Center-related BPO Services and the Contact Service System and Centres Set-up Services involves the provision of services by the OPCO Group on behalf of an entity for the customers of such entity through public communication network by:

• (i) utilising call centre system which is connected to public communication network or the Internet;

• (ii) utilising database technology; and

• (iii) establishing information base through information collection, processing and storage,

the provision of the OPCO Business by the OPCO Group constitutes the provision of call centre services, one type of VAT Services, by the OPCO Group. Therefore, in accordance with the Telecommunication Regulations, the OPCO Group is required to hold VATS Licences in order to operate the OPCO Business.

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As at the Latest Practicable Date, each of DaLian Kingwisoft, Chengdu Kingwisoft, Wuhan Kingwisoft and Leshan Kingwisoft has obtained the ICP Licence required to carry out its business, and any direct or indirect change of ownership in such licence will be subject to substantive examination and discretion of the competent authority. As advised by the PRC Legal Adviser, subject to the discretion of the competent authority, such ICP Licences obtained by relevant entities of the OPCO Group will remain valid upon Closing and can be renewed in accordance with applicable PRC Laws upon their expiry.

Each of Kunshan Kingwisoft, Luzhou Kingwisoft, Xiangyang Kingwisoft, Beijing Nanyou, Rongzhi Outsourcing, Dalian Zhiyin and Qingdao Kingwisoft has currently filed application with relevant authority for an ICP Licence, and notice of acceptance from MIIT in relation to the application has been obtained by each of Kunshan Kingwsoft, Luzhou Kingwisoft, Xiangyang Kingwisoft, Beijing Nanyou, Rongzhi Outsourcing, Dalian Zhiyin and Qingdao Kingwisoft. Due to the outbreak of the COVID-19, there is an unexpected delay in general government administrative works. However, it is expected that such ICP Licence will still be obtained by each of Kunshan Kingwisoft, Luzhou Kingwisoft, Xiangyang Kingwisoft, Beijing Nanyou, Rongzhi Outsourcing, Dalian Zhiyin and Qingdao Kingwisoft in a few months, although the exact timing is unsure. Although the above ICP Licences are still under approval process or awaiting the granting of license after preliminary approval, the Target Company considers that those subsidiaries are currently not material to the Target Group and will not have material adverse impact on the Target Group’s operations and financials.

Under the FITE Regulations, the Telecommunication Measures and other applicable PRC Laws:

• (i) any direct or indirect transfer of any equity interest in any member of the OPCO Group to a foreign investor constitutes the conversion of such member of the OPCO Group into a foreign-invested telecommunication enterprise; and

• (ii) in order for the members of the OPCO Group to be converted into foreign-invested telecommunication enterprises which engage in the provision of VAT Services, the main foreign investor in such members of the OPCO Group is required to satisfy the Qualification Requirement of VATS and such members of the OPCO Group are required to obtain the approval of the MIIT and/or its authorised local counterparts.

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As further described in the section headed ‘‘— Qualification Requirement of VATS’’ below, there is no clear guidance or interpretation on the Qualification Requirement of VATS and the foreign investor’s fulfilment of Qualification Requirement of VATS remains ultimately subject to substantive examination and discretion by the MIIT. Given no applicable PRC Law, regulation or rule has provided any clear guidance or interpretation on the Qualification Requirement of VATS, the PRC Legal Adviser consulted with an officer in the Market Division of Information and Communication Administration (信息通信管理局市場處) of the MIIT (the ‘‘MIIT Officer’’) on 24 December 2019 (the ‘‘MIIT Consultation’’). The MIIT Officer has confirmed during the MIIT Consultation that:

• (i) in order for a foreign investor to acquire, directly or indirectly, the members of the OPCO Group which engage in the provision of VAT Services (which would result in the conversion of such members of the OPCO Group into foreign-invested telecommunication enterprises which engage in the provision of VAT Services), the main foreign investor in such members of the OPCO Group is required to satisfy the Qualification Requirement of VATS and such members of the OPCO Group are required to obtain the approval of the MIIT and/or its authorised local counterparts;

• (ii) as no applicable PRC Law, regulation or rule has provided any clear guidance or interpretation on the Qualification Requirement of VATS, the MIIT and/or its authorised local counterparts have considerable substantive discretion in determining whether such main foreign investor satisfies the Qualification Requirement of VATS and in granting any such approval;

• (iii) the MIIT Officer is not aware of the MIIT or any of its authorised local counterparts having granted any approval to or for any foreign-invested telecommunication enterprise which engages in the provision of call centre services (within the meaning of the Telecommunication Catalogue); and

• (iv) the Contractual Arrangements do not require any prior approval from, or any registration or filing with, the MIIT and do not violate any PRC Law, regulation or rule in relation to VAT Services.

The PRC Legal Adviser has advised that (i) the MIIT (being the department in charge of the supervision and substantive examination of foreign investments in VAT Services) is the competent authority, and (ii) the MIIT Officer (being an officer in the division of the MIIT in charge of the supervision of the operation of VAT Services and the acceptance of applications for VATS Licence) is a competent person with appropriate authority, to give the above confirmations. As further advised by the PRC Legal Adviser, based on the MIIT Consultation and the current regulatory practice, the MIIT will not approve any application by any member of the OPCO Group to be converted into a foreign-invested telecommunication enterprise which engages in the provision of VAT Services even if the main foreign investor in such member of the OPCO Group currently satisfies the Qualification Requirement of VATS. Based on the above, the Directors believe that the Contractual Arrangements adopted for the control over the OPCO Group are narrowly tailored.

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CONTRACTUAL ARRANGEMENTS

The following simplified diagram illustrates the flow of economic benefits from the OPCO Group to the Group under the Contractual Arrangements immediately before and after Closing:

Immediately before Closing

==> picture [296 x 177] intentionally omitted <==

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

Sellers
Registered
100% Shareholders
(Notes 2, 3, 4)
Target Company
100%
100%
100% (Note 1)
Hong Kong SPV WFOE DaLian Kingwisoft
OPCO Business
----- End of picture text -----

Immediately after Closing

==> picture [296 x 176] intentionally omitted <==

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

The Company
Registered
100% Shareholders
(Notes 2, 3, 4)
Target Company
100%
100%
100% (Note 1)
Hong Kong SPV WFOE DaLian Kingwisoft
OPCO Business
----- End of picture text -----

Notes:

• (1) Business support, technical and consulting service fees payable by DaLian Kingwisoft to the WFOE. Please refer to ‘‘Contractual Arrangements — Exclusive Business Cooperation Agreement’’ in this circular for details.

• (2) Exclusive option to acquire all or part of the shares in and/or assets of DaLian Kingwisoft. Please refer to ‘‘Contractual Arrangements — Exclusive Call Option Agreement’’ in this circular for details.

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• (3) First priority security interest over the entire share capital of DaLian Kingwisoft. Please refer to ‘‘Contractual Arrangements — Share Pledge Agreement’’ in this circular for details.

• (4) Powers of attorney to exercise all shareholders’ rights in DaLian Kingwisoft. Please refer to ‘‘Contractual Arrangements — Powers of Attorney’’ in this circular for details.

Exclusive Business Cooperation Agreement

The Exclusive Business Cooperation Agreement was entered into between the WFOE and DaLian Kingwisoft on 12 June 2020, pursuant to which DaLian Kingwisoft agrees to engage the WFOE as its exclusive provider of business support, technical and consulting services, including technical services, network support, business consultation, intellectual property licensing, equipment leasing, market consultancy, system integration, product research and development and system maintenance, in exchange for service fees. Under the Exclusive Business Cooperation Agreement, the service fees, subject to the WFOE’s adjustment, are equal to the net profit of DaLian Kingwisoft and its subsidiaries. The WFOE may adjust the service fees at its sole discretion, after taking into account certain factors, including but not limited to the deduction of necessary costs, expenses, taxes and other statutory contribution for the corresponding fiscal year, and may also include accumulated losses of DaLian Kingwisoft and its subsidiaries from previous financial periods. The service fees shall be transferred to the designated account of the WFOE upon issuance of payment notification by the WFOE. The WFOE enjoys the entire economic benefits derived from the businesses of DaLian Kingwisoft and its subsidiaries, and bears relevant risks of DaLian Kingwisoft and its subsidiaries. If DaLian Kingwisoft runs into financial deficit or suffers severe operation difficulties, the WFOE will provide financial support to DaLian Kingwisoft.

In line with the services it provides, the WFOE has employed relevant personnel primarily providing consulting and technical services to DaLian Kingwisoft. In addition, the WFOE’s primary operating assets will be IT facilities, network and equipment, which support its provision of services to DaLian Kingwisoft under the Exclusive Business Cooperation Agreement. The WFOE and its subsidiaries also engage in comprehensive marketing services and data centre services businesses.

Both the WFOE and DaLian Kingwisoft have internal control measures in place, which mainly include measures with respect to accounts payables and receivables, which require the review and approval by the relevant department(s) of the WFOE and DaLian Kingwisoft to confirm the services provided by the WFOE and received by DaLian Kingwisoft. Further, to ensure that the WFOE will not engage in the OPCO Business or any other restricted business in the PRC, the WFOE has set up an internal control procedure, which requires the senior staff member of relevant departments to review the business to be entered into by the WFOE.

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Intellectual property rights are developed during the normal course of business of DaLian Kingwisoft and its subsidiaries. Pursuant to the Exclusive Business Cooperation Agreement, the WFOE will have the exclusive and proprietary rights to all intellectual properties developed by DaLian Kingwisoft and its subsidiaries, given that the WFOE provides consultation services to DaLian Kingwisoft and its subsidiaries during the term of the Exclusive Business Cooperation Agreement. Part of the economic benefits generated by DaLian Kingwisoft and its subsidiaries will be intellectual properties developed or created during the normal business operation of DaLian Kingwisoft and its subsidiaries. Though it is not intended to transfer any existing intellectual property rights held by DaLian Kingwisoft to the WFOE, DaLian Kingwisoft is required under the Contractual Arrangements to obtain the WFOE’s prior written consent before it transfers, assigns or disposes of any of the intellectual properties to any third party.

The Exclusive Business Cooperation Agreement is for an initial term of ten years and shall be automatically extended upon expiry unless the WFOE confirms a new renewal term in writing.

Exclusive Call Option Agreement

The Exclusive Call Option Agreement was entered into by and among the WFOE, the Registered Shareholders and DaLian Kingwisoft on 12 June 2020, pursuant to which the WFOE (or the Target Company or any subsidiary of the Target Company, the ‘‘designee’’) has been granted an irrevocable and exclusive right to purchase all of the shares in and/or assets of DaLian Kingwisoft for a nominal price, unless the relevant government authorities or the PRC Laws request that another amount be used as the purchase price, in which case the purchase price shall be the lowest amount under such request. Subject to relevant PRC Laws and regulations, the Registered Shareholders and/or DaLian Kingwisoft shall return any amount of purchase price they have received to the WFOE. At the WFOE’s request, the Registered Shareholders and/or DaLian Kingwisoft will promptly and unconditionally transfer their respective shareholding in and/or the relevant assets of DaLian Kingwisoft to the WFOE (or its designee) after the WFOE exercises its call option. The Exclusive Call Option Agreement is for an initial term of ten years and shall be automatically extended upon expiry unless the WFOE confirms a new renewal term in writing.

In order to prevent the flow of the relevant assets and value of DaLian Kingwisoft and its subsidiaries to the Registered Shareholders, during the term of the Exclusive Call Option Agreement, DaLian Kingwisoft is not allowed to, and shall procure its subsidiaries not to, sell, transfer, mortgage or otherwise dispose of any of its assets (exceeding the value of RMB1 million) without the prior written consent of the WFOE. In addition, DaLian Kingwisoft is not allowed to, and shall procure its subsidiaries not to, make any distributions to its shareholder(s) without prior written consent of the WFOE. In the event that the Registered Shareholders receive any distribution from DaLian Kingwisoft and/or its subsidiaries and subject to the PRC Laws, the Registered Shareholders must immediately pay or transfer such distribution to the WFOE (or its designee). If the WFOE exercises the call option all or any part of the shareholding in and/or assets of DaLian Kingwisoft acquired would be transferred to the WFOE, and the benefits of the equity ownership and/or assets, as applicable, would flow to the Target Company and its shareholders.

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As provided in the Exclusive Call Option Agreement, without the prior written consent of the WFOE, DaLian Kingwisoft shall not, and shall procure its subsidiaries not to, among other things, (i) sell, transfer, pledge or dispose of in any manner any of its assets of more than RMB1 million; (ii) execute any material contract for a value more than RMB1 million, except any contracts in the ordinary course of business and any contracts entered into with any members of the Target Group (or the Enlarged Group immediately after Closing); (iii) provide any loan, financial support, pledge or guarantees in any form to any third party, or allow any third party to create any pledge or other security interest over its assets or equity; (iv) incur, inherit, guarantee or allow any debt that is not incurred in the ordinary course of business of DaLian Kingwisoft or not disclosed and consented to by the WFOE; (v) enter into any consolidation or merger with any third party, or acquire or invest in any third party; (vi) increase or reduce its registered capital, or alter the structure of the registered capital in any other manner. The Exclusive Call Option Agreement provides that the Registered Shareholders and DaLian Kingwisoft shall procure the subsidiaries of DaLian Kingwisoft to comply with the above undertakings as if they are parties to the Exclusive Call Option Agreement. Therefore, due to the relevant restrictive provisions in the agreement, the potential adverse effect on the WFOE and the Target Group (or the Enlarged Group immediately after Closing) in the event of any loss suffered from DaLian Kingwisoft and/or its subsidiaries can be limited to a certain extent. In addition, in relation to the above restrictive provisions specified in the Exclusive Call Option Agreement, the asset disposals or value of contracts will be aggregated if such asset disposals or value of contracts (i) are entered into by the Target Group with the same party or parties; or (ii) involve the disposal or contracts which relate to the whole or parts of the asset or securities or interests in a company or group of companies. Further, as advised by the PRC Legal Adviser, any transfer of shares in DaLian Kingwisoft pursuant to the terms of the Exclusive Call Option Agreement will need to be filed with relevant government authorities upon the exercise of the call option thereunder.

Share Pledge Agreement

The Share Pledge Agreement was entered into by and among the WFOE, the Registered Shareholders and DaLian Kingwisoft on 12 June 2020, pursuant to which the Registered Shareholders pledge as first charge all of their respective shareholding in DaLian Kingwisoft to the WFOE as collateral security for any or all of the payments due to the WFOE and to secure performance of their obligations under the Exclusive Business Cooperation Agreement, the Exclusive Call Option Agreement and the Authorisation Agreement. The Share Pledge Agreement will remain in effect till the earlier of (i) all obligation of DaLian Kingwisoft and the Registered Shareholders under the Exclusive Business Cooperation Agreement, the Exclusive Call Option Agreement and the Authorisation Agreement are performed in full; (ii) the WFOE exercises its exclusive option to purchase the entire shareholding held by the Registered Shareholders in DaLian Kingwisoft and/or the assets of DaLian Kingwisoft pursuant to the terms of the Exclusive Call Option Agreement when it is permitted to do so under the applicable PRC Laws; (iii) the WFOE exercises its unilateral and unconditional right of termination; and (iv) the agreement is required to be terminated in accordance with applicable PRC Laws and regulations. In addition, under the Exclusive Call Option Agreement, none of the Registered Shareholders may transfer or create any encumbrance on

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any of their shareholding in and the relevant assets of DaLian Kingwisoft (including any equity interests in and relevant assets of the subsidiaries of DaLian Kingwisoft) without the WFOE’s prior written consent. Furthermore, under the Exclusive Business Cooperation Agreement, the WFOE is entitled to retain and exercise physical control of company seals and certificates that are crucial to the daily operation of DaLian Kingwisoft, which further strengthens the protection of the WFOE’s interests over DaLian Kingwisoft under the Contractual Arrangements. Should an event of default (as provided in the Share Pledge Agreement) occur, unless it is successfully resolved to the WFOE’s satisfaction within 30 days upon being notified by the WFOE, the WFOE may demand that the Registered Shareholders and/or DaLian Kingwisoft immediately pay all outstanding payments due under the Exclusive Business Cooperation Agreement, repay any loans and make all other payments due to it, and/ or dispose of the pledged shareholding and use the proceeds to repay any outstanding amount due to the WFOE. The pledges under the Share Pledge Agreement has been duly registered with the relevant PRC authority on 12 July 2020 pursuant to PRC Laws and regulations.

Powers of Attorney

The irrevocable Powers of Attorney have been granted by each of the Registered Shareholders on 12 June 2020 in favour of the WFOE pursuant to the Authorisation Agreement dated 12 June 2020 by and among the WFOE, the Registered Shareholder and DaLian Kingwisoft, pursuant to which the Registered Shareholders have appointed the WFOE or a director of its offshore holding company or its/his/her successor (including a liquidator replacing the WFOE’s director) as their exclusive agent and attorney to act on their behalf on all matters concerning DaLian Kingwisoft and to exercise all of their rights as registered shareholders of DaLian Kingwisoft. These rights include (i) the right to propose, convene and attend shareholders’ meetings; (ii) the right to sell, transfer, pledge or dispose of shares; (iii) the right to exercise shareholders’ voting rights; and (iv) the right to act as the legal representative (chairperson), the director, supervisor, the chief executive officer (or general manager) and other senior management members of DaLian Kingwisoft. The authorised person is entitled to sign minutes, file documents with the relevant companies registry and exercise voting rights on the winding up of DaLian Kingwisoft on behalf of the Registered Shareholders. The Registered Shareholders have undertaken to transfer all assets obtained by them after the winding up of DaLian Kingwisoft to the WFOE at nil consideration or the lowest price permissible by the then applicable PRC Laws and regulations. As a result of the Powers of Attorney, the Target Company (or the Company immediately after Closing), is able to exercise management control over the activities that have significant impact on the economic performance of DaLian Kingwisoft.

The Powers of Attorney also provided that, in order to avoid potential conflicts of interest, where the Registered Shareholders are officers or directors of the Target Group, the powers of attorney are granted in favour of other unrelated officers or directors of the Target Company (the unrelated directors of the holding company of the Target Company).

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The Powers of Attorney shall automatically terminate once the WFOE (or any member of the Target Group (or any member of the Group after Closing) other than DaLian Kingwisoft and its subsidiaries) directly holds the entire shareholding in and/or the entire assets of DaLian Kingwisoft permitted under the then PRC Laws and regulations and the WFOE (or its subsidiaries) is allowed to conduct the OPCO Business under the then PRC Laws and regulations, following which the WFOE is registered as the sole shareholder of DaLian Kingwisoft.

Dispute Resolution

Each of the Contractual Arrangements stipulates that the parties shall negotiate in good faith to resolve the dispute in the event of any dispute with respect to the construction and performance of the provisions. In the event the parties fail to reach an agreement on the resolution of such a dispute within 30 days after any party’s request for resolution of the dispute through negotiations, any party may submit the relevant dispute to the China International Economic and Trade Arbitration Commission for arbitration, in accordance with the then effective arbitration rules. The arbitration shall be conducted in Beijing, and the language used during arbitration shall be Chinese. The arbitration ruling shall be final and binding on all parties. Any party shall have the right to apply to courts with competent jurisdiction for enforcement of arbitration rulings after the arbitration rulings come into force.

Each of the Contractual Arrangements also provides that (i) the arbitral tribunal may award remedies over the equity interests, assets or property interest of DaLian Kingwisoft, injunctive relief (e.g. for the conduct of business or to compel the transfer of assets) or order the winding up of DaLian Kingwisoft; and (ii) the courts of Hong Kong, the Cayman Islands (being the place of incorporation of the Target Company and the Company) and other jurisdiction (being the place of domicile of DaLian Kingwisoft and where the principal assets of DaLian Kingwisoft or the WFOE are located) also have jurisdiction for grant or enforcement of the arbitral award and the interim remedies against the shares or property interest of DaLian Kingwisoft.

However, the PRC Legal Adviser has advised that (i) a tribunal normally would not grant such kind of injunctive relief or winding up order of DaLian Kingwisoft under PRC Laws; (ii) interim remedies or enforcement order granted by overseas courts such as Hong Kong and the Cayman Islands may not be recognisable or enforceable in the PRC; and (iii) even if the above-mentioned provisions may not be enforceable under PRC Laws, the remaining provisions of the dispute resolution clauses are legal, valid and binding on the parties to the agreement under the Contractual Arrangements.

As a result of the above, in the event that DaLian Kingwisoft or its subsidiaries or the Registered Shareholders breach any of the Contractual Arrangements, the Target Group (or the Enlarged Group after Closing) may not be able to obtain sufficient remedies in a timely manner, and the ability to exert effective control over the OPCO Group and conduct its business could be materially and adversely affected. Please refer to the section headed ‘‘Risk Factors — Risks Relating to the Contractual Arrangements’’ in this circular.

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Succession

The provisions of the Contractual Arrangements are also binding on the successors of the Registered Shareholders, as if the successor were signing parties to the Contractual Arrangements. Under the succession laws of the PRC, the statutory successors include spouse, children, parents, brothers, sisters, paternal grandparents and maternal grandparents, and any breach by the successors would be deemed to be a breach of the Contractual Arrangements. In case of a breach, the WFOE can enforce its rights against the successors. Pursuant to the Contractual Arrangements, any inheritor of the Registered Shareholders shall inherit any and all rights and obligations of the registered shareholders under the Contractual Arrangements as a result of their death, loss of capacity, marriage, divorce, bankruptcy or under other circumstance which would affect their exercise of shareholder’s rights in DaLian Kingwisoft, as if the inheritor was a signing party to such Contractual Arrangements.

According to the terms of the Exclusive Call Option Agreement, each of the Registered Shareholders has undertaken, in the event of death or any other event which causes the inability of the shareholder to perform their day-to-day obligations, bankruptcy, marriage or divorce, to transfer all of the shareholding interest, including rights and obligations, in DaLian Kingwisoft held by them at nil consideration to the WFOE or an individual or legal entity designated by the WFOE under applicable PRC Laws.

In addition, Mr. Hu, Ms. Liu and the spouse of Ms. Zhou executed an irrevocable undertaking on 12 June 2020, whereby they expressly and irrevocably acknowledge and undertake that (i) any shareholding interest held by Mr. Hu, Ms. Liu and Ms. Zhou in DaLian Kingwisoft do not fall within the scope of their communal properties; (ii) they will not have any claim on the interests of DaLian Kingwisoft obtained through the Contractual Arrangements in their capacity as spouse; (iii), in relation to Ms. Zhou’s spouse, he has never participated and will not participate in the operation or management of DaLian Kingwisoft.

Based on the foregoing, the PRC Legal Adviser is of the view that (i) the Contractual Arrangements provide protection to the Target Group (or the Enlarged Group after Closing) even in the event of loss of capacity, death, bankruptcy (if applicable), marriage or divorce of the Registered Shareholders; and (ii) loss of capacity, death, bankruptcy (if applicable), marriage or divorce of the Registered Shareholders would not affect the validity of the Contractual Arrangements, and the WFOE can enforce its rights under the Contractual Arrangements against the successors of such shareholders.

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Arrangements to Address Potential Conflicts of Interests

The Registered Shareholders undertake that, during the period that the Contractual Arrangements remain effective,

• (a) (i) they shall not execute any documents with or make any undertaking to any third parties that may have conflicts of interests with any agreements entered into by the WFOE or DaLian Kingwisoft, (ii) they shall not commit or refrain from committing any act that may lead to any conflicts of interests between the Registered Shareholders and the WFOE (including its shareholders) and (iii) in the event of the occurrence of a conflict of interests (where the WFOE has the sole and absolute discretion to determine whether such conflict arises), they shall take appropriate measures on the consent of the WFOE or its designee to eliminate such conflict, failing which the WFOE has the right to exercise the option under the Exclusive Call Option Agreements; and

• (b) unless otherwise agreed by the WFOE in writing, they will not (i) directly or indirectly participate or engage in any business which is or may potentially be in competition with the businesses of DaLian Kingwisoft or any of its subsidiaries, (ii) be employed by an entity whose operation is or may potentially be in competition with the businesses of DaLian Kingwisoft or any of its subsidiaries or hold interest in or assets of such entities, where the WFOE has sole and absolute discretion as to whether such conflict arises.

The Powers of Attorney also provide that, in order to avoid potential conflicts of interest, where the Registered Shareholders are officers or directors of the Target Group (or the Enlarged Group after Closing), the powers of attorney are granted in favour of other unrelated officers or directors of the Target Group (or the Enlarged Group after Closing).

Loss Sharing

None of the agreements constituting the Contractual Arrangements provides that the Target Company (or the Company after Closing) or the WFOE is obligated to share the losses of DaLian Kingwisoft, but if DaLian Kingwisoft suffers any losses or material difficulties in business operations, the WFOE may provide financial support as permitted under PRC Laws at its discretion to DaLian Kingwisoft under the terms of the Exclusive Business Cooperation Agreement. Further, DaLian Kingwisoft is a joint stock company and shall be solely liable for its own debts and losses with assets and properties owned by it. Under PRC Laws and regulations, the Target Company (or the Company after Closing) or the WFOE is not expressly required to share the losses of DaLian Kingwisoft or provide financial support to DaLian Kingwisoft. Despite the foregoing, given that the OPCO Business is conducted in the PRC through DaLian Kingwisoft and its subsidiaries which hold the requisite PRC licence and approvals and that the OPCO Group’s results of operations and assets and liabilities are consolidated into the results of operations and assets and liabilities of the Target Company (or the Company after Closing) under the prevailing accounting principles, the business, financial conditions and results of operations of the Target Group (or the Enlarged Group after Closing) would be adversely affected if DaLian Kingwisoft and its subsidiaries suffered losses.

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Liquidation

Pursuant to the Exclusive Call Option Agreement, in the event of a mandatory liquidation required by PRC Laws, DaLian Kingwisoft shall sell all of its assets to the extent permissible under PRC Laws, to the WFOE or another qualifying entity designated by the WFOE, at the lowest selling price permissible under applicable PRC Laws. Any obligation for the WFOE to pay DaLian Kingwisoft as a result of such transaction shall be waived by DaLian Kingwisoft and any profits arising from the above transactions shall be paid to the WFOE or the qualifying entity designated by the WFOE in partial satisfaction of the service fees under the Exclusive Business Cooperation Agreement, as applicable under the then effective PRC Laws. Accordingly, in the event of winding up of DaLian Kingwisoft, a liquidator may seize the relevant assets of DaLian Kingwisoft through the WFOE based on the Contractual Arrangements for the benefit of the creditors or shareholders.

Termination

Each of the Contractual Arrangements provides that the WFOE and DaLian Kingwisoft shall terminate the Contractual Arrangements once the WFOE holds the entire shareholding and/or the entire assets of DaLian Kingwisoft under the then effective PRC Laws and if the WFOE or its subsidiaries are able to conduct the OPCO Business directly as a result of being permitted to do so under the then effective PRC Laws and the WFOE is registered as the sole shareholder of DaLian Kingwisoft. In addition, pursuant to the Exclusive Business Cooperation Agreement, the WFOE has the unilateral right to terminate these agreements at any time by providing 30 days’ prior written notice to DaLian Kingwisoft.

Insurance

The Target Group does not maintain an insurance policy to cover the risks relating to the Contractual Arrangements as at the Latest Practicable Date. We do not expect any insurance policy will be purchased after Closing to cover the risks relating to the Contractual Arrangements.

Company’s confirmation

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, the OPCO has not encountered any interference or encumbrance from any PRC governing bodies in operating the OPCO Business under the Contractual Arrangements.

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LEGALITY OF THE CONTRACTUAL ARRANGEMENTS

The PRC Legal Adviser is of the opinion that save as disclosed in this circular:

• (a) each of the WFOE and DaLian Kingwisoft is an independent legal entity which is duly incorporated, and their respective establishment is valid, effective and complies with the relevant PRC Laws; each of the WFOE and DaLian Kingwisoft has also obtained necessary approvals and completed registration procedures as required by the applicable PRC Laws and regulations;

• (b) each of the agreements under the Contractual Arrangements is legal, valid and binding on the parties thereto, admissible as evidence and enforceable in accordance with its terms;

• (c) none of the agreements under the Contractual Arrangements violates any provisions of respective articles of association of the WFOE, each of DaLian Kingwisoft and its respective subsidiaries;

• (d) the Contractual Arrangements do not require any approvals from the PRC governmental authorities;

• (e) the Contractual Arrangements are in compliance with applicable PRC Laws and regulations; and

• (f) the Acquisition is not a violation of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which was adopted by six PRC regulatory agencies, including MOFCOM and the China Securities Regulatory Commission, and effective since September 2006 and amended on 22 June 2009.

It is noted that a Supreme People’s Court ruling (‘‘Supreme People’s Court Ruling’’) made in October 2012 and two arbitral decisions from the Shanghai International Economic and Trade Arbitration Commission made in 2010 and 2011 which invalidated certain contractual agreements for the reasons that the entry into of such agreements with the intention of circumventing foreign investment restrictions in the PRC contravenes the prohibition against ‘‘concealing an illegitimate purpose under the guise of legitimate acts’’ set out in Article 52 of the PRC Contract Law and the General Principles of the PRC Civil Laws. It has been further reported that these court rulings and arbitral decisions may increase (i) the possibility of PRC courts and/or arbitration panels taking similar actions against contractual structures commonly adopted by foreign investors to engage in restricted or prohibited businesses in the PRC and (ii) the incentive for the Registered Shareholders to renege on their contractual obligations. Pursuant to Article 52 of the PRC Contract Law, a contract is void under any of the following five circumstances: (i) the contract is concluded through the use of fraud or coercion by one party and thereby damages the interest of the State; (ii) malicious collusion is conducted to damage the interest of the State, a collective unit or a third party; (iii) the contract damages the public interest; (iv) an illegitimate purpose is concealed under the guise of legitimate acts; or (v) the contract violates the mandatory provisions of the laws

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and administrative regulations. The PRC Legal Adviser is of the view that the relevant terms of the Contractual Arrangements do not fall within the above five circumstances. In particular, the PRC Legal Adviser is of the view that the Contractual Arrangements would not be deemed as ‘‘concealing illegal intentions with a lawful form’’ such that they also do not fall within the circumstance (iv) above under Article 52 of the PRC Contract Law because the Contractual Arrangements were not entered into for illegitimate purposes. The purposes for adopting the Contractual Arrangements are (i) to enable DaLian Kingwisoft to transfer its relevant economic benefits to the WFOE as service fees for engaging the WFOE as its exclusive service provider and (ii) to ensure that the Registered Shareholders do not take any actions that are contrary to the interests of the WFOE. In accordance with Article 4 of the PRC Contract Law, which is a section of the Part One (General Principles) of the PRC Contract Law setting forth fundamental principles under the PRC Contract Law, the parties to the Contractual Arrangements have the right to enter into contracts in accordance with their own wishes and no one may illegally interfere with such right. In addition, the effect of the Contractual Arrangements, which is to allow the Target Company (or the Company after Closing) to obtain all the economic benefits of DaLian Kingwisoft and its subsidiaries, is not for an illegitimate purpose, as evidenced by the fact that a number of companies also adopt similar contractual arrangements. In conclusion, the PRC Legal Adviser is of the view that the Contractual Arrangements do not fall within any of the five circumstances set forth in Article 52 of the PRC Contract Law.

Foreign Investment Law

On 15 March 2019, the NPC promulgated the Foreign Investment Law of the PRC 《( 中華 人民共和國外商投資法》), which came into effect on 1 January 2020 and replaced the Wholly Foreign-owned Enterprise Law 《( 中華人民共和國外資企業法》), the Sino-Foreign Equity Joint Venture Enterprise Law 《( 中華人民共和國中外合資經營企業法》), and the Sino-Foreign Cooperative Joint Venture Enterprise Law 《( 中華人民共和國中外合作經營企業法》), and became the legal foundation for foreign investment in the PRC. The existing foreign-invested enterprises established prior to the effective of the Foreign Investment Law may keep their corporate forms within five years.

On 26 December 2019, the State Council issued the Implementation Regulation of the Foreign Investment Law of the PRC 《( 中華人民共和國外商投資法實施條例》), which came into effect on 1 January 2020 and replaced the Implementation Regulation of the Sino-Foreign Equity Joint Venture Enterprise Law 《( 中華人民共和國中外合資經營企業法實施條例》), Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture Enterprise Law 《( 中外合資經營企業合營期限暫行規定》), the Implementing Rules on Wholly Foreign-owned Enterprises 《( 中華人民共和國外資企業法實施細則》) and the Implementing Regulations on the Sino-foreign Cooperative Joint Venture Enterprise Law 《( 中華人民共和國中外合作經營企 業法實施細則》). According to the Implementation Regulation of the Foreign Investment Law of the PRC, the foreign-invested enterprises shall submit investment information to the competent commerce authorities via the enterprise registration system and the enterprise credit information publicity system.

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Impact and Potential Consequences of the Foreign Investment Law on the Contractual Arrangements

The Foreign Investment Law does not stipulate that the “foreign investment” as defined thereunder shall include contractual arrangements. Instead, it adds a catch-all provision to the definition of foreign investment so that foreign investment, by its definition, includes “foreign investors invest in China through any other methods under laws, administrative regulations or provisions prescribed by the State Council” without elaboration on “other methods”. The PRC Legal Adviser is of the view that since contractual arrangements are not specified as “foreign investments” under the Foreign Investment Law and there is no applicable law or regulation, including the Implementation Regulation of the Foreign Investment Law, that explains “other methods” of foreign investment under the Foreign Investment Law, or if “other methods” of foreign investment are specified under applicable laws or regulations not to include contractual arrangements, it is unlikely that the Contractual Arrangements will be deemed as “foreign investments” under the Foreign Investment Law and therefore (i) the Foreign Investment Law and (ii) the Implementation Regulation of the Foreign Investment Law would not apply to our Contractual Arrangements as they do not substantially change the principle of recognition and treatment of contractual arrangements as compared with the current PRC laws and regulations, and the legality and validity of the Contractual Arrangements would not be affected.

Furthermore, the Foreign Investment Law stipulates that foreign investment includes ‘‘foreign investors invest in China through any other methods under laws, administrative regulations or provisions prescribed by the State Council.’’ There are possibilities that future laws, administrative regulations or provisions prescribed by the State Council may regard contractual arrangements as a form of foreign investment, at which time it will be uncertain whether the Contractual Arrangements will be deemed to be in violation of the foreign investment access requirements and how the above-mentioned Contractual Arrangements will be handled. If the Foreign Investment Law is refined or deviates from the current form, depending on the treatment of the existing contractual arrangements, the Contractual Arrangements may be regarded as invalid and illegal. As a result, Target Company (or the Company after closing) would not be able to operate the OPCO Business through the Contractual Arrangements and would lose rights to receive the economic benefits of OPCO Group. As a result, the financial results of OPCO Group would no longer be consolidated into Target Group’s financial results (or the Enlarged Group’s financial results after closing) and Target Company (or the Company after closing) would have to derecognise its assets and liabilities according to the relevant accounting standards. If the Group does not receive any compensation, an investment loss would be recognised as a result of such de-recognition. Therefore, there is no guarantee that the Contractual Arrangements and the business of OPCO Group will not be materially and adversely affected in the future due to changes in PRC Laws and regulations.

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Nevertheless, considering that a number of existing entities engaged in the back-office services industries, some of which have obtained listing status abroad, are operating under contractual arrangements, the Directors are of the view that the PRC government is likely to take a relatively cautious attitude towards the supervision of contractual arrangements and the enactment of laws and regulations impacting them, and will make decisions according to different situations in practice.

However, there are uncertainties regarding the Foreign Investment Law including, among others, the relevant government authorities will have a broad discretion in interpreting the law and may ultimately take a view that is inconsistent with our PRC Legal Adviser’s understanding, and there is still uncertainty whether any new PRC Laws, rules or regulations relating to contractual arrangements will be adopted in the future.

Please refer to ‘‘Risk Factors — Risks Relating to the Contractual Arrangements’’ for further details of the risks we face relating to our Contractual Arrangements. In any event, the Company will take reasonable steps in good faith to seek to comply with the Foreign Investment Law as and when appropriate and necessary.

QUALIFICATION REQUIREMENT OF VATS

In addition to restrictions on foreign ownership, there are also regulatory requirements on the experience and operations of a foreign investor who intends to operate a value-added telecommunications business in the PRC.

According to the FITE Regulations, a foreign investor who invests in VAT Services business in the PRC must possess the Qualification Requirement of VATS. The MIIT issued a guidance memorandum on its official website in relation to the application requirement for establishing foreign-invested value-added telecommunications enterprises in the PRC. According to this guidance memorandum, an applicant is required to provide satisfactory proof of the Qualification Requirement of VATS and business development plan. The guidance memorandum, however, does not provide any further guidance on the proof, record or document required to support the application and does not purport to provide an exhaustive list on the application requirement. The PRC Legal Adviser has advised that, as at the Latest Practicable Date, (i) the above-mentioned guidance memorandum issued by MIIT had no legal or regulatory effect under the PRC Laws, (ii) no applicable PRC Laws, regulations or rules provides clear guidance or interpretation on the Qualification Requirement of VATS, and (iii) the MIIT retains considerable discretion in determining whether a foreign investor has satisfied the Qualification Requirement of VATS and in granting approval of applications for establishing foreign-invested value-added telecommunications enterprises.

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Despite the lack of clear guidance or interpretation on the Qualification Requirement of VATS, the Target Group has been gradually building up the track record of overseas VAT Services operations by undertaking the following steps:

• (i) As at the Latest Practicable Date, the Target Group has been rewarded through its cooperation with its international partners, and commenced working on, certain projects to provide offshore customer support services in foreign languages, including Japanese and English. The Target Group plans to continue expanding its offshore customer support services business involving foreign languages in overseas markets;

• (ii) The Target Group is strengthening its close cooperation relationship with its international partners, such as SoftBank, with the aim of gradually exploring business opportunities and developing its customer base overseas. The Target Group also plans to build up its track record of overseas VAT Services operation by obtaining overseas projects through collaboration between its onshore and offshore entities; and

• (iii) It is the Target Group’s strategy to identify suitable offshore companies with proper value-added telecommunications services operation and acquire a controlling stake in such companies in future, in order to build up its track record of overseas VAT Services operation.

We will actively manage the operation of the Target Group and procure the Target Group to continue carrying out the above steps after Closing for the purpose of being qualified, as early as possible, to acquire the entire shareholding in DaLian Kingwisoft when the relevant PRC Laws and authorities allow foreign investors to invest and hold interest in enterprises which engage in VAT Services.

In addition, the Group has taken the following steps with a view to gradually building up its track record of overseas VAT Services operations, demonstrating compliance with the Qualification Requirement of VATS, and being qualified, as early as possible after Closing, to acquire the entire equity interest in the registered capital of the OPCO when there is clear guidance and interpretation on the Qualification Requirement of VATS under applicable PRC Laws, regulations and rules and when, as a matter of regulatory policy and practice, the MIIT and its authorised local counterparts will accept and approve applications by the members of the OPCO Group which engage in the provision of VAT Services to be converted into foreigninvested telecommunication enterprises which engage in the provision of VAT Services, after Closing:

• (i) the Group is in the process of registering trademarks outside the PRC for the purpose of promoting VAT Services operations outside the PRC;

• (ii) the Group has registered one domain name outside the PRC for the purpose of introducing VAT Services operations outside the PRC to users outside the PRC; and

• (iii) the Group has obtained a local phone number in Hong Kong for the purpose of promoting VAT Services operations outside the PRC.

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Based on the foregoing and the MIIT Consultation, the PRC Legal Adviser is of the view that, subject to the discretion of the competent authority in determining whether the Qualification Requirement of VATS is fulfilled, the above steps taken by the Target Group and the Group are reasonable and appropriate steps for the purpose of demonstrating compliance with the Qualification Requirement of VATS.

We will, under the guidance of the PRC Legal Adviser, make periodic enquiries with the relevant PRC governmental authorities after Closing to understand whether there is any new regulatory development and to assess whether the Company and the Target Group have built up sufficient track record of overseas VAT Services operations to satisfy the Qualification Requirement of VATS. We will also, as and when appropriate after Closing, disclose the progress of our efforts and actions taken to comply with the Qualification Requirement of VATS in the Company’s annual and interim reports to inform the Shareholders and other investors.

ACCOUNTING ASPECTS OF THE CONTRACTUAL ARRANGEMENTS

Consolidation of Financial Results of the OPCO Group

According to IFRS 10 — Consolidated Financial Statements, a subsidiary is an entity that is controlled by another entity (known as the parent). An investor controls an investee when it is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Although the Target Company (or the Company after Closing) does not directly or indirectly own DaLian Kingwisoft and its subsidiaries, the Contractual Arrangements as mentioned above enable the Target Company (or the Company after Closing) to exercise control over DaLian Kingwisoft and its subsidiaries.

Under the Exclusive Business Cooperation Agreement entered into between the WFOE and DaLian Kingwisoft, it was agreed that, in consideration of the services provided by the WFOE, DaLian Kingwisoft will pay service fees to the WFOE. The service fees, subject to the WFOE’s adjustment, are equal to the net profit of DaLian Kingwisoft and its subsidiaries and may also include retained earnings of DaLian Kingwisoft from previous financial periods. The WFOE may adjust the service fees at its sole discretion and allow DaLian Kingwisoft to retain sufficient working capital to carry out any development plans. DaLian Kingwisoft shall deliver to the WFOE its management accounts and operating statistics periodically. Accordingly, the WFOE has the ability, at its sole discretion, to extract substantially all of the economic benefits of DaLian Kingwisoft and its subsidiaries through the Exclusive Business Cooperation Agreement.

In addition, under the Exclusive Call Option Agreement between the parties, the WFOE has absolute control over the distribution of dividends or any other amounts to the shareholders for any distribution of dividends of DaLian Kingwisoft and its subsidiaries as the WFOE’s prior written consent is required and the WFOE can request for immediate distribution of profits to be made.

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Further, under the Powers of Attorney, the WFOE assumes all rights as shareholder and exercises control over DaLian Kingwisoft and its subsidiaries, including the right to propose, convene and attend shareholders’ meetings, the right to sell, transfer, pledge or dispose of shares, the right to exercise shareholders’ voting rights and to appoint the legal representative (chairperson), the directors, supervisors, the chief executive officer (general manager) and other senior management members of DaLian Kingwisoft. As a result of these agreements, the Target Company (or our Company after Closing) has control over DaLian Kingwisoft and its subsidiaries through the WFOE, and under the sole discretion of the Target Company (or the Company after Closing), can receive substantially all of the economic interest returns generated by DaLian Kingwisoft and its subsidiaries. Accordingly, the results of operations, assets and liabilities, and cash flows of DaLian Kingwisoft and its subsidiaries are consolidated into the financial statements of the Target Group (or the Enlarged Group after Closing).

In this regard, the reporting accountants, Deloitte Touche Tohmatsu, have issued an unqualified opinion on the Target Group’s consolidated financial information for the three years ended 31 March 2018, 2019 and 2020, as included in ‘‘Appendix I — Accountants’ Report on the Target Group’’ to this circular.

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REGULATORY OVERVIEW

This section sets forth a summary of the most significant rules and regulations that affect our business activities in China.

REGULATIONS RELATING TO VALUE-ADDED TELECOMMUNICATION SERVICES

VAT Services and Call Centre Services

The Telecommunication Regulations of the PRC 《( 中華人民共和國電信條例》) (the ‘‘Telecommunication Regulations’’) promulgated by the State Council on 25 September 2000 and latest amended on 6 February 2016, provide a regulatory framework for telecommunications services providers in the PRC. The Telecommunication Regulations categorize telecommunications services into basic telecommunications services and the valueadded telecommunication services (the ‘‘VAT Services’’). According to the Catalogue of Telecommunications Business 《( 電信業務分類目錄》), attached to the Telecommunication Regulations, which was promulgated by the Ministry of Information Industry of the PRC (which is the predecessor of the Ministry of Industry and Information Technology of the PRC) and latest amended by the MIIT on 6 June 2019, (i) call centre services fall within the VAT Services, and (ii) call centre services mean business consultation, information consultation and data query services regarding an entity for the end-users of such entity through public communication network by: (a) utilising call centre system which is connected to public communication network or the Internet; (b) utilising database technology; and (c) establishing information base through information collection, processing and storage. And, users of call centre services may: (a) enter into a call centre system and gain access to the database of the call centre system through multiple channels such as telephone, fax, mobile communication terminals and computer terminals; and (b) receive information consultation services by multiple means such as voice, fax, email and text messages; and call centre services also include leasing of call centre system and workstations of call centre operators.

VATS License

The Telecommunication Regulations require telecommunications services providers to obtain an operating license prior to the commencement of their operations. On 1 March 2009, the MIIT issued the Administrative Measures for the Licensing of Telecommunications Business 《( 電信業務經營許可管理辦法》) (the ‘‘Telecom Licensing Measures’’), which took effect on 10 April 2009 and last amended on 3 July 2017. The Telecom Licensing Measures confirms that there are two types of telecom operating licenses for operators in China, namely, licenses for basic telecommunications services and licenses for VAT Services (the ‘‘VATS License’’). The operation scope of the license will detail the permitted activities of the enterprise to which it was granted. An approved telecommunications services operator shall conduct its business in accordance with the specifications listed in its VATS License. In addition, the holder of a VATS License is required to obtain approval from the original issuing authority in respect of any change to its shareholders.

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REGULATORY OVERVIEW

Catalogue and Negative List

Investment activities in the PRC by foreign investors are principally governed by the Catalogue of Industries for Encouraged Foreign Investment (2019 Version) 《( 鼓勵外商投資產 業目錄(2019年版)》) (the ‘‘Catalogue’’) and the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2019) 《( 外商投資准入特別管理措施(負面清單) (2019年版)》) (the ‘‘Negative List’’). The Catalogue and the Negative List classified the foreign-invested industries into two categories, namely (i) encouraged industries and (ii) industries within the catalogue of special administrative measures. As updated and clarified by the Negative List, industries within the catalogue of special administrative measures are further divided into two sub-categories: ‘‘restricted’’ industries and ‘‘prohibited’’ industries. Unless otherwise prescribed by the PRC laws, industries which are not set out in the Catalogue and the Negative List are permitted foreign-invested industries. The Negative List imposed a restriction on foreign ownership of not holding more than 50% in VAT Services except for the operation of e-commerce business, domestic multi-party communications, storage and forwarding services, and call centres. Pursuant to the Negative List, call centre services fall in the permitted industry for foreign investment.

Qualification Requirements and foreign direct investment in VAT Services

Foreign direct investment in telecommunications companies in China is governed by the Administrative Provisions on Foreign-Invested Telecommunications Enterprises 《( 外商投資電 信企業管理規定》) (the ‘‘FITE Regulations’’), promulgated by the State Council on 11 December 2001 and latest amended on 6 February 2016. According to such regulation, foreign investor who invests in VAT Services business in the PRC must possess the Qualification Requirement of VATS, including demonstrating a proven track record of good performance, and operating experience, in carrying on VAT Services under the relevant regulations.

As at the Latest Practicable Date, no applicable PRC Laws, regulations or rules provided clear guidance or interpretation on the Qualification Requirement of VATS. Foreign investors that meet these requirements must be reviewed by the MIIT or their authorized local counterparts, which retain considerable discretion in granting approvals.

Moreover, according to the FITE Regulations, the establishment of a foreign-invested telecommunication enterprise which engages in the provision of any VAT Services in China must be approved by the MIIT or its authorised local counterparts.

REGULATIONS RELATING TO HR SERVICES

HR services agencies in China are mainly regulated by the PRC Ministry of Human Resource and Social Security (the ‘‘MOHRSS’’). Pursuant to the Provisions on Talent Market Administration 《( 人才市場管理規定》) jointly promulgated by the PRC Ministry of Personnel and the PRC State Administration for Industry and Commerce on 11 September 2001 and latest amended on 31 December 2019 by the MOHRSS, any entity providing talent intermediary services in China must obtain a HR Services Licence from the local Administration of Human Resources and Social Security.

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REGULATORY OVERVIEW

On 29 June 2018, the State Council promulgated the Interim Regulations on Human Resources Market 《( 人力資源市場暫行條例》). HR service institutions are classified into two categories, namely, public HR service institutions and commercial HR service institutions. Public HR service institutions shall refer to the public employment and talent services institutions established by the People’s governments at or above county level. Commercial HR service institutions shall refer to the institutions legally established and engaging in business activities in HR services. To engage in employment intermediary activities, a commercial HR service institution shall apply to the administrative department of human resources and social security for an administrative permit in accordance with the law and obtain a HR Services Licence.

Pursuant to the Implementing Measures for Labor Dispatch Administrative Licensing 《( 勞務派遣行政許可實施辦法》), which was promulgated by the MOHRSS on 20 June 2013, to engage in labour dispatch business, an applicant shall apply for administrative licensing in accordance with the law to the competent administrative department of human resources and social security at its domicile. No entity and individual may engage in labour dispatch business without being licensed.

REGULATIONS RELATING TO PRIVACY PROTECTION

In general, pursuant to General Rules on the Civil Law of the PRC 《( 中華人民共和國民 法總則》), which was promulgated by the NPC on 15 March 2017, the personal information of a natural person shall be protected by laws. Any organisation or individual that needs to obtain the personal information of others shall obtain such information pursuant to the law and ensure information security, and may neither illegally collect, use, process or transmit the personal information of others, nor illegally trade, provide or disclose the personal information of others. Anyone whose civil rights and civil interests, including personal information, are infringed upon shall have the right to seek tort liability against the infringer. The Cyber Security Law of the PRC 《( 中華人民共和國網絡安全法》), which was promulgated by the Standing Committee of the NPC (the ‘‘SCNPC’’) on 7 November 2016, stipulates that no individuals or organisations may steal or otherwise illegally obtain personal information or illegally sell or provide personal information to others. Personal information shall refer to various types of information that can be used separately or in combination with other information to identify a natural person, including but not limited to the name, date of birth, identity certificate number, personal biological identification information, address, telephone numbers, etc. of the natural person.

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Furthermore, In addition, the Decision on Strengthening Network Information Protection 《( 關於加強網絡信息保護的決定》) promulgated by the SCNPC on 28 December 2012 emphasises the need to protect electronic information that contains individual identification information and other private data. The decision requires enterprises to establish and publish policies regarding the collection and use of personal electronic information and to take necessary measures to ensure the security of the information and to prevent leakage, damage or loss. Furthermore, Provisions on Protecting the Personal Information of Telecommunications and Internet Users 《( 電信 和互 聯網 用戶 個人 信息 保護 規定 》) promulgated by the MIIT on 16 July 2013 contain detailed requirements on the use and collection of personal information as well as the security measures to be taken by Telecommunication service providers.

On 29 August 2015, the SCNPC released the Amendment 9 to the PRC Criminal Law 《( 中華人民共和國刑法修正案(九)》) which prohibits illegal sale and disclosure of personal information obtained during the course of providing services. On 8 May 2017, the Supreme People’s Court and the Supreme People’s Procuratorate released the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Infringement of Citizens’ Personal Information 《( 最高人民法院、最高人民檢察院關於辦理侵犯公民個人信息刑事案件 適用法律若干問題的解釋》), which clarify several concepts regarding the crime of ‘‘infringement of citizens’ personal information’’ stipulated by Article 253A of the Criminal Law of the PRC 《( 中華人民共和國刑法》), including ‘‘citizen’s personal information,’’ ‘‘provision,’’ and ‘‘unlawful acquisition’’; and also specify the standards for determining ‘‘serious circumstances’’ and ‘‘particularly serious circumstances’’ of this crime.

REGULATIONS RELATING TO INTERNET SECURITY AND CENSORSHIP

Internet content in mainland China is regulated and restricted from a state security standpoint. The SCNPC enacted the Decisions on the Maintenance of Internet Security 《( 維護 互聯網安全的決定》) on 28 December 2000, which was amended on 27 August 2009, that may subject persons to criminal liabilities in mainland China for any attempt to: (i) gain improper entry to a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information or (v) infringe intellectual property rights. In 1997, the Ministry of Public Security issued the Administration Measures on the Security Protection of Computer Information Network with International Connections 《( 計算機信息網絡國際聯網安全保護管理辦法》), which were amended by the State Council on 8 January 2011 and prohibit using the internet in ways which, among others, result in a leakage of state secrets or a spread of socially destabilising content. The Ministry of Public Security has supervision and inspection powers in this regard, and relevant local security bureaus may also have jurisdiction.

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Pursuant to the Cyber Security Law of the PRC, network operators shall comply with laws and regulations and fulfill their obligations to safeguard security of the network when conducting business and providing services. Those who provide services through networks shall take technical measures and other necessary measures pursuant to laws, regulations and compulsory national requirements to safeguard the safe and stable operation of the networks, respond to network security incidents effectively, prevent illegal and criminal activities, and maintain the integrity, confidentiality and usability of network data, and the network operator shall not collect the personal information irrelevant to the services it provides or collect or use the personal information in violation of the provisions of laws or agreements between both parties, and network operators of key information infrastructure shall store within the territory of mainland China all the personal information and important data collected and produced within the territory of mainland China. The purchase of network products and services that may affect national security shall be subject to national cyber security review. On 13 April 2020, the Cyberspace Administration of China, MIIT and other several government departments jointly issued the Measures for the Security Review of Network 《( 網絡安全審查 辦法》), which took effect on 1 June 2020, to provide for more detailed rules regarding cyber security review requirements.

REGULATIONS RELATING TO ADVERTISEMENT

The Advertising Law of the PRC 《( 中華人民共和國廣告法》) which was promulgated by SCNPC on 27 October 1994 and latest amended and effective from 26 October 2018 requires that advertisers, advertisement operators and advertisement publishers shall ensure that contents of advertisements produced or spread by them are true and totally comply with applicable laws and regulations, and contents of advertisements shall not include, inter alia, information which (1) damages the national dignity or interest, or involves state secrets; (2) contains such words as ‘‘national’’, ‘‘highest level’’ and ‘‘the best’’; and (3) involves ethnic, racial, religious and gender discrimination. In addition, advertisements with certain special contents shall be subject to government review prior to publication, and advertisers, advertisement operators and advertisement publishers shall confirm that such review has been sufficiently implemented and relevant approvals have been obtained. Violation of the aforesaid requirements may lead to penalties, confiscation of advertising revenues, or being ordered to stop spreading the advertisement or to publish an advertisement for correcting any misleading information. If such case is serious, the market regulatory administration authority may order termination of advertising operation or cancelation of the business licence.

The Interim Measures for the Administration of Internet Advertising 《( 互聯網廣告管理 暫行辦法》) which was promulgated by the SAIC on 4 July 2016 and came into effect on 1 September 2016 governs all advertisements published on the Internet, including but not limited to advertisements in the form of text, image, audio and video which are published through website, web page and application. Internet advertisement operators and publishers shall not design, produce, provide agency services for or publish any false advertisement they know or should have known; shall establish a review and file management system to inspect and verify relevant supporting documents, and check contents of advertisements; and shall not design, produce, provide agency services for or publish any advertisement whose contents are untrue or without sufficient supporting documents.

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REGULATIONS RELATING TO LABOR

Labor Protection

The main PRC employment laws and regulations include the Labor Law of the PRC 《( 中 華人民共和國勞動法》, the ‘‘Labor Law’’) promulgated by SCNPC and latest amended on 29 December 2018, the Labor Contract Law of the PRC 《( 中華人民共和國勞動合同法》, the ‘‘Labor Contract Law’’) promulgated by SCNPC and latest amended and became effective from 1 July 2013, and the Implementing Regulations of the Labor Contract Law of the PRC 《( 中華人民共和國勞動合同法實施條例》) promulgated by the State Council on 18 September 2008. The Labor Law and the Labor Contract Law govern the establishment of employment relationships between employers and employees, and the execution, performance, termination of, and the amendment to, labour contracts. The Labor Contract Law is primarily aimed at regulating rights and obligations of employee or employer, including matters with respect to the establishment, performance and termination of labour contracts. Moreover, according to the Labor Contract Law: (i) employees must comply with regulations in the labour contracts concerning commercial confidentiality and non-competition; (ii) employees may terminate their labour contracts with their employers if their employers fail to make social insurance contributions in accordance with the law; and (iii) enterprises and institutions shall establish and improve their system of workplace safety and sanitation, strictly abide by state rules and standards on workplace safety, educate laborers in labour safety and sanitation in the PRC.

Social Insurance and Housing Fund

As required under the Regulation of Insurance for Labor Injury 《( 工傷保險條例》), effective on 1 January 2004 and amended and came into force from in 1 January 2011, the Provisional Measures for Maternity Insurance of Employees of Corporations 《( 企業職工生育 保險試行辦法》), effective on 1 January 1995, the Decisions on the Establishment of a Unified Program for Basic Old-Aged Pension Insurance of the State Council 《( 國務院關於建立統壹的 企業職工基本養老保險制度的決定》) promulgated on 16 July 1997, the Decisions on the Establishment of the Medical Insurance Program for Urban Workers of the State Council 《( 國 務院關於建立城鎮職工基本醫療保險制度的決定》) promulgated on 14 December 1998, the Unemployment Insurance Measures 《( 失業保險條例》) promulgated on 22 January 1999 and the Social Insurance Law of the PRC 《( 中華人民共和國社會保險法》) effective on 1 July 2011 and amended on 29 December 2018, enterprises are obliged to provide their employees in the PRC with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, labour injury insurance and medical insurance. These payments are made to local administrative authorities and any employer that fails to contribute may be fined and ordered to make up within a prescribed time limit.

In accordance with the Regulations on the Management of Housing Funds 《( 住房公積金 管理條例》) which was promulgated by the State Council in 1999 and amended in 2002 and on 24 March 2019, enterprises must register at the competent managing centre for housing funds and upon the examination by such managing centre of housing funds, these enterprises shall complete procedures for opening an account at the relevant bank for the deposit of employees’ housing funds. Enterprises are also required to pay and deposit housing funds on behalf of their employees in full and in a timely manner.

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REGULATIONS RELATING TO INTELLECTUAL PROPERTY

Patent Law

According to the Patent Law of the PRC 《( 中華人民共和國專利法》), promulgated by the SCNPC on 12 March 1984, latest amended and effective from 1 October 2009, and the Implementation Rules of the Patent Law of the PRC 《( 中華人民共和國專利法實施細則》), promulgated by the State Council on 15 June 2001 and latest amended on 9 January 2010, the National Intellectual Property Administration is responsible for administering patents in the PRC. The Patent Law of the PRC and its implementation rules provide for three types of patent: ‘‘invention’’, ‘‘utility model’’ and ‘‘design’’. The protection period is 20 years for invention patents and 10 years for utility model patents and design patents, commencing from their respective application dates. The Chinese patent system adopts a ‘‘first come, first file’’ principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to the person who files the application first. To be patentable, invention or utility models must meet three criteria: novelty, inventiveness and practicability. Except under certain specific circumstances provided by law, any third-party user must obtain consent or a proper licence from the patent owner to use the patent. Otherwise, the use of constitutes an infringement of the patent rights, and shall pay compensation to the patentee and is subject to a fine imposed by relevant administrative authorities and, if constituting a crime, shall be held criminally liable in accordance with the law.

Trademark Law

Trademarks are protected by the Trademark Law of the PRC 《( 中華人民共和國商標法》), promulgated by the SCNPC on 23 August 1982 and latest amended and effective from 1 November 2019, as well as the Implementation Regulation of the PRC Trademark Law 《( 中華 人民共和國商標法實施條例》) adopted by the State Council on 3 August 2002 and further amended on 29 April 2014. In China, registered trademarks include commodity trademarks, service trademarks, collective trademarks and certification trademarks.

The Trademark Office under the National Intellectual Property Administration is responsible for registrations and administration of trademarks. The period of validity for a registered trademark is 10 years, commencing from the date of registration. Upon expiry of the period of validity, the registrant shall go through the formalities for renewal within twelve months prior to the date of expiry as required if the registrant needs to continue to use the trademark. As with trademarks, a ‘‘first come, first file’’ principle has been adopted with respect to trademark registration pursuant to the Trademark Law.

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Copyright Law

Pursuant to the Copyright Law of the PRC 《( 中華人民共和國著作權法》) which was promulgated on 7 September 1990 and latest amended on 26 February 2010, and the Implementation Regulation of the Trademark Law of the PRC 《( 中華人民共和國著作權法實 施條例》) promulgated by the State Council on 2 August 2002 and latest amended on 30 January 2013, Chinese citizens, legal persons, or other organisations shall, whether published or not, enjoy copyright in their works, which include, among others, works of literature, art, natural science, engineering technology and computer software.

In accordance with the Regulations on the Protection of Computer Software 《( 計算機軟 件保護條例》) promulgated by the State Council on 4 June 1991 and latest amended on 30 January 2013, Chinese citizens, legal persons or other entities own the copyright in software developed by them, regardless of whether it has been published. In accordance with the Measures for the Registration of Computer Software Copyright 《( 計算機軟件著作權登記辦 法》) promulgated by the National Copyright Administration on 6 April 1992 and latest amended on 20 February 2002, software copyrights, exclusive licensing contracts for software copyrights and software copyright transfer contracts shall be registered, and the National Copyright Administration shall be the competent authority for the administration of software copyright registration and designates the Copyright Protection Center of China as a software registration authority. The Copyright Protection Center of China shall grant a registration certification to a computer software copyright applicant who complies with regulations.

Domain Names

The MIIT promulgated the Administrative Measures on Internet Domain Names 《( 互聯網 域名管理辦法》) (the ‘‘Domain Name Measures’’) on 24 August 2017. According to the Domain Name Measures, domain name owners are required to register their domain names and the MIIT is in charge of the administration of PRC internet domain names. The domain name services follow a ‘‘first apply, first register’’ principle. Applicants for registration of domain names shall provide their true, accurate and complete information of such domain names to and enter into registration agreements with domain name registration service institutions. The applicants will become the holders of such domain names upon the completion of the registration procedure.

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REGULATIONS RELATING TO TAX

Enterprise Income Tax

On 16 March 2007, the NPC promulgated the Enterprise Income Tax Law of the PRC 《( 中華人民共和國企業所得稅法》) which was latest amended on 29 December 2018; on 6 December 2007, the State Council enacted the Regulations for the Implementation of the Law on Enterprise Income Tax 《( 中華人民共和國企業所得稅法實施條例》) which were amended on 23 April 2019 (collectively, the ‘‘EIT Law’’). According to the EIT Law, taxpayers consist of resident enterprises and non-resident enterprises. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but whose actual or de facto control is administered from within the PRC. Non-resident enterprises are defined as enterprises that are set up in accordance with the laws of foreign countries and whose actual administration is conducted outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises but have income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applicable. However, if non-resident enterprises have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment institutions or premises in the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises set up by them, the enterprise income tax is, in that case, set at the rate of 10% for their income sourced from inside the PRC.

The Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies 《( 關於境外註冊中資控股企業依據實際管理機構標準認定為居民企業有關問題的通知》) promulgated by the State Administration of Taxation (the ‘‘SAT’’) on 22 April 2009 and amended on 29 December 2017 sets out the standards and procedures for determining whether the ‘‘de facto management body’’ of an enterprise registered outside of the PRC and controlled by PRC enterprises or PRC enterprise groups is located within the PRC.

According to the EIT Law, the Enterprise Income tax rate of a high-tech enterprise is 15%. Pursuant to the Administrative Measures for the Recognition of High and New Technology Enterprises 《( 高新技術企業認定管理辦法》), come into effect from 1 January 2008 and amended on 29 January 2016, the certificate of a high and new technology enterprise is valid for three years. An enterprise shall, after being accredited as a high-tech enterprise, fill out and submit the statements on annual conditions concerning the intellectual property rights, scientific and technical personnel, expenses on research and development and operating income for the previous year on the ‘‘website for the administration of accreditation of high-tech enterprises’’.

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According to the Notice of the Ministry of Finance (the ‘‘MOF’’) and the SAT on Implementing the Policy on Inclusive Tax Reliefs for Small and Micro Enterprises 《( 財政部、 稅務總局關於實施小微企業普惠性稅收減免政策的通知》), which was promulgated on 17 January 2019, from 1 January 2019 to 31 December 2021, small and micro enterprises meet the standards under the notice can enjoy corresponding tax deductions for taxes such as enterprise income tax and value-added tax.

In accordance with the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income 《( 內地和香港特別行政區關於對所得避免雙 重徵稅和防止偷漏稅的安排》) and other applicable PRC laws, any Hong Kong resident enterprise which satisfies relevant conditions and requirements is subject to withholding tax at a rate reduced from 10% to 5%, on the dividend obtained from a PRC resident enterprise. However, in accordance with the Announcement on Issues Concerning Beneficial Owner in Tax Treaties 《( 關於稅收協定中受益所有人有關問題的公告》) which was promulgated by the SAT on 3 February 2018 and came into effect on 1 April 2018, any applicant whose operations do not constitute actual operations may not be recognised as a ‘‘beneficial owner’’, thus the aforesaid reduce tax rate of 5% is not applicable.

Value-added Tax

According to the Provisional Regulations on Value-added Tax of the PRC 《( 中華人民共 和國增值稅暫行條例》), which was promulgated by the State Council on 13 December 1993 and latest amended on 19 November 2017, the Implementation Rules of the Provisional Regulations on Value-added Tax of the PRC 《( 中華人民共和國增值稅暫行條例實施細則》), which was latest amended by the MOF on 28 October 2011, and the Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added Tax Rates 《( 財政 部、稅務總局關於調整增值稅稅率的通知》), which was promulgated by the MOF and the SAT on 4 April 2018, and Announcement on Relevant Policies for Deepening Value-Added Tax Reform 《( 關於深化增值稅改革有關政策的公告》), which was promulgated by the MOF, the SAT and General Administration of Customs on 20 March 2019, all entities and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales services, intangible assets and immovable property or the import of goods within the territory of the PRC shall be subject to value-added tax.

REGULATIONS RELATING TO COMPANY ESTABLISHMENT AND FOREIGN INVESTMENT

The establishment, operation and management of corporate entities in China are governed by the PRC Company Law 《( 中華人民共和國公司法》), which was promulgated by the SCNPC on 29 December 1993, and latest amended on 26 October 2018. Under the Company Law, companies are generally classified into two categories, i.e. limited liability companies and companies limited by shares. The PRC Company Law also applies to foreign-invested limited liability companies. According to the PRC Company Law, any stipulations by other PRC laws governing foreign investment shall prevail over the PRC Company Law.

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Pursuant to the Wholly Foreign-owned Enterprise Law of the PRC 《( 中華人民共和國外 資企業法》), which was promulgated by the SCNPC on 12 April 1986, and latest amended on 3 September 2016, where the establishment of wholly foreign-owned enterprises does not involve the implementation of special access administrative measures prescribed by the state, the establishment, breakup, merger, or any other major change and the operation period of such enterprises are subject to record-filing administration.

Implementing Rules for the Law of the PRC on Wholly Foreign-owned Enterprises 《( 中 華人民共和國外資企業法實施細則》) (the ‘‘Implementing Rules on Wholly Foreign-owned Enterprises’’) was promulgated by the State Council on 12 December 1990, and was latest amended on 19 February 2014. According to the Implementing Rules on Wholly Foreignowned Enterprises, industries in which the establishment of wholly foreign-owned enterprises is prohibited or restricted shall be regulated in accordance with the provisions of the State about foreign investment orientation and the Catalog. Pursuant to the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises 《( 外商投資企業設立及變更備案管理暫行辦法》), which was promulgated by the Ministry of Commerce of the PRC (the ‘‘MOFCOM’’) on 8 October 2016 and latest amended on 29 June 2018, establishment and modifications of foreign-invested enterprises not subject to the approval under the special entry management measures shall be filed with the delegated commercial authorities.

On 15 March 2019, the NPC promulgated the Foreign Investment Law of the PRC 《( 中華 人民共和國外商投資法》), which came into effect on 1 January 2020 and replaced the Wholly Foreign-owned Enterprise Law 《( 中華人民共和國外資企業法》), the Sino-Foreign Equity Joint Venture Enterprise Law 《( 中華人民共和國中外合資經營企業法》), and the Sino-Foreign Cooperative Joint Venture Enterprise Law 《( 中華人民共和國中外合作經營企業法》), and became the legal foundation for foreign investment in the PRC. The existing foreign-invested enterprises established prior to the effective of the Foreign Investment Law may keep their corporate forms within five years.

Pursuant to the Foreign Investment Law, ‘‘foreign investors’’ means natural person, enterprise, or other organisation of a foreign country, ‘‘foreign-invested enterprises’’ (the ‘‘FIEs’’) means any enterprise established under PRC law that is wholly or partially invested by foreign investors and ‘‘foreign investment’’ means any foreign investor’s direct or indirect investment in mainland China, including: (i) establishing FIEs in mainland China either individually or jointly with other investors; (ii) obtaining stock shares, stock equity, property shares, other similar interests in Chinese domestic enterprises; (iii) investing in new projects in mainland China either individually or jointly with other investors; and (iv) making investment through other means provided by laws, administrative regulations, or State Council provisions.

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The Foreign Investment Law stipulates that China implements the management system of pre-establishment national treatment plus a negative list to foreign investment and the government generally shall not expropriate foreign investment, except under special circumstances, in which case it shall provide fair and reasonable compensation to foreign investors. Foreign investors are barred from investing in prohibited industries on the negative list and must comply with the specified requirements when investing in restricted industries on that list. When a licence is required to enter a certain industry, the foreign investor must apply for one, and the government must treat the application the same as one by a domestic enterprise, except where laws or regulations provide otherwise. In addition, foreign investors or FIEs are required to file information reports and foreign investment shall be subject to the national security review.

On 26 December 2019, the State Council issued the Implementation Regulation of the Foreign Investment Law of the PRC 《( 中華人民共和國外商投資法實施條例》), which came into effect on 1 January 2020 and replaced the Implementation Regulation of the Sino-Foreign Equity Joint Venture Enterprise Law 《( 中華人民共和國中外合資經營企業法實施條例》), Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture Enterprise Law 《( 中外合資經營企業合營期限暫行規定》), the Implementing Rules on Wholly Foreign-owned Enterprises 《( 中華人民共和國外資企業法實施細則》) and the Implementing Regulations on the Sino-foreign Cooperative Joint Venture Enterprise Law 《( 中華人民共和國中外合作經營企 業法實施細則》). According to the Implementation Regulation of the Foreign Investment Law of the PRC, the foreign-invested enterprises shall submit investment information to the competent commerce authorities via the enterprise registration system and the enterprise credit information publicity system.

REGULATIONS RELATING TO M&A AND OVERSEAS LISTING

On 8 August 2006, Six PRC governmental and regulatory agencies, including the China Securities Regulatory Commission (the ‘‘CSRC’’) and MOFCOM, jointly promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors 《( 關於 外國投資者併購境內企業的規定》) (the ‘‘M&A rules’’), a regulation with respect to the mergers and acquisitions of domestic enterprises by foreign investors that amended on 22 June 2009. Foreign investors shall comply with the M&A rules when they purchase equity interests of a domestic company or subscribe for the increased capital of a domestic company, and thus changing the nature of the domestic company into a foreign-invested enterprise; or when the foreign investors establish a foreign-invested enterprise in the PRC for the purpose of purchasing the assets of a domestic company and operating the asset; or when the foreign investors purchase the asset of a domestic company, establish a foreign-invested enterprise by injecting such assets, and operate the assets. The M&A rules, among other things, purport to require that an offshore special vehicle, or a special purpose vehicle, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals, shall obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.

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REGULATIONS RELATING TO FOREIGN EXCHANGE

Foreign Currency Exchange

The principal regulation governing foreign currency exchange in China is the Foreign Exchange Administration Regulations of the PRC 《( 中華人民共和國外匯管理條例》) (the ‘‘Foreign Exchange Administration Regulations’’), which were promulgated by the State Council on 29 January 1996 and latest amended on 5 August 2008. Under the Foreign Exchange Administration Regulations, Renminbi is generally freely convertible for payments of current account items, such as trade and service-related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as direct investment, loan or investment in securities outside China, unless prior approval of State Administration of Foreign Exchange (the ‘‘SAFE’’), or its local counterparts has been obtained.

On 13 February 2015, SAFE promulgated the SAFE Notice 13, according to which, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration.

On 30 March 2015, SAFE promulgated the Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise 《( 國家外 匯管理局關於改革外商投資企業外匯資本金結匯管理方式的通知》, the ‘‘Circular 19’’), which came into effect on 1 June 2015. According to Circular 19, the foreign exchange capital of foreign-invested enterprises shall be subject to the Discretionary Foreign Exchange Settlement, which means that the foreign exchange capital in the capital account of a foreigninvested enterprise for which the rights and interests of monetary contribution have been confirmed by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operational needs of the foreign-invested enterprise, and if a foreign-invested enterprise needs to make further payment from such account, it still needs to provide supporting documents and proceed with the review process with the banks. Furthermore, Circular 19 stipulates that the use of capital by foreign-invested enterprises shall follow the principles of authenticity and self-use within the business scope of enterprises. The capital of a foreign-invested enterprise and capital in Renminbi obtained by the foreign-invested enterprise from foreign exchange settlement shall not be used for the following purposes: (i) directly or indirectly used for payments beyond the business scope of the enterprises or payments as prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities unless otherwise provided by the relevant laws and regulations; (iii) directly or indirectly used for granting entrust loans in Renminbi (unless permitted by the scope of business), repaying inter-enterprise borrowings (including advances by the third-party) or repaying the bank loans in Renminbi that have been sub-lent to third parties; or (iv) directly or indirectly used for expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).

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REGULATORY OVERVIEW

The Circular on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account 《國家外匯管理局關於改革和規範資本項目結匯管理 政策的通知》, the ‘‘Circular 16’’), was promulgated by SAFE on 9 June 2016. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to Renminbi on a self- discretionary basis. Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC Laws, while such converted Renminbi shall not be provided as loans to its non-affiliated entities.

On 26 January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification 《( 國 家 外 匯 管 理 局 關 於 進 一 步 推 進 外 匯 管 理 改 革 完 善 真 實 合 規 性 審 核 的 通 知 》 , the ‘‘Circular 3’’), which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilisation arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound direct investment.

Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents

On 4 July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Administration on Domestic Residents’ Overseas Investment, Financing and Roundtrip Investment via Special Purpose Vehicles 《( 國家外匯管理局關於境內居民通過特殊 目的公司境外投融資及返程投資外匯管理有關問題的通知》, the ‘‘SAFE Circular 37’’), which replaced the former circular commonly known as ‘‘SAFE Circular 75’’ promulgated by SAFE on 21 October 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a ‘‘special purpose vehicle.’’ SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

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REGULATORY OVERVIEW

According to the Notice of the State Administration of Foreign Exchange of Further Simplifying and Improving the Policies of Foreign Exchange Administration Applicable to Direct Investment 《( 國家外匯管理局關於進一步簡化和改進直接投資外匯管理政策的通知》) promulgated by the SAFE on 13 February 2015, the initial foreign exchange registration for establishing or taking control of a special purpose vehicle by PRC residents can be filed with a qualified bank, instead of local branches of SAFE.

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INDUSTRY OVERVIEW

The information and statistics about China’s customer service outsourcing, Internet data centre value-added services, and digital marketing industries in this section and other sections of this circular are extracted from the CIC Report prepared by CIC, an independent third-party industry consultant commissioned by the Company. We believe that the sources of such information are appropriate, and reasonable care has been taken in extracting and reproducing the information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The Directors confirm, after taking reasonable care, that there has been no adverse change in the market information since the date of the CIC Report which may qualify, contradict, or have an impact on the information set out in this section. The information and statistics have not been independently verified by the Company, the Target Group, the Financial Advisor or any of our or their respective directors, officers, agents, employees, advisers or representatives or any other persons involved in the very substantial acquisition, excluding CIC, and no representation is given as to their accuracy or completeness. As such, no undue reliance shall be placed on the information and statistics.

Unless otherwise indicated, the market and industry information and data in this section are extracted from the CIC Report. The information in this section may differ from the information from other sources. This section contains information extracted from the CIC Report prepared independently by CIC, which is commissioned by us, for this circular. The Company is expected to pay CIC a fee of RMB292,500 for the preparation of the CIC Report which the Company considers to be in line with market rates. CIC is a professional consulting company established in 2014 which provides industry consulting services, commercial due diligence and strategic consulting services for a variety of industries.

CIC carried out both primary and secondary researches in preparing the report. Primary research mainly involves interviews with key industry experts and leading industry players. Secondary research mainly involves analysis of data from various public available data sources such as the National Bureau of Statistics, Ministry of Industry and Information Technology, industry associations, etc. All statistics are reliable and based on information available as of the date of this report. CIC came to the conclusion in CIC Report based on multi-methodologies to ensure data validation and integrity assessment. CIC used data and information collected from a variety of sources and comprehensively analysed and crosschecked such data and information to arrive at the qualitative and quantitative analysis and projections in this circular.

CIC developed its report on the following bases and assumptions for historical data and projections: (i) the overall social, economic, and political environment in China is expected to remain stable during the forecast period; (ii) China’s economy is likely to maintain a steady growth trajectory during the forecast period, accompanied by continuing urbanisation; (iii) the major industry drivers are expected to propel the development of the contact service centre,

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Internet data centre services, and digital marketing industries in China; and (iv) there is no extreme force majeure or unforeseen set of industry regulations in which the market may be affected in either a dramatic or fundamental way.

OVERVIEW OF CHINA’S CONTACT SERVICE CENTRE INDUSTRY

A contact service centre is a centralised unit interacting with customers via telephone and internet. Contact service centres are normally set up in-house or outsourced to a third-party customer care service provider. In-house contact service centres can be categorised into selfbuilt and hosted contact service centres.

The main service modes for the contact service centre industry include the inbound and outbound contact services as well as BPO services. Specifically, the inbound contact services normally provide services including technical support, billings, account and service changes, password reset, product and service inquiries, etc. Outbound contact services mainly include telemarketing, cross-selling, customer satisfaction surveys and post-sales follow-ups. Besides the traditional inbound and outbound contact services, currently, contact service centres are extending their business to other BPO services such as emergency travel assistance, customer complaint review, client information management and information verification.

Commonly used certifications in the contact service centre industry include COPC certification, ISO 9001, ISO/IEC 27001, etc. Among them, COPC certification is the most prestigious recognition in the industry for customer experience operations based on the COPC Customer Experience Standard. The certification process for contact service centres is an independent and objective assessment of contact service centre’ operation covering four key areas: leadership and planning, processes, people, and performance. As of the end of 2019, approximately 15 companies engaging in the contact service centre business held the COPC certification in China.

Industry Chain of China’s Contact Service Centre Industry

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

End customers
Telecommunications
Contact service
system providers Outsourced customer Finance
care service providers
Communication platform Logistics and transportation
Application software In-house contact Internet-based services
service centre operators
....
----- End of picture text -----

Source: CIC

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INDUSTRY OVERVIEW

The industry chain of China’s contact service centre industry comprises four main components:

• . Contact service system providers: Contact service system providers are responsible for providing contact service application software and integrating communication platforms and application software into contact service systems. Communication platforms refer to an integrated software and hardware platform consisting of gateways, servers, recording systems, CTI software and IVR software. And application software includes customer management, telemarketing, system management, data statistics, and operation management software.

• . Outsourced customer care service providers: Outsourced contact service centres refer to those contact service centres built by third-party customer care service providers. Outsourced customer care service providers organise well-trained agents to provide a variety of services, including telemarketing and customer relationship management services, upon the request of client companies. More and more client companies prefer to make use of customer service outsourcing solutions due to their cost-effectiveness and scalability.

• . In-house contact service centre operators: In-house contact service centres refer to those contact service centres built by client companies themselves and on their business premises. Client companies can obtain direct and full control over contact service centre operations. In-house contact service centres can be further categorised into self-built and hosted contact service centres. Specifically, self-built contact service centres require enterprises to build their own contact service system, organise customer service agents and maintain the system by themselves, meaning that enterprises should be able to absorb expensive upfront investments and longterm maintenance fees. As for hosted contact service centres, the client companies need to rent a certain number of seats from customer service solution providers and organise enough customer service agents to fulfil their own business needs.

• . End customers: Contact service centres have been widely applied in the telecom, finance, logistics and transportation and Internet-based services industries, as well as various other industries, including but not limited to the energy, education, tourism, manufacturing, pharmaceutical, and catering industries. The demand from Internet enterprises is growing rapidly as a result of China’s booming Internet-based services industry, and these enterprises usually have stricter requirements on the response time, operational efficiency, and variety of services of outsourced customer care service providers.

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Overview of China’s Customer Service Outsourcing Industry

The number of seats in the overall contact service centre industry in China increased at a CAGR of approximately 14.2% between 2014 and 2019, expanding from approximately 1,350.0 thousand seats in 2014 to approximately 2,623.4 thousand seats in 2019. The number of seats in the customer service outsourcing industry in China, meanwhile, increased at a CAGR of approximately 19.8% during the same period, expanding from approximately 313.2 thousand seats in 2014 to approximately 771.3 thousand seats in 2019. This increase also directly corresponds with the increase in total revenues during the same period.

The number of seats in the customer service outsourcing industry is expected to reach approximately 1,301.5 thousand seats by 2024, growing at a CAGR of approximately 11.0% during the period from 2019 to 2024. This increase is supported by the continued economic growth in China as a whole, especially the rapid development of the financial, telecom, Internet-based services and logistics and transportation industries, all of which require external support for their product sales and customer services, as well as the conversion of inhouse contact service centres to the outsourced contact service centres.

As contact service centres’ employees are the driving force behind customer service, the evaluation of employee performance is critical for contact service centres to boost their productivity. A set of metrics typically including schedule adherence, average handling time, first call resolution rate, escalation rate and customer service satisfaction score are used to measure a contact service centre’s employee productivity. Such metrics are efficient to measure and compare the productivity of employees within the same project. However, they are less applicable to measure and compare the productivity of employees in different projects, as the nature of services, quality standards and skill requirements of different projects may vary. Due to the same reason, contact service centres generally measure their productivity on a project-by-project basis.

The chart below shows the historical and projected seat numbers in the contact service centre industry by operation mode in China during the periods indicated:

	Seat numbers in the contact service centre industry	Seat numbers in the contact service centre industry	Seat numbers in the contact service centre industry	Seat numbers in the contact service centre industry	Seat numbers in the contact service centre industry	Seat numbers in the contact service centre industry	Seat numbers in the contact service centre industry	by operation mode, China, 2014-2024E	by operation mode, China, 2014-2024E
						CAGR (2014-2019) CAGR (2019-2024E)
		In-house contact			service	centre	12.3%	5.1%
Thousand seats		Outsourced contact service centre					19.8%	11.0%
0 1,000 2,000 3,000 4,000	1,036.81,223.9 1,322.5 313.2 396.1 457.5 1,350.01,620.0 1,780.0 Total				1,424.5 1,637.0 1,852.1 525.5 643.0 771.3 1,950.0 2,280.0 2,623.4 14.2%			1,911.7 2,066.5 2,199.3 2,303.9 2,375.0 842.9 963.6 1,083.21,197.5 1,301.5 2,754.6 3,030.13,282.5 3,501.4 3,676.5 7.0%
	2014	2015	2016		2017	2018	2019	2020E 2021E 2022E 2023E 2024E

Source: CAICT, National Human Resources Institute for Service Outsourcing, CIC

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INDUSTRY OVERVIEW

The revenues generated by the customer service outsourcing industry in China increased from approximately RMB14.1 billion in 2014 to approximately RMB41.3 billion in 2019, growing at a CAGR of 24.0%. This growth has been driven by the continued economic growth in China, a booming demand from downstream industries, such as financial, telecom, Internetbased services and logistics and transportation industries, as well as an increasing penetration rate of the customer service outsourcing solutions in China.

The revenues of customer service outsourcing industry is expected to grow at a CAGR of approximately 14.1% during the period from 2019 to 2024 and increase to approximately as much as RMB80.0 billion by 2024, with this growth trend mainly being attributable to healthy growth in the Chinese economy and the continuous development of downstream industries, along with the trading up of Chinese consumers, all of which create more opportunities for expanding customer service and marketing activities in China. The chart below shows the historical and projected revenues of the customer service outsourcing industry in China during the periods indicated:

Revenues of the customer service outsourcing industry, China, 2014-2024E

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

RMB billion
80.0
80 CAGR (2014-2019): 24.0% 71.4
62.7
CAGR (2019-2024E): 14.1%
60 54.2
46.0
41.3
40 33.4
26.2
22.1
18.3
20 14.1
0
2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E
----- End of picture text -----

Source: CAICT, National Human Resources Institute for Service Outsourcing, and CIC

Drivers for the Growth of the Contact Service Centre Industry in China

• (i) Strong downstream demand. The contact service centre industry in China has been driven by strong domestic demand from the downstream side over the past years. The major downstream industries that have a demand for customer services have all undergone a period of rapid growth in recent years, including the financial industry, telecom industry, the Internet-based services industry and the logistics and transportation industry:

Financial market: China’s financial market has benefitted from considerable growth in recent years, with its value added having increased continuously at a CAGR of 10.6% between 2014 and 2019. The continuous opening up and reform of financial services has improved the financial industry’s overall performance, driving financial institutions to outsource their customer services in consideration of cost savings and efficiency and in response to increasing competition.

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Telecommunication market: The telecommunication industry in China has maintained a steady growth trend, with its non-call charging services have expanded significantly over the past five years. The intensification of competition in the telecom market has prompted telecom carriers to focus more on improvements to their operating efficiencies, driving the demand for outsourcing their customer service functions to third-party service providers.

Internet-based services market: China’s Internet-based services industry, including but not limited to the online retail, online transportation service, online booking, and online food ordering industries, has experienced substantial growth as a result of its sizable base of Internet users, along with its underdeveloped physical retail infrastructure and rising disposable incomes, all of which have stimulated the demand for outsourced customer services.

Logistics and transportation market: The logistics and transportation industry in China has maintained strong growth momentum during the past five years, this trend having been driven by rising urbanisation rates, a higher demand for intra-city distribution services, and a booming domestic e-commerce industry. The explosive growth of the logistics and transportation industry has created a substantial demand for customer services and intelligent voice delivery services, which have contributed to the continued development of the customer service outsourcing industry.

• (ii) Continuous production technology upgrading. The continued development of computer science and the Internet has introduced numerous advanced technologies in recent years now being applied in contact service centres, including AI, cloud computing, big data and mobile Internet, new technologies that have propelled the transformation and upgrading of the contact service centre industry. Applying big data analysis to downstream consumers can generate insights into consumer behaviours and consumption preferences, which is vital to successfully implement precision marketing, this technology in turn enhancing efficiencies and increasing overall service quality. The cloud-based contact service system, meanwhile, functions without any need for upfront investments into hardware and infrastructure, which enables customers to simply scale up and down as required without worrying about capacity and hardware planning. AI has been applied at contact service centres in the areas of intelligent quality control, IVR, and AI interactions, which significantly improves service efficiencies while reducing costs associated with human resources.

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• (iii) Supportive policies and regulations. China’s government has issued a number of favourable policies and regulations to accelerate the development of the contact service centre industry. These policies and regulations include the ‘‘The 13th FiveYear Plan for the Development of the International Service Outsourcing Industry’’

• （《國際服務外包產業發展‘‘十三五’’規劃》）, the ‘‘Notice on Revising and Issuing the Measures for the Administration of the Certification of High-tech Enterprises (2016)’’（《關於修訂印發《高新技術企業認定管理辦法》的通知（ 2016 ）》）, the ‘‘Opinions of the State Council on Promoting the Accelerated Development of the Service Outsourcing Industry’’ 《( 國務院關於促進服務外包產業加快發展的意見》), etc. These policies and regulations provide further financial support for contact service centres, and help ensure the rapid and healthy development of the contact service centre industry in China.

Entry Barrier of China’s Contact Service Centre Industry

• (i) Technical Threshold — The current iteration of mainstream customer services is technology-intensive and knowledge-intensive. It involves the cross-integration of multiple technological applications, including rapidly developing IT technologies, communications technologies and other related technologies in order for an outsourced customer care service provider to become, and/or remain, competitive in terms of users experience, service efficiency, costs and other key performance indicators often demanded by downstream customers and etc. In particular: (i) the customer service outsourcing industry is undergoing a period of intelligentisation and technological innovation; (ii) automated customer service solutions based on innovative technologies such as AI, cloud computing and big data are increasingly being integrated into modern customer service system; and (iii) system architecture is expected to transform from that of a traditional system into a convergent system as downstream customers increase their demands for an integrated customer service system capable of interfacing with their own core business software such as CRM, ERP and financial management software. The technical threshold for new entrants seeking a place in the customer service outsourcing industry is therefore expected to become more significant.

• (ii) Extensive Project Experience — Due to the trend of customisation and the technical advancement in contact service centres, projects from downstream clients are becoming increasingly complex. The types and implementation time of projects become widely different and the complexity of a single project increases as well. In order to deliver high quality projects on time, outsourced customer care service providers are required to have a deep understanding of knowledge, processes and characteristics of the customer service outsourcing industry as well as extensive experience in similar projects. In addition, outsourced customer care service providers shall be savvy in staff training, organization, motivation, assessment and management in order to promote project progress and control project quality.

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• (iii) High Switching Cost for Downstream Customers — Any decision by a downstream customer to switch its outsourced customer care service provider or customer service system involves substantial time and costs to ensure, among other things, compatibility between the new customer service system and the other back-end system and software of such downstream customer. The downstream customer also needs to take into account: (a) significant time and costs which may be required for technical and other staff to adapt to any change in operation, maintenance and use; and (b) additional measures which may be required to ensure normal operation and the security and integrity of the necessary data migration exercise. Accordingly, there is an unwillingness on the part of downstream customers to switch to a new outsourced customer care service provider or customer service system.

• (iv) Comprehensive Operational Network and High Assessment Criteria of Certain Key Customers — Downstream customers of outsourced customer care service providers are widely distributed in terms of geographical location and industry sectors. It is essential for an outsourced customer care service provider to establish a comprehensive operational network in order to provide timely and effective support to its downstream customers. Certain downstream customers, such as certain multinational corporations and key market players, impose stringent assessment criteria in the selection of outsourced customer care service providers, e,g, requirements to have extensive project experience, recognised certifications and good industrial reputation, which only well-established reputational outsourced customer care service provider will be able to meet.

• (v) Strict Regulatory Requirements — Outsourced customer care service providers are required to obtain ICP Licences from the MIIT before commencing the provision of call centre services. Applicants of ICP Licences are required to have sufficient level of registered capital, demonstrate proficient staff, availability of necessary workplace and facilities, essential network and information security measures, industrial credibility and its ability to provide long-term quality services. Foreign investor in a foreign-invested outsourced customer care service providers which provides call centre services must also satisfy the Qualification Requirement of VATS, including, a proven track record of good performance, and operating experience, in carrying on value-added telecommunication business.

Future Development Trend of China’s Contact Service Centre Industry

• (i) Intelligentization. With the demand for contact service centres increasing and becoming more diversified, and with a higher penetration rate for new-generation technologies, the modern contact service centre industry is now undergoing a period of intelligentization and development. Automated customer services based on cloud services supported by cloud computing technologies, voiceprint recognition, AI technologies, and other new technologies are all beginning to integrate themselves into the modern contact service system, with this process enhancing efficiencies in the overall industry and increasing the satisfaction of clients.

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• (ii) Geographical shift. In the future, the contact service centre industry will likely experience a trend towards moving contact service centres from developed countries to developing countries and from tier 1 cities to tier 2 and 3 cities. This geographical shift of Chinese contact service centres can mainly be attributed to the lower labour costs in tier 2 and 3 cities. As for transnational contact service centres, the ongoing geographical shift is being promoted by the lower labour costs in developing countries as well as the increasing availability of transnational services in China. In order to better deliver their services, foreign companies need to provide local customer service to their customers, which therefore provides a boost to the demand for local contact service centres.

• (iii) System architecture transformation. In the future, system architecture will transform from that of a traditional system to a convergent system. Characterized by its low level of integration, the traditional contact service system has the disadvantages of long implementation periods, difficulties in terms of management and maintenance, barriers to expanding functions, and a high overall cost in terms of ownership. It is predicted that more downstream clients will increase their demands for an integrated contact service system software package able to interface with their own core business software, such as CRM, ERP and financial management software, so as to realise improvements in data sharing and increase synchronisation among different kinds of business software.

Competition Landscape of Customer Service Outsourcing Industry in China

The customer service outsourcing industry is fairly competitive, with a large number of market participants. In 2019, there are approximately 2,700 outsourced customer care service providers in China.

The customer service outsourcing industry in the PRC has evolved and transformed from traditional call centres with manual hotline services with relatively low barriers to entry into modern contact service centres which are technology-intensive and knowledge-intensive with relatively high barriers to entry.

In terms of market concentration, the customer service outsourcing industry remains fairly fragmented. In 2019, the total combined sales revenue of the top ten outsourced customer care service providers in China was approximately RMB12,356.5 million, accounting for a total market share of approximately 30.0%.

With a market share of 1.0% in 2019, the Target Company ranked 16th among all outsourced customer care service providers in China and was one of the top ten local privately-owned outsourced customer care service providers, both in terms of revenue in 2019. The Target Company is among the two companies established after 2010 that ranked as China’s top 20 outsourced customer care service providers, in terms of revenue, in 2019. Despite that the Target Company was founded on November 2013, it has become an emerging leading outsourced customer care service provider focusing on providing services to Internet enterprises in China. It is also China’s first local outsourced customer care service provider with COPC certification for two of its contact service centres.

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INDUSTRY OVERVIEW

Cost Analysis for China’s Customer Service Outsourcing Industry

Outsourced customer care service providers are asset-light companies in general. On average, the current assets of outsourced customer care service providers operating in Tier-1 or other developed coastal cities in China account for approximately 80% of their total assets.

The main operating costs for outsourced customer care service providers are primarily derived from labour costs. During the past five years, the average annual wage for customer service agents in China has steadily increased from RMB33.5 thousand in 2014 to RMB46.4 thousand in 2019, with a CAGR of 6.7%. This growth can be explained by the continued progress towards China’s economic transition and the increasing complexity of customer services. Looking ahead, the average annual wage for customer service agents in China is expected to follow an upward trend, increasing to RMB61.4 thousand in 2024 with a CAGR of 5.7% during the period from 2019 to 2024. The chart below shows the historical and projected average annual wages of customer service agents in China during the periods indicated:

Average annual wage of customer service agents, China, 2014-2024E

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

RMB thousand
CAGR (2014-2019): 6.7%
70 CAGR (2019-2024E): 5.7% 57.9 61.4
54.7
60 51.7
46.4 48.5
50 41.2 43.4
39.0
36.7
40 33.5
30
20
10
0
2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E
----- End of picture text -----

Source: CIC

Impact of COVID-19 Outbreak on the PRC Customer Service Outsourcing Industry

The COVID-19 outbreak has brought major impacts to China’s macro economy and certain industries such as tourism, public transportation and catering since the Lunar New Year period in January 2020. However, the COVID-19 outbreak is expected to bring limited impacts to the PRC customer service outsourcing industry in the long run due to the following reasons: (i) the resumption of work in the customer service outsourcing industry was delayed due to the extension of the Lunar New Year holiday, however according to the notices announced by the State Council and the local governments in China, the Lunar New Year holiday was at most extended to 10 February 2020 outside of Hubei Province and the contact centre services were gradually resumed thereafter; (ii) the demands of certain downstream industries such as e-commerce, online education and logistics are boosted as consumers are spending more time at home; (iii) the COVID-19 outbreak is expected to cause certain short-

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term economic slowdown across China but it will unlikely affect China’s macroeconomic development plan in the long run, and thus after the coronavirus outbreak is effectively controlled, the outlook for the demand for customers services in China will remain positive.

OVERVIEW OF CHINA’S INTERNET DATA CENTRE SERVICES INDUSTRY

IDC is a centralised facility used to house IT systems, applications and data. It provides placement, maintenance, system configuration and management services for users’ networkrelated equipment by leasing computer room and IT equipment, along with other value-added services. IDC service providers offer two main services: basic services and value-added services. Basic services include colocation services and managed hosting services, while value-added services include IDC system planning, design, integration, operation and maintenance. IDC operation and maintenance services include disaster recovery, data backup, daily monitoring, load balancing, system performance testing, computer room management, etc.

The revenues generated by the IDC value-added services industry in China increased from approximately RMB10.4 billion in 2014 to approximately RMB45.9 billion in 2019, growing at a CAGR of 34.6%. This increase has primarily been driven by the explosive growth of data volumes, a booming demand for IDC and cloud computing services, especially from downstream Internet and Fin-tech industries, as well as evolving technologies promoting the transformation and upgrading of the IDC services industry.

The revenues of IDC value-added services is expected to grow at a CAGR of approximately 35.1% between 2019 and 2024, expanding to reach approximately RMB206.2 billion by 2024, this growth trend mainly being attributable to an explosive growth in data volumes in China, the construction of ‘‘new infrastructure’’, along with the continued development of 5G, IoT and cloud computing, all of which increase the demand for IDC services with a high degree of reliability, security and flexibility. The chart below shows the historical and projected revenues of the IDC value-added services industry in China during the periods indicated:

Revenues of the IDC value-added services industry, China, 2014-2024E

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

RMB billion
206.2
210
CAGR (2014-2019): 34.6%
CAGR (2019-2024E): 35.1% 157.3
140 118.2
87.6
63.9
70
45.9
38.9
29.7
22.0
16.4
10.4
0
2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E
----- End of picture text -----

Source: CAICT, Open Data Centre Committee, and CIC

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INDUSTRY OVERVIEW

OVERVIEW OF CHINA’S DIGITAL MARKETING INDUSTRY

Digital marketing solutions providers provide marketing services including brand market research, brand communication, advertising strategy design, advertising content creativity, media space purchase, and communication effect tracking to brand owners through various online platforms such as mobile apps, social networks, online stores and e-commerce platforms.

Digital marketing represents an increasingly significant part of China’s marketing industry. China’s digital marketing industry, measured by digital advertising spending, expanded rapidly at a CAGR of 33.7% between 2014 and 2019, increasing from RMB156.0 billion to RMB665.8 billion, representing 76.8% of China’s marketing industry in 2019. China’s consumer goods, e-commerce, internet-based services, financial services, online gaming and education sectors are experiencing fast growth and are in need of digital marketing solutions, especially solutions that can deliver measurable results. At the same time, the growth of traditional sectors, such as retail and entertainment, continues to be powered by digital transformation, creating high demand for closed-loop marketing spanning both online and offline channels. It is estimated that the market size of digital marketing in China will grow at a CAGR of 9.5% between 2019 and 2024 to reach RMB1,048.9 billion by 2024, accounting for 83.0% of China’s marketing industry.

==> picture [433 x 161] intentionally omitted <==

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

Digital advertising spending, China, 2014-2024E
RMB billion
1,200
CAGR (2014-2019): 33.7% 1,048.9
968.2
CAGR (2019-2024E): 9.5% 883.7
807.3
756.8
800
665.8
491.4
375.0
400 288.5
218.5
156.0
0
2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E
----- End of picture text -----

Source: CIC

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

HISTORY AND DEVELOPMENT OF THE TARGET GROUP

DaLian Kingwisoft was established as a limited liability company in the PRC on 27 November 2013 by Chengdu Kingwisoft and Shenzhen Kingwisoft, which were then ultimately owned by independent third parties of the Company, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries. The history of the Target Group traces its origins to September 2014, when DaLian Kingwisoft was acquired as to 65% by Mr. Hu and as to 35% by Ms. Zhou for a total consideration of RMB400,000 from the then shareholders of DaLian Kingwisoft.

DaLian Kingwisoft has experienced several changes in ownership since its acquisition by Mr. Hu and Ms. Zhou and transformed from a limited liability company into a joint stock limited company in May 2016. DaLian Kingwisoft’s issued shares were quoted on the NEEQ since August 2017 until the completion of the Privatisation in December 2019.

The Target Group was principally engaged in the provision of back-office services when DaLian Kingwisoft was acquired by Mr. Hu and Ms. Zhou in 2014. Leveraging the proven record, the Target Group grows into an emerging leading service provider in the PRC customer service outsourcing industry. Please refer to the section headed ‘‘Business of the Target Group’’ in this circular for details of the Target Group’s businesses.

In preparation for the Acquisition, the Target Group underwent a series of reorganisation, including the OPCO Minority Acquisitions, the Privatisation, the OPCO Share Repurchase and the Target Group Reorganisation. Please refer to the section headed ‘‘History, Development and Reorganisation of the Target Group — Corporate Restructuring’’ in this circular for more details.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

MILESTONES

The following table summarises the key milestones in the development of the Target Group:

Date Event

• September 2014 DaLian Kingwisoft was acquired by Mr. Hu and Ms. Zhou.

• January 2016 DaLian Kingwisoft acquired Beijing Nanyou and achieved self-development of customer service software products.

• April 2016 The Target Group commenced its business relationship with a leading mobile transportation platform.

• May 2016 DaLian Kingwisoft acquired Shenzhen Kingwisoft and Chengdu Kingwisoft and commenced the development of the business of providing disaster recovery and operations management, data centre operation and comprehensive marketing services and researching, designing and developing software products.

• August 2017 DaLian Kingwisoft’s issued shares were quoted on the NEEQ.

• October 2017 DaLian Kingwisoft commenced its business relationship with a leading e-commerce platform.

• July 2018 DaLian Kingwisoft engaged in strategic cooperation with SoftBank.

• December 2019 DaLian Kingwisoft ceased having its issued shares quoted on NEEQ.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

THE TARGET COMPANY AND THE MAJOR OPERATING SUBSIDIARIES

Target Company

The Target Company was incorporated as an exempted company with limited liability in the Cayman Islands on 4 December 2019, with an authorised share capital of US$50,000 divided into 500,000,000 shares with par value of US$0.0001 each. Each of the Founders SPV and the Ms. Zhou SPV held one share of the Target Company upon its incorporation.

On 9 June 2020, the Founders SPV, the Ms. Zhou SPV and Zhongzhi Xinzhuo subscribed for additional shares in the share capital of the Target Company (the ‘‘Target Company Subscription’’). Subsequent to the Target Company Subscription and as at the Latest Practicable Date, the Target Company has a total issued share capital of US$1,548 divided into 15,480,000 shares, of which the Founders SPV, the Ms. Zhou SPV and Zhongzhi Xinzhuo hold 68.73%, 14.47% and 16.80%, respectively.

WFOE

The WFOE was established as a limited liability company in the PRC on 9 May 2020, with registered capital of US$10,000,000. As at the Latest Practicable Date, the WFOE is an indirectly and wholly-owned subsidiary of the Target Company.

DaLian Kingwisoft

As at 1 April 2016, being the beginning of the Track Record Period, the registered capital of DaLian Kingwisoft was RMB18 million, of which 24% was owned by Mr. Hu, 30% was owned by Ms. Liu, 10% was owned by Ms. Zhou and the remaining 36% was owned by other independent third parties of the Company. In September 2017, DaLian Kingwisoft’s registered capital was increased from RMB28.70 million to RMB31.30 million following the commencement of quotation of its shares on NEEQ. As part of the quotation of its shares on NEEQ, DaLian Kingwsoft issued 2,600,000 shares to Xiangjia Zhongzhou for a total consideration of RMB52,000,000.

In preparation for the Acquisition, DaLian Kingwisoft underwent a series of reorganisation in late 2019 and early 2020. Please refer to the section headed ‘‘History, Development and Reorganisation of the Target Group — Corporate Restructuring’’ in this circular for more details.

As at the Latest Practicable Date, DaLian Kingwisoft had a registered capital of RMB15,480,000 divided into 15,480,000 shares of RMB1.00 each and was owned by Mr. Hu, Ms. Liu, Ms. Zhou and Xiangjia Zhongzhou as to 32.91%, 40.83%, 9.47% and 16.79%, respectively. DaLian Kingwisoft is principally engaged in the provision of back-office services.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

Shenzhen Kingwisoft

Shenzhen Kingwisoft was established as a limited liability company in the PRC in March 2011. In May 2016, DaLian Kingwisoft acquired the entire equity interest in the registered capital of Shenzhen Kingwisoft for a total consideration of RMB33,500,000, which is equal to the then total registered capital of Shenzhen Kingwisoft, from its then shareholders which are independent third parties. As part of the Corporate Restructuring for the purpose of the Acquisition, the entire equity interest of Shenzhen Kingwisoft was subsequently transferred to the WFOE in June 2020. As at the Latest Practicable Date, Shenzhen Kingwisoft had a registered capital of RMB33,500,000 and was directly and wholly-owned by the WFOE. Shenzhen Kingwisoft is principally engaged in the provision of data certer services.

Beijing Nanyou

Beijing Nanyou was established as a limited liability company in the PRC in November 2011. In January 2016, DaLian Kingwisoft acquired the entire equity interest in the registered capital of Beijing Nanyou for a total consideration of RMB2,000,000 based on arm’s length commercial negotiation, from its then shareholders which are independent third parties. As at the Latest Practicable Date, Beijing Nanyou had a registered capital of RMB10,000,000 and was directly and wholly-owned by DaLian Kingwisoft. Beijing Nanyou is principally engaged in the provision of back-office services (mainly development of customer service software).

Rongzhi Hudong

Rongzhi Hudong was established as a limited liability company in the PRC by DaLian Kingwisoft in April 2017, and the entire equity interest of which was subsequently transferred to the WFOE in May 2020 as part of the Corporate Restructuring for the purpose of the Acquisition. As at the Latest Practicable Date, Rongzhi Hudong had a registered capital of RMB10,000,000 and was directly and wholly-owned by the WFOE. Rongzhi Hudong is principally engaged in the provision of comprehensive marketing services.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

Baihe Guoli

Baihe Guoli was established as a limited liability company in the PRC in July 2007. In September 2013, Chengdu Kingwisoft acquired 99% of the equity interest in the registered capital of Baihe Guoli for a total consideration of RMB990,000, which is equal to 99% of the total registered capital of Baihe Guoli, from its then shareholders which are independent third parties. In August 2016, Chengdu Kingwisoft acquired the remaining 1% equity interest in the registered capital of Baihe Guoli for a consideration of RMB10,000, which is equity to 1% of the total registered capital of Baihe Guoli, and subsequently Baihe Guoli became directly and wholly-owned by Chengdu Kingwisoft. As part of the Corporate Restructuring for the purpose of the Acquisition, the entire equity interest of Baihe Guoli was subsequently transferred to the WFOE in May 2020. As at the Latest Practicable Date, Baihe Guoli had a registered capital of RMB1,000,000 and was directly and wholly-owned by the WFOE. Baihe Guoli does not carry out any business operation as at the Latest Practicable Date and will be principally engaged in the provision of comprehensive marketing services.

Wuhan Kingwisoft

Wuhan Kingwisoft was established as a limited liability company in the PRC by DaLian Kingwisoft in August 2017. As at the Latest Practicable Date, Wuhan Kingwisoft had a registered capital of RMB10,000,000 and was directly and wholly-owned by DaLian Kingwisoft. Wuhan Kingwisoft is principally engaged in the provision of back-office services.

Xiangyang Kingwisoft

Xiangyang Kingwisoft was established as a limited liability company in the PRC by Wuhan Kingwisoft in June 2018. As at the Latest Practicable Date, Xiangyang Kingwisoft had a registered capital of RMB10,000,000 and was directly and wholly-owned by Wuhan Kingwisoft. Xiangyang Kingwisoft had been providing contact service centres business during the Track Record Period, and currently does not carry out any business operation as at the Latest Practicable Date.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

Chengdu Kingwisoft

Chengdu Kingwisoft was established as a limited liability company in the PRC in February 2012 and was owned as to 99.9% by Shenzhen Kingwisoft, which was then owned by independent third parties, and as to 0.1% by an independent third party upon its establishment. In September 2013, Shenzhen Kingwisoft’s equity interest in Chengdu Kingwisoft increased to 99.98% through capital increase. In June 2016, Shenzhen Kingwisoft acquired the remaining 0.02% equity interest in the registered capital of Chengdu Kingwisoft for a consideration of RMB2,000 which is equal to 0.02% of the total registered capital, and subsequently Chengdu Kingwisoft became directly and wholly-owned by Shenzhen Kingwisoft. For the purpose of the Acquisition, the entire equity interest of Chengdu Kingwisoft was subsequently transferred to DaLian Kingwisoft in April 2020. As at the Latest Practicable Date, Chengdu Kingwisoft had a registered capital of RMB10,000,000 and was directly and wholly-owned by DaLian Kingwisoft. Chengdu Kingwisoft is principally engaged in the provision of back-office services.

Luzhou Kingwisoft

Luzhou Kingwisoft was established as a limited liability company in the PRC in March 2018 and was owned as to 99% by Chengdu Kingwisoft and as to 1% by Shenzhen Kingwisoft upon its establishment. In November 2019, Chengdu Kingwisoft contributed additional capital to Luzhou Kingwisoft, subsequent to which, Luzhou Kingwisoft was owned as to 99.5% by Chengdu Kingwisoft and as to 0.5% by Shenzhen Kingwisoft. For the purpose of the Acquisition, the 0.5% equity interest of Luzhou Kingwisoft held by Shenzhen Kingwisoft was subsequently transferred to DaLian Kingwisoft in May 2020. As at the Latest Practicable Date, Luzhou Kingwisoft had a registered capital of RMB10,000,000 and was owned as to 99.5% by Chengdu Kingwisoft and as to 0.5% by DaLian Kingwisoft. Luzhou Kingwisoft had been providing contact service centres business during the Track Record Period, and currently does not carry out any business operation.

Leshan Kingwisoft

Leshan Kingwisoft was established as a limited liability company in the PRC by DaLian Kingwisoft in December 2017. As at the Latest Practicable Date, Leshan Kingwisoft had a registered capital of RMB10,000,000 and was directly and wholly-owned by DaLian Kingwisoft. Leshan Kingwisoft is principally engaged in the provision of back-office services in the PRC.

Kunshan Kingwisoft

Kunshan Kingwisoft was established as a limited liability company in the PRC by DaLian Kingwisoft in April 2019. As at the Latest Practicable Date, Kunshan Kingwisoft had a registered capital of RMB10,000,000 and was directly and wholly-owned by DaLian Kingwisoft. Kunshan Kingwisoft had been providing contact service centres business during the Track Record Period, and currently does not carry out any business operation.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

Dalian Zhiyin

Dalian Zhiyin was established as a limited liability company in the PRC in September 2019 and was owned as to 60% by DaLian Kingwisoft and as to 40% by SoftBank, an independent third party, upon its establishment. As at the Latest Practicable Date, Dalian Zhiyin had a registered capital of RMB28,000,000 and it remained to be owned as to 60% by DaLian Kingwisoft and as to 40% by SoftBank, an independent third party. Dalian Zhiyin does not carry out any business operation as at the Latest Practicable Date and will be principally engaged in the provision of back-office services.

Rongzhi Outsourcing

Rongzhi Outsourcing was established as a limited liability company in the PRC by DaLian Kingwisoft in March 2016. As at the Latest Practicable Date, Rongzhi Outsourcing had a registered capital of RMB100,000,000 and was directly and wholly-owned by DaLian Kingwisoft. Rongzhi Outsourcing is principally engaged in the provision of back-office services (mainly development of customer service software).

Qingdao Kingwisoft

Qingdao Kingwisoft was established as a limited liability company in the PRC in January 2020 and was owned as to 60% by DaLian Kingwisoft and as to 40% by Su Xiaoyan (蘇小 龑), an independent third party upon its establishment. As at the Latest Practicable Date, Qingdao Kingwisoft had a registered capital of RMB20,000,000 and it remained to be owned as to 60% by DaLian Kingwisoft and as to 40% by Su Xiaoyan, and independent third party. Qingdao Kingwisoft does not carry out any business operation as at the Latest Practicable Date and will be principally engaged in the provision of back-office services.

MAJOR ACQUISITIONS AND DISPOSALS BY THE TARGET GROUP

Save as disclosed below and in the sections headed ‘‘Contractual Arrangements’’, ‘‘History, Development and Reorganisation of the Target Group — The Target Company and the Major Operating Subsidiaries’’ and ‘‘History, Development and Reorganisation of the Target Group — Corporate Restructuring’’ in this circular, the Target Group did not conduct any major acquisitions, disposals or mergers during the Track Record Period and up to the Latest Practicable Date.

DaLian Kingwisoft entered into an equity interest transfer agreement in October 2019 pursuant to which DaLian Kingwisoft acquired approximately 12.14% equity interest in the registered capital of Hunan Mango U-Show Internet Technology Co., Ltd.* (湖南芒果優秀網 絡科技有限公司) (‘‘Mango U-Show’’) for a consideration of RMB4,249,000. As at the Latest Practicable Date, Mango U-Show had a registered capital of RMB15,851,372, of which approximately 12.14% was owned by DaLian Kingwisoft and the remaining approximately 87.86% was owned by other shareholders which are independent third parties. Mango U-Show is principally engaged in software and IT services businesses and currently holds an ICP Licence and the production and operation permit of radio and television programmes.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

CORPORATE RESTRUCTURING

In preparation for the Acquisition, the Target Group underwent a series of reorganisation in late 2019 and early 2020.

OPCO Minority Acquisitions

The table below is a summary of the shareholding structure of DaLian Kingwisoft immediately before the commencement of the OPCO Minority Acquisitions:

Shareholder Mr. Hu Ms. Liu Dalian Xinrui Ms. Zhou Xiangjia Zhongzhou Kunhe Investment Shanghai Tangled Tree Enterprise Management Co., Ltd. (上海藤樹企業管理有限公司) (previously known as Shanghai Tangled Tree Investment Management Co., Ltd. (上海藤樹投資管理有限公司) Others Total	Number of shares held 4,321,000 6,320,000 2,240,000 2,240,000 2,600,000 1,000,000 6,844,000 5,735,000 31,300,000	Percentage of the entire issued share capital of the DaLian Kingwisoft (approximately) 13.80% 20.19% 7.16% 7.16% 8.31% 3.19% 21.87% 18.32%
		100%

Between September 2019 and November 2019, the Founders procured Dalian Zhirui to acquire, and Dalian Zhirui acquired, all of the shares of DaLian Kingwisoft held by the shareholders of DaLian Kingwisoft (excluding the shares of DaLian Kingwisoft held by the Founders (other than 1,000 shares of DaLian Kingwisoft held by Mr. Hu), Ms. Zhou and Xiangjia Zhongzhou) for a total consideration of RMB250,000,000. The OPCO Minority Acquisitions were carried out through a series of off-market transactions and the acquisition price for the shares of DaLian Kingwisoft from each relevant shareholder was arrived based on arm’s length negotiation with such shareholder having taken into consideration the value of DaLian Kingwisoft at the time of investment of the respective shareholders.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

The table below is a summary of the shareholding structure of DaLian Kingwisoft immediately after the completion of the OPCO Minority Acquisitions:

Shareholder Mr. Hu Ms. Liu Ms. Zhou Xiangjia Zhongzhou Dalian Zhirui Total	Number of shares held 4,320,000 6,320,000 2,240,000 2,600,000 15,820,000 31,300,000	Percentage of the entire issued share capital of DaLian Kingwisoft (approximately) 13.80% 20.19% 7.16% 8.31% 50.54%
		100%

Privatisation

In preparation for the Acquisition and as part of the Corporate Restructuring, DaLian Kingwisoft underwent the Privatisation. Immediately prior to the Privatisation, DaLian Kingwisoft had a registered capital of RMB31.30 million, divided into 31.30 million shares, which were quoted on the NEEQ (stock code: 871759). In November 2019, DaLian Kingwisoft passed a shareholders’ resolution to approve the application for the cessation of the quote of its shares on the NEEQ. Subsequently, in December 2019, the NEEQ issued a notice for approval of the cessation of the quote of DaLian Kingwisoft’s issued shares on the NEEQ. Since 16 December 2019, DaLian Kingwisoft’s shares ceased to be quoted on the NEEQ. Upon completion of the Privatisation, DaLian Kingwisoft’s registered capital remained RMB31.30 million. As confirmed by our PRC Legal Adviser, the cessation of the quote of DaLian Kingwisoft’s issued shares on the NEEQ was duly completed and the necessary approval had been obtained. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, (i) during the period of quoting on the NEEQ, DaLian Kingwisoft has not been subject to any investigations or disciplinary actions by any regulatory authority nor any material breach of the relevant rules governing the NEEQ; (ii) there is no matter that needs to be brought to the attention of the regulators and Shareholders in relation to the listing of DaLian Kingwisoft and the cessation of the quote of DaLian Kingwisoft’s shares on the NEEQ save as disclosed in this circular; and (iii) none of the then directors of DaLian Kingwisoft was involved in any material breach or suspected breach of the applicable rules or regulations of the NEEQ.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

OPCO Share Repurchase

After the completion of each of the OPCO Minority Acquisitions and the Privatisation, DaLian Kingwisoft repurchased, and Dalian Zhirui sold, the 15,820,000 shares of DaLian Kingwisoft held by Dalian Zhirui at RMB 250,000,000, which was satisfied by the Debt Note. The relevant shares had been cancelled as at the Latest Practicable Date. In addition, 774,000 shares of DaLian Kingwisoft held by Ms. Zhou were transferred to Mr. Hu which has been completed as at the Latest Practicable Date.

The table below is a summary of the shareholding structure of DaLian Kingwisoft after the completion of OPCO Share Repurchase and as at the Latest Practicable Date:

Shareholder Mr. Hu Ms. Liu Ms. Zhou Xiangjia Zhongzhou Total	Number of shares held 5,094,000 6,320,000 1,466,000 2,600,000 15,480,000	Percentage of the entire issued share capital of DaLian Kingwisoft (approximately) 32.91% 40.83% 9.47% 16.79%
		100%

Target Group Reorganisation

For the purpose of ensuring the Contractual Arrangements are narrowly tailored to enable the OPCO Group to conduct businesses in industries that are subject to restrictions imposed by PRC Laws on relevant foreign investors and/or foreign ownership on foreign-invested enterprises in the PRC, DaLian Kingwisoft transferred Rongzhi Hudong and Baihe Guoli to the WFOE in May 2020 and transferred Shenzhen Kingwisoft to the WFOE in June 2020.

CONTRACTUAL ARRANGEMENTS

In order to comply with relevant PRC Laws and regulations and to maintain effective control over all of the operations of the OPCO Group, in June 2020, the WFOE entered into a series of Contractual Arrangements with DaLian Kingwisoft and the Registered Shareholders. Through these Contractual Arrangements, the Target Group is able to gain effective control over, and receive all of the economic benefits generated by, the OPCO Group. For details of the Contractual Arrangements, please refer to the section headed ‘‘Contractual Arrangements’’ in this circular.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

Shareholding and group structure of the Target Group immediately before the commencement of the Corporate Restructuring The following chart sets forth the shareholding and group structure of the Target Group immediately before the commencement of the Corporate Restructuring (Note 1): 3.19% 7.16% 7.16% 21.87% 18.32% 8.31% 20.19% 13.80% Mr. Hu Ms. Liu Xiangjia Zhongzhou (Note 2) Ms. Zhou Dalian Xinrui Shanghai Tangled Tree Enterprise Management Co., Ltd.* Others Kunhe Investment (Note 3) DaLian Kingwisoft	Shareholding and group structure of the Target Group immediately before the commencement of the Corporate Restructuring The following chart sets forth the shareholding and group structure of the Target Group immediately before the commencement of the Corporate Restructuring (Note 1): 3.19% 7.16% 7.16% 21.87% 18.32% 8.31% 20.19% 13.80% Mr. Hu Ms. Liu Xiangjia Zhongzhou (Note 2) Ms. Zhou Dalian Xinrui Shanghai Tangled Tree Enterprise Management Co., Ltd.* Others Kunhe Investment (Note 3) DaLian Kingwisoft	Shareholding and group structure of the Target Group immediately before the commencement of the Corporate Restructuring The following chart sets forth the shareholding and group structure of the Target Group immediately before the commencement of the Corporate Restructuring (Note 1): 3.19% 7.16% 7.16% 21.87% 18.32% 8.31% 20.19% 13.80% Mr. Hu Ms. Liu Xiangjia Zhongzhou (Note 2) Ms. Zhou Dalian Xinrui Shanghai Tangled Tree Enterprise Management Co., Ltd.* Others Kunhe Investment (Note 3) DaLian Kingwisoft
			100% 100% 100% 100% 100% 100% 100% 60% Shenzhen Kingwisoft Beijing Nanyou Rongzhi Hudong Wuhan Kingwisoft Leshan Kingwisoft Kunshan Kingwisoft Rongzhi Outsourcing Dalian Zhiyin (Note 4)	100% 99% 100% 100% 1% Xiangyang Kingwisoft Chengdu Kingwisoft Luzhou Kingwisoft Baihe Guoli
	Shanghai Tangled Tree Enterprise Management Co., Ltd.*
	Kunhe Investment (Note 3)
	Dalian Xinrui
	Ms. Zhou
	Xiangjia Zhongzhou (Note 2)
	Ms. Liu
	Mr. Hu
			100%
				1%

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

• Note 1: The Target Company, the HK SPV and the WFOE were incorporated only after the commencement of the Corporate Restructuring.

• Note 2: As at the Latest Practicable Date: (i) Xiangjia Zhongzhou is a limited partnership which was owned as to 3.03% by Changzhou Jingjiang, as the general partner, and as to 96.97% by Tibet Shangtian, as limited partner; (ii) Changzhou Jingjiang and Tibet Shangtian are wholly-owned subsidiaries of Zhongzhi Capital; and (iii) Xiangjia Zhongzhou was an associate of Mr. Xie and a connected person of the Company.

• Note 3: As at the Latest Practicable Date: (i) Kunhe Investment was a private equity fund which was owned as to 1.66% by Dagze District Dingcheng Capital Investment Co., Ltd.* (達孜縣鼎誠資本投資有限 公司) (‘‘Dagze Dingcheng’’) as the general partner and as to 98.34% by 15 individuals as the limited partners; (ii) Dagze Dingcheng is indirectly owned as to 32.99% by Zhongzhi Enterprise Group; and (iii) Kunhe Investment was an associate of Mr. Xie and a connected person of the Company.

• Note 4: As at the Latest Practicable Date, Dalian Zhiyin was owned as to 60% by DaLian Kingwisoft and as to 40% by SoftBank.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

			100% 100% 100% 100% 100% Contractual Arrangements Target Company Hong Kong SPV DaLian Kingwisoft Baihe Guoli Shenzhen Kingwisoft Rongzhi Hudong WFOE		Qingdao Kingwisoft
16.79% 9.47% 40.83% 32.91% Mr. Hu Ms. Liu Ms. Zhou Xiangjia Zhongzhou
16.80% 14.47% 68.73% Founders SPV Ms. Zhou SPV Zhongzhi Xinzhuo
	Founders SPV
		68.73%

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

	100% 100% 100% 100% 100% 100% Contractual Arrangements Target Company Hong Kong SPV DaLian Kingwisoft Baihe Guoli Rongzhi Hudong WFOE Shenzhen Kingwisoft		Qingdao Kingwisoft	Qingdao Kingwisoft	Qingdao Kingwisoft
16.79% 9.47% 40.83% 32.91% Mr. Hu Ms. Liu Ms. Zhou Xiangjia Zhongzhou
Our Company
			ngdu wisoft
					Luzhou Kingwisoft
		100%	Che King
		5%

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

PRC REGULATORY REQUIREMENTS

The PRC Legal Adviser has confirmed that the Corporate Restructuring as described in the section headed ‘‘History, Development and Reorganisation of the Target Group — Corporate Restructuring’’ in this circular, in respect of the companies in the Target Group, which are incorporated in the PRC, have been legally completed and all relevant regulatory approvals necessary to effect the Corporate Restructuring have been obtained in accordance with PRC Laws and regulations.

M&A Rules

According to the M&A Rules, merger and acquisition of domestic enterprises by foreign investors means (1) acquiring the equity of a domestic enterprise so as to convert the domestic enterprise into a foreign-invested enterprise; (2) subscribing the increased capital of a domestic enterprise so as to convert the domestic enterprise into a foreign-invested enterprise; (3) establishing a foreign-invested enterprise through which it purchases the assets of a domestic enterprise and operates these assets; or (4) purchasing the assets of a domestic enterprise, and then investing such assets to establish a foreign-invested enterprise. The M&A Rules, among other things, further purport to require that where a domestic company, enterprise or natural person intends to merge with or acquire its or his/her related domestic company through an offshore company which it or he/she lawfully established or controls, the merger or acquisition shall be subject to the examination and approval of the MOFCOM.

The PRC Legal Adviser is of the opinion that the M&A Rules are not relevant in the Acquisition and the Corporate Restructuring and prior CSRC approval for the Acquisition and the Corporate Restructuring is not required because: (i) The WFOE was not established through a merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are the beneficial owners of the Target Company; (ii) each of the OPCO Group has been wholly owned by PRC nationals since its date of establishment, such that the M&A Rules are not applicable; (iii) Baihe Guoli was established as a PRC domestic company in July 2007 and became a sino-foreign equity joint venture in March 2020 in compliance with the M&A Rules, such that the M&A Rules are not applicable to it thereafter; Rongzhi Hudong was established as a PRC domestic company in April 2017 and became a sino-foreign equity joint venture in March 2020 in compliance with the M&A Rules, such that the M&A Rules are not applicable to it thereafter; and Shenzhen Kingwisoft was established as a PRC domestic company in March 2011 and became a sino-foreign equity joint venture in May 2020 in compliance with the M&A Rules, such that the M&A Rules are not applicable to it thereafter.

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HISTORY, DEVELOPMENT AND REORGANISATION OF THE TARGET GROUP

SAFE registration

Pursuant to the SAFE Circular 37 and SAFE Notice 13, a PRC resident must register with qualified banks before he or she contributes assets or equity interests to an overseas special purpose vehicle (the ‘‘Overseas SPV’’) that is directly established or indirectly controlled by the PRC resident for the purpose of conducting investment or financing. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfil the required qualified banks registration, the PRC subsidiaries of that special purpose vehicle may be subject to penalty and sanction and restricted from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various registration requirements described above could result in liability under PRC Law for evasion of foreign exchange controls.

As advised by the PRC Legal Adviser, Mr. Hu, Ms. Liu and Ms. Zhou, who are PRC citizens, completed their registration under the SAFE Circular 37 and SAFE Notice 13 on 24 March 2020 respectively.

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BUSINESS OF THE TARGET GROUP

OVERVIEW

The Target Group is an emerging leading service provider in the PRC customer service outsourcing industry. According to CIC, the Target Group ranked the 16th among approximately 2,700 outsourced customer care service providers in China and is one of the top ten local privately-owned outsourced customer care service providers, both in terms of revenue in 2019. Founded in 2013, the Target Group is among the only two companies established after 2010 that ranked as China’s top 20 outsourced customer care service providers, in terms of revenue, in 2019.

The Target Group is committed to building a multilingual and multichannel outsourced service platform with a nationwide footprint. It is fully equipped to provide customer service solutions, including contact services and BPO services, through various channels such as telephone, live chat on various online platforms including apps, social media and customers’ websites and other cloud-based audio and video communication methods. The Target Group also helped its customers to set up their contact service systems and centres during the Track Record Period. As at 31 March 2020, the Target Group had 12 self-operated contact service centres in eight cities across China with approximately 6,341 workstations. Together with another eight contact service centres operated by its subcontractors as at 31 March 2020, the Target Group’s services covered all regions in China.

Providing its customers with services of the highest quality possible has been the number one priority for the Target Group. As a testament to the quality of services, the Target Group is the first local outsourced customer care service provider in China that achieved COPC certification for two of its contact service centres. Over the years, the Target Group’s commitment to provide high-quality services has won it the trust of its customers. As at 31 March 2020, the Target Group has provided outsourced customer care services to companies ranging from Fortune 500 multinational companies to fast-growing local companies. The majority of the key customers of the Target Group are major Chinese internet-based service providers that are leaders in areas such as e-commerce, financial services, education and transportation services. The Target Group believes that these internet-based service providers are household brands in China. The Target Group also maintains strong relationship with customers in the traditional finance and telecommunication industries, including over 30 securities houses and one of the largest telecommunication service providers in China during the Track Record Period.

The Target Group has focused on the application of AI technology, cloud computing and big data in various scenarios of the customer service outsourcing industry under the leadership of Mr. Hu, the Target Group’s chairman and co-founder as well as a Leading Talents in Technology Start-ups (‘‘科技創業領軍人才’’) in China’s Ten Thousand Talents Program (‘‘國 家萬人計劃’’) in 2019. The Target Group has successfully developed many high-tech customer service solutions for its customers as well as solutions for its business and management that the Target Group believes will help the company to stay competitive in the customer service outsourcing industry.

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The needs of the Target Group’s customers to continuously provide customer services to customers of their own provided opportunities for the Target Group and propelled the overall growth of the Target Group during the Track Record Period. For the years ended 31 March 2018, 2019 and 2020, the Target Group’s revenue was RMB325.7 million, RMB405.2 million and RMB429.5 million, respectively. The Target Group’s total comprehensive income during the same periods were RMB29.0 million, RMB41.2 million and RMB65.6 million, respectively.

COMPETITIVE STRENGTHS

Emerging leading service provider in the customer service outsourcing industry with significant growth potentials

Founded in 2013, with its persistent effort to deliver multichannel and multilingual services of the highest quality possible, its strategic focus on the leading customers in the internet industry and its constant drive to provide its customers with innovative solutions, the Target Group has risen quickly through the ranks to become an emerging leader in the customer service outsourcing industry. Over the past six years, the Target Group had established 12 self-operated contact service centres in eight cities across China with approximately 6,341 workstations. According to CIC, the Target Group ranked the 16th among approximately 2,700 outsourced customer care service providers in China and one of the top ten local privately-owned outsourced customer care service providers, both in terms of revenue in 2019. According to the same source, among the top 20 outsourced customer care service providers in terms of revenue in 2019, the Target Group is one of the only two companies that were established after 2010.

The Target Group has benefited from growth in the customer service outsourcing industry. According to CIC, driven by booming demands from downstream industries, such as financial, telecom, internet-based services and logistics industries, as well as increasing penetration rate of the customer service outsourcing solutions in China, the customer service outsourcing industry has experienced significant growth, with its revenue increasing from RMB14.1 billion in 2014 to RMB41.3 billion in 2019, representing a CAGR of 24.0%. According to the same source, compared with other countries, the market size of customer service outsourcing industry in China is still relatively small and there remains significant potential for growth in the future. CIC forecasts that the revenue of the customer service outsourcing industry will further increase to RMB80.0 billion in 2024, representing a CAGR of 14.1%, driven by healthy growth of the Chinese economy, the continuous development of downstream industries and the trading up of Chinese consumers. With a proven business model, the Target Group believes that it is well-positioned to capture the further growth in the customer service outsourcing industry.

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Multichannel and multilingual outsourced service platform with a broad geographical coverage

The Target Group is committed to building a multilingual and multichannel outsourced service platform with a nationwide footprint. Witnessing the evolution of the customer service outsourcing industry from traditional call centres with manual hotline services to interactive contact centres and further to the present-day cloud-based contact service centres, the Target Group is fully equipped to provide customer service solutions, including contact services (which covers marketing, pre-sales consulting, IT support and other support services) and BPO services through various channels such as telephone, live chat on various online platforms including apps, social media and customers’ websites and other cloud-based audio and video communication methods. The Target Group also helped its customers to set up their contact service systems and centres during the Track Record Period.

As at 31 March 2020, the Target Group had 12 self-operated contact service centres in eight cities across China with approximately 6,341 workstations. Together with another eight contact service centres operated by its subcontractors as at 31 March 2020, the Target Group’s services covered all regions in China.

By placing the contact service centres close to the target markets of its customers, the Target Group believes that this will give valuable local insights to its customers and cater their services to the needs of their end-users. With a large network strategically covering its key markets in China, the Target Group believes that it will allow them to strengthen its business relationship with its customers and continue to build upon its existing network. Equipped with Mandarin, Cantonese, English and Japanese capabilities, the Target Group is able to provide multilingual and multichannel outsourced customer care services for customers in many parts of the world, which the Target Group believes lays a solid foundation for the Target Group to grow into a global leader in the customer service outsourcing industry.

High-quality customer base focusing on leading companies in the Internet, finance and telecommunication industries

According to CIC, booming demands from downstream industries has been, and will continue to be, a growth driver for the customer service outsourcing industry in the future. As at 31 March 2020, the Target Group has provided outsourced customer care services to companies ranging from Fortune 500 multinational companies to fast-growing local companies. The Target Group carefully chooses its customers, focusing on cultivating strategic relationships with selected customers that are leaders in their respective industries. With the fast expansion of the internet industries, the Target Group saw the unmet demands arise and strived to fill the demands in the customer service outsourcing industry. Over the years, the Target Group grew with its customers, won their trust with its high-quality services, and gained more customers. After years of cultivation and persistence, many of the key customers of the Target Group were major Chinese internet-based service providers that are leaders in areas such as e-commerce, financial services, education and transportation services. The Target Group believes that these internet-based service providers are household brands in China. Their needs to continuously provide customer services to customers of their own provided opportunities for the Target Group and propelled the overall growth of the Target

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Group during the Track Record Period. The Target Group also maintains strong relationship with customers in the traditional finance and telecommunication industries, including over 30 securities houses and one of the largest telecommunication service providers in China during the Track Record Period. The Target Group believes that the value of the services it provides to its customers have been recognised by its customers and increases their stickiness to the Target Group, providing the Target Group with a reliable source of revenue.

Highly-quality services recognised in the industry

Providing its customers with services of the highest quality possible has been the number one priority for the Target Group. The Target Group is committed to providing high-quality services and is constantly striving to improve its services. As a testament to the quality of services, the Target Group has received a number of major certifications during its operating history including COPC certification. According to CIC, the COPC certification is centered on customer experiences and the most prestigious certification in the customer service outsourcing industry based on COPC Customer Experience Standard. According to the same source, the Target Group is the first local outsourced customer care service provider in China that achieved COPC certification for two of its contact service centres. The directors of the Target Group believe that the COPC certification process has helped the Target Group to improve its operational performance using the best industry practice as the benchmark. Through the certification process, the Target Group’s contact service centres improved contact resolution and customer satisfaction as well as reduced the Target Group’s cost of services. Moreover, the Target Group has achieved multiple ISO certifications including ISO 27001 certification related to information security management.

In addition, the Target Group’s achievement was widely recognised in the customer service outsourcing industry as it received multiple awards in the customer service outsourcing industry in China over the past years, including the China’s Best Outsourcing Contact Center Award and Outstanding Manager (中國最佳外包呼叫中心獎及優秀管理者) by the Professional Value-Added Services Committee of China Communications Enterprise Association & CTI forum (中國通信企業協會增值服務專業委員及CTI論壇) in 2016, the Golden Sound Award for China’s Best Customer Contact Center — New Talent in China’s Customer Contact Center Industrial Parks (中國最佳客戶聯絡中心金音獎 — 中國客戶聯絡中 心產業園區最佳新銳獎) by China Big Data Application and Customer Contact Center International Summit (中國大數據應用與客戶聯絡中心國際峰會) in 2017 and Excellent User Experience Award for Customer Care Service Provider (中國客戶聯絡中心卓越使用者體驗服 務商) by the Professional Customer Contact Center Committee of China Electronic Commerce Association (中國電子商務協會客戶聯絡中心專業委員會) in 2018. These awards are evidence of the Target Group’s ability to develop service offerings with the goals of meeting the needs and improving efficiency of our customers and creating synergies among us and our customers.

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Applying innovative technologies in various scenarios

The directors of the Target Group believe that the innovative technologies can help the Target Group to improve customer satisfaction while reducing cost. Therefore, its ability to apply innovative technologies in the services to its customers is critical to stay ahead in its competition. Through continuous talent development and talent recruitment, the Target Group has built an in-house R&D team with rich practical experience and advanced technical skills. The Target Group’s research and development effort is led by Mr. Hu, the Target Group’s chairman and co-founder. Mr. Hu was selected as a Leading Talent in Technology Start-ups (‘‘科技創業領軍人才’’) in China’s Ten Thousand Talents Program (‘‘國家萬人計劃’’) in 2019.

Under Mr. Hu’s leadership, not only has the Target Group been able to keep abreast with the latest industry technologies, it has also focused on the application of AI technology, cloud computing and big data in various scenarios of the customer service outsourcing industry. The Target Group has successfully developed many solutions such as recording management and quality control system, automatic speech recognition system and chatbot system. The recording management and quality control system can convert conversations to texts in realtime, perform key word analysis and provide feedback on the service quality. Utilizing the AI technology, the automatic speech recognition system, on the other hand, can accurately identify the customer’s intention using its natural-language understanding capabilities and perform certain tasks without human intervention. Built upon the automatic speech recognition system, the chatbot system is able to interact with the end-users and respond to some of their questions independently by matching keywords with the built-in database which can be customised based on the customers’ demand. By reducing the need for human interaction, the chatbot system can help its customers save costs and improve productivity. These solutions enable the Target Group to provide high-tech solutions tailored to each customer’s different needs.

The Target Group has also applied AI technology and big data to its business and management platforms. It has completed the development of an agile online learning and training system for its employees and a business management platform tailored to the customer service outsourcing industry. The directors of the Target Group believe that these business and management platforms have helped the Target Group to improve its operational efficiency and control its operating and administrative costs during the Track Record Period. As one of the leaders in applying innovative technologies in the customer service outsourcing industry, the Target Group believes that the core capability will help the company to stay competitive in the industry.

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Visionary and experienced management team and stable human resources

The Target Group has a stable yet energetic core management team with entrepreneurial spirit and rich experience in the customer service industry. On average, each member of the Target Group’s management team has more than ten years of experience in the customer service industry. Each member of the management team had work experience in listed companies or international corporations before joined the Target Group and four years of experience serving the Target Group on average. With an internet mindset, the management of the Target Group believes that it can understand and promptly respond to the customers’ demand. Committed to maximising the value for the customers, the employees and the shareholders, the Target Group will strive to constantly innovating and improving the services that it provides to strengthen its outsourced service system.

The directors of the Target Group believe that human resources are critical to the service experience that it provides to its customers. The Target Group makes effort to attract and retain talents, provide the best working environment possible to its employees and put emphasis on cultivation of professional skills and collaboration skills, which in turn helps improve customer satisfaction and enhance customer stickiness. With the goal to achieve satisfaction of customers, gain trust from partners, obtain support from employees and grow business with sustainability, the Target Group has established a comprehensive talent development system which covers different levels of employees and incentivizing the team to achieve excellence in multiple dimensions.

BUSINESS STRATEGIES

The Target Group will continue to proactively promote internationalisation strategies, innovate the business model, service, technology, management of the Target Group. The Target Group will relentlessly improve the business strategies to provide better services to the customers and add more value to the services that it offers.

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Continue to innovate in services and expand customer base and business scale

The Target Group will continue to promote innovation in services and business model. Leveraging the extensive network and reputation among the existing customer base which includes leading companies in the internet, finance and communications industries, the Target Group plans to develop more high-value customers in the internet-based service industries, local online-to-office service industries and traditional finance industries. Furthermore, the Target Group will promote different types of services to the existing customers by implementing concentric diversification strategy to discover and fulfil the customers’ heretofore unfulfiled demand, which in turn will further increase the customer stickiness and help the Target Group to achieve economies of scale and expand its market share. By aiming to expand its servicing capacity to over 10,000 workstations by the end of 2021, the Target Group intends to further consolidate its position as a leading outsourced customer care service provider in China and strives to become a global leader in the customer service outsourcing industry.

Expand market coverage both domestically and globally

The Target Group established a strategic alliance with SoftBank in July 2018. The Target Group believes that the strategic alliance with SoftBank afforded the Target Group an opportunity to provide transnational IT support services for reputable PRC corporations and serve their offshore end-users in Japan. In collaboration with SoftBank, the Target Group will continue to explore the offshore outsourcing customer service market for PRC corporations that are looking to go abroad. Domestically, the Target Group will seek to expanding its business network in China and lowering its operational cost, which the Target Group believes will enable it to provide differentiated and localised services to different customers. The Target Group will further implement its strategy to integrate onshore services, where it provides services in the same country as its end-users, with nearshore services, where it provides services in a different country that is geographically and culturally close to where the end-users are located, and offshore services, where it provides remote services to the endusers located in another country. The Target Group believes that these domestic and global expansions will further increase its capacity to serve its customers and increase its influence both at home and abroad.

Selectively pursue strategic vertical and horizontal acquisitions to facilitate and accelerate the integration of a multilingual and multichannel customer service platform

The customer service outsourcing industry is a highly competitive and fragmented industry. The Target Group will continue to focus on this industry and selectively pursue strategic vertical and horizontal acquisitions in back-office services, comprehensive marketing services and data centre services, to further facilitate and accelerate the integration of a multilingual and multichannel customer service platform. When searching for a suitable target for acquisition, the Target Group takes into account (i) the industry experience of the target and its familiarity with the local market; (ii) its relationship with existing customers; and (iii) the synergetic effect the target can bring to the enlarged group once the acquisition completes. With the plan to strengthen its capabilities to deliver services around the globe, the Target

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Group believes that strategic acquisitions will allow it to expand market coverage both domestically and globally quickly so that it can meet its customers’ demands in a short time and increase its market share at the same time.

Enhance the application of technologies in different scenarios with a view to build a smarter outsourced service system

The Target Group will continue to focus on enhancing the application of AI technology, cloud computing and big data in different scenarios. The Target Group aims to build a smart customer service system through the development of more smart solutions for its customers on one hand, and the advancement of its business and management platforms on the other hand. On the customer service solutions front, the Target Group aims to further develop its chatbot system to make its chatbot more capable in understanding the end-users’ different needs and handling more scenarios without human intervention to achieve further cost savings and productivity improvement. The Target Group will also further develop its quality control system to provide real-time alert when it senses that the end-users may be unsatisfied with the services provided and provide customised real-time suggestions to the Target Group’s employees to prevent the relationship with the end-users from further deteriorating. The Target Group will also further expand its internal databases and make it more accessible to its employees in an effort to standardize the solutions given by its employees to make the services provided by its employees more consistent. On the business management side, the Target Group will further refine its online learning app and intelligent customer service management platform. The Target Group will attempt to integrate the apps on the business management side to further streamline its management. The Target Group intends to further develop the system through developing new technologies and innovative solutions to serve customer needs, enabling businesses through improved technologies and creating increased value for its customers, generating stronger network effects.

Achieve higher profitability by promoting efficient operation and management

The Target Group will continue to optimise the customer-centric organisation and business model, including the further expansion of contact service centres into more cities in China and overseas cities in accordance with the business demand, improve the structure of human resources, strengthen the leadership of the management team and promote efficient operations. Furthermore, the Target Group will continue to assess its services in accordance with the COPC standards, six sigma and other international industry standards and methodologies, and further integrate these standards with the technologies for intelligent customer services, so as to improve its performance, streamline its operation process and maximise its profit.

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RECENT DEVELOPMENT

Impact of COVID-19 on the Target Group’s Business

The outbreak of COVID-19 in early 2020 has already caused, and may continue to cause, an adverse and prolonged impact on both economic and social conditions in China, among other countries, and the exacerbation, continuance or reoccurrence of COVID-19 in the markets the Target Group operates may interrupt its business operations.

In an effort to contain COVID-19 outbreak, the PRC government has imposed, among others, the following policies: (i) extended Lunar New Year holidays in provinces other than Hubei Province; and (ii) in Hubei Province, travel restrictions and work suspension have been gradually imposed in the entire province. Up to the Latest Practicable Date, travel restrictions and work suspensions have been uplifted. In particular, the lockdown in Wuhan was uplifted.

The Target Group strictly followed the work suspension requirements by the local governments in Hubei and other provinces with operations during the period. As at the Latest Practicable Date, all of the Target Group’s contact service centres have resumed work.

Target Group’s Response to the COVID-19 Outbreak

Flexible Work Arrangements

Responding to the evolving COVID-19 outbreak, the Target Group has been in close collaboration with its customers to implement work-from-home arrangements to the extent possible. Leveraging its in-depth experience in software development, IT set-up and data centre services, the Target Group was able to propose solutions to its customers that meet their stringent data security requirements and allow the contact service staff to gain remote access to the system to provide services with proper data security requirements. In addition, the Target Group closely monitors the demand of each of its projects and timely shifts personnel between different projects. The dynamic staff movement was made possible by the Target Group’s online learning and training app, which provided the Target Group’s staff an opportunity to get familiarised with the requirements of new project remotely. The work-fromhome arrangements and the dynamic staff movement between projects helped to ensure that the overall service volume remained largely stable from 31 March 2020 to the Latest Practicable Date despite the temporary suspension of the operations of the contact service centres.

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Precautionary measures to maintain hygienic working environment

In line with PRC government guidelines, the Target Group has implemented precautionary measures to maintain a hygienic working environment. For example, employees who traveled within China during the Lunar New Year holidays are required to self-quarantine in their homes for 14 days. The Target Group has also implemented health screening procedures for all entrants of its premises, including questioning their travel history and whether they have any symptoms associated with COVID-19, and measuring their temperature to ensure entry is only granted to those with a normal temperature. In addition, the Target Group provides and requires all persons to wear face masks when they are working onsite. They are also required to use the automatic disinfectant dispensers that have been installed at the entrance as they enter and leave. Furthermore, the premises are regularly cleaned each day. The Target Group has closely tracked the health status of its employees and has not received reports of any confirmed or suspected cases of COVID-19 as of the Latest Practicable Date.

Contingency measures

The Target Group has contingency measures in place to avoid material disruptions to daily operations. In particular, to reduce any negative impact from business interruptions, the Target Group generally avoids dependence on any single contact centre and spreads the projects across all of its contact service centres as well as the contact service centres owned by its subcontractors. In the case of a shutdown of any of the contact service centre that is either operated by the Target Group or its subcontractors, the work may be timely rerouted to another contact service centre operated by the Target Group or its subcontractors. In addition, relying on its experience in Hubei, the Target Group has refined its ‘‘flexible work arrangement’’ that can be quickly rolled out and implemented once another contact service centre is shut down. As the Target Group is in the service industry and has not undertaken work to renovate any site for its contact service centres since January 2020, the Target Group believes that the impact of COVID-19 outbreak on its supply chain is minimal. Solely for illustrative purpose and assuming the worst case scenario that may be caused by the further unexpected negative impact of COVID-19 outbreak and its prolonged impacts, the Target Group had to suspend indefinitely the operations of all contact service centres. In theory, the Target Group could terminate gradually its leases and most of its employees. The Target Group estimates that the cash and cash equivalents as at 31 March 2020 could support its minimal operations for at least two years.

Impact of COVID-19 on the Target Group’s Operational and Financial Performance

As of the Latest Practicable Date, as a result of the Target Group’s aforementioned arrangements, the Target Group considers that the COVID-19 outbreak did not have any material adverse impact on the Target Group’s overall business operations and financial performance.

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THE PRODUCTS AND SERVICES

The Target Group is an emerging leading outsourced customer care service provider with its principal place of business located in China. During the Track Record Period, the Target Group has focused on back-office services, primarily consisting of provision of customer service solutions (which in turn include contact services as well as call centre-related BPO services) during the Track Record Period. The Target Group also helped its customers to set up their contact service systems and centres during the Track Record Period. In addition to the back-office services segment, the Target Group has engaged in comprehensive marketing services and data centre services where the Target Group provides online and offline advertising services and ancillary IT services including IT system construction and maintenance, data backup and disaster recovery services for its customers. Currently, backoffice services, comprehensive marketing services and data centre services are the three business segments of the Target Group.

The table below sets forth a breakdown of the Target Group’s revenue by segment during the Track Record Period:

Back-office Services — Provision of customer service solutions — Setting up of contact service systems and centres Comprehensive Marketing Services Data Center Services Total	2018 RMB’000 % of total 227,754 69.9 41,859 12.9 269,613 82.8 10,516 3.2 45,524 14.0 325,653 100.0	2018 RMB’000 % of total 227,754 69.9 41,859 12.9 269,613 82.8 10,516 3.2 45,524 14.0 325,653 100.0	Year ended 31 March 2019 RMB’000 % of total 374,378 92.4 1,253 0.3 375,631 92.7 17,748 4.4 11,845 2.9 405,224 100.0	Year ended 31 March 2019 RMB’000 % of total 374,378 92.4 1,253 0.3 375,631 92.7 17,748 4.4 11,845 2.9 405,224 100.0	2020 RMB’000 % of total 412,575 96.0 — — 412,575 96.0 5,001 1.2 11,882 2.8 429,458 100.0	2020 RMB’000 % of total 412,575 96.0 — — 412,575 96.0 5,001 1.2 11,882 2.8 429,458 100.0
	269,613 10,516 45,524	82.8 3.2 14.0	375,631 17,748 11,845	92.7 4.4 2.9	412,575 5,001 11,882	96.0 1.2 2.8
	325,653	100.0	405,224	100.0	429,458	100.0

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The three business segments of the Target Group interact with each other, laying a solid foundation for sustainable development of the Target Group’s business. The directors of the Target Group believe that the extensive service experience and strong technical capability gained from operation of back-office services enable the Target Group to explore the opportunities in comprehensive marketing services and data centre services. With the operation in comprehensive marketing services and data centre services, the Target Group builds relationship with customers in various industries, which the directors of the Target Group believe may in turn bring customers for the Target Group’s back-office services.

Back-office Services

Provision of Customer Service Solutions

The Target Group provides round-the-clock contact services in multiple languages and accessible from various channels. Leveraging its extensive experience and technological advantage in contact centre operation, the Target Group has expanded the scope of the services that it provides from traditional phone-based call centre to modern Internet-based contact services. Currently, the Target Group provides services via telephone and various online platforms, such as apps, social media and websites to the customers. In addition, the Target Group provides call centre-related BPO services on behalf of companies to their respective end-users to improve these companies’ efficiency and productivity. The directors of the Target Group believe that its customer service solutions enable its customers to reduce operating costs, improve user satisfaction and enhance overall brand value. Over the years, the directors of the Target Group believe that the Target Group has gone beyond a mere service provider to become a business partner to its customers, providing functions that are critical to the customers’ daily operations and reputations and winning its customers’ confidence, trust and loyalty. As a testament to the increased bonds between the Target Group and its customers, the Target Group’s self-operated service capacity grew from approximately 4,634 workstations as at 31 March 2018 to 6,341 workstations as at 31 March 2020, representing a CAGR of 17.0 per cent.

For the years ended 31 March 2018, 2019 and 2020, the average service fee per staff approximately RMB95,000, RMB95,000 and RMB105,000, respectively. This is calculated by dividing the revenue of the Target Group derived from its provision of customer service solutions (but excluding such revenue derived from contact service centers owned by the subcontractors) by the average number of staff per month. As shown by the figures, the average service fee per staff was on an increasing trend during the Track Record Period, showing the Target Group’s continuous effort in ensuring our staff is efficient in its operations.

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In most of the cases, the Target Group charges fees in relation to its provision of customer service solutions based on a fixed-fee approach, which is calculated based on the budgeted headcounts involved in the project, multiplied by pre-determined fees. In other occasions, the customers adopt a performance-based charging scheme based on (1) the number of inbound or outbound calls handled by the Target Group’s contact service staff in a period; or (2) a commission based on the total sales made through the outgoing calls. Whether to adopt the fixed fees or the performance-based charging scheme generally depends on the preferences of the customers and is a result of arm’s length negotiations between the Target Group and its customers. As the Target Group generally prices its services based on a costplus approach, the Target Group carefully evaluates the cost of such services based on the estimated demand of its services, the costs of labour and skilled workers (based on the level of skills required), the costs of required equipment and technologies, expected project duration and estimated time costs. Then, with the added mark-up margin, the Target Group carefully considers whether the charging scheme as requested by the customers is an economically viable option for the Target Group and negotiates with its customers to find a win-win solution for both sides. Please refer to section headed ‘‘— Pricing’’ for further information on the Target Group’s pricing policies. The table below sets forth, for the periods indicated, the breakdown of the Target Group’s revenue generated from its provision of customer service solutions by charging scheme.

Revenue from provision of customer service solutions Fixed-fee Performance-based Total	Year ended 31 March 2018 2019 2020 RMB’000 173,656 267,455 286,140 54,098 106,923 126,435 227,754 374,378 412,575	Year ended 31 March 2018 2019 2020 RMB’000 173,656 267,455 286,140 54,098 106,923 126,435 227,754 374,378 412,575
		412,575

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Service Workflow

The following flow chart is an overview of the major steps involved in the provision of customer service solutions.

Service Workflow

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Project identification
Strategy formulation
Initial preparation
Performance of service
Continuous quality assurance
Data collection and feedback
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• . Project identification: The Target Group generally solicits new businesses through tenders, enquiries, referrals and active pitching and collecting customers’ requirements on the service including nature of the service, estimated call list size, expected success rate in terms of order or transaction amount, expected contactable rate, information to be collected and profile of the call list. After considering the availability of resources in terms of manpower, workstations, telecommunication facilities and system customization, the Target Group then prepares the corresponding service quotation or proposal to the customer for consideration.

• . Strategy formulation: Upon acceptance of the quotation or proposal by the customer, the Target Group, partnering with the customer, will formulate a strategy that is tailored to each customer’s specifications to help its customer achieve its objectives, including identifying specific target market and finalising call lists based on the customers’ requirements.

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• . Initial preparation: The Target Group carries out necessary preparatory works for the services:

• Staff sourcing: The Target Group sources the staff for a project based on the specifications of its customers. If the Target Group does not have an existing contact service centre in the specified location or does not have enough staff to perform the task, the Target Group may, with the customer’s permission, collaborate with a subcontractor regarding the project. Please refer to the section headed ‘‘— Suppliers — Subcontractors’’ for further details.

• Staff training: The Target Group provides the relevant training to the contact service staff assigned. The training is carried out in the form of classroom training, one-on-one training, role playing, case study and briefing with a view to equip the service staff with the necessary skills and knowledge to perform their duties. At the end of the training course, the trainees will be tested to ensure their ability to perform the service. Beginning from August 2017, the staff were also able to access their training through the online learning and training app the Target Group developed, which provided its staff with greater accessibility and flexibility and created a more engaging learning environment. Please refer to the section headed ‘‘— Research and Development’’ for further details. Each contact service staff is generally assigned to one customer at any given time and trained accordingly. The contact service staff is required to undergo new training before he or she may be redeployed to service another customer.

• Workstation set-up:

  • Location set-up: the location of the contact service centre is mutually agreed by the Target Group and its customers. Depending on the needs of the customers, it may be housed within the customers’ premise or in an off-site location managed by the Target Group. If the Target Group does not have an existing contact service centre in the specified location, it may choose to lease a facility there, or with the customer’s permission, have the operation carried out by one of its subcontractors in that location. The subcontractors will be responsible for the day-to-day operation of that location.

— IT set-up: The Target Group sets up the system, workstations and telecommunication facilities for the project. Testings are carried out to ensure the proper functioning of the system. Some customers specify that the Target Group must use their own software to perform the services, in which case the Target Group will adopt the customers’ software. With other customers, however, the Target Group provides them with customised solutions based on its Nanyou Contact Center System. Functions such as automatic speech recognition, recording management and quality control and chatbot may be added to such solutions at the customers’ request.

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• . Performance of contact service: The contact service staff handle each enquiries from end-users. All incoming and outgoing communications related to Target Group’s contact services are digitally recorded, encrypted and saved for monitoring and investigation purposes. The voice recordings or online conversations can be readily retrieved by the date and time of the conversation or the unique reference number of the customer.

• . Continuous quality monitoring: The quality assurance staff and supervisors as well as the Target Group’s customers are able to perform real-time silent call monitoring and through the voice recordings to monitor and evaluate the service quality of the contact service staff. If necessary, refresher training or more intensive coaching will be carried out to further improve the performance of the staff.

• . Data collection and feedback: To reflect the performance of the contact service and the progress of the project, the Target Group is able to prepare service reports and submit them to the customers on a daily basis or upon their request. The different types of report and information that the Target Group can generate include:

• for inbound contact services, enquiry pattern reports showing statistics on incoming enquiries, answered enquiries, abandoned enquiries, average enquiry waiting time, average service time, service level achieving percentage;

• for outbound contact services, reports showing statistics on calls made, customers contacted, customers under consideration, accepted offers, total transaction amount, rejected offers, rejection reasons;

• enquiry nature reports showing statistics on the nature of all answered enquiries (such as enquiry on pricing, enquiry on product features, enquiry on terms and conditions and complaints);

• staff performance reports showing statistics on contact service staff productivity;

• order reports showing detail information of each successful order; and

• follow-up reports showing details of the content of the calls for future reference.

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Contact Services

Inbound Contact Services

For inbound contact services, the Target Group is able to provide general enquiry hotlines, customer service hotlines, helpdesk hotlines, remote IT support, complaint review and online customer care services, such as answering enquires through live chat on various online platforms including apps, social media and websites on behalf of the customers. The Target Group’s inbound contact service staff work on shifts round-the-clock or at hours specified by the customers at the Target Group’s contact service centres. The Target Group’s contact service staff are capable to handle incoming calls and online enquiries in multiple languages including Mandarin, Cantonese, English and Japanese to service end-users from different parts of the globe.

The Target Group has focused on the application of AI technology, cloud computing and big data in various scenarios of the inbound contact services and successfully developed many high-tech solutions that can be tailored to each customer’s different needs, such as recording management and quality control system, automatic speech recognition system and chatbot system. The recording management and quality control system can convert conversations to texts in real-time, perform key word analysis and provide feedback on the service quality. Utilizing the AI technology, the automatic speech recognition system, on the other hand, can accurately identify the customer’s intention using its natural-language understanding capabilities and perform certain tasks without human intervention. Built upon the automatic speech recognition system, the chatbot system is able to interact with the end-users and respond to some of their questions independently by matching keywords with the built-in database which can be customised based on the customers’ demand. By reducing the need for human interaction, the chatbot system can help its customers save costs and improve productivity. Please refer to the section headed ‘‘— Research and Development’’ for further details.

For some customers, the Target Group charges a fixed basic fee for every call answered in connection with the inbound contact services that the Target Group delivers. The aggregate amount of the service fee is based on the total number of calls answered by end-users in a certain period. For other customers, the Target Group charges a fixed fee based on the number of contact service staff involved in the project. The fees may be adjusted based on certain key performance indicators such as the quality of the call based on the feedback collected from the answering party.

Outbound Contact Services

The Target Group provides outbound contact services where it helps to promote the brands, products and services of its customers under the instructions from the customers. The customers of the Target Group provide the relevant call lists of their customers for the Target Group to make outbound calls on their behalf. The outbound contact services, including telemarketing services, recruitment services, post-sale follow-up services and customer satisfaction surveys, are performed by the contact service staff of the Target Group with feedback recorded in detail.

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With an in-depth understanding in its customers’ industries, the Target Group is able to represent its customers professionally and market the products or services of its customers in a positive manner. Before making the initial round of contact, well-planned sales strategies and tailored scripts are prepared by the Target Group for each customer to make sure that the telemarketing campaign is targeted and relevant to the potential clients of each customer. In order to enhance the performance and efficiency of the communication, the Target Group analyses the feedback collected from the initial round of contact and looks for ways to improve its strategies before the second round of contact. To improve the efficiency of the overall efficiency of the operation, the Target Group developed its proprietary predictive dialer algorithm that automatically makes an appropriate number of calls in advance by predicting the availability of its contact service staff based on past calling statistics. Please refer to the section headed ‘‘— Research and Development’’ for further details. The directors of the Target Group believe that the Target Group, acting as an extension of the customers’ marketing team, can help strengthen brand recognition and boost revenue for its customers with its experience accumulated through operation.

The fees charged by the Target Group for outbound contact services are usually based on the total number of calls made in a fixed period or the total number of contact service staff involved in the project. For the outbound contact services that focuses on the promotion and sale of customers’ products, the Target Group may also agree to charge a commission which is usually a fixed percentage of the total sales made through the outgoing calls in a fixed period of time. The fees may be adjusted based on certain key performance indicators such as the quality of the call based on the feedback collected from the answering party.

BPO services

The Target Group provides call centre-related BPO services on behalf of companies to their respective end-users to improve these companies’ efficiency and productivity. The BPO services the Target Group is able to provide primarily include order processing, audio and video review, image processing, content operation and other customised business process outsourcing services. Moreover, the Target Group provides agent operation services such as agent sales, operating data processing and back-office information filing. Leveraging the competitive strengths in contact services, the Target Group is able to participate in the business processes of its customers which are market leaders in various industries through providing contact services, which help the Target Group to capture more business opportunities in internet and mobile solutions. The directors of the Target Group believe that the BPO services it provides to its customers allow them to save costs, give them greater flexibility to respond to changing market dynamics and enable them to focus on their resources on the core operations that distinguish them in the marketplace. With a focus on the outsourced business process, the Target Group also endeavours to perform the task with greater accuracy, efficiency and speed.

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For some customers, the Target Group charges a fixed fee for each task handled in connection with the outsourced business process that the Target Group performs. The aggregate amount of the service fee is based on the total number of tasks performed by the Target Group in a certain period. For other customers, the Target Group charges a fixed fee based on the number of service staff involved in the project. The fees may be adjusted based on certain key performance indicators such as the quality of the tasks performed.

Setting up of Contact Service Systems and Centers

During the Track Record Period, the Target Group also derived revenue from setting up contact service systems and centres for one of its customers. Leveraging on its experience in setting up contact service systems and centres, the Target Group is responsible for designing, installing, test, trial and software and hardware support during the specified warranty period for its customer, as well as providing Contact Services on behalf of such customers. As a part of the project, the Target Group acquired hardware, mainly computers and telecommunication equipment, at the instruction of the customer and the costs were subsequently passed onto the customer. The Target Group also installed its proprietary customer service contact system for the customer. Please refer to the section headed ‘‘— Research and Development — Customer Service Contact System’’ for further details.

The Target Group charges its customer based on project milestones, with significant upfront payment required for the Target Group to procure the necessary hardware. However, according to the relevant contracts, the last payment will become payable only after the warranty period ends with no material quality issues discovered.

Comprehensive Marketing Services

The Target Group is engaged in comprehensive marketing services where it provides advertising services to brand owners on various online platforms including apps, social media and websites, as well as offline media. The comprehensive marketing services the Target Group is able to provide include brand market research, brand communication, advertising strategy design, advertising content creativity and communication effect tracking. The Target Group is currently exploring opportunities in online digital branding and promotion where it designs and develops mobile applications, mobile stores, internet sites and e-commerce platforms for its customers and promotes the products and services of its customers through these channels. The Target Group also plans to further explore the opportunities in this segment through establishing and operating an internet celebrity incubator with Mango U- Show, a company affiliated with Hunan Broadcasting System, aiming to leverage the fan base of the internet celebrities to attract more website traffic to the customers’ products or services.

The Target Group has established strong relationships with some of its customers in this segment over the years. These customers will typically provide the Target Group with quarterly assignments. The Target Group will charge these customers using the rates that are pre-determined in the framework agreement between them. For the customers that the Target Group has not yet established a long-term relationship, the Target Group will charge them on a project-by-project basis based on project milestones.

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Data Center Services

The Target Group provides value-added services to data centres which house core IT systems for securities houses, including their trading system, quotation system and data processing system. Key services that the Target Group provides include system planning, system design, system integration, disaster recovery and operations management. As the Target Group believes that it is one of the few companies in the country that is capable to service all major interfaces deployed by Chinese financial institutions, the directors of the Target Group are of the view that the Target Group is uniquely positioned to provide one-stop services to major securities houses in the PRC. Its distinctive technical capabilities are matched by its market position as a supplier of major stock exchanges in China and provides maintenance services to the core IT systems of these stock exchanges. The cooperation with the stock exchanges has afforded the Target Group accesses to the stock exchanges’ customers. As at 31 March 2020, the Target Group’s customers included 21 securities houses. Please refer to the section headed ‘‘— Customers’’ for further details.

During the Track Record Period and as at the Latest Practicable Date, the Target Group has performed its maintenance services satisfactorily and the disaster recovery systems functioned as designed, with no losses reported by the customers of this segment.

The Target Group has established strong relationships with some of its customers in this segment over the years. These customers will typically provide the Target Group with quarterly assignments. The Target Group will charge these customers using the rates that are pre-determined in the framework agreement between them. For the customers that the Target Group has not yet established a long-term relationship, the Target Group will charge them on a project-by-project basis based on project milestones. The Target Group generally requires the customers who purchase data centre services from the Target Group to prepay the fees.

GEOGRAPHICAL COVERAGE

As at 31 March 2020, the Target Group had established 12 self-operated contact service centres in Dalian, Hefei, Kunshan, Wuhan, Xiangyang, Chengdu, Leshan and Luzhou and set up approximately 6,341 workstations in operation over six years. In addition, the Target Group had another eight contact service centres operated by its subcontractors. The contact service centres of the Target Group are in strategic locations, with close proximity to the customers and the end-users, which allows the Target Group to provide differentiated and localised services to its customers. With a strategic alliance with SoftBank, the business operation of the Target Group has branched out to overseas.

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The following table sets forth certain details of the contact service centres of the Target Group as at 31 March 2020:

Contact Service Centers Owned by the Target Group

No. Location 1. Hongchuang Road East, Dalian, Liaoning 2. Huangpu Road, Dalian, Liaoning 3. Guangxian Road, Hi-Tech Zone, Dalian, Liaoning 4. Hefei, Anhui 5. Kunshan, Jiangsu 6. Guanggu Finance Port, Wuhan, Hubei 7. Optical Valley Software Park, Wuhan, Hubei 8. Xiangyang, Hubei 9. Gaopeng Avenue, Chengdu, Sichuan 10. Wenquan Avenue, Chengdu, Sichuan 11. Leshan, Sichuan 12. Luzhou, Sichuan Subtotal (1)

Approximate Number of Workstations Available 1,034 348 30 350 130 306 72 416 2,089 646 466 454

6,341

Contact Service Centers Owned by the Subcontractors

No. Location 1. Gaoqing, Shandong 2. Taiyuan, Shanxi 3. Dalian, Liaoning 4. Binzhou, Shandong 5. Shenyang, Liaoning 6. Dezhou, Shandong 7. Chengdu, Sichuan 8. Yancheng, Jiangsu Subtotal (2) Total	Approximate Number of Workstations Available 580 115 156 85 214 70 129 120
	1,469
	7,810

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Note:

• (1) For contact service centres owned by the Target Group, the number of workstations available may exceed the number of the Target Group’s operating employees. This primarily reflects (1) the redundancy in the Target Group’s daily operations, (2) capacity build-up for the upcoming peak season with the approaching ‘‘11.11 global shopping festival’’ and (3) newly added capacity for future development.

• (2) For contact service centres owned by the subcontractors, the number of workstations available matches the number of outsourcing staff at that time. The subcontractors generally decide the number of workstations in these service centres. They allocate outsourcing staff to the Target Group based on the Target Group’s operational needs.

The following map illustrates the geographical distribution of the contact service centres of the Target Group as at 31 March 2020:

==> picture [417 x 290] intentionally omitted <==

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

Shenyang
Dalian
Taiyuan
Gaoqing Binzhou
Dezhou
Yancheng Self-operated & Operated by
Subcontractors
Xiangyang Hefei Kunshan Self-operated
Chengdu Wuhan Operated by Subcontractors
Leshan
Luzhou
----- End of picture text -----

With a strategic alliance with SoftBank, the business operation of the Target Group has branched out to overseas. The Target Group established a strategic alliance with SoftBank in July 2018. SoftBank is a wholly-owned subsidiary of SoftBank Group Corp., with computer software development, software outsourcing and IT information consulting as its principal business. The strategic framework agreement entered into in July 2018 calls for (i) SoftBank to provide opportunities for the Target Group to expand and provide offshore smart customer support services in Japan, (ii) the Target Group to recommend its customers to SoftBank when they are seeking to expand their business into Japan, (iii) the parties to jointly develop smart city businesses and AI solutions. The strategic framework agreement is valid for three years. Under the strategic framework agreement, the parties set up a joint working group with

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regular communications made each parties. In September 2019, the parties established a joint venture, Dalian Zhiyin, which is owned as to 60% by the Target Group and 40% by SoftBank as at the Latest Practicable Date. Beginning from 2019, the Target Group also began to provide transnational IT support services for a reputable PRC corporation for its end-user in Japan. In collaboration with SoftBank, the Target Group will continue to explore the offshore outsourcing customer service market for PRC corporations that are looking to go abroad. The Target Group will seek to expand its servicing capacity to over 10,000 workstations by the end of 2021. Please refer to the section headed ‘‘— Business Strategies — Continue to innovate in services and expand customer base and business scale’’ and ‘‘— Business Strategies — Expand market coverage both domestically and globally’’ for further details.

CUSTOMERS

During the Track Record Period, many of the key customers of the Target Group were major Chinese internet-based service providers that are the leading companies in their respective industries, such as e-commerce, financial services, education and transportation services. These customers include leading mobile transportation platforms, a leading e- commerce platform, a leading fintech company and a reputable online education company. The Target Group believes that these internet-based service providers are household brands in China. Their needs to continuously provide internet-based customer services to customers of their own provided opportunities for the Target Group and propelled the overall growth of the Target Group during the Track Record Period. Leveraging on its experience and expertise accumulated from serving the leading companies in their respective industries, the Target Group has expanded its customer base to serve other players in the same industry. The Target Group also maintains strong relationship with its customers in the telecommunication industry. Its key customers include one of the largest telecommunication service providers in China. The Target Group is also actively exploring new revenue-generating opportunities by providing more services to its existing customers, such as comprehensive marketing services.

In addition to providing back-office services, the Target Group also generated revenues from providing data centre services to securities houses. During the Track Record Period, the Target Group provided services to over 30 securities houses in this segment. The Target Group’s operational system maintenance services and advanced data backup and disaster recovery services help their customers to minimise their operational risks.

During the years ended 31 March 2018, 2019 and 2020, the number of the Target Group’s customers amounted to approximately over 100, 110 and 90, respectively. As at 31 March 2018, 2019 and 2020, the number of ongoing projects were 65, 71 and 77, respectively.

Top Customers

The tables below set forth certain information of the Target Group’s top five customers during the periods indicated.

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For the year ended March 31, 2018:

Rank Customer Industry Background Scale of operation Project Type Credit Period Settlement method Relationship with the Target Group since 1 Customer B Transportation Leading mobile transportation technologies platform Registered Capital: RMB5.6 billion Customer service outsourcing 30 days Wire transfer 2016 2 Customer A Technology IT services provider Registered Capital: RMB100.0 million Service platform procurement Up to 30 days from milestone dates Wire transfer 2015 3 Customer F Transportation Bicycle sharing company Registered Capital: US$1.5 billion Customer Service outsourcing 15 days Wire transfer 2017 4 Customer G Technology IT services provider Registered Capital: RMB31.1 million Service platform procurement 5 days from milestone dates Wire transfer 2017 5 Customer D Telecommunication One of the largest telecommunication service providers in China Listed on Shanghai Stock Exchange, New York Stock Exchange and Hong Kong Stock Exchange Registered Capital: RMB16.4 billion Customer service outsourcing Payable on demand Wire transfer 2014

Revenue % of total revenue RMB’000 % 99,330 30.5 43,260 13.3 35,789 11.0 27,435 8.4 20,146 6.2

Total

225,960 69.4

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For the year ended March 31, 2019:

Rank Customer Industry Background Scale of Operation Project Type Credit Period Settlement method Relationship with the Target Group since 1 Customer B Transportation Leading mobile transportation technologies platform Registered Capital: RMB5.6 billion Customer service outsourcing 60 days Wire transfer 2016 2 Customer H E-commerce Leading ecommerce platform Listed on New York Stock Exchange and Hong Kong Stock Exchange Registered Capital: US$153.0 million Customer service outsourcing 10 days Wire transfer 2017 3 Customer D Telecommunication One of the largest telecommunication service providers in China Listed on Shanghai Stock Exchange, New York Stock Exchange and Hong Kong Stock Exchange Registered Capital: RMB16.4 billion Customer service outsourcing Payable on demand Wire transfer 2014 4 Customer I Transportation Mobile transportation technologies company Registered Capital: RMB53.6 million Customer service outsourcing 30 days Wire transfer 2017 5 Customer F Transportation Bicycle sharing company Registered Capital: US$1.5 billion Customer Service outsourcing 15 days Wire transfer 2017 Total

Revenue % of total revenue RMB’000 % 171,940 42.4 85,539 21.1 40,967 10.1 12,216 3.0 11,240 2.8 321,902 79.4

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For the year ended 31 March 2020:

Rank Customer Industry Background Scale of Operation Project Type Credit Period Settlement method Relationship with the Target Group since 1 Customer B Transportation Leading mobile transportation technologies platform Registered Capital: RMB5.6 billion Customer service outsourcing 60 days Wire transfer 2016 2 Customer H E-Commerce Leading e-commerce platform Listed on New York Stock Exchange and Hong Kong Stock Exchange Registered Capital: US$153.0 million Customer service outsourcing 10 days Wire transfer 2017 3 Customer D Telecommunication One of the largest telecommunication service providers in China Listed on Shanghai Stock Exchange, New York Stock Exchange and Hong Kong Stock Exchange Registered Capital: RMB16.4 billion Customer service outsourcing Payable on demand Wire transfer 2014 4 Customer I Transportation Mobile transportation technologies company Registered Capital: RMB53.6 million Customer service outsourcing 30 days Wire transfer 2017 5 Customer J E-Commerce Reputable e-commerce platform in the PRC A subsidiary of a listed company on Nasdaq Registered Capital: RMB10.0 million Customer service outsourcing 7 days Wire transfer 2019 Total

Revenue % of total revenue RMB’000 % 148,854 34.7 111,827 26.0 37,996 8.8 17,407 4.1 13,068 3.0 329,152 76.6

The Target Group’s business relationships with its top five customers for the year ended 31 March 2020 have spanned from one to six years. It is the Target Group’s strategy to develop long term business relationship with its customers. Its directors believe that the value of the services it provides to its customers have been recognised by its customers and increases their stickiness to the Target Group, providing the Target Group with a reliable source of revenue. As a result, the directors also believe that the mutual dependence developed between the Target Group and its major customers makes it difficult for its customers to terminate their existing contracts with the Target Group and enter into new contracts with its competitors.

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To the best knowledge, information and belief of the directors of the Target Group, having made all reasonable enquiries, during the Track Record Period and up to the Latest Practicable Date, (i) all of its top five customers were independent third parties and none of the Target Group’s top five customers and their respective subsidiaries, directors, shareholders or management, or any of their respective associates have any past or present relationship (including without limitation, family, employment, trust, financing or otherwise) with the Target Group, its subsidiaries, its shareholders, directors, senior management or any of their respective associates; (ii) none of the top five customers were related to each other; (iii) none of the directors of the Target Group, their respective close associates or any of the shareholders who owned more than 5% of the Target Group’s share capital had any interest in any of the Target Group’s top five customers; and (iv) save for Customer A, who wholly owns Supplier E, none of the Target Group’s top five customers were also its suppliers.

Customer Concentration

For the three years ended 31 March 2018, 2019 and 2020, the percentages of the total revenue attributable to the top five customers of the Target Group combined amounted to approximately 69.4%, 79.4% and 76.5% respectively, while the percentages of the total revenue attributable to the largest customer amounted to approximately 30.5%, 42.4% and 34.7% respectively.

The directors of the Target Group are of the view that such customer concentration is not uncommon for the customer service outsourcing industry in China.

According to CIC, as the majority of players in China’s outsourcing market are small- to medium-sized companies, industry peers normally possess limited resources, in specific skilled project management team and workforce. According to the same source, given the limited capacity of these outsourcing companies, it is not uncommon for outsourcing service providers to focus on providing comprehensive and tailor-made services to a small number of customers.

Despite customer concentration during the Track Record Period, the directors of the Target Group consider that the Target Group’s business is sustainable as the Target Group employs a concentric diversification strategy by providing different types of value-added services along the value chain to the same customers, which enables the Target Group to cross-sell to its customers and creates a synergistic effect among different segments. In addition, the Target Group has a high-quality and diversified customer base with major customers being leading companies distributed among transportation services, e-commerce, financial services and education industries, which allows the Target Group to reduce the business risks associated with a singularly focused industry sector. The Target Group is recognised for its outsourcing services which are tailor-made for each of its customers, thereby creating an exclusive bonding between the Target Group and its customers. Moreover, the Target Group has an extensive business network in various geographical areas and keeps exploring opportunities to enter into new markets. The directors of the Target Group also believe that the Acquisition will further enhance the Target Group’s profile and recognition, and hence its ability to attract new business as it signifies the financial strength of the Target Group.

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Agreements with Customers

Back-office Services

The Target Group generally enters into service agreements with customers who engaged the Target Group’s back-office services on a framework agreement basis. These service agreements are legally binding and generally include the following salient terms:

• Term : The Target Group generally enter into one-year to three-year framework/service agreement with its customers.

• Sales and pricing : The Target Group generally adopt a cost-plus pricing policy policy where the costs are determined based on labour and material costs and overheads.

• Payment and : The Target Group generally delivers at the end of each month an credit terms invoice to the customers stating the service fee charged for the work and services performed by the Target Group. The Target Group’s key customers are generally required to settle monthly bills within up to 60 days following invoice date.

• Designation of : Key execution team members of each project will be listed out in the team the agreement. Some of the customers may specify key personnel of the Target Group to be members of the team to take charge of the project.

• Key performance : Performance metrics used for the evaluation of contact services indicator provided by the Target Group, including but not limited to customer satisfaction level, percentage of first call resolution, frequency of technical problems and occurrence of material/ immaterial errors. The Target Group are subject to fee deduction or penalty if the agreed-upon service level stated in the agreement cannot be achieved.

• Event of default : Defaulting party (1) fails to perform or observe any obligations or terms contained in the agreement; or (2) becomes insolvent or unable to pay its debts when due or commits or permits any act of bankruptcy, and such default shall continue unremedied for a period of 30 days after the date upon which written notice is given to the defaulting party by the non-defaulting party.

• Termination : The non-defaulting party may terminate the agreement with a 30 days’ notice upon the occurrence of an event of default, provided that if upon receipt of the notice, the defaulting party cures the default, then such notice shall be of no force and effect.

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• Confidentiality : Each party should not disclose or cause to disclose information covered by the agreement to any third party without the consent of the counterparty.

Comprehensive Marketing Services

With regard to its comprehensive marketing services, the Target Group generally enters into service agreements with customers on a project-by-project basis. These service agreements generally last the duration of the project. The fees chargeable to the customers are usually based on project milestones. An agreed percentage of the fees are payable upon completion of specific works according to the payment schedule as set out in the agreement. The agreement can be terminated by the non-defaulting party if the counterparty violates the agreement.

Data Center Services

The Target Group generally enters into fixed-term agreements of either one year or three years with customers who purchase data centre services from the Target Group. The Target Group generally requires its customers in this segment to make monthly payments, usually with payment due in arrears in the month following provision of the services or following the receipt of invoices. The agreement can be terminated by the non-defaulting party if the counterparty violates the agreement.

To the best knowledge, information and belief of the directors of the Target Group, having made all reasonable enquiries, the Target Group had no material breaches of any agreements with its customers during the Track Record Period.

Credit Policy

In general, the Target Group adopts different payment and credit terms with respect to the different services it provides. With respect to back-office services, the Target Group generally issues invoices to a customer on a monthly basis and requires settlement of its fee within a specified period thereafter. For comprehensive marketing services, fees are generally determined on a per-project basis, of which payments shall be made in accordance with various project milestone dates. With respect to data centre services, the Target Group generally requires prepayment in full from a customer before commencement of services for each customer. With payment of services where credit terms are given to customers, the Target Group normally requires receipt of payment within between 10 to 60 days for the Target Group’s key customers. The Target Group may grant credit terms of up to 180 days for certain other customers. In practice, the Target Group may extend the payment terms of its key customers, most of whom are internet-based service providers with household names in China, in part to strengthen the customer relationship and the directors of the Target Group believe that they generally have low credit risks.

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The Target Group seeks to maintain control over its outstanding receivables. Overdue balances are reviewed by the senior management of the Target Group and evaluated with respect to the appropriate follow-up actions to be taken, taking into consideration the customer’s usual payment practices, payment history and the Target Group’s relationship with the relevant customer.

For each of the three years ended 31 March 2018, 2019 and 2020, the average accounts receivables turnover days were approximately 91.5 days, 136.1 days and 174.3 days respectively. Please refer to the section headed ‘‘Management Discussion and Analysis of Financial Information of the Target Group — Discussion of Certain Key Consolidated Balance Sheet Items — Accounts and Other Receivables’’ for further analysis of the Target Group’s accounts receivables.

Seasonality

The results of operations of the Target Group are generally characterised by seasonal fluctuations due to various reasons, including seasonal buying patterns and economic cyclical changes.

The Target Group attributes this seasonality to the ‘‘618 mid-year shopping festival’’ and ‘‘11.11 global shopping festival’’ which usually brings about surges in online consumption via e-commerce platforms in China. Where most of the Target Group’s major customers are Chinese internet-based service providers, they tend to allocate a significant portion of their customer services and marketing budgets to the second and fourth calendar quarter to capture the business opportunities derived from the increased consumption demand of consumers during the two major shopping festivals. Accordingly, the business of the Target Group may be affected by the seasonal fluctuation in the demand for its outsourced customer care services.

SALES AND MARKETING

The business and marketing department is responsible for, among others, the solicitation of new businesses through tenders, enquiries, referrals, direct visiting and active pitching. As at 31 March 2020, the Target Group had ten full-time employees responsible for its sales and marketing activities. For the years ended 31 March 2018, 2019 and 2020, the total marketing expenses were RMB6.4 million, RMB5.8 million and RMB4.5 million, respectively.

The Target Group has developed the following marketing strategies, namely:

1. The ability to effectively cross-sell across the three business segments to attract new customers while allowing existing customers to remain loyal to the reliable and quality services and solutions that the Target Group constantly delivers;

2. By targeting and retaining customers who are the leading internet-based companies in their respective industries, the Target Group is able to grow into one of the leading internet-based contact service providers in China;

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1. The Target Group builds its brand and reputation primarily through word-of-mouth and business referrals of satisfied customers and the high-quality services of the Target Group;

2. The Target Group identifies various business opportunities by closely monitoring and following the latest technology trends in the industry, which in turn enables itself to capture customers’ demand and to keep pace with customers’ evolving expectations in a timely and precise fashion;

3. The senior management and marketing team of the Target Group identify additional sales opportunities from the existing pool of customers and develop tailor made solutions for them;

4. The Target Group forms strategic partnerships with some of the largest international outsourced customer care service providers to leverage their experiences and international presence, thereby promoting the products and services of the Target Group on a global scale;

5. For the Target Group’s data centre services segment, by cultivating strategic relationship with stock exchanges, the Target Group is able to take a deeper dive into the financial and securities sectors and to seek out potential securities houses that are in need of the Target Group’s data centre services.

The Target Group endeavours to be a trustworthy and preferred service provider of all of its customers, providing a variety of reliable services to meet their business needs. The directors of the Target Group believe that the reputation established by the Target Group over the years and the proven track record of quality services provided to customers have gained trust and appreciation from customers that foster continuous growth of the business of the Target Group.

PRICING

The Target Group generally prices its services based on a cost-plus approach. The directors and senior management of the Target Group determine the mark-up margin. In determining the mark-up margin, the directors of the Target Group will strike a balance between profit margin and competitive pricing to win contracts when preparing quotation/ tender proposal with an aim to achieve sustainable growth of the business. Factors including the costs of labour and skilled workers, costs of required equipment and technologies, project duration and estimated time costs will be considered.

There are different charging schemes for different types of contact services provided to customers due to the differences in the nature of the services. Please refer to the section headed ‘‘— The Products and Services’’ for further information on the different charging schemes. Typically, all the charges are agreed with the customers in advance and shall remain unchanged during the contract period unless otherwise mutually agreed between the customers and the Target Group.

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During the Track Record Period, the Target Group did not have any material dispute with the customers on the fees charged. The finance department of the Target Group is responsible for ensuring the accuracy of billing, including but not limited to, verifying the calculation of billing against the contract and other relevant reports and confirming the billing amount with the relevant departments. The finance department also ensures the completeness of billing through, including but not limited to, system monitoring, developing billing sequence control system and these processes are regularly reviewed by the head of the finance department. The information of a project will be input into the system based on the contract. The designated finance staff member of the Target Group is responsible for monitoring the progress of the projects and ensuring the billing amount is consistent with the amount shown in the system. Variance of the billing amount can be identified by the designated finance staff and followed up by the relevant parties subsequently. The finance department is also responsible for the proper maintenance of the accounting records of the Target Group.

COMPETITION

The Target Group faces intense competition in each of the business segments in which the Target Group operates, and this situation is expected to persist in the future.

The Target Group’s main competitors for its back-office services, in general, are other outsourced customer care service providers that provide contact services similar to those provided by the Target Group. The customer service outsourcing industry are fragmented. According to CIC, there were approximately 2,700 outsourced contact centre service providers in China in 2019, with the top ten players accounting for a combined market share of 30.0% in terms of revenue in the same year. The directors of the Target Group believe that the Target Group enjoys a competitive advantage against its peers, with the Target Group committed to providing high-quality services to leading companies in the internet industry. Founded in 2013, the Target Group has risen quickly through the ranks to become an emerging leader in the industry. According to CIC, the Target Group ranked the 16th in China and one of the top ten local privately-owned outsourced customer care service providers, both in terms of revenue in 2019. With the continued innovation in the Target Group’s services and expansion of its customer base and business scale as it expanded its market coverage both domestically and globally, the directors of the Target Group aim to further consolidate its position as a leading outsourced customer care service provider in China as well as a global leader in this industry.

Please refer to the section headed ‘‘Industry Overview’’ for further information on competitive landscape of the industries in which the Target Group operates.

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RESEARCH AND DEVELOPMENT

The directors of the Target Group believe that persistent research and development are crucial for the Target Group in maintaining its market position and to compete successfully in the industry in which the Target Group operates.

The Target Group’s research and development departments are mainly responsible for researching, designing and developing technology solutions and software products for the Target Group’s back-office services, comprehensive marketing services and data centre services. During the Track Record Period and as at the Latest Practicable Date, the Target Group has focused on the development and enhancement of its customer service contact system and customer service management system. The key products of the Target Group, including its AI-enabled chatbot system, intelligent contact system, recording management and quality control system, online learning and training app and contact service management platform, have been widely relied upon by the Target Group in its daily operations.

The Target Group’s research and development effort is led by Mr. Hu, the Target Group’s chairman and co-founder. Mr. Hu was selected as a Leading Talents in Technology Startups (‘‘科技創業領軍人才’’) in China’s Ten Thousand Talents Program (‘‘國家萬人計劃’’) in 2019. As at 31 March 2020, the Target Group’s research and development team consisted of 275 staff, and all of them possess relevant experience in the customer service industry or professional qualification in system development. The core staff of the Target Group’s research and development team have relevant experiences of five years or above in system development. During the Track Record Period, the Target Group’s total expenditure on research and development (including capitalised expensed costs), amounted to approximately RMB18.7 million, RMB20.4 million and RMB13.0 million for the years ended 31 March 2018, 2019 and 2020, respectively.

Customer Service Contact System

Continual advancements in technologies such as AI technology, cloud computing and big data have given the Target Group additional tools and resources to transform customer service interactions. Aiming to provide customer services with higher efficiency and lower cost, the Target Group has developed its AI-enabled chatbot system which employs technologies such as automatic speech recognition, silence detection and voiceprint recognition. With automatic speech recognition technology, the AI-enabled chatbot system is capable of accurately identifying end-users’ intention and producing suitable responses by matching keywords with the built-in database which can be customised based on the customers’ demand. With silence detection technology, the AI-enabled chatbot system is capable of understanding when the end-user finishes a sentence and starting to respond, thereby ensuring a frictionless interaction. With voiceprint recognition technology, the AI-enabled chatbot system is capable of separating human voice from machine voice and facilitating data processing by identifying the effective information from the recording. Above all, the AI-enabled chatbot system is equipped with cloud-based text-to-speech technologies, which converts text into human-like speech to create lifelike interactions with the end-users. Capable of making interactions with

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multiple end-users simultaneously and handling certain tasks without human intervention, the AI-enabled chatbot system is able to reduce the need for human interaction and help the Target Group’s customers to save costs and improve productivity.

On the other hand, to streamline the service process involving human contact service staff, the Target Group has developed an intelligent contact system to help improve the overall efficiency of the operation. One key feature of the intelligent contact system is its predictive dialer function. The predictive dialer function deploys a predictive dialer algorithm based on the past calling statistics to determine or predict the availability of a contact service staff and simultaneously makes an appropriate number of calls in advance. Predictive dialer function helps to streamline the dialing process by saving the contact service staff the time to dial out, wait for a connection or call an invalid telephone number. With years of development and refinement, the intelligent contact system has become a reliable platform with a friendly and intuitive interface. The Target Group has registered the copyright in relation to the intelligent contact system in 2019 and has applied for two patents in relation to the intelligent contact system which are pending as at the Latest Practicable Date.

In addition to the technologies used to streamline the dialing process, the Target Group has applied technologies into the contact management and quality control process. The Target Group has developed a recording management and quality control system which automatically records all call conversations and compare the recordings with a standardised script customised by projects. Utilizing the automatic speech recognition technology and voice separation technology, the system is able to separate the voice from the contact service staff and generate a transcript of the phone conversation. Through comparing the transcript with the standardised script, the system is able to generate a detailed agent performance report which flags the keywords and forbidden words appearing in a conversation and assigns a rating to the conversation. These agent performance reports are regularly delivered to each contact service staff to help improve their performance. Applying AI technology and big data to its self-developed system, the Target Group is also able to track the real-time workstation status, such as the call volume, the call capture rate, the average talk time, and the utilisation rate. Moreover, the system is able to collect and process these statistics on a real-time basis. Utilizing the comparison function of the system, the Target Group can analyse the trends of the key performance indicators across time and regions. The system also supports comparison among different projects, which helps the Target Group to evaluate the investments made for and the profitability of different projects. With the aid of visualised diagrams, the management of the Target Group can better understand the trends in its contact service performance, thereby strengthening the overall contact management and quality control of the customer service of the Target Group.

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Customer Service Management System

With an aim to establish an online knowledge sharing platform focusing on customer service skills and techniques, the Target Group has developed an agile online learning and training app which provides the users with an access to its digital training sessions. With the app, training modules can be delivered online with the video clips and presentation created for each particular session. Compared with the traditional methods of training, the app facilitates learning by providing greater accessibility and flexibility to the users and creates a more engaging learning environment. Leveraging the investments in the app, the Target Group has adopted agile learning and redefined the training system for its employees. Although the app is primarily used internally at present, the Target Group is exploring the possibilities to sell this app to its customers for their own internal training and other purposes.

In addition, the Target Group is in the process of developing a comprehensive management system in connection with customer services so as to provide uniform, standardised and visualised management support. Leveraging its extensive experience and technological advantage in contact centre operation, the Target Group will continuously optimise the features of the management system, with an aim to enable the system to generate operational data with accuracy and completeness on a real-time basis. Three subsystems have been built into the comprehensive management platform, namely, human resource management subsystem, asset management subsystem and knowledge and training management subsystem. More than 70 capacity development courses and hundreds of knowhow articles are provided in the knowledge and training management subsystem.

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LICENSES, REGULATORY APPROVALS AND PERMITS

The Target Group is required to obtain numerous licenses, approvals and permits from numerous government entities on municipal, provincial and national levels to operate its business. Please refer to the section headed ‘‘Regulatory Overview’’ for further information on the material laws and regulations that it is subject to. The table below sets forth the material licenses and approvals required for its operations.

Licenses and				Valid
Qualifications	Company	Issuing Authority	Issue Date	Period
High and New	DaLian Kingwisoft	Dalian Municipal Science and	13 Aug 2018	3 years
Technology		Technology Bureau, Dalian
Enterprise		Municipal Finance Bureau,
(高新技術企業)		Dalian Municipal State
		Taxation Administration
		Bureau, Dalian Municipal
		Local Taxation Administration
		Bureau
High and New	Beijing Nanyou	Beijing Science and Technology	6 Dec 2017	3 years
Technology		Department, Beijing
Enterprise		Department of Finance, Beijing
(高新技術		State Taxation Administration
企業)		Bureau, Beijing Local Taxation
		Administration Bureau
Human Resources	DaLian Kingwisoft	Dalian Municipal Human	19 Apr 2019	3 years
Services		Resource and Social Security
License		Bureau
Labour Dispatch	DaLian Kingwisoft	Dalian Municipal Human	28 Jun 2019	3 years
License		Resource and Social Security
		Bureau
ICP License	Leshan Kingwisoft	Ministry of Industry and	4 Nov 2019	5 years
		Information Technology of
		PRC
ICP License	Shenzhen	Ministry of Industry and	8 Apr 2019	5 years
	Kingwisoft	Information Technology of
		PRC
ICP License	DaLian Kingwisoft	Ministry of Industry and	4 Sep 2018	5 years
		Information Technology of
		PRC

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Licenses and				Valid
Qualifications	Company	Issuing Authority	Issue Date	Period
ICP License	Wuhan Kingwisoft	Ministry of Industry and	12 Jul 2018	5 years
		Information Technology of
		PRC
ICP License	Chengdu Kingwisoft	Ministry of Industry and	18 Jan 2017	5 years
		Information Technology of
		PRC
ICP License	Kunshan Kingwisoft	Ministry of Industry and	Application	—
		Information Technology of	filed
		PRC
ICP License	Luzhou Kingwisoft	Ministry of Industry and	Application	—
		Information Technology of	filed
		PRC
ICP License	Xiangyang	Ministry of Industry and	Application	—
	Kingwisoft	Information Technology of	filed
		PRC
ICP License	Rongzhi	Ministry of Industry and	Application	—
	Outsourcing	Information Technology of	filed
		PRC
ICP License	Beijing Nanyou	Ministry of Industry and	Application	—
		Information Technology of	filed
		PRC
ICP License	Dalian Zhiyin	Ministry of Industry and	Application	—
		Information Technology of	filed
		PRC
ICP License	Qingdao Kingwisoft	Ministry of Industry and	Application	—
		Information Technology of	filed
		PRC

As advised by our PRC Legal Advisers, other than otherwise mentioned in section headed ‘‘— Legal and Regulatory Compliance’’, as at the Latest Practicable Date, the Target Group had obtained all other requisite licenses, approvals and permits from the relevant government authorities that are material to its business operations.

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CERTIFICATIONS AND AWARDS

As a testimony to achievements and the quality of services provided by the Target Group, the Target Group has received a number of major certifications and awards during its operating history. The table below sets forth a summary of the material certificates:

Certifications

Year Awarding Agency

• Customer Operations Performance 2019 COPC Center (COPC) Standard for Outsource Service Providers[(1)]

GB/T19001-2016 — Quality — Management Systems Requirements

• 2017 Ever Win Quality Certification Center (ANSI National Accreditation Board and International Accreditation Forum)

• ISO9001: 2015 — Certificate of Quality Management System

ISO/IEC27001 — Certificate of Information Security Management System

ISO/IEC20000 — Certificate of Information Technology Service Management System

• 2017 Ever Win Quality Certification Center (ANSI National Accreditation Board and International Accreditation Forum)

• 2017 CESI Certification Co., Ltd. (China National Accreditation Service for Conformity Assessment and International Accreditation Forum)

• 2017 Ever Win Quality Certification Center (China National Accreditation Service for Conformity Assessment)

• (1) The COPC certification expired in April 2020 and is being renewed currently. Although its renewal process has been delayed because of the COVID-19 outbreak, the Target Group does not foresee any material obstacle in renewing the COPC certification.

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The table below sets forth a summary of its awards during the Track Record Period:

Awards

Year Awarding Agency

2019 Dalian Software and Information 2019 Dalian Software Industry Association Technology Service Industry Core (大連軟件行業協會) Competitive Enterprise (Scale) (2019年大連軟件和信息技術服務業 核心競爭力企業(規模型))

Gazelle Enterprise of Liaoning Province (遼寧瞪羚企業)

2019 Department of Science & Technology of Liaoning Province (遼寧省科學技 術廳)

Excellent User Experience Award for 2018 Professional Committee of Customer Customer Care Service Provider Contact Center of China Electronic (中國客戶聯絡中心卓越用戶體驗服 Commerce Association (中國電子商務 務商) 協會客戶聯絡中心專業委員會) Industry Breakthrough Award 2017 Huawei Technologies Co., Ltd.

Industry Breakthrough Award (行業突破獎)

Annual Innovative Technology-led 2017 Professional Customer Contact Center Enterprise Application Award for Committee of China Electronic China Customer Contact Center Commerce Association (中國電子商務 (中國客戶聯絡中心年度最佳創新技 協會客戶聯絡中心專業委員會) 術應用企業獎)

Golden Sound Award for China’s Best 2017 Customer Contact Center — New Talent in China’s Customer Contact Center Industrial Parks (中國最佳客 戶聯絡中心金音獎 — 中國客戶聯 絡中心產業園區最佳新銳獎)

China Big Data Application and Customer Contact Center International Summit (中國大數據應用與客戶聯絡 中心國際峰會)

Best Outsourcing Contact Center Award and Outstanding Manager (中國最佳外包呼叫中心獎及優秀管 理者)

Best Service Outsourcing Innovative Enterprise for the Industry of China Customer Contact Center (中國客戶聯絡中心行業最佳服務外 包創新企業)

2016 Professional Value-Added Services Committee of China Communications Enterprise Association & CTI forum (中國通信企業協會增值服務專業委員 及CTI論壇) 2016 Professional Customer Contact Center Committee of China Electronic Commerce Association (中國電子商務 協會客戶聯絡中心專業委員會)

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RISK MANAGEMENT AND QUALITY CONTROL

The directors of the Target Group believe that risk management and quality control is crucial to its success. The Target Group has a comprehensive system to manage the risks associated with its operations, which primarily relates to data security and system maintenance and back-up.

Data Security

The directors of the Target Group believe that data security is essential for its customers and its business. The Target Group implements security control with respect to physical environment and data handling in terms of system implementation as well as operation measures. The Target Group adopts an informative security management system to manage risks to its information assets including restricted access to its information and database, thus ensuring a reasonable level of risk management in terms of information security and maintaining the confidentiality of sensitive information from customers by limiting access to such information on a strictly need-to-know basis.

The assistant to the president of the Target Group has over ten years of experience in data security management and is responsible for overseeing the Target Group’s data security internal controls, implementing, maintaining and enhancing the standard of information security control in order to fulfil the security requirements of customers.

Data provided by the customers are classified based on its level of sensitivity and stored in different locations of the internal database according to the security level of the information. Only authorized personnel in the data security and risk management department have access to the internal database. In addition, to further enhance the protection on data security, confidential data is stored and accessed by authorized staff through their designated user accounts and passwords. The network and data exchange connectivity with the customer is protected by firewall and regularly monitored by staff of the Target Group.

The Target Group’s contact service centres are divided into different working zones, and every main entrance, exit and operational zone is guarded by its own password door lock or access card system, so that only authorized staff working in that particular zone can have access to the area. CCTV cameras are installed in each of the offices (other than administrative offices) and all working zones as well as other common areas in the contact service centre for surveillance purposes.

Moreover, unless otherwise approved by the data security and risk management department, the port for removable storage devices is disabled, network printing is passwordcontrolled and only limited to authorised personnel, internet access is only limited to designated and relevant websites and no email communication nor other means of network transmission is allowed. There are no copying machines at the workstation and all photographic equipment are banned. As a measure to safeguard data privacy of the end-users, unless authorized by the Target Group, its contact service staff may not bring their personal mobile phones or any digital storage devices to their workstations.

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The Target Group’s measures to prevent hackers from attacking systems include installing anti-virus software on servers and workstations, applying security patches and updates of operating systems, protecting the network connectivity with the customers by firewalls and disabling unnecessary services on servers and ports on firewalls. During the Track Record Period, the Target Group has not experienced any incidents relating to hackers attacking its systems.

The Target Group recognises the importance of keeping sensitive customer and business information in strict confidence. All staff members of the Target Group that have access to any confidential information are subject to pre-employment screening and are required to sign a confidentiality agreement with the Target Group, which among other things, prohibits the disclosure of confidential information about the Target Group, the customers, its business and operation in general or a certain project in particular to any person as so stated in the agreement.

In view of the growth in business and the rising standard on information security required by the customers in the past years, the Target Group obtained the ISO/IEC27001 certification in Information Security Management System in 2017 in order to further increase the Target Group’s competitive edge, minimise any potential risk in relation to data security and demonstrate its commitment to comply with the international information security management standards.

System Maintenance and Back-up

To ensure the Target Group’s operational efficiency, regular system repair and maintenance is performed to safeguard the continuity of the provision of its services. As the Latest Practicable Date, the Target Group assigned a total of 28 employees to handle the repair and maintenance functions of the Target Group’s operations.

The Target Group’s information technology team is responsible for monitoring and maintaining all the computer systems for back-office services, comprehensive marketing services and data centre services according to the ISO9001: 2015 procedures and guidelines. In addition, the Target Group monitors and maintains its IT system in accordance with the ISO20000 procedures and the Information Technology Infrastructure Library guidelines. The information technology department performs system checks, data back-ups, system maintenance and always maintains spare systems and parts of emergency hardware components to secure the continual operation of all the systems and facilities. The information technology department also performs on-site data back-up and upon customer’s request, off-site data back-up in accordance with the back-up procedures and specifications agreed with individual customers. In this way, the Target Group can assure service and customer data can be readily recovered in any event and in turn secure the continual provision of the services.

The Target Group has data lines, internet broadbands and eight telephone trunk lines connected to the Target Group’s service centres. The diversified usage of telecommunication facilities from different telecommunication vendors minimises the chance of any single operator failure and major interruption to the services that the Target Group provides.

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To avoid service interruption due to power failure, the Target Group has an alternative power supply system as well as power supply truck arrangement, to support emergency equipment and facilities in the event of material power interruption. During the Track Record Period, the Target Group has been able to maintain a stable and smooth running of the operation systems, and there has been no material system and equipment disruption, failure, breakdown or unauthorised access.

Quality Control

The directors of the Target Group believe that the provision of quality services and products is important for the Group’s business and its continual development.

The Target Group has established quality policy which is stated in the quality manual. The scope of the Target Group’s quality manual covers quality management system, management responsibility, resource management, product realization and measurement, analysis and improvement. In more details, the quality system touches on different areas including control of documents, internal audit, staff training, purchasing process, control of service provision, control of computer data, continual improvement, and corrective and preventive action.

Different quality control measures are implemented with the objective to continually meeting the service standards of the Target Group as well as the customers. In the case of inbound contact services, service levels can be measured and set by the customers based on a certain percentage of incoming calls answered within a certain period of time by a contact service staff. To maintain consistency in the services by contact service staff, the Target Group maintains a knowledge database for each project which contains various scenarios and suggested responses. Such databases are updated from time to time. In the case of outbound contact services, service targets can be set on the rate of successful transaction versus the total of contacted customer base. Different nature of outbound contact services has different target success rates, which are mutually agreed between the Target Group and the customer before the launch of the outbound contact service.

Additionally, quality of the contact services is monitored through call monitoring exercise performed by supervisory agent of the operation department on the contact service staff. Conversation between a contact service staff and a customer can either be real-time monitored through silent monitoring, or the voice logs can be monitored after the completion of the conversation. In both ways, the performance of a contact service staff can be evaluated in terms of his/her voice quality, product knowledge and relevant service skills, and appropriate corrective action to further improve the quality of the service provided by the contact service staff. Voice logs of contact service staff are available for the customers inspection in real time, and the customers may also visit the Target Group’s contact service centres to perform call monitoring on the contact service staff for service review or monitoring purposes. There are no rules and regulations in China governing the keeping of voice logs of contact service staff, but it is the Target Group’s procedures to keep voice logs of contact service staff for a period of time specified by the customers. On the basis that the customers are generally satisfied with the retention period of the voice logs, the Target Group considers that such retention period is reasonable within the industry.

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The Target Group is responsible for handling complaints that are related to the quality of the contact services provided by the contact service staff; and for the complaints that are related to the customers’ services or products, the contact service staff is responsible for recording the details of the complaint and then passing such complaint on to the customers for them to handle and follow up. To the best knowledge, information and belief of the directors of the Target Group, having made all reasonable enquiries, the Target Group did not receive any case of material complaints for the three years ended 31 March 2018, 2019 and 2020 respectively. When handling complaints, the operation supervisory staff will follow the standard complaint handling procedures in the quality manual to carry out investigation by retrieving and listening to the telephone conversation recordings of the complaint case and then having an interview with the relevant contact service staff. Written or verbal feedback was then provided to the corresponding customers together with the Target Group’s proposed corrective and preventive actions. No material compensation or penalty was paid to resolve the complaints, and such complaints did not result and have not resulted in any material adverse effect on the operations or financial conditions.

INTERNAL CONTROL

As an outsourced customer care service provider, the Target Group is exposed to a variety of operational risks. The Target Group has developed a comprehensive system to manage the operational risks, which primarily relates to data security and system maintenance and back-up; it also has a robust quality control system in place to ensure the service quality meets the specified standard. Please refer to the section headed ‘‘Risk Management and Quality Control’’ for further details.

The board of directors of the Target Group is responsible for reviewing and supervising the internal control system and financial reporting process of the Target Group. The Target Group has adopted different internal guidelines, along with written policies and procedures to improve corporate governance and ensure compliance with the applicable laws and regulations. In addition, the Target Group has implemented a series of internal control policies and measures for the purpose of setting up monitoring controls and reporting mechanisms to ensure that the Target Group maintains effective and sound internal controls, which include:

• . Code of conduct: The Target Group has maintained code of conduct for its employees with respect to various aspects of employee behavior during the ordinary business operations;

• . On-going trainings: The Target Group has conducted regular internal training for its directors, management and employees on applicable laws and regulations to ensure awareness and compliance with the relevant laws and regulations; and

• . Legal Counsel: external Hong Kong and/or PRC legal advisers have been appointed to advise on compliance with the GEM Listing Rules and the applicable securities laws and regulations in Hong Kong and the applicable laws and regulations in the PRC, including, among others, matters related to license applications, compliance and renewals.

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SUPPLIERS

The products purchased by the Target Group mainly include computers, servers, network equipment, earphones, and voice software. The Target Group generally procures from product manufacturers and distributors based in the PRC. For the years ended 31 March 2018, 2019 and 2020, purchases from the Target Group’s largest supplier amounted to approximately RMB24.0 million, RMB19.6 million and RMB22.0 million, respectively, representing approximately 10.3%, 6.5% and 6.9% of the total cost of services of the Target Group, respectively. For the same periods, purchases from the top five suppliers of the Target Group amounted to approximately RMB62.0 million, RMB47.6 million and RMB49.1 million, respectively, representing approximately 26.6%, 15.8% and 15.4% of the total cost of services of the Target Group, respectively.

The Target Group has established a comprehensive supplier management system. The Target Group maintains and periodically reviews its lists of approved suppliers. It selects suppliers by taking into consideration the quality of products or services provided by the supplier through sample examination or on-site evaluation of production facilities, as well as factors such as reliability, pricing, production capacity and technological capabilities, among others. As at the Latest Practicable Date, the Target Group had an aggregate of over 280 suppliers on its approved supplier list. To minimise its reliance on any particular supplier, the Target Group adopts a procurement policy that requires the procurement department to select more than three suppliers from its supplier list to make the initial price inquiry. The directors of the Target Group believe that such mechanism ensures that the Target Group is able to maintain stable supply at reasonable prices. Alternatively, when a purchase is made pursuant to a customer’s request, the Target Group will act as the customer’s agent and make the procurement pursuant to the customer’s instructions. The purchased products will be examined before they are distributed. During the Track Record Period and up to the Latest Practicable Date, the Target Group did not experience any material shortages or delays in the supply of products, nor were the directors of the Target Group aware of the Target Group having any difficulty in sourcing equipment or telephone lines required for its operation. Going forward, the Target Group does not foresee any material shortages or delays in its procurement of products.

The tables below set forth certain information of the Target Group’s top five suppliers during the periods indicated.

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For the year ended 31 March 2018:

Rank Supplier Principal Business Nature of products/ services purchased by the Target Group 1 Supplier A IT services provider IT products 2 Supplier E BPO services provider Subcontracting 3 Supplier F IT services provider IT products 4 Supplier G BPO services provider Subcontracting 5 Supplier H BPO services provider Subcontracting Total	Purchase Amount RMB’000 23,958 19,218 8,836 5,418 4,567 61,997	Percentage of total costs of service of the Target Group % 10.3 8.2 3.8 2.3 2.0
		26.6

For the year ended 31 March 2019:

Rank Supplier Principal Business Nature of products/ services purchased by the Target Group 1 Supplier E BPO services provider Subcontracting 2 Supplier G BPO services provider Subcontracting 3 Supplier H BPO services provider Subcontracting 4 Supplier I Marketing agency Advertisement 5 Supplier J BPO services provider Recruiting services Total	Purchase Amount RMB’000 19,621 9,793 8,062 5,184 4,915 47,575	Percentage of total costs of service of the Target Group % 6.5 3.2 2.7 1.7 1.6
		15.8

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For the year ended 31 March 2020:

Rank Supplier Principal Business Nature of products/ services purchased by the Target Group 1 Supplier E BPO services provider Subcontracting 2 Supplier G BPO services provider Subcontracting 3 Supplier H BPO services provider Subcontracting 4 Supplier K BPO services provider Subcontracting 5 Supplier L BPO services provider Subcontracting Total	Purchase Amount RMB’000 21,980 8,992 7,609 6,754 3,752 49,087	Percentage of total costs of service of the Target Group % 6.9 2.8 2.4 2.1 1.2
		15.4

Salient terms of procurement agreements

The Target Group will enter into legally-binding procurement agreements with its suppliers who generally have sizeable scale of operations with the following typical key terms:

• Products/services : In respect of procurement agreement, the agreement normally specification states the description of the purchased products such as the types of products, quantity and technical specification of the products.

In respect of supply of services agreement, the scope of services and the types of work to be carried out will be specified in the agreement.

• Sales and pricing : A fixed lump sum amount is specified in the agreement. policy

• Payment and credit : In respect of procurement agreement, suppliers either require terms up-front payment in full prior to the delivery of goods or grant the Target Group a credit period up to 90 days.

In respect of supply of services agreement, payments are either (i) made on a monthly basis; (ii) by instalments when various stages of construction phase, as specified in the agreement, have been achieved; or (iii) made in full upon completion of services.

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• Delivery of products : Suppliers generally deliver the products directly to the (only applicable to designated location specified in the agreement. procurement agreement)

• Inspection and : In respect of procurement agreement, inspection should be product returns made in two to three days after the delivery of goods, and when products provided did not comply with terms specified under the agreement, suppliers normally allow the return or exchange of defective products.

In respect of supply of services agreement, the Target Group is entitled to inspect suppliers’ work within the inspection period specified in the agreement. Occasionally, the supplier will issue inspection or test summary report on a periodic basis to track the progress and quality of work provided by suppliers.

• Warranty/Maintenance : Warranty or maintenance period ranges from one to three period years.

• Termination : The agreement can be terminated by the non-defaulting party if the counterparty violates the agreement. The agreement is also typically terminable with or without cause provided that notice has been served in accordance to the agreement.

To the best knowledge, information and belief of the directors of the Target Group, having made all reasonable enquiries, during the Track Record Period and as at the Latest Practicable Date, the Target Group was not in material breach for any of its procurement contracts and framework supply agreements.

The directors of the Target Group believe that the Target Group has maintained good relationship with its suppliers. As at 31 March 2020, approximately 80% of the Target Group’s suppliers had more than one year of relationship with it.

To the best knowledge, information and belief of the directors of the Target Group, having made all reasonable enquiries, during the Track Record Period and up to the Latest Practicable Date, (i) all of its top five suppliers were independent third parties and none of the Target Group’s top five suppliers and their respective subsidiaries, directors, shareholders or management, or any of their respective associates have any past or present relationship (including without limitation, family, employment, trust, financing or otherwise) with the Target Group, its subsidiaries, its shareholders, directors, senior management or any of their respective associates; (ii) none of the directors of the Target Group, their respective close associates or any of the shareholders who owned more than 5% of the Target Group’s share capital had any interest in any the Target Group’s top five suppliers; and (iii) save for Supplier E, who is a wholly-owned subsidiary of Customer A, none of the Target Group’s top five suppliers were also its customers.

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Subcontracting

The Target Group retains subcontractors for some of its projects to satisfy its operational needs. The Target Group believes that such arrangements enable it to scale up its operations quickly to satisfy its customers’ demands in peak seasons while maintaining operational flexibility and controlling its operating costs. In the years ended 31 March 2018, 2019 and 2020, subcontracting costs amounted to RMB36.0 million, RMB60.7 million and RMB62.1 million, respectively, representing 15.4%, 20.2% and 19.4% of the total cost of services of the Target Group.

Selection and Management of Subcontractors

Back-office services performed by all subcontractors are carried out in the name of the Target Group, and the subcontractors are obligated to maintain the reputation and goodwill of the Target Group. The Target Group maintains an internal list of qualified subcontractors and such list is subject to periodic review. As at the Latest Practicable Date, the Target Group had no less than ten qualified subcontractors on its internal list. When assessing the qualification of each subcontractor, the Target Group takes into account its background, job references and experiences in contact services, costs and past performance history in providing outsourcing services to the Target Group. After the selected subcontractor commences its work, the Target Group regularly monitors and evaluates its performance and communicates the same with the relevant subcontractor. To the best knowledge, information and belief of the directors of the Target Group, having made all reasonable enquiries, during the Track Record Period, all subcontractors are independent third parties.

During the Track Record Period, the Target Group engaged ten subcontractors. The directors of the Target Group believe that the Target Group does not place any significant reliance on any of the subcontractor.

Salient Terms of Subcontracting Agreement

The Target Group will enter into legally-binding subcontracting agreements who generally have sizeable scale of operations with the following typical key terms:

• Terms : The Target Group generally enter into one-year to two-year agreement with its subcontractors.

• Scope of work : The scope of services and specifications of the works as the Target Group subcontract to its subcontractors.

• Pricing policy : Subcontractors are generally paid a specified proportion of the fees the Target Group received from its customers where subcontractors have worked on. However, some subcontracts may be paid based on the total number of contact service staff involved in the project at a pre-determined monthly rate per staff. The fees may be further adjusted based on the completeness of work provided by the subcontractors.

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• Payment and credit : Target Group is generally required to settle the bill within terms seven business days following the receipt of payment from the customers of the Target Group on the specified projects, or ten business days following the receipt of invoice.

• Provision of : Employees of the subcontractors are to work in the equipment workstations as designated by the Target Group, and the equipment and machineries are generally provided by the Target Group.

• Relationship with the outsourcing staff

• : The outsourcing staff do not maintain an employer-employee relationship with the Target Group and are employees of the subcontractor. The subcontractors are responsible for compensating the outsourcing staff, including their salaries, social insurance, housing provident funds and other benefit and welfare payments.

• Assignment or : Subcontractors are not allowed to assign its rights and Subcontracting obligations to a third party, nor to subcontract its work to a third party.

• Confidentiality

• : Each party should not disclose or cause to disclose information covered by the agreement to any third party without the consent of the counterparty.

• Indemnity

• : Subcontractors are required to indemnify the Target Group against any loss, expense or claim arising from the failure to comply with subcontracting agreement by the subcontractor and/or its employees. Target Group is entitled to hold its subcontractors liable for any loss and damage suffered by the Target Group if their works are not performed in accordance with key performance indicator set out in the main contract or by the Target Group.

• Termination : The non-defaulting party may terminate the agreement with 30 days’ notice upon the occurrence of an event of default, provided that if upon receipt of the notice, the defaulting party cure the default, then such notice shall be of no force and effect.

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INTELLECTUAL PROPERTY RIGHTS

Intellectual property is fundamental to the success of the business of the Target Group and the Target Group is committed to its development and protection. To protect intellectual property rights of the Target Group, the Target Group relies on a combination of patents, trademarks, software copy rights and software certificate as well as employee and third-party confidentiality agreements to safeguard its intellectual property. In addition, the Target Group has a dedicated team of staff members and retained external legal advisers as needed to actively manage its extensive portfolio of registered and pending intellectual property assets, as well as to monitor and manage potential risks and threats to its intellectual property.

Trademark and Patent

As at 31 March 2020, the Target Group had 35 PRC registered trademarks in respect of the Target Group’s house marks and product marks. As at the same date, the Target Group had two PRC patent applications.

Software Product Registration Certificate

As at 31 March 2020, the Target Group has obtained 113 software product registration certificates for software products in PRC.

Domain Name

As at 31 March 2020, the Target Group has registered 26 domain names, including kingwisoft.cn, nanguakf.com, southtel.cn and smartn1.com.

Please refer to the section headed ‘‘Appendix V — Statutory and General Information — 11. Intellectual Property Rights of the Target Group’’ for more information about the Target Group’s registered intellectual property and intellectual property applications.

The Target Group generally requires employees to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with the Target Group is to be kept confidential and not disclosed to third parties except under specific circumstances. While the Target Group actively takes steps to protect its intellectual property rights, the directors of the Target Group cannot be certain that these measures are adequate to prevent the infringement or misappropriation of the intellectual properties created by or licensed to the Target Group. The Target Group may be subject to legal proceedings and claims from time to time relating to third parties’ intellectual properties. Please refer to the section headed ‘‘Risk Factors — Risks Relating to the Target Group’s Business and Industry — The Target Group may fail to protect or enforce its intellectual property rights’’ for further details on risks relating to intellectual property rights.

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The Target Group also follows procedures to ensure that it does not infringe on the intellectual property rights of others. As at the Latest Practicable Date, the Target Group had not been involved in any significant intellectual property disputes or encountered major difficulties in enforcing its intellectual property rights in China and other foreign jurisdictions. The Target Group was not engaged in any litigation or legal proceedings for any violation of intellectual property rights of any person, or of any material violation of any intellectual property rights of any person.

EMPLOYEES

As at 31 March 2020, the Target Group had 3,671 employees, 1,469 outsourcing staff and 274 interns. A breakdown of the employees of the Target Group by function as at 31 March 2020 is set out below:

Function Management Finance Sales and Marketing Research and development Operation Total	Approximate Number of employees 91 16 10 275 3,279 3,671	Percentage of total number of employees % 2.5 0.4 0.3 7.5 89.3
		100.0

The success of the Target Group depends on its ability to attract, retain and motivate qualified personnel. During the Track Record Period, the Target Group worked closely with recruitment agencies. With the extensive pool of candidates available from recruitment agencies, the Target Group believes that it saves significant amount of time in recruiting talents with the relevant experience. It also recruited employees through recruitment websites, job fairs and internal and external referrals. As part of its retention strategy, the Target Group offers employees competitive salaries and comprehensive insurance package, which are generally determined by the qualifications, industry experience, position and performance of the employees of the Target Group and in part by the overall performance of the business of the Target Group.

The Target Group also seeks out to human resources service provider from time-to-time for outsourcing staff. As opposed to in-house employees of the Target Group, outsourcing staff do not maintain an employer-employee relationship with the Target Group but remain to be the employees of the subcontractor. As such, the outsourcing staff are not entitled to the remuneration package for employees of the Target Group. As at 31 March 2018, 2019 and 2020, the Target Group had retained 874, 1,036 and 1,469 outsourcing staff. Please refer to the section headed ‘‘— Subcontractors’’ for further information on the Target Group’s engagement with subcontractors. The Target Group also tends to recruit interns in peak season

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in anticipation of the significant demand of its outsourcing services during ‘‘618 mid-year shopping festival’’ and ‘‘11.11 global shopping festival’’. As at 31 March 2018, 2019 and 2020, the Target Group had retained 754, 377 and 274 interns.

The Target Group is committed to providing a fair and equitable workplace where all employees are treated equally. As such, the Target Group has adopted policies on merit-based compensation and dismissal, equal opportunities, diversity and anti-discrimination.

The Target Group participates in housing provident funds and various social security plans for its employees, including housing, pension, medical, work-related injury and unemployment benefit plans, under which the Target Group makes contributions at specified percentages of the salaries of its employees. The Target Group also purchases commercial health and accidental insurance for its employees. Please refer to the section headed ‘‘— Legal and Regulatory Compliance’’ for further details.

The Target Group provides training programmes regularly and across operational functions, including new hire training on the Company’s culture, business and industry to the Target Group’ new employees, ensuring that they have the abilities and understanding to perform their duties. The Target Group has also adopted a continuing technical training programme, pursuant to which different departments organize training courses that are tailormade to the specific needs of their team members. In addition, the Target Group organizes customised training courses for selective middle and top management staff on service and product specific training.

The employees of the Target Group may also attend external trainings upon their supervisors’ approvals in order to enhance their job knowledge and skills in their responsible fields of duty.

None of the Target Group’s employees are currently represented by labour unions. The directors of the Target Group believe that the Target Group maintains a good working relationship with its employees and the Target Group did not experience any significant labour disputes or any difficulty in recruiting staff for the operations of the Target Group during the Track Record Period.

PROPERTIES

According to section 6(2) of the Companies Ordinance (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong), this document is exempted from compliance with the requirements of section 342(1)(b) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance in relation to paragraph 34(2) of the Third Schedule to the Companies (Winding Up and Miscellaneous Provisions) Ordinance which requires a valuation report with respect to all of the Target Group’s interests in land or buildings. This is because the Target Group did not own any property as at the Latest Practicable Date.

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Leased Properties

As of 31 March 2020, the Target Group leased 30 properties located in Dalian, Beijing, Shenzhen, Chengdu, Wuhan, Xiangyang, Luzhou, Kunshan and Leshan under separate tenancy agreements with different parties with an aggregate gross floor area of approximately 31,958.9 sq. m. The relevant lease agreements have lease expiration dates ranging from 7 months to 10 years. The properties are mainly used for the Target Group’s contact service centres and offices purpose. All properties are leased from independent third parties. The directors of the Target Group do not foresee any major difficulties or impediments in renewing the relevant leases upon their expiration. The Target Group elects to lease its properties instead of owning the properties primarily because (i) the Target Group would like to retain flexibility in its operations; and (ii) the Target Group would like to focus its resources on expanding its operations.

In addition, as at the Latest Practicable Date, 29 of the 30 lease contracts with respect to the Target Group’s leased properties had not been registered with the relevant PRC governmental authorities. Please refer to the section headed ‘‘Business of the Target Group — Legal and Regulatory Compliance’’ for further details.

ENVIRONMENT MATTERS

Due to the nature of the Target Group’s business, the Target Group is not subject to any PRC environmental, health and safety regulations. As at the Latest Practicable Date, the Target Group did not have any liabilities in relation to environmental, health and safety matters and did not expect to incur any liabilities in relation to environmental, health and safety matters that could have any material impact on the financial condition or business operations of the Target Group in the future.

INSURANCE

Consistent with general market practice in China, the Target Group does not maintain certain types of insurances, such as business interruption insurance or keyman insurance for its executive officers. Damages to any of uninsured facilities or network infrastructure could have a material adverse effect on the result of operations of the Target Group. Please refer to the section headed ‘‘Risk Factors — Risks Relating to the Target Group’s Business and Industry — The Target Group may not have sufficient insurance coverage against potential operational risks’’ for further details on the risk of limited insurance coverage. The directors of the Target Group consider that its existing insurance coverage is sufficient for present operations and is in lines with the industry norm in China.

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LEGAL AND REGULATORY COMPLIANCE

Except for the matters disclosed below, the directors of the Target Group, as advised by our PRC Legal Adviser, confirm that during the Track Record Period and as at the Latest Practicable Date, the Target Group has complied with the PRC laws and regulations relevant to its business operations in all material respects.

	Reasons for the
Particulars of	Non-compliance	Legal Consequences	Rectification and
Non-compliance	Incidents	and Potential Penalties	Preventive Actions Taken	Potential Operational and Financial Impact
Social insurance and housing provident fund
During the Track Record Period, the Target Group failed to	The non-compliances were not wilful and was solely due to (i)	According to the requirements of the Social Insurance Law of the PRC (中華 人民共和國社會保障法) and as advised	The directors of the Target Group confirm that, in the event that the relevant subsidiaries	The Target Group has obtained certain writte confirmations from relevant local social insur authorities and housing provident fund author
make full contribution	insufficient	by the PRC Legal Adviser, (i) in	receive requests from the	stating that no administrative penalty has bee
to the social insurance	understanding and	respect of outstanding social insurance	relevant PRC authorities, it	imposed on the relevant subsidiaries with res
and housing provident	inadvertent oversight of	contributions, the relevant PRC	intends to immediately pay the	to any non-compliance with respect to social
fund for certain	the relevant PRC laws	authorities may demand the relevant	outstanding social insurance and	insurance and housing provident fund
employees according to	and regulations among	subsidiaries to pay the outstanding	housing provident fund	contributions. The Target Group is advised b
the relevant PRC laws	the responsible staff of	social insurance contributions within a	contributions accordingly.	PRC Legal Adviser that the relevant local
and regulations.	the Target Group; and	stipulated deadline and the Target		authorities from which the Target Group obta
	(ii) the absence of	Group may be liable to a late payment	The directors of the Target	the confirmations are competent to give such
	professional advice at	fee equal to 0.05% of the outstanding	Group confirm that it intends to	confirmations. Based on the results of public
	the material time.	amount for each day of late payment;	make full contribution to the	searches, the PRC Legal Adviser confirmed t
		if the Target Group fails to make such	social insurance and housing	no record of administrative penalties and
		payments, it may be liable to a fine of	provident fund for their relevant	violations in relation to social insurance and
		one to three times the amount of the	employees with reference to the	housing provident fund was found against an
		outstanding social insurance	calculation basis in compliance	the Target Group’s PRC subsidiaries.
		contributions; and (ii) in respect of	with the applicable PRC laws
		outstanding housing provident fund	and regulations.	For the years ended 31 March 2018, 2019 a
		contributions, the Target Group may be		2020, the Target Group made provisions for
		ordered to pay the outstanding housing	The Target Group has established	social insurance and housing provident fund
		provident fund contributions within a	an internal control policy that	the amount of RMB0.1 million, RMB0.6 mill
		prescribed time period, and if the	requires full compliance with the	and RMB0.1 million, respectively.
		Target Group fails to do so, the	relevant laws and regulations on
		relevant PRC authorities may apply to	social insurance and housing	Furthermore, as at the Latest Practicable Dat
		the courts for enforcement.	provident fund and have	the Target Group had not received any

The Target Group has obtained certain written confirmations from relevant local social insurance authorities and housing provident fund authorities, stating that no administrative penalty has been imposed on the relevant subsidiaries with respect to any non-compliance with respect to social insurance and housing provident fund contributions. The Target Group is advised by the PRC Legal Adviser that the relevant local authorities from which the Target Group obtained the confirmations are competent to give such confirmations. Based on the results of public searches, the PRC Legal Adviser confirmed that no record of administrative penalties and violations in relation to social insurance and housing provident fund was found against any of the Target Group’s PRC subsidiaries.

For the years ended 31 March 2018, 2019 and 2020, the Target Group made provisions for social insurance and housing provident fund in the amount of RMB0.1 million, RMB0.6 million and RMB0.1 million, respectively.

The Target Group has established an internal control policy that requires full compliance with the relevant laws and regulations on social insurance and housing provident fund and have enhanced the Target Group’s internal control procedures by implementing such internal control policy on social insurance and housing provident fund in all its PRC subsidiaries to ensure that the Target Group’s contributions comply with the relevant PRC laws and regulations.

Furthermore, as at the Latest Practicable Date, the Target Group had not received any complaints from, or had any disputes with, its employees in terms of social insurance or housing provident fund issues, nor did the Target Group receive any notification from the relevant PRC authorities asserting that it did not fully contribute to the social insurance and housing provident funds, or demanding payment of any outstanding amounts before a stipulated deadline.

The directors of the Target Group are of the view that this non-compliance incident will not have a material adverse impact on the Target Group for the following reasons: (i) certain written confirmations have been obtained from the relevant competent local authorities as described above; (ii) public searches performed by the PRC Legal Advisor found no record of administrative penalties and violations in relation to social insurance and housing provident fund was found against any of the Target Group’s PRC subsidiaries; and (iii) the Target Group has made provisions in connection with this noncompliance incident for the relevant periods.

Based on the directors of the Target Group’s best estimates and belief and the PRC Legal Adviser’s advice, the likelihood of the Target Group being pursued, imposing penalty and punished for the non-compliance is relatively low.

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Reasons for the Particulars of Non-compliance Legal Consequences Rectification and Non-compliance Incidents and Potential Penalties Preventive Actions Taken Potential Operational and Financial Impact ICP Licenses During the Track The non-compliance According to the Telecommunication Promptly after becoming aware The PRC Legal Adviser advised that the fact Record Period, each of incident was primarily Regulations of the PRC 《( 中華人民共和 of the requirement to obtaining Relevant Subsidiaries carried out value-added Kunshan Kingwisoft, due to (i) the Target 國電信條例》) , the Administrative the ICP Licenses, the Target telecommunications services during the Track Luzhou Kingwisoft, Group’s Measures of Telecommunication Group commenced the Record Period without holding any ICP Leshan Kingwisoft and misunderstanding of the Business Operating Permits 《( 電信業務 preparation of the application will not have a material adverse effect on Xiangyang Kingwisoft relevant laws and 經營許可管理辦法》) and other relevant materials for the ICP License. business, financial condition or results of (each a ‘‘Relevant regulations towards the laws and regulations, a company that is All Relevant Subsidiaries have operations of the Target Group, on the basis Subsidiary’’ and need to obtain ICP involved in the value-added made the initial application for (i) the aggregate ICP License-dependent together, ‘‘Relevant License; and (ii) the telecommunication services shall the ICP License. Currently, of the Relevant Subsidiaries during the Track Subsidiaries’’) operated lack of professional conduct its business in accordance with Leshan Kingwisoft had obtained Record Period represents an insignificant its back-office services legal advice at the the specifications listed in its ICP the ICP License and the of the total revenue of the Target Group in without any ICP material time. The License. application for the ICP Licenses same period (for each of the years ended 31 License. Leshan Target Group became for Kunshan Kingwisoft, Luzhou March 2018 and 2019, the total revenue Kingwisoft obtained its aware of the nonAs advised by the PRC Legal Adviser, Kingwisoft and Xiangyang generated under the Relevant Subsidiaries ICP License in compliance as informed for a company operating value-added Kingwisoft were submitted. Each represented less than 5% of the total revenue November 2019. by the PRC Legal telecommunications services without the of Kunshan Kingwisoft, Luzhou the Target Group during the same period; Currently, the Adviser during the required ICP License, the various Kingwisoft and Xiangyang year ended 31 March 2020, the total revenue applications for ICP preparation of the regulatory authorities may order the Kingwisoft has ceased providing generated under the Relevant Subsidiaries Licenses for Kunshan Acquisition. company to rectify such matter, and value-added telecommunications represented approximately 5.5% of the total Kingwisoft, Luzhou may impose fines and penalty as services pending the receipt of revenue of Target Group), (ii) each of the Kingwisoft and follows: (i) in the event that there is the ICP License from the Relevant Subsidiaries has currently ceased Xiangyang Kingwisoft illegal income, rectification of the nonrelevant government authorities. operation of relevant value-added are still being compliance, confiscation of such illegal telecommunications services, (iii) each of the processed. income and a fine of three to five The Target Group has established Relevant Subsidiaries has currently filed times of the total illegal income and implemented policies and application with relevant government authority generated, or (ii) in the event that no procedures to monitor licenses the ICP License, and (iv) Founders SPV and illegal income was generated or such and renewals and prevent the Zhou SPV have undertaken to indemnify the revenue is lower than RMB50,000, a recurrence of such nonCompany for any losses, damages, costs and fine of between RMB100,000 and compliance incident. It has expenses arising out of or in connection with RMB1,000,000. If the circumstances are engaged external legal advisors such historical non-compliance. serious, the regulatory authorities may to advise it on regulatory order the Relevant Subsidiaries to matters, including, among others, suspend the relevant business, and the matters related to ICP license company may be listed on the applications, compliance and untrustworthy telecommunications renewals. Please refer to the business list. During the Track Record section headed ‘‘— Internal Period and up to the Latest Practicable Control’’ for further details. Date, the Target Group has not been penalized or fined, or ordered to suspend its business, by any competent government authority as a result of its historical failure to obtain the ICP License.

The PRC Legal Adviser advised that the fact that Relevant Subsidiaries carried out value-added telecommunications services during the Track Record Period without holding any ICP License will not have a material adverse effect on the business, financial condition or results of operations of the Target Group, on the basis that (i) the aggregate ICP License-dependent revenue of the Relevant Subsidiaries during the Track Record Period represents an insignificant portion of the total revenue of the Target Group in the same period (for each of the years ended 31 March 2018 and 2019, the total revenue generated under the Relevant Subsidiaries represented less than 5% of the total revenue of the Target Group during the same period; for the year ended 31 March 2020, the total revenue generated under the Relevant Subsidiaries represented approximately 5.5% of the total revenue of Target Group), (ii) each of the Relevant Subsidiaries has currently ceased operation of relevant value-added telecommunications services, (iii) each of the Relevant Subsidiaries has currently filed application with relevant government authority for the ICP License, and (iv) Founders SPV and Ms. Zhou SPV have undertaken to indemnify the Company for any losses, damages, costs and expenses arising out of or in connection with such historical non-compliance.

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Non-compliance Reasons for the Incident Non-compliance

Legal Consequences

Rectification Actions Taken

Potential Operational and Financial Impact

Non-registration of lease contracts

As at the Latest Registration of the lease According to the Administrative Practicable Date, 29 of contracts requires Measures for Commodity House the 30 lease contracts cooperation of the Leasing (商品房屋租賃管理辦法), the with respect to the lessors, including their competent government authorities have Target Group’s leased provision of various the discretion to order the Target properties in the PRC documents to the local Group to register these lease contracts had not been registered government authorities within a prescribed time limit, or with the relevant PRC for proving legal title impose a fine ranging from RMB1,000 governmental authorities. of the properties. The to RMB10,000 per incident if the Target Group has Target Group fails to comply with such limited control over the requirement. lessors in cooperating with it. Thus, the As advised by the PRC legal adviser, Target Group were not failure to complete such registration able to file the relevant will not affect the validity or leases. of the relevant lease

As advised by the PRC legal adviser, failure to complete such registration will not affect the validity or enforceability of the relevant lease contracts or result in the Target Group being required to vacate the leased properties.

During the Track Record Period and up to the Latest Practicable Date, the Target Group had not received any notice or order nor had it been subject to any fine or penalty in respect of the failure to register the lease contracts from the competent government authorities requiring the Target Group to rectify its failure to complete the lease registrations within a prescribed time limit.

As of the Latest Practicable Date, the Target Group had established a dedicated team that proactively communicates with the lessors in order to obtain their cooperation and collect the required application documents for the lease registration.

Once the relevant application documents are submitted with the assistance of the lessors, the directors of the Target Group believe that the lease registration can be completed within a reasonable period thereafter.

The Target Group has been taking proactive steps to liaise with the lessors regarding registration of the lease contracts.

In the event that the Target Group as required by the competent government authorities to rectify its failure to complete the lease registrations and is unable to do so due to the failure to cooperate on the part of the lessors, the Target Group will consider terminating the non-compliant leases after finding alternative locations nearby and relocating without creating any material disruptions to its day-to-day business operations.

According to the PRC Legal Adviser, the relevant PRC governmental authorities may require the Target Group to apply for such registrations within a stipulated time. If the Target Group fails to do so, it may be liable to a fine of ranging from RMB1,000 to RMB10,000 per incident, with a maximum liability amount of RMB290,000

As advised by the PRC legal adviser, failure to complete such registration will not affect the validity or enforceability of the relevant lease contracts or result in the Target Group being required to vacate the leased properties.

The Target Group was advised by the PRC Legal Adviser that, if the lease registration can be completed in accordance with relevant laws and regulations (i) before the Target Group receives any notice from the governmental authorities requiring the Target Group to apply for lease registration, or (ii) in the event that the Target Group receives such notice in the future requiring the Target Group to apply for registration, within the prescribed time limit ordered by the competent government authorities (such time limit is not explicitly provided by PRC laws), the probability of the competent government authorities imposing a penalty on the Target Group is remote, on the basis that (i) no penalty had been imposed on the Target Group for its failure to register these lease contracts during the Track Record Period and up to the Latest Practicable Date, (ii) according to the Administrative Measures for Commodity House Leasing (商品房屋租賃管理辦法), the competent government authorities have the discretion to order the Target Group to register these lease contracts within a prescribed time limit, or impose a fine ranging from RMB1,000 to RMB10,000 per incident if the Target Group fails to comply with such requirement. During the Track Record Period and up to the Latest Practicable Date, the Target Group had not received any notice or order nor had it been subject to any fine or penalty in respect of the failure to register the lease contracts from the competent government authorities requiring the Target Group to rectify its failure to complete the lease registrations within a prescribed time limit, and (iii) the directors of the Target Group believe that the lease registration can be completed in cooperation with the lessors within a reasonable period of time after the relevant application documents are submitted.

In view of the PRC adviser’s advice, the directors of the Target Group consider that such non-compliance, individually or in the aggregate, would not have a material adverse effect on the Target Group. Accordingly, no provision was made in this regard. Furthermore, Founders SPV and Ms. Zhou SPV have undertaken to indemnify the Company for any fine, penalty, unpaid amount, other monetary damages, costs and expenses incurred from or in connection with the failure of the Target Group to register the lease contracts during the Track Record Period.

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LITIGATION AND CLAIMS

The Target Group may be involved in legal proceedings in the ordinary course of business from time to time. The Target Group sued one of its customers for the unpaid service fee in 2018. Please refer to the section headed ‘‘Risk Factors — Risks Relating to the Target Group’s Business and Industry — The Target Group may be involved in legal or other proceedings from time to time’’ for further details.

As at the Latest Practicable Date, the Target Group was not involved in any litigation, arbitration, claim of material importance or administrative proceedings pending, or to the knowledge of the directors of the Target Group, threatened against the Target Group or any of the director of the Target Group that could have a material adverse effect on the business, operation results or financial condition of the Target Group.

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DIRECTORS OF THE TARGET GROUP

The table below sets out certain information in respect of the directors of the Target Company and DaLian Kingwisoft as at the Latest Practicable Date and before Closing:

			Date of	Date of
			joining the	appointment		Roles and
Name	Age	Position	Target Group	as directors	Address	responsibilities
Target Company
Mr. Hu Shilong	38	Director	January 2014	December	Room 11-4	Sole director
(胡仕龍先生)				2019	No. 3 Kehaiyuan
					Ganjingzi District
					Dalian
					Liaoning Province
					PRC
DaLian Kingwisoft
Mr. Hu Shilong	38	Chairman and	January 2014	May 2016	Room 11-4	Oversees overall
(胡仕龍先生)		Director			No. 3 Kehaiyuan	management and
					Ganjingzi District	operation of DaLian
					Dalian	Kingwisoft and its
					Liaoning Province	subsidiaries
					PRC
Ms. Liu Yingying	35	Director	August 2014	May 2016	Room 11-4	Oversees overall
(劉瑩瑩女士)					No. 3 Kehaiyuan	management of
					Ganjingzi District	DaLian Kingwisoft
					Dalian
					Liaoning Province
					PRC
Ms. Liu Xiaochen	38	Director	July 2014	January 2020	Room 3-1-2	Responsible for the
(劉小琛女士)					No. 18 Tongshan Street	consulting and pre-
					Xigang District	sales matter of
					Dalian	DaLian Kingwisoft
					Liaoning Province	and its subsidiaries
					PRC
Ms. Xu Dongyu	55	Director	January 2015	January 2020	Room 1-6-1	Responsible for the
(徐東煜女士)					No. 21 Gaoyun Street	financial work of
					Zhongshan District	DaLian Kingwisoft
					Dalian	and its subsidiaries
					Liaoning Province
					PRC

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DIRECTORS AND SENIOR MANAGEMENT OF THE TARGET GROUP

Mr. Hu Shilong (胡仕龍先生), aged 38, is the sole director of the Target Company and a director and the chairman of the board of DaLian Kingwisoft. He joined DaLian Kingwisoft in January 2014 as the legal representative and the general manager. Mr. Hu is the spouse of Ms. Liu Yingying.

Prior to joining the Target Group, Mr. Hu served as the manager of operating centre of Shanghai Hewlett-Packard Co., Ltd. (Dalian Branch) (上海惠普有限公司 (大連分公司)) from July 2004 to September 2008. From September 2008 to November 2013, Mr. Hu served as the China regional sales manager of Neusoft Cloud Technology Co., Ltd. (東軟雲科技有限公司) (previously known as Neusoft IT Service Co., Ltd.* (東軟信息技術服務有限公司)).

Mr. Hu does not currently serve and did not in the last three years serve as a director of any listed company.

Mr. Hu obtained a certificate of the level one of Japanese-Language Proficiency Test in February 2004. Mr. Hu obtained his bachelor’s degree in Japanese from Liaoning Normal University in June 2004.

Ms. Liu Yingying (劉瑩瑩女士), aged 35, is a director of DaLian Kingwisoft. She joined DaLian Kingwisoft in August 2014 as the chief executive. Ms Liu is the spouse of Mr. Hu Shilong.

From May 2007 to November 2008, Ms. Liu served as the specialist of Shanghai Hewlett-Packard Co., Ltd. (Dalian Branch) (上海惠普有限公司（大連分公司）). She then served as the regional manager of eastern China region of Neusoft Cloud Technology Co., Ltd. (東軟雲科技有限公司) (previously known as Neusoft IT Service Co., Ltd.* (東軟信息技 術服務有限公司)) from March 2009 to July 2011 and served as the human resource assistant of BPO Matter Management Department of Yidatec Co., Ltd. (億達資訊技術有限公司) from August 2011 to April 2014.

Ms. Liu does not currently serve and did not in the last three years serve as a director of any listed company.

Ms. Liu obtained a certificate of the level one of Japanese-Language Proficiency Test in February 2006. She graduated from Dalian Ocean University with a bachelor degree majored in Japanese in July 2007.

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DIRECTORS AND SENIOR MANAGEMENT OF THE TARGET GROUP

Ms. Liu Xiaochen (劉小琛女士), aged 38, is a director and the vice president of DaLian Kingwisoft. Ms. Liu joined DaLian Kingwisoft in July 2014 as general manager of the ITO department and the consultation department. She departed in January 2015 and re-joined DaLian Kingwisoft in January 2016 as general manager of the IT department and the consultation department. She was subsequently appointed as the vice president of DaLian Kingwisoft in May 2016.

Prior to joining the Target Group, Ms. Liu worked as senior marketing specialist in Shanghai Hewlett-Packard Co., Ltd. (上海惠普有限公司) from January 2005 to March 2009. She worked as senior sales manager from October 2011 to June 2014 and consultant from April 2009 to October 2011 in Neusoft Cloud Technology Co., Ltd. (東軟雲科技有限公司) (previously known as Neusoft IT Service Co., Ltd. (東軟信息技術服務有限公司).

Ms. Liu does not currently serve and did not in the last three years serve as a director of any listed company.

Ms. Liu obtained a certificate of the level one of Japanese-Language Proficiency Test in February 2004 and a master of business administration from Dongbei University of Finance and Economics in June 2012.

Ms. Xu Dongyu (徐東煜女士), aged 55, is a director and the finance director of DaLian Kingwisoft. She joined DaLian Kingwisoft in January 2015.

Prior to joining the Target Group, Ms. Xu worked as the deputy general manager of Dalian Fanya Kitchen Equipment Co., Ltd. (大連泛亞廚房設備有限公司) and in charge of finance and human resource from May 1997 to December 2009. From January 2010 to December 2014, she worked as the officer of integrated department of Kangmu Pifasi (Dalian) Technology Co., Ltd. (康姆芘法思（大連）科技有限公司) and responsible for finance and human resource.

Ms. Xu does not currently serve and did not in the last three years serve as a director of any listed company.

Ms. Xu obtained a certificate of assistant accountant in October 1994 and a self-taught higher education examinations’ degree in accounting from Dongbei University of Finance and Economics in June 1994.

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DIRECTORS AND SENIOR MANAGEMENT OF THE TARGET GROUP

SENIOR MANAGEMENT OF THE TARGET GROUP

The table below sets out certain information in respect of the senior management of DaLian Kingwisoft as at the Latest Practicable Date and before Closing:

				Date of
			Date of	appointment
			joining the	as senior		Roles and
Name	Age	Position	Target Group	management	Address	responsibilities
DaLian Kingwisoft
Ms. Zhou Fang	36	General	January 2014	May 2016	No. 901 Huangpu Road	Manages internal
(周芳女士)		Manager,			Ganjingzi District	operation of the
		President			Dalian	OPCO Group
					Liaoning Province
					PRC
Mr. Li Shoucheng	35	Senior Vice	May 2016	May 2016	Room 102 Unit 2	Assists in making
(李守城先生)		President			No. 13 Ningguosan	the overall
					Road	developmental
					Shinan District	strategies and
					Qingdao	management
					Shandong Province
					PRC
Ms. Liu Xiaochen	38	Vice President	July 2014	May 2016	Room 3-1-2	Responsible for the
(劉小琛女士)					No. 18 Tongshan Street	consulting and
					Xigang District	pre-sales matter
					Dalian
					Liaoning Province
					PRC
Ms. Xu Dongyu	55	Finance	January 2015	May 2016	Room 1-6-1	Responsible for the
(徐東煜女士)		Director			No. 21 Gaoyun Street	financial work of
					Zhongshan District	the OPCO Group
					Dalian
					Liaoning Province
					PRC

For biography details of Ms. Liu Xiaochen (劉小琛女士) and Ms. Xu Dongyu (徐東煜女 士), please see the section headed ‘‘Directors of the Target Group’’ above.

Ms. Zhou Fang (周芳女士), aged 36, is the general manager of DaLian Kingwisoft. She joined DaLian Kingwisoft in January 2014 as the business manager and served as a director of DaLian Kingwisoft from May 2016 to June 2020.

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DIRECTORS AND SENIOR MANAGEMENT OF THE TARGET GROUP

From May 2007 to December 2009, Ms. Zhou served as the director of department of headhunting in Dalian Fusite Gaoxinjob Co., Ltd. (大連弗斯特高新人才發展管理有限公司). Ms. Zhou also served as the assistant China regional sales manager of Neusoft Cloud Technology Co., Ltd. (東軟雲科技有限公司) (previously known as Neusoft IT Service Co., Ltd.* (東軟信息技術服務有限公司)) from December 2009 to December 2013.

Ms. Zhou does not currently serve and did not in the last three years serve as a director of any listed company.

Ms. Zhou obtained her bachelor’s degree in Japanese from Liaoning University in July 2007. She is currently enrolled in the Executive Master of Business Administration programme at Peking University.

Mr. Li Shoucheng (李守城先生), aged 35, is the deputy general manager of DaLian Kingwisoft. Mr. Li joined DaLian Kingwisoft in May 2016 as vice president and was appointed as senior vice president of DaLian Kingwisoft in October 2018.

Prior to joining the DaLian Kingwisoft, Mr. Li served as sales manager of Qingdao Anlan Electrical Equipment Co., Ltd. (青島安瀾電氣設備有限公司) from November 2006 to December 2008, sales manager of Shenzhen Bangjian Communication Equipment Co., Ltd. (深圳市邦建通訊設備有限公司) from February 2009 to September 2011, and general manager of Beiijng Nanyou Information Technology Co., Ltd.* (北京南郵信息技術有限公司) from November 2011 to May 2016.

Mr. Li does not currently serve and did not in the last three years serve as a director of any listed company.

Mr. Li obtained his diploma in technology of computer application from Qingdao Vocational and Technical College of Hotel Management in July 2007.

Directors and Senior Management of the Target Company and DaLian Kingwisoft after Closing

Following Closing, (i) each of Ms. Liu, Ms. Liu Xiaochen and Ms. Xu Dongyu will resign as director of DaLian Kingwisoft (Ms. Liu Xiaochen and Ms. Xu Dongyu will remain as senior management of DaLian Kingwisoft), and (ii) the Company will appoint Mr. Niu Zhanbin, Mr. Wu Hui and Mr. Liu Yang as directors of Target Company and DaLian Kingwisoft. None of the directors of the Target Company or DaLian Kingwisoft will become a Director of the Company upon Closing. Save as aforesaid, it is expected that there will be no change in other directors and senior management of the Target Company and DaLian Kingwisoft after Closing.

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DIRECTORS AND SENIOR MANAGEMENT OF THE TARGET GROUP

Mr. Niu Zhanbin (牛占斌先生), aged 45, shall become a director of the Target Company and DaLian Kingwisoft upon Closing. Mr. Niu joined Zhongzhi Enterprise Group Co., Ltd. in August 2019 as executive vice president. Zhongzhi Enterprise Group Co., Ltd. is a company directly or indirectly held as to 76% by Mr. Xie.

Mr. Niu worked in the Office of the Cyberspace Administration of China (國家互聯網信 息辦公室) from 2014 to 2017. He worked in China Internet Network Information Centre (中國 互聯網絡信息中心) from December 2017 to July 2019. He had participated in a number of major research projects and has extensive management experience in the fields including network infrastructure, information and communication technology, digital economy and fund investment in the PRC.

Mr. Niu obtained a bachelor of laws degree from Renmin University of China in 1996 and a master of laws degree from China University of Political Science and Law in 2012.

Mr. Wu Hui (吳輝先生), aged 38, shall become a director of the Target Company and DaLian Kingwisoft upon Closing. Mr. Wu joined the Group in November 2018 as the chief operating officer. He is the legal representative of Asian Capital (Qianhai) Investment Management Limited* (深圳前海卓亞股權投資基金管理有限公司), a subsidiary of the Company, and also holds several directorships in certain other subsidiaries of the Company.

Mr. Wu has over 10 years of experience in internal control and management of financial corporates. He has worked in Zhongzhi Capital since 2016 and is currently holding the post of its supervisor. He is also the supervisor of Changzhou Jingjiang and Tibet Kangbang.

Mr. Wu obtained a master of management degree from the Central University of Finance and Economics in 2008.

Mr. Liu Yang (劉洋先生), aged 35, is a managing director of Asian Capital (Qianhai) Investment Management Limited* (深圳前海卓亞股權投資基金管理有限公司), a subsidiary of the Company.

Mr. Liu has over 10 years’ experience in finance and investment. Mr. Liu joined the Group in February 2020. Before joining the Group, he served as the assistant audit manager of KPMG Huazhen LLP (畢馬威華振會計師事務所) from 2008 to 2011, and as the senior investment manager of CSC Financial Co., Ltd. (中信建投股份有限公司) from 2011 to 2013. Mr. Liu joined Zhongzhi Capital as a managing director in 2013 and was responsible for the investments and management of investment portfolio covering various areas such as government and public services, financial institutions and Internet and telecommunication services, including DaLian Kingwisoft.

Mr. Liu obtained his bachelor’s degree in management from Renmin University of China in 2008.

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DIRECTORS AND SENIOR MANAGEMENT OF THE TARGET GROUP

Following Closing, the Company will hold the entire issued share capital of the Target Company and will be entitled to exercise control over the operation of the OPCO Group through the Contractual Arrangements. The board of directors of each of the Target Company and DaLian Kingwisoft will comprise four directors after Closing, of which three will be nominated by the Company. The Company will oversee the overall development strategy and actively participate in the management and operation of the Target Group through the directors nominated by the Company. As disclosed above, Mr. Niu Zhanbin has extensive experience in internet, information and communication industry, which is similar to the business of the Target Group in nature. Leveraging on such experience, the directors nominated by the Company will be able to perform their roles and responsibilities in managing and operating the business of the Target Group smoothly after Closing. In addition, such directors nominated by the Company will work closely together with and be assisted by the remaining directors and senior management of the Target Company and DaLian Kingwisoft, who are responsible for the daily operation of the Target Group, to ensure continuous and smooth operation of the Target Group after Closing.

DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, save as disclosed in this circular, none of the above mentioned members of the directors and senior management of the Target Company and DaLian Kingwisoft: (i) held any directorship in any listed public companies in the last three years; (ii) had any relationship with any directors, senior management or substantial or controlling shareholders of the Company; or (iii) had any interest in the Shares within the meaning of Part XV of SFO.

As at the Latest Practicable Date, save as disclosed in this circular, none of the above mentioned members of the directors and senior management of the Target Company and DaLian Kingwisoft was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Enlarged Group.

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CONNECTED TRANSACTIONS

CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE CONTRACTUAL ARRANGEMENTS

The Target Group is operating its businesses through the OPCO Group and the WFOE respectively. The OPCO Group operates the OPCO Business, whereas the WFOE operates comprehensive marketing services and data centre services businesses. The Target Company conducts the OPCO Business through the OPCO Group under a series of Contractual Arrangements entered into between the WFOE, the Registered Shareholders and the OPCO. Please refer to the section headed ‘‘Contractual Arrangements’’ in this circular for reasons for adopting the Contractual Arrangements and details of the principal terms of the Contractual Arrangements.

Immediately after Closing, the Target Company will become a wholly-owned subsidiary of the Company. The Company has discussed with its auditors and confirms that the financial results of the Target Group, including the OPCO Group, will be consolidated into the consolidated financial statements of the Enlarged Group under prevailing accounting principles immediately after Closing. On the basis of the aforesaid confirmation and pursuant to Rule 1.01 of the GEM Listing Rules, the OPCO will become an indirect wholly-owned subsidiary of the Company through the Contractual Arrangements immediately after Closing.

Given that Mr. Hu will remain as a director of the OPCO and that each of Mr. Hu, Ms. Liu and Xiangjia Zhongzhou will become a substantial shareholder of the OPCO by virtue of legally holding more than 10% shares in the OPCO, each of Mr. Hu, Ms. Liu and Xiangjia Zhongzhou will become a connected person of the Company immediately after Closing solely for the purpose of Chapter 20 of the GEM Listing Rules. Xiangjia Zhongzhou is also a connected person of the Company at the issuer level by virtue of being indirectly whollyowned by Mr. Xie, who is a controlling shareholder of the Company, holding approximately 73.66% of the total issued share capital of the Company as at the Latest Practicable Date through Zhongzhi Xinzhuo and Kang Bang (HK). Accordingly, the transactions contemplated under the Contractual Arrangements will constitute continuing connected transactions of the Company immediately after Closing pursuant to Chapter 20 of the GEM Listing Rules.

As the highest applicable percentage ratio in respect of the transactions contemplated under the Contractual Arrangements is more than 5%, the transactions contemplated thereunder are subject to announcement, shareholders’ approval, reporting and annual review requirements under Chapter 20 of the GEM Listing Rules.

The Company has applied for, and the Hong Kong Stock Exchange has granted, a waiver from (i) fixing the term of the Contractual Arrangements for a period of not exceeding three years pursuant to Rule 20.50 of the GEM Listing Rules, and (ii) setting a maximum aggregate annual cap pursuant to Rule 20.51 of the GEM Listing Rules for the service fees payable by the OPCO to the WFOE under the Contractual Arrangements, subject to the conditions as set out more particularly in the section headed ‘‘Waiver from Strict Compliance with the GEM Listing Rules’’ in this circular.

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CONNECTED TRANSACTIONS

On the basis of the information set out in this circular, our Directors, including the independent non-executive Directors, are of the view that upon Closing (i) the Contractual Arrangements are fundamental to the Enlarged Group’s legal structure and business operations; and (ii) the Contractual Arrangements are on normal commercial terms or on terms more favourable to the Company in the ordinary and usual course of business and are fair and reasonable or to the advantage of the Group and are in the interest of the Shareholders as a whole.

LOAN FACILITY PROVIDED BY BEIJING TONGGUAN TO THE OPCO

As at the Latest Practicable Date, Beijing Tongguan is indirectly wholly-owned by Zhongzhi Capital, which is in turn indirectly wholly-owned by Mr. Xie, a controlling shareholder of the Company; Mr. Xie holds approximately 73.66% of the total issued share capital of the Company through Zhongzhi Xinzhuo and Kang Bang (HK).Therefore, Beijing Tongguan is a connected person of the Company as defined in Chapter 20 of the GEM Listing Rules.

The Tongguan Loan Agreements were entered into on 23 August 2019 among Beijing Tongguan (as lender), the OPCO (as borrower) and the Founders, Ms. Zhou and Dalian Zhirui (as guarantors), pursuant to which Beijing Tongguan has provided a facility in the principal amount of RMB30 million, with a term of two years upon drawdown and at the interest rate of 13% per annum, to the OPCO for its general corporate purposes.

As the OPCO will become a wholly-owned subsidiary of the Company immediately after Closing and the facility under the Tongguan Loan Agreements is expected to last after Closing, the facility under the Tongguan Loan Agreements will constitute a connected transaction of the Company immediately after Closing under Chapter 20 of the GEM Listing Rules. As the facility under the Tongguan Loan Agreements is conducted on normal commercial terms and is not secured by the assets of the Target Group (or the Enlarged Group after Closing), it is fully exempt under Chapter 20 of the GEM Listing Rules.

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WAIVER FROM STRICT COMPLIANCE WITH THE GEM LISTING RULES

CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE CONTRACTUAL ARRANGEMENTS

Background

Target Group is operating its businesses through the OPCO Group and the WFOE respectively. The OPCO Group operates the OPCO Business, whereas the WFOE operates comprehensive marketing services and data centre services businesses. The Target Company conducts the OPCO Business through the OPCO Group under a series of Contractual Arrangements entered into between the WFOE, Registered Shareholders and the OPCO. Please refer to the section headed ‘‘Contractual Arrangements’’ in this circular for reasons for adopting the Contractual Arrangements and details of the principal terms of the Contractual Arrangements.

Immediately after Closing, the Target Company will become a wholly-owned subsidiary of the Company. The Company has discussed with its auditors and confirms that the financial results of the Target Group, including the OPCO Group, will be consolidated into the consolidated financial statements of the Enlarged Group under prevailing accounting principles immediately after Closing. On the basis of the aforesaid confirmation and pursuant to Rule 1.01 of the GEM Listing Rules, the OPCO will become an indirect wholly-owned subsidiary of the Company through the Contractual Arrangements immediately after Closing.

GEM Listing Rules Implications

Given that Mr. Hu will remain as a director of the OPCO and that each of Mr. Hu, Ms. Liu and Xiangjia Zhongzhou will become a substantial shareholder of OPCO by virtue of legally holding more than 10% shares in the OPCO, each of Mr. Hu, Ms. Liu and Xiangjia Zhongzhou will become a connected person of the Company immediately after Closing solely for the purpose of Chapter 20 of the GEM Listing Rules. Xiangjia Zhongzhou is also a connected person of the Company at the issuer level by virtue of being indirectly whollyowned by Mr. Xie, who is a controlling shareholder of the Company, holding approximately 73.66% of the total issued share capital of the Company as at the Latest Practicable Date through Zhongzhi Xinzhuo and Kang Bang (HK). Accordingly, the transactions contemplated under the Contractual Arrangements will constitute continuing connected transactions of the Company immediately after Closing pursuant to Chapter 20 of the GEM Listing Rules.

As the highest applicable percentage ratio in respect of the transactions contemplated under the Contractual Arrangements is more than 5%, the transactions contemplated thereunder are subject to announcement, shareholders’ approval, reporting and annual review requirements under Chapter 20 of the GEM Listing Rules.

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WAIVER FROM STRICT COMPLIANCE WITH THE GEM LISTING RULES

Reasons for the Waiver Application and the View of the Directors on the Contractual Arrangements

On the basis of the information set out in this circular, our Directors, including the independent non-executive Directors, are of the view that upon Closing (i) the Contractual Arrangements are fundamental to the Enlarged Group’s legal structure and business operations; and (ii) the Contractual Arrangements are on normal commercial terms or on terms more favourable to the Company in the ordinary and usual course of business and are fair and reasonable or to the advantage of the Group and are in the interest of the Shareholders as a whole.

Our Directors also believe that upon Closing, the Enlarged Group’s structure, whereby the financial results of the OPCO Group will be consolidated into our Group’s financial statements as if they were our wholly-owned subsidiaries, and all the economic benefits of their business flows to our Group, places our Group in a special position in relation to the connected transactions rules. Accordingly, notwithstanding that the transactions contemplated under the Contractual Arrangements will technically constitute continuing connected transactions of the Company under Chapter 20 of the GEM Listing Rules upon Closing, our Directors consider that; (i) setting a maximum aggregate annual cap for the services fees payable by the OPCO to the WFOE under the Contractual Arrangements will limit the ability of the Group to operate the OPCO Business and enjoy the economic benefits generated by the OPCO Group, and (ii) the long-term arrangement of the Contractual Arrangements is fundamental and is vital to the stability of the operation of OPCO Business and financial performance of the Group. Therefore, the Directors are of the view that it is commercially desirable and essential for the services fees payable by the OPCO to the WFOE not subject to a maximum annual cap and for the Contractual Arrangements to have a term more than three years, and it would be unduly burdensome and impracticable, and would add unnecessary administrative costs to our Company, for all the transactions contemplated under the Contractual Arrangements to be subject to strict compliance with the requirements set out under Chapter 20 of the GEM Listing Rules.

Internal Control Measures

To ensure sound and effective operation of our Group after Closing, the management of our Group plans to take the following measures which will be put in place after Closing:

• (a) as part of the internal control measures, major issues arising from implementation and performance of the Contractual Arrangements will be reviewed by the Board on a regular basis which will be no less frequent than on a quarterly basis. The Board will determine, as part of its periodic review process, whether legal advisers and/or other professional will need to be retained to assist our Group to deal with specific issues arising from the Contractual Arrangements;

• (b) matters relating to compliance and regulatory enquiries from governmental authorities, if any, will be discussed by the Board on a regular basis which will be no less frequent than on a quarterly basis;

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WAIVER FROM STRICT COMPLIANCE WITH THE GEM LISTING RULES

• (c) the relevant business units and operation divisions of the Group will report regularly, which will be no less frequent than on a monthly basis, to the senior management of the Company on the compliance and performance conditions under the Contractual Arrangements and other related matters; and

• (d) the Company shall comply with the conditions prescribed under the waiver granted by the Hong Kong Stock Exchange in connection with the continuing connected transactions under the Contractual Arrangements.

Application for and Conditions for Waiver

In view of the above, the Company has applied for, and the Hong Kong Stock Exchange has granted, a waiver from (i) fixing the term of the Contractual Arrangements for a period of not exceeding three years pursuant to Rule 20.50 of the GEM Listing Rules, and (ii) setting a maximum aggregate annual cap pursuant to Rule 20.51 of the GEM Listing Rules for the service fees payable by the OPCO to the WFOE under the Contractual Arrangements, subject to the following conditions:

• (a) No Change without Independent Non-executive Directors’ Approval — No change to the Contractual Arrangements (including with respect to any fees payable to the WFOE thereunder) will be made without the approval of the independent nonexecutive Directors.

• (b) No Change without Independent Shareholders’ Approval — Save as described in ‘‘— Renewal and Reproduction’’ below, no change to the agreements governing the Contractual Arrangements will be made without the approval of the Company’s Independent Shareholders. Once Independent Shareholders’ approval of any change has been obtained, no further announcement or approval of the Independent Shareholders will be required under Chapter 20 of the GEM Listing Rules unless and until further changes are proposed. The periodic reporting requirement regarding the Contractual Arrangements in the annual reports of the Company (as set out in ‘‘— Renewal and Reproduction’’ below) will however continue to be applicable.

• (c) Economic Benefits Flexibility — The Contractual Arrangements shall continue to enable the Group to receive the entire economic benefits derived by the OPCO Group through (i) the Group’s option (if and when so allowed under the applicable PRC Laws) to acquire, all or part of the entire shareholding in DaLian Kingwisoft for nil consideration or the minimum amount of consideration permitted by applicable PRC Laws and regulations, (ii) the business structure under which the entire profit generated by the OPCO Group is substantially retained by our Group, such that no annual cap shall be set on the amount of service fees payable to the WFOE by the OPCO Group under the Exclusive Business Cooperation Agreement, and (iii) the Group’s right to control the management and operation of, as well as, in substance, all of the voting rights of DaLian Kingwisoft.

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WAIVER FROM STRICT COMPLIANCE WITH THE GEM LISTING RULES

• (d) Renewal and Reproduction — On the basis that the Contractual Arrangements provide an acceptable framework for the relationship between the Company and its subsidiaries in which the Company has direct shareholding, on the one hand, and the OPCO Group, on the other hand, that framework may be renewed and/or reproduced upon the expiry of the existing arrangements or in relation to any existing or new wholly foreign owned enterprise or operating company (including branch company) engaging in the same business as that of the Group which the Group might wish to establish when justified by business expediency, without obtaining the approval of the Shareholders, on substantially the same terms and conditions as the existing Contractual Arrangements. The directors, chief executive or substantial shareholders of any existing or new wholly foreign owned enterprise or operating company (including branch company) engaging in the same business as that of the Group which the Group may establish will, upon renewal and/or reproduction of the Contractual Arrangements, however be treated as connected persons of the Company and transactions between these connected persons and the Company other than those under similar contractual arrangements shall comply with Chapter 20 of the GEM Listing Rules. This condition is subject to relevant PRC Laws and regulations and approvals.

• (e) Ongoing Reporting and Approvals — the Group will disclose details relating to the Contractual Arrangements on an ongoing basis as follows:

• (i) The Contractual Arrangements in place during each financial period will be disclosed in the Company’s annual report and accounts in accordance with the relevant provision of the GEM Listing Rules.

• (ii) The independent non-executive Directors will review the Contractual Arrangements annually and confirm in the Company’s annual report and accounts for the relevant year that: (A) the transactions carried out during such year have been entered into in accordance with the relevant provisions of the Contractual Arrangements, have been operated so that the revenue generated by the OPCO Group has been substantially retained by the WFOE; (B) no dividends or other distributions have been made by the OPCO Group to the holders of its equity interests which are not otherwise subsequently assigned or transferred to the Group; and (C) any new contracts entered into, renewed or reproduced between the Group and the OPCO Group during the relevant financial period under paragraph (d) above are fair and reasonable, or advantageous, so far as the Group is concerned and in the interests of the Company and the Shareholders as a whole.

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WAIVER FROM STRICT COMPLIANCE WITH THE GEM LISTING RULES

• (iii) The Company’s auditors will carry out procedures in accordance with Hong Kong Standard on Assurance Engagements 3000 ‘‘Assurance Engagements Other Than Audits or Reviews of Historical Financial Information’’ and with reference to Practice Note 740 ‘‘Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules’’ issued by the Hong Kong Institute of Certified Public Accountants on the transactions carried out pursuant to the Contractual Arrangements and will provide a letter to the Directors with a copy to the Hong Kong Stock Exchange, at least ten Business Days before the Company bulk prints its annual report, reporting their findings whether that the transactions carried out pursuant to the Contractual Arrangements have received the approval of the Directors, have been entered into in accordance with the relevant Contractual Arrangements and that no dividends or other distributions have been made by the OPCO Group to the holders of its equity interest which are not otherwise subsequently assigned or transferred to the Group.

• (iv) For the purposes of Chapter 20 of the GEM Listing Rules, and in particular the definition of ‘‘connected person’’, the OPCO Group will be treated as the Company’s wholly-owned subsidiaries, and the directors, chief executives or substantial shareholders (as defined in the GEM Listing Rules) of the OPCO Group and their respective associates will be treated as the Company’s ‘‘connected persons’’ (excluding for this purpose the OPCO Group). As such, transactions between these connected persons and the Group (including for this purpose the OPCO Group), other than those under the Contractual Arrangements, shall comply with Chapter 20 of GEM Listing Rules.

• (v) The OPCO also undertakes that, for so long as the Shares are listed on the Hong Kong Stock Exchange, it will provide the Group’s management and the Company’s auditors with full access to its relevant records for the purpose of procedures to be carried out by the Company’s auditors on the connected transactions.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The following discussion and analysis of the Target Group’s financial condition and results of operations should be read in conjunction with the Target Group’s audited consolidated financial statements as at and for each of the years ended 31 March 2018, 2019 and 2020 and the accompanying notes included in the Accountants’ Report set out in Appendix I to this circular. The Target Group has prepared its financial information in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’), which may differ in certain material aspects from generally accepted accounting principles in other jurisdictions.

The following discussion contains forward-looking statements that reflect the Target Group’s current view with respect to future events and financial performance. These statements are based on the Target Group’s assumptions and analysis in light of its experience and perception of historical trends, current conditions and expected future developments, as well as factors that it believes are appropriate under the circumstances. However, the Target Group’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, without limitation, those discussed in the sections headed ‘‘Forward-Looking Statements’’, ‘‘Risk Factors’’ and ‘‘Business of the Target Group’’ in this circular.

OVERVIEW

The Target Group is an emerging leading service provider in the PRC customer service outsourcing industry. According to CIC, the Target Group ranked the 16th among approximately 2,700 outsourced customer care service providers in China and one of the top ten local privately-owned outsourced customer care service providers, both in terms of revenue in 2019. Founded in 2013, the Target Group is among the only two companies established after 2010 that ranked as China’s top 20 outsourced customer care service providers, in terms of revenue, in 2019.

As at 31 March 2020, the Target Group has provided outsourced customer care services to companies ranging from Fortune 500 multinational companies to fast-growing local companies. The majority of the key customers of the Target Group are major Chinese internetbased service providers that are leaders in areas such as e-commerce, financial services, education and transportation services. The needs of the Target Group’s customers to continuously provide customer services to customers of their own provided opportunities for the Target Group and propelled the overall growth of the Target Group during the Track Record Period. For the years ended 31 March 2018, 2019 and 2020, the Target Group’s revenue was RMB325.7 million, RMB405.2 million and RMB429.5 million, respectively. The Target Group’s total comprehensive income during the same periods was RMB29.0 million, RMB41.2 million and RMB65.6 million, respectively.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group is fully equipped to provide customer service solutions, including inbound and outbound contact services and BPO services through various channels such as telephone, live chat on various online platforms including apps, social media and customers’ websites and other cloud-based audio and video communication methods. The Target Group also helped its customers to set up their contact service systems and centres during the Track Record Period. The Target Group derived a significant portion of its revenue from its backoffice services, which amounted to RMB269.6 million, RMB375.6 million and RMB412.6 million for the years ended 31 March 2018, 2019 and 2020, respectively, accounting for 82.8%, 92.7% and 96.0% of the Target Group’s total revenue during the same periods. As at 31 March 2020, the Target Group had 12 self-operated contact service centres in eight cities across China with approximately 6,341 workstations. Together with another eight contact service centres operated by its subcontractors, the Target Group’s services covered all regions in China.

SELECTED FINANCIAL INFORMATION

The selected financial information set out below has been extracted from the Target Group’s financial information set out in Appendix I to this circular.

Consolidated Statements of Profit or Loss and Other Comprehensive Income

Revenue Cost of services Gross profit Other income Other losses Marketing expense Research and development expenses Administrative expenses Net impairment losses Finance costs Profit before tax Income tax expense Profit for the year Other comprehensive income Item that will not be reclassified to profit or loss: Fair value gain on equity instrument at fair value through other comprehensive income Total comprehensive income

Year ended 31 March 2018 2019 2020 RMB’000 325,653 405,224 429,458 (233,002) (301,498) (320,149) 92,651 103,726 109,309 5,801 4,430 11,426 (353) (379) (399) (6,428) (5,814) (4,493) (18,731) (20,369) (13,014) (28,908) (26,090) (19,256) (10,369) (5,169) (6,107) (69) (364) (3,845) 33,594 49,971 73,621 (4,610) (8,769) (8,344) 28,984 41,202 65,277 — — 314 28,984 41,202 65,591

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Consolidated Statements of Financial Position

Non-current assets Property and equipment Intangible assets Goodwill Right-of-use assets Deferred tax assets Equity instrument at fair value through other comprehensive income Other non-current assets Current assets Inventories Accounts and other receivables Contract assets Bank balances and cash Current liabilities Accounts and other payables Contract liabilities Borrowings Tax payable Lease liabilities Net current assets Total assets less current liabilities	As at 31 March 2018 2019 RMB’000 22,461 29,552 4,674 3,158 7,601 7,601 — — 3,534 3,203 — — 250 266 38,520 43,780 487 2,266 133,376 210,365 16,588 — 19,273 23,202 169,724 235,833 44,333 51,240 3,111 793 — 22,210 1,154 2,560 — — 48,598 76,803 121,126 159,030 159,646 202,810	2020 28,169 11,298 7,601 26,374 4,439 4,563 —
		82,444
		2,007 245,202 — 74,379
		321,588
		47,109 782 27,604 3,844 12,056
		91,395
		230,193
		312,637

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Non-current liabilities Borrowings Other non-current liabilities Deferred tax liabilities Lease liabilities Capital and reserves Combined capital Reserves Equity attributable to owner of the Target Company Non-controlling interests Total equity Net asset	As at 31 March 2018 2019 RMB’000 — 1,429 475 437 584 395 — — 1,059 2,261 31,300 31,300 127,250 169,241 158,550 200,541 37 8 158,587 200,549 158,587 200,549	2020 20,000 — 205 13,919
		34,124
		31,300 235,309
		266,609 11,904
		278,513
		278,513

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Summarized Consolidated Statements of Cash Flows

Operating cash flows before working capital changes Net cash (used in) from operating activities Net cash used in investing activities Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year, represented by bank balances and cash	Year ended 31 March 2018 2019 2020 RMB’000 51,331 69,114 113,441 (24,133) (1,834) 50,898 (30,186) (17,512) (28,195) 65,931 23,275 28,474 11,612 3,929 51,177 7,661 19,273 23,202 19,273 23,202 74,379

BASIS OF PRESENTATION

The historical financial information has been prepared in accordance with HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) that are effective for the Target Group’s financial year beginning 1 April 2019, including HKFRS 15 Revenue from Contracts with Customers, throughout the relevant periods, except that the Target Group (i) adopted HKFRS 9 Financial Instruments on 1 April 2018 and Hong Kong Accounting Standard (‘‘HKAS’’) 39 Financial Instruments: Recognition and Measurement prior to 1 April 2018 and (ii) adopted HKFRS 16 Leases on 1 April 2019 and applied HKAS 17 Leases prior to 1 April 2019. The historical financial information has been prepared on the historical cost basis at the end of each reporting period, which in turn is generally based on the fair value of the consideration given in exchange for goods and services. Please refer to Notes 2 and 3 in the Accountants’ Report set out in Appendix I to this circular.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

FACTORS AFFECTING THE TARGET GROUP’S RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The results of operations, financial conditions and cash flows of the Target Group have been, and will continue to be, affected by a number of factors, including those key factors set out below:

The growth of the customer service outsourcing industry in the PRC

The Target Group derived a significant portion of its revenue from its back-office services, which amounted to RMB269.6 million, RMB375.6 million and RMB412.6 million for the years ended 31 March 2018, 2019 and 2020, respectively, accounting for 82.8%, 92.7% and 96.0% of the Target Group’s total revenue during the same periods. Therefore, the results of operations and financial conditions of the Target Group depend, to a significant degree, on the performance of the Target Group’s back-office services segment. The customer service outsourcing industry in the PRC grew at a fast pace in recent years. According to CIC, revenue generated by the customer service outsourcing industry in China increased from approximately RMB14.1 billion in 2014 to approximately RMB41.3 billion in 2019, growing at a CAGR of 24.0%. According to the same source, this growth was driven by a healthy growth of the Chinese economy and a booming demand from downstream industries, such as financial, telecommunication, online retail and logistics industries, as well as an increasing penetration rate of the customer service outsourcing businesses in China. CIC estimates the same underlying growth drivers will further propel the growth of the customer service outsourcing industry in China, which is expected to grow at a CAGR of approximately 14.1% during the period from 2019 to 2024 and reach approximately RMB80.0 billion by 2024. CIC forecasts that the growth will create more opportunities for expanding customer service and marketing activities in PRC. As a company that is specialised in providing outsourced customer care services, the Target Group will continue to derive a substantial portion of its revenue from its back-office services. Having experienced rapid growth in recent years, the Target Group believes that it can leverage its years of industry know-how to capture the growth opportunities in the segment and further increase the revenue of the Target Group. Therefore, results of operations and financial conditions of the Target Group will continue to be impacted by the development of customer service outsourcing industry in China.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Ability of the Target Group to maintain and grow its relationship with its customers

The Target Group derives a significant portion of its revenue from the provision of services to a limited number of key customers. For each of the years ended 31 March 2018, 2019 and 2020, revenue attributable to the top five customers amounted to RMB226.0 million, RMB321.9 million and RMB329.2 million, respectively, which accounted for 69.4%, 79.4% and 76.6% of its total revenue for the same periods. In particular, the revenue contributed by the Target Group’s largest customer amounted to RMB99.3 million, RMB171.9 million and RMB148.9 million, respectively, which accounted for 30.5%, 42.4% and 34.7% of its total revenue for the same periods. The Target Group expects that it will continue to derive a significant portion of its revenue from a limited number of key customers in the foreseeable future. However, the directors of the Target Company believe that such customer concentration is not uncommon for the industry and that the Target Group maintains a good relationship with its key customers. During the Track Record Period, the Target Group sought to and build a high-quality and diversified customer base and provide its existing customers with different types of value-added services. Please refer to the section headed ‘‘Business of the Target Group — Customers’’ for more details. While the Target Group aims to diversify its customer base, the Target Group’s operational results and financial conditions will be adversely impacted if it cannot maintain its existing customer relationship.

Ability of the Target Group to control its labour costs

Due to the labour-intensive nature of the Target Group’s business, labour costs are a major component of its operating expense. For the years ended 31 March 2018, 2019 and 2020, costs associated with its operating employees (including their salaries, benefits and welfare were RMB121.7 million, RMB197.4 million and RMB203.0 million, respectively, accounting for 52.2%, 65.5% and 63.4% of the Target Group’s total cost of services during the same periods. The increase was primarily due to an increase in the Target Group’s employee headcount as a result of the growing market demand for outsourced customer care services. It was also due to an increase in the salaries paid to the Target Group’s operating employees in general. According to CIC, the average salaries of customer service agents increased steadily from RMB33,500 in 2014 to RMB46,400 in 2019. CIC expects that the average salaries of customer service agents will continue to experience a steady increase in the foreseeable future, growing at a CAGR of 5.7% from 2019 to 2024 and reaching RMB61,400 in 2024, driven by continued economic growth in China and the increasing complexity of customer services. As the Target Group took on more major Chinese internetbased service providers that are leading companies in their respective industries, the demand on the Target Group to employ better-educated and more qualified employees also increased, which in turn resulted in the higher salaries paid to its operating employees in general. The Target Group believes that these factors will continue to lead to an increase in labour costs in the foreseeable future. In an effort to control the employee-related costs, the Target Group retained outsourcing staff during the Track Record Period. These outsourcing staff do not maintain an employer-employee relationship with the Target Group but are employees of the subcontractors. Outsourcing service expenses amounted to RMB36.0 million, RMB60.7 million and RMB62.1 million for the years ended 31 March 2018, 2019 and 2020, respectively, accounting for 15.4%, 20.2% and 19.4% of the Target Group’s total cost of

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

services. As the Group expands its outsourced service capacity in response to the growing market demand, the Target Group expects that the outsourcing service expenses will also increase in the future. The Target Group also sought to control its labour costs by developing high-tech solutions such as an AI-enabled chatbot system that can interact with the end-users 24/7 in the first instance. Please refer to the section headed ‘‘Business of the Target Group — Research and Development’’ for more details. However, labour costs will remain a major component of the Target Group’s operating expense and is expected to impact the Target Group’s operating results and financial conditions in the foreseeable future.

Ability of the Target Group to keep up with technology development

The industry in which the Target Group operates is subject to rapid changes in information and communication technology. To maintain its competitiveness, the Target Group incurred costs in developing the operational systems and building up resources and expertise to make use of the latest information and communication technology. For the years ended 31 March 2018, 2019 and 2020, the Target Group’s total expenditure on research and development amounted to approximately RMB18.7 million, RMB20.4 million and RMB13.0 million, respectively. To meet the increasing and evolving demand on outsourced customer care services from its customers, the Target Group’s research and development team will continue to further develop high-tech solutions and software products to provide value-added capabilities to better support the Target Group’s business. The Target Group’s results of operations and financial condition will continue to be dependent on its ability to apply the latest technologies in various scenarios in the services to its customers.

Pricing of the Target Group’s services

During the Track Record Period, substantially all of the Target Group’s revenue was generated from its sales of service to its customers. As such, its financial performance is directly affected by the prices it charges to its customers. The Target Group determines and adjusts such price based on a cost-plus approach. The directors and senior management of the Target Group determine the mark-up margin based on a variety of factors, including profit margin, competitive pricing and business sustainability. Factors including the costs of labour and skilled workers, costs of materials and required machineries and technologies, project duration and estimated time costs will be considered.

There are different charging schemes for different types of contact services provided to customers due to the differences in the nature of the services. Please refer to the section headed ‘‘Business of the Target Group — Products and Services’’ for details.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

In most of the cases, the Target Group charges fees in relation to its provision of customer service solutions based on a fixed-fee approach, which is calculated based on the budgeted headcounts involved in the project, multiplied by pre-determined fees. In other occasions, the customers adopt a performance-based charging scheme based on (1) the number of inbound or outbound calls handled by the Target Group’s contact service staff in a period; or (2) a commission based on the total sales made through the outgoing calls. The table below sets forth, for the periods indicated, the breakdown of the Target Group’s revenue generated from its provision of customer service solutions by charging scheme.

Revenue from provision of customer service solutions Fixed-fee Performance-based Total	Year ended 31 March 2018 2019 2020 RMB’000 173,656 267,455 286,140 54,098 106,923 126,435 227,754 374,378 412,575	Year ended 31 March 2018 2019 2020 RMB’000 173,656 267,455 286,140 54,098 106,923 126,435 227,754 374,378 412,575
		412,575

Ability of the Target Group to secure space on commercially acceptable terms

The sustainability of the revenue and gross profit will depend on its ability to maintain and expand its network of contact service centres, which is capital intensive. During the Track Record Period, the Target Group has made large amount of investments to lease these contact service centres. For the years ended 31 March 2018, 2019 and 2020, the Target Group has incurred rent and property management fees for contact service centres amounted to RMB10.7 million, RMB15.2 million and RMB21.8 million, respectively, accounting for 4.6%, 5.1% and 6.8% of the Target Group’s cost of services for the same periods. As at 31 March 2020, the Target Group leased 12 self-operated contact service centres in eight cities across China, including Dalian, Hefei, Kunshan, Wuhan, Xiangyang, Chengdu, Leshan and Luzhou. In the foreseeable future, it is one of the Target Group’s growth strategies to expand its business by setting up five new contact service centres in the next three years. The continuous availability of space at suitable locations on acceptable terms is one of the key factors that may materially affect the Target Group’s operational results and financial conditions. Please refer to the section headed ‘‘Risk Factors — Risks Relating to the Target Group’s Business and Industry — The Target Group may fail to secure premises for its contact service centres or renew the existing leases on commercially reasonable terms or at all’’ for details.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The historical financial information of the Target Group has been prepared in conformity with HKFRSs. In the application of its accounting policies, the Target Group is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. While such judgments, estimates and assumptions were generally in line with the Target Group’s actual results in the past and the directors of the Target Company do not expect such estimates and assumptions will change significantly in the future, actual results may differ from these estimates. Below is a summary of the accounting policies and estimates that the Target Group believes are the most significant to the presentation of its financial results and involve the need to make estimates and judgements about the effect of matters that are inherently uncertain. Please refer to Notes 3 and 4 to the Accountants’ Report set out in Appendix I to this circular for more details.

Revenue Recognition

Revenue from Contracts with Customers

The Target Group’s revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Target Group expects to be entitled in exchange for those goods or services.

Specifically, the Target Group uses a 5-step approach to revenue recognition:

• . Step 1: identify the contract(s) with a customer

• . Step 2: identify the performance obligations in the contract

• . Step 3: determine the transaction price

• . Step 4: allocate the transaction price to the performance obligations in the contract

• . Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Under HKFRS 15, the Target Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘‘control’’ of the goods or services underlying the particular performance obligation is transferred to the customer. A performance obligation represents a good or services (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: (i) the customer simultaneously receives and consumes the benefits provided by the Target Group’s performance as the Target Group performs; (ii) the Target Group’s performance creates or enhances an asset that the customer controls as the Target Group performs; or (iii) the Target Group’s performance does not create an asset with an alternative use to the Target Group and the Target Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.

Leasing

Accounting Policy Applicable Before 1 April 2019

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Target Group as Lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Contingent rentals under operating leases are recognised as expenses in the periods in which they are incurred.

Accounting Policy Applicable After 1 April 2019

Definition of a lease

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

For contracts entered into or modified on or after the date of initial application, the Target Group assesses whether a contract is or contains a lease based on the definition under HKFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group as a lessee

Allocation of Consideration to Components of a Contract

For a contract that contains a lease component and one or more additional lease or nonlease components, the Target Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

As a practical expedient, leases with similar characteristics are accounted on a portfolio basis when the Target Group reasonably expects that the effects on the condensed combined financial statements would not differ materially from individual leases within the portfolio.

The Target Group also applies practical expedient not to separate non-lease components from lease component, and instead account for the lease component and any associated nonlease components as a single lease component.

Short-term Leases

The Target Group applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. Lease payments on short-term leases are recognised as expense on a straight-line basis over the lease term.

Right-of-use Assets

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

Refundable Rental Deposits

Refundable rental deposits paid are accounted under HKFRS 9 and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments and included in the cost of right-of-use assets.

Lease Liabilities

At the commencement date of a lease, the Target Group recognises and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Target Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Lease Modifications

The Target Group accounts for a lease modification as a separate lease if:

• . the modification increases the scope of the lease by adding the right to use one or more underlying assets; and

• . the consideration for the leases increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a lease modification that is not accounted for as a separate lease, the Target Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

Taxation

For the purposes of measuring deferred tax for leasing transactions in which the Target Group recognises the right-of-use assets and the related lease liabilities, the Target Group first determines whether the tax deductions are attributable to the right-of-use assets or the lease liabilities.

For leasing transactions in which the tax deductions are attributable to the lease liabilities, the Target Group applies HKAS 12 Income Taxes requirements to right-of-use assets and lease liabilities separately. Temporary differences relating to right-of-use assets and lease liabilities are not recognised at initial recognition and over the lease terms due to application of the initial recognition exemption.

Intangible Assets

Intangible Assets Acquired Separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and any accumulated impairment loss. Amortization for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated useful lives and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Internally-generated intangible assets — research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development activities (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

• . the technical feasibility of completing the intangible asset so that it will be available for use or sale;

• . the intention to complete the intangible asset and use or sell it;

• . the ability to use or sell the intangible asset;

• . how the intangible asset will generate probable future economic benefits;

• . the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

• . the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses (if any), on the same basis as intangible assets that are acquired separately.

Estimated Impairment of Goodwill

Determining whether goodwill is impaired requires the Target Group to estimate the recoverable amount of the cash-generating units (the ‘‘CGUs’’) or group of CGU to which goodwill has been allocated, which is the higher of the value in use or fair value less costs of disposal.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The value in use calculation requires the Target Group to estimate the future cash flows expected to arise from the CGU or group of CGU and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, or change in facts and circumstances which results in downward revision of future cash flows, a material impairment loss/further impairment loss may arise. As at 31 March 2018, 2019 and 2020, the carrying amount of goodwill is RMB7.6 million, RMB7.6 million and RMB7.6 million, respectively. No impairment loss was recognised for the Track Record Periods. Please refer to Note 17 to the Accountants’ Report set out in Appendix I to this circular for more details of the calculations of recoverable amount.

Provision of Expected Credit Losses (the ‘‘ECLs’’) for Accounts Receivables and Contract Assets

Accounts receivables and contract assets with significant balances and credit impaired are assessed for ECL individually. In addition, the Target Group uses provision matrix to calculate ECLs for the accounts receivables and contract assets which are individually insignificant. The provision rates are based on aging as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Target Group’s historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered.

The provision of ECL is sensitive to changes in estimates. Please refer to Notes 19 and 34 to the Accountants’ Report set out in Appendix I to this circular for more details of ECLs and accounts receivables.

DESCRIPTION OF PRINCIPAL CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ITEMS

The following discussion summarizes components of combined statements of profit or loss and other comprehensive income line items appearing in the Accountants’ Report set out in Appendix I to this circular that Target Group believes may be helpful in understanding the period-to-period discussions that follow.

Revenue

The Target Group’s revenue represents the fair value of the amounts received and receivables from the provision of back-office services, which includes provision of customer service solutions and setting up of contact service systems and centres, comprehensive marketing services and data centre services, net of rebates.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s revenue by business segment.

Back-office Services — Provision of customer service solutions — Setting up of contact service systems and centres Subtotal Comprehensive Marketing Services Data Center Services Total	2018 RMB’000 % of total 227,754 69.9 41,859 12.9 269,613 82.8 10,516 3.2 45,524 14.0 325,653 100.0	Year ended 31 March 2019 RMB’000 % of total 374,378 92.4 1,253 0.3 375,631 92.7 17,748 4.4 11,845 2.9 405,224 100.0	2020 RMB’000 % of total 412,575 96.0 — — 412,575 96.0 5,001 1.2 11,882 2.8 429,458 100.0	2020 RMB’000 % of total 412,575 96.0 — — 412,575 96.0 5,001 1.2 11,882 2.8 429,458 100.0
				96.0 1.2 2.8
				100.0

Back-office Services

During the Track Record Period, the Target Group was primarily involved in the backoffice services which offered a range of services that helped its customers to support their end-users. This primarily includes provision of customer service solutions, which primarily provides round-the-clock contact services in multiple languages and accessible from various channels and provision of solutions on project-based customer service software and system development and setup support services. For each of the years ended 31 March 2018, 2019 and 2020, the contribution from back-office services accounted for 82.8%, 92.7% and 96.0% of the Target Group’s total revenue, respectively. As a percentage, the revenue contribution from the back-office services increased during the Track Record Period, primarily due to the increase in the revenue derived from the provision of customer service solutions.

Provision of customer service solutions

For the provision of customer service solutions related services, revenue is recognised when the relevant services are rendered. In most of the cases, the Target Group charges fees in relation to its provision of customer service solutions based on a fixed-fee approach, which is calculated based on the budgeted headcounts involved in the project, multiplied by predetermined fees. In other occasions, the customers adopt a performance-based charging scheme based on (1) the number of inbound or outbound calls handled by the Target Group’s contact service staff in a period; or (2) a commission based on the total sales made through the outgoing calls. The Target Group has a right to invoice in an amount that corresponds directly with the value of the Target Group’s performance completed to date. The directors of the Target Company have assessed that outsourcing services represent one single performance obligation and the customers simultaneously receive and consume the benefits provided by the Target Group’s performance as the Target Group performs. Therefore, the directors of the Target Company considered that the services are satisfied over time. Revenue from the provision of outsourcing services is recognised in an amount to which the Target Group has a right to invoice. Customers are invoiced on a monthly basis or according to agreed payment

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

terms and consideration is payable when invoiced. For each of the years ended 31 March 2018, 2019 and 2020, the contribution from provision of customer service solutions services accounted for 69.9%, 92.4% and 96.0% of the Target Group’s total revenue, respectively. As a percentage, the revenue contribution from the provision of customer service solutions services increased during the Track Record Period, primarily due to the increase in the revenue derived from such segment. Given the Target Group’s strategic focus on customer care services and the growing market demand for outsourced customer care services, the Target Group expects the revenue derived from the Target Group’s provision of customer service solutions will remain its predominant source of income in the foreseeable future.

Setting up of contact service systems and centres

Setting up of contact service systems and centres includes a comprehensive set of activities in the contract, such as system design, implementation, installation, trial launch and software and hardware support, which are highly interdependent and interrelated. The directors of the Target Company have assessed that the Target Group’s performance creates or enhances an asset that the customers control as the Target Group performs. Therefore, the directors of the Target Company considered that there is only one single performance obligation and the services are satisfied over time. Revenue from setting up of contact service systems and centres is recognised based on the stage of completion of the contracts which is determined as the proportion of the costs incurred for the work (i.e. subcontracting costs, and direct staff costs incurred) performed to date relative to the estimated total costs to complete the satisfaction of these services, to the extent that the amount can be measured reliably and its recovery is considered probable. For each of the years ended 31 March 2018, 2019 and 2020, the contribution from setting up contact service systems and centres accounted for 12.9%, 0.3% and nil of the Target Group’s total revenue, respectively. As a percentage, the revenue contribution from the setting up contact service systems and centres decreased during the Track Record Period, primarily due to the completion of the projects to set up contact service centres for customers in 2018.

Comprehensive Marketing Services

The Target Group renders various marketing services including advertising services to brand owners on various platforms including apps, social media, websites and offline marketing. Revenue from provision of the services is recognised when the services are rendered according to the terms of the agreements which the control of the service is transferred when the Target Group has provided the related services over the service period, the customer simultaneously receives and consumes the benefits provided by the Target Group’s performance as the Target Group performs. Revenue from provision of comprehensive marketing services is recognised over the period in which the services are rendered. The progress towards complete satisfaction of a performance obligation in respect of the comprehensive marketing services contracts is measured based on output method, which, in most cases, is to recognise revenue based on time elapsed. In limited circumstances, such as

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contracts for implementation or marketing development projects, revenue is recognised based on the stage of completion of the contracts which is determined as the proportion of the costs incurred for the work (i.e. subcontracting costs, and direct staff costs incurred) performed to date relative to the estimated total costs to complete the satisfaction of these services, to the extent that the amount can be measured reliably and its recovery is considered probable.

The percentage of revenues generated from the comprehensive marketing services has increased slightly from 3.2% to 4.4% from the year ended 31 March 2018 to the year ended 31 March 2019, while decreased to 1.2% for the year ended 31 March 2020. As a percentage, the fluctuations in the revenue contribution from the comprehensive marketing services of the Target Group primarily reflected the fluctuations during the early stage of the segment’s development.

Data Center Services

The Target Group provides various corporate data centre services such as value-added services to internet data centres for securities houses. The Target Group recognises revenue from providing data centre services when the relevant services are rendered and the customer simultaneously receives and consumes the benefits provided by the Target Group throughout the contract period. Thus, the Target Group satisfies a performance obligation and recognises revenue over time with reference to the actual service period passed relative to the total contract period. The portion of services fee received in advance but not earned is recorded as contract liabilities and is reflected as a current liability as such amounts represent revenue that the Target Group expects to earn within one year. The percentage of revenues generated from providing data centre services decreased from 14.0% to 2.9% from the year ended 31 March 2018 to the year ended 31 March 2019 and remained relatively stable at 2.8% for the year ended 31 March 2020. As a percentage, the fluctuations in the revenue contribution from the data centre services segment of the Target Group primarily reflected (i) the one-off setting up of data centres for its customers in the year ended 31 March 2018 and (ii) a shift in the Target Group’s strategy to focus more on securities firms in this segment since 2019 as services for securities firms typically yield a higher profit margin for the Target Group, amid a general decrease in the segment’s revenue contribution percentage-wise as the weight of back-office services segment increased.

Cost of Services

The Target Group’s cost of services primarily consisted of (i) labour costs of operating employees, including salaries, benefits and welfares, (ii) outsourcing service expenses related to the Target Group’s outsourcing staff, (iii) costs related to the purchase of certain hardware sold to the Target Group’s customers, (iv) rent and property management fees primarily related to the Target Group’s contact service centres, (v) depreciations and amortisations of the Target Group’s operation-related fixed and intangible assets, (vi) office and other expenses and (vii) others.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s cost of services by nature.

Labor costs of operating employees Outsourcing service expenses Hardware costs Rent and property management fees Depreciations and amortisations Office and other expenses Others Total	2018 RMB’000 % of total 121,658 52.2 35,979 15.4 46,654 20.0 10,731 4.6 7,217 3.1 6,592 2.8 4,171 1.8 233,002 100.0	Year ended 31 March 2019 RMB’000 % of total 197,422 65.5 60,739 20.1 1,619 0.5 15,225 5.0 11,834 3.9 9,225 3.1 5,434 1.8 301,498 100.0	2020 RMB’000 % of total 203,032 63.4 62,077 19.4 937 0.3 21,840 6.8 16,201 5.1 10,496 3.3 5,566 1.7 320,149 100.0	2020 RMB’000 % of total 203,032 63.4 62,077 19.4 937 0.3 21,840 6.8 16,201 5.1 10,496 3.3 5,566 1.7 320,149 100.0
				100.0

Labor costs of operating employee were the largest component of the Target Group’s cost of services during the Track Record Period, accounting for 52.2%, 65.5% and 63.4% of the Target Group’s total cost of services, respectively, for each of the years ended 31 March 2018, 2019 and 2020. Labor costs of operating employees mainly consisted of salaries, benefits and welfare of the operating employees. The percentage of labour costs of operating employees increased from the year ended 31 March 2018 to the year ended 31 March 2019 primarily due to an increase in the number of operating employees and an increase in the salaries paid to its operating employees. As the Target Group took on more major Chinese internet-based service providers that are leading companies in their respective industries, the demand on the Target Group to employ better-educated and more qualified employees also increased, which in turn resulted in the higher salaries paid to its operating employees in general. The percentage of labour costs of operating employees remained relatively stable at 63.4% for the year ended 31 March 2020 as compared to 65.5% for the year ended 31 March 2019.

Outsourcing service expenses were the second largest component of the Target Group’s cost of services during the Track Record Period, accounting for 15.4%, 20.1% and 19.4% of the Target Group’s total cost of services, respectively, for each of the years ended 31 March 2018, 2019 and 2020. These expenses mainly consisted of costs paid to the subcontractors for outsourcing services.

For the year ended 31 March 2018, hardware costs were a significant component of the Target Group’s cost of services, accounting for 20.0% of its cost of services during that year. These costs mainly consisted of the costs associated with acquiring hardware as a part of their projects to set up contact service centres for such customers in the year ended 31 March 2018. The costs were passed onto such customers.

Depreciations and amortisations accounted for 3.1%, 3.9% and 5.1% of the Target Group’s total cost of services, respectively, for each of the years ended 31 March 2018, 2019 and 2020. These expenses mainly consisted of depreciations of properties, equipment, other fixed assets used for operation of contact service centres and right-of-use assets, amortisations for intangible assets, long-term amortisation expenses and low value consumables.

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Office and other expenses accounted for 2.8%, 3.1% and 3.3% of the Target Group’s total cost of services, respectively, for each of the years ended 31 March 2018, 2019 and 2020. These expenses mainly consisted of expenses related to office supplies, communication expenses, consulting expenses, shipping expenses and maintenance expenses.

Gross Profit

The tables below set forth, for the periods indicated, the revenue, cost of services and gross profit by business segment and the percentage of the Target Group’s total gross profit by segment.

Back-office Services Revenue Cost of services Gross profit Comprehensive Marketing Services Revenue Cost of services Gross profit Data Center Services Revenue Cost of services Gross profit	2018 RMB’000 % of total 269,613 100.0 192,681 (71.5) 76,932 28.5 10,516 100.0 11,537 (109.7) (1,021) (9.7) 45,524 100.0 28,784 (63.2) 16,740 36.8	Year ended 31 March 2019 RMB’000 % of total 375,631 100.0 280,277 (74.6) 95,354 25.4 17,748 100.0 16,037 (90.4) 1,711 9.6 11,845 100.0 5,184 (43.8) 6,661 56.2	2020 RMB’000 % of total 412,575 100.0 306,607 (74.3) 105,968 25.7 5,001 100.0 7,968 (159.3) (2,967) (59.3) 11,882 100.0 5,574 (46.9) 6,308 53.1

Other Income

The Target Group’s other income consisted of (i) interest income from bank deposits, (ii) government grants and subsidies primarily related to rent subsidies, high-tech enterprise subsidies, subsidies related to software and digital innovations enterprise, employment subsidies, fixed asset subsidies for Shenzhen Kingwisoft as part of the local government’s incentive for companies in certain industrial park and subsidies related to the Target Group’s NEEQ listing, (iii) VAT refund related to tax rebate on sales of software products related to contact service systems. For the year ended 31 March 2020, VAT refund also included the newly-introduced tax refund by the State Administration of Taxation (the ‘‘SAT’’) for tax payers in the service sector, and (iv) others, primarily related to one-off subsidies received by certain subsidiaries related to their operations.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s other income.

Interest income on bank deposits Government grants and subsidies VAT refund Others Total	Year ended 31 March 2018 2019 2020 RMB’000 149 140 233 3,650 3,114 9,460 1,813 1,174 1,733 189 2 — 5,801 4,430 11,426	Year ended 31 March 2018 2019 2020 RMB’000 149 140 233 3,650 3,114 9,460 1,813 1,174 1,733 189 2 — 5,801 4,430 11,426
		11,426

Other Losses

The Target Group’s other losses consisted of (i) loss on disposal of property and equipment in the year ended 31 March 2018 and (ii) others.

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s other losses.

Loss on disposal of property and equipment Others Total	Year ended 31 March 2018 2019 2020 RMB’000 103 — 4 250 379 395 353 379 399	Year ended 31 March 2018 2019 2020 RMB’000 103 — 4 250 379 395 353 379 399
		399

Marketing Expenses

The Target Group’s marketing expenses primarily consisted of (i) labour costs of its marketing personnel, including salaries, benefits and welfares, (ii) marketing-related rent and property management fees, (iii) marketing-related travel and business hospitality expenses, (iv) marketing-related office and other expenses, (v) restricted stock related to stock incentives for marketing personnel, and (vi) others.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s marketing expenses.

Labor costs of marketing personnel Rent and property management fees Travel and business hospitality expenses Office and other expenses Restricted stock Others Total	2018 RMB’000 % of total 3,878 60.3 191 3.0 1,058 16.5 1,022 15.9 185 2.9 94 1.5 6,428 100.0	Year ended 31 March 2019 RMB’000 % of total 4,092 70.4 144 2.5 908 15.6 459 7.9 143 2.5 68 1.2 5,814 100.0	2020 RMB’000 % of total 2,977 66.3 113 2.5 886 19.7 191 4.3 223 5.0 103 2.3 4,493 100.0	2020 RMB’000 % of total 2,977 66.3 113 2.5 886 19.7 191 4.3 223 5.0 103 2.3 4,493 100.0
				100.0

Research and Development Expenses

The Target Group’s research and development expenses are mainly spent on researching, designing and developing technology solutions and software products for the Target Group. Please refer to the section headed “Business of the Target Group — Research and Development” for further details. The expenses primarily consisted of (i) labour costs of its research and development personnel, including salaries, benefits and welfares, (ii) researchand development-related rent and property management fees, (iii) depreciations and amortisations related to fixed assets and intangible assets used for research and development purpose, (iv) travel and business hospitality expenses related to research and development purposes, (v) office and other expenses related to research and development purposes, and (vi) restricted stock related to stock incentives for research and development personnel.

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s research and development expenses.

Labor cost of R&D personnel Rent and property management fees Depreciations and Amortizations Travel and Business hospitality expenses Office and other expenses Restricted stock Total	2018 RMB’000 % of total 17,192 91.8 143 0.8 326 1.7 228 1.2 398 2.1 444 2.4 18,731 100.0	Year ended 31 March 2019 RMB’000 % of total 18,786 92.2 481 2.4 155 0.8 209 1.0 294 1.4 444 2.2 20,369 100.0	2020 RMB’000 % of total 10,635 81.7 69 0.5 261 2.0 94 0.7 1,983 15.2 (28) (0.2 13,014 100.0	2020 RMB’000 % of total 10,635 81.7 69 0.5 261 2.0 94 0.7 1,983 15.2 (28) (0.2 13,014 100.0
				100.0

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Administrative Expenses

The Target Group’s administrative expenses primarily consisted of (i) labour costs of its administrative personnel, including salaries, benefits and welfares, (ii) rent and property management fees related to administrative use, (iii) depreciations and amortisation related to fixed assets and intangible assets used for administrative purpose, (iv) travel and business hospitality expenses related to administrative personnel, (v) office and other expenses related to administrative purposes, (vi) consulting expenses related to its NEEQ listing, COPC accreditation and certain industry consultant, (vii) local taxes and surcharges, and (viii) others.

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s administrative expenses.

Labor costs of administrative personnel Rent and property management fees Depreciations and Amortizations Travel and Business hospitality expenses Office and other expenses Consulting expenses Taxes and surcharges Others Total	2018 RMB’000 % of total 13,383 46.3 894 3.1 2,359 8.2 3,849 13.3 5,839 20.2 1,315 4.5 1,378 4.8 (109) (0.4) 28,908 100.0	Year ended 31 March 2019 RMB’000 % of total 14,076 54.0 1,702 6.5 2,463 9.4 1,733 6.6 2,121 8.1 1,522 5.8 2,109 8.1 364 1.4 26,090 100.0	2020 RMB’000 % of total 9,200 47.8 1,913 9.9 2,737 14.2 1,229 6.4 198 1.0 1,253 6.5 2,439 12.7 287 1.5 19,256 100.0	2020 RMB’000 % of total 9,200 47.8 1,913 9.9 2,737 14.2 1,229 6.4 198 1.0 1,253 6.5 2,439 12.7 287 1.5 19,256 100.0
				100.0

Net Impairment Losses

The Target Group’s net impairment losses primarily consisted of impairment losses recognised on (i) accounts receivables for services provided and (ii) other receivables. Please refer to Note 34(b) to the Accountants’ Report set out in Appendix I to this circular for more details of the Target Group’s credit risk and impairment assessment.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s net impairment losses.

Net Impairment losses recognised on: — Accounts receivables for services provided — Other receivables Total	Year ended 31 March 2018 2019 2020 RMB’000 9,919 4,453 5,520 450 716 587 10,369 5,169 6,107	Year ended 31 March 2018 2019 2020 RMB’000 9,919 4,453 5,520 450 716 587 10,369 5,169 6,107
		6,107

Finance Costs

The Target Group’s finance costs primarily consisted of interest expense on bank and other borrowings and lease liabilities. No finance costs were capitalised in the cost of qualifying assets during the Track Record Period.

The table below sets forth, for the periods indicated, a breakdown of the Target Group’s financial costs.

Interest on bank borrowings Interest on other borrowings Interest on lease liabilities Total	Year ended 31 March 2018 2019 2020 RMB’000 — 364 1,269 69 — 1,308 — — 1,268 69 364 3,845	Year ended 31 March 2018 2019 2020 RMB’000 — 364 1,269 69 — 1,308 — — 1,268 69 364 3,845
		3,845

Please refer to the section headed ‘‘Financial Information — Indebtedness’’ for details of the Target Group’s borrowings.

Income Tax Expense

The Target Group’s income tax expense was RMB4.6 million, RMB8.8 million and RMB8.3 million for the each of the years ended 31 March 2018, 2019 and 2020.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The basic tax rate of Target Group’s PRC subsidiaries is 25% under the law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and implementation regulations of the EIT Law. Certain subsidiaries of the Target Company qualified as advanced technology enterprises during the Track Record Periods and have obtained approvals from the relevant tax authorities for the reduction of the applicable tax rate to 15% for a period of three years up to 31 December 2020. The Target Group’s effective income tax rate, which is calculated by dividing income tax expense for a period by profit before tax for the same period, was approximately 13.7%, 17.5% and 11.3% for the years ended 31 March 2018, 2019 and 2020, respectively. The Target Group’s effective income tax rate during the year ended 31 March 2018 was lower than 15% primarily due to the effect of deductions of certain research and development expenses. The Target Group’s effective income tax rate during the year ended 31 March 2020 was lower than 15% primarily because certain subsidiaries that made profit in the year ended 31 March 2020 utilised previous tax losses.

As at the Latest Practicable Date, the Target Group fulfiled all of its previous and existing tax obligations and it was not aware of any outstanding or potential disputes with relevant tax authorities.

RESULTS OF OPERATIONS

Year ended 31 March 2020 compared with year ended 31 March 2019

Revenue

The Target Group’s total revenue increased by RMB24.3 million, or 6.0%, from RMB405.2 million in 2019 to RMB429.5 million in 2020. The increase was primarily due to an increase in the revenue derived from its back-office services and, partially offset by a decrease in the revenue derived from its comprehensive marketing services segments.

Back-office Services

The Target Group’s total revenue generated from back-office services increased by RMB37.0 million, or 9.9%, from RMB375.6 million in 2019 to RMB412.6 million in 2020. The increase was primarily due to an increase in the revenue derived from the provision of customer service solutions, partially offset by a decrease in the revenue derived from setting up of contact service systems and centres.

Provision of Customer Service Solutions

The Target Group’s total revenue generated from the provision of customer service solutions increased by RMB38.2 million, or 10.2%, from RMB374.4 million in 2019 to RMB412.6 million in 2020, primarily due to an increase in business volume from certain key customers in the internet industry. The increase also reflected the growing demand of the customer service outsourcing industry.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Setting Up Contact Service Systems and Centers

The Target Group’s total revenue generated from setting up contact service systems and centres was nil for the year ended 31 March 2020 as compared to RMB1.3 million for the year ended 31 March 2019, primarily due to the completion of the projects to set up contact service centres for a customer during the year ended 31 March 2019.

Comprehensive Marketing Services

The Target Group’s total revenue generated from comprehensive marketing services decreased by RMB12.7 million, or 71.8%, from RMB17.7 million in 2019 to RMB5.0 million in 2020, primarily due to the completion of a short-term project for a key customer in 2018. The fluctuation also reflected that the Target Group’s comprehensive marketing services segment is still at its early stage of development.

Data Center Services

The Target Group’s total revenue generated from data centre services segment remained relatively stable at RMB11.9 million in 2020 as compared to RMB11.8 million in 2019.

Cost of Services

The Target Group’s cost of services increased by RMB18.7 million, or 6.2%, from RMB301.5 million in 2019 to RMB320.1 million in 2020, primarily due to (i) a RMB6.6 million, or 43.4%, increase in rent and property management fees, mainly as a result of the expansion of the Target Group’s operations; (ii) a RMB5.6 million, or 2.8%, increase in the labour costs of its operating employees, primarily in line with the increase in the Target Group’s revenue during the same period; and (iii) a RMB4.4 million, or 36.9%, increase in depreciations and amortizations, primarily as a result of an increase in intangible assets due to the capitalisation of certain internally generated development costs and depreciation of certain right-of-use assets incurred during the year ended 31 March 2020 as a result of its adoption of HKFRS 16 from 1 April 2019.

Gross profit and gross profit margin

As a result of the foregoing, the Target Group’s gross profit increased by RMB5.6 million, or 5.4%, from RMB103.7 million in 2019 to RMB109.3 million in 2020. The Target Group’s gross profit margin remained relatively stable at 25.5% in 2020 as compared to 25.6% in 2019.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The table below sets forth, for the periods indicated, the gross profit, the percentage of the Target Group’s total gross profit and the gross profit margin by segment.

Back-office Services Comprehensive Marketing Services Data Center Services Total	RMB’000 95,354 1,711 6,661 103,726	Year ended 31 March 2020 2019 % of total Margin % RMB’000 91.9 25.4 105,968 1.6 9.6 (2,967) 6.4 56.2 6,308 100.0 25.6 109,309	2020 % of total 96.9 (2.7) 5.8 100.0	Margin % 25.7 (59.3) 53.1 25.5

Back-office Services

The increase of gross profit margin of the Target Group’s back-office services was primarily due to the increased operational efficiency in its newly-constructed contact service centres as the Target Group completed the run-in of these contact service centres.

Comprehensive Marketing Services

The decrease of gross profit margin of the Target Group’s comprehensive marketing services was primarily due to a decrease in the revenue derived from this segment, mainly as a result of the completion of a short-term project for a key customer in 2018. The fluctuation also reflected that the Target Group’s comprehensive marketing services segment is still at its early stage of development.

Data Center Services

The decrease of gross profit margin of the Target Group’s data centre services was primarily due to additional cost incurred to upgrade the relevant equipment.

Other income

The Target Group’s other income increased by RMB7.0 million, or 157.9%, from RMB4.4 million in the year ended 31 March 2019 to RMB11.4 million in the year ended 31 March 2020. The change was primarily due to a RMB6.3 million, or 203.8%, increase in government grants and subsidies received by the Target Group mainly related to one-off operational subsidies received by certain subsidiaries as a result of the COVID-19 outbreak.

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Other losses

The Target Group’s other losses remained primarily stable at RMB0.4 million in the year ended 31 March 2020 as compared to RMB0.4 million in the year ended 31 March 2019.

Marketing expenses

Marketing expenses decreased by RMB1.3 million, or 22.7%, from RMB5.8 million in the year ended 31 March 2019 to RMB4.5 million in the year ended 31 March 2020. The decrease was primarily due to a RMB1.1 million, or 27.2%, decrease in marketing-related labor costs, mainly as a result of the Target Group’s streamlining of its marketing department as part of its effort to increase cost efficiency and the departure of certain Beijing Nanyou’s marketing personnel after its research and development department relocated from Beijing to Dalian.

Research and development expenses

Research and development expenses decreased by RMB7.3 million, or 36.1%, from RMB20.4 million in the year ended 31 March 2019 to RMB13.0 million in the year ended 31 March 2020. The decrease was primarily due to a RMB8.2 million, or 43.4%, decrease in research and development related labor costs in the year ended 31 March 2020, mainly as a result of the capitalisation of certain internally generated development costs and the relocation of Beijing Nanyou’s research and development department from Beijing to Dalian; partially offset by an incurrence in consulting fees as part of the office and other expenses, primarily due to expenses paid to outsourced research projects.

Administrative expenses

Administrative expenses decreased by RMB6.8 million, or 26.2%, from RMB26.1 million in the year ended 31 March 2019 as compared to RMB19.3 million in the year ended 31 March 2020. This was primarily due to a RMB4.9 million, or 34.6%, decrease in administration related labor costs in 2020, mainly as a result of the departure of certain Beijing Nanyou’s administrative personnel after its research and development department relocated from Beijing to Dalian and the capitalisation of expenses incurred by administrative personnel for research and development purpose.

Net impairment losses

Net impairment losses increased by RMB0.9 million, or 18.1%, from RMB5.2 million in the year ended 31 March 2019 to RMB6.1 million in the year ended 31 March 2020.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Finance costs

Finance costs increased by RMB3.5 million, or 608.0%, from RMB0.4 million in 2018 to RMB3.8 million in 2019. The increase was primarily due to (i) the interest payments on bank borrowings and other borrowings incurred in the year ended 31 March 2020 as the Target Group incurred more bank and other borrowings during this period; and (ii) the interest payments on lease liabilities of RMB1.2 million incurred during the year ended 31 March 2020 as the Target Group recognised lease liabilities as a result of its adoption of HKFRS 16 from 1 April 2019.

Profit before tax

As a result of the foregoing, the Target Group’s profit before tax increased by RMB23.7 million, or 47.4%, from RMB50.0 million in the year ended 31 March 2019 to RMB73.6 million in the year ended 31 March 2020.

Income tax expense

Income tax expense decreased by RMB0.4 million, or 4.8%, from RMB8.8 million in the year ended 31 March 2019 to RMB8.3 million in the year ended 31 March 2020. The Target Group’s effective income tax rate decreased from 17.5% in the year ended 31 March 2019 to 11.3% in the year ended 31 March 2020, primarily because certain subsidiaries that made profit in the year ended 31 March 2020 utilised previous tax losses.

Fair value gain on equity instrument at fair value through other comprehensive income

The Target Group had a fair value gain on equity instrument at fair value through other comprehensive income of RMB0.3 million in the year ended 31 March 2020 as compared to nil in the year ended 31 March 2019, primarily related to its equity investment in Mango U- Show.

Total comprehensive income for the year

As a result of the foregoing, total comprehensive income for the year increased by RMB24.4 million, or 59.2%, from RMB41.2 million in the year ended 31 March 2019 to RMB65.6 million in the year ended 31 March 2020.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Year ended 31 March 2019 compared with year ended 31 March 2018

Revenue

The Target Group’s total revenue increased by RMB79.6 million, or 24.4%, from RMB325.7 million in 2018 to RMB405.2 million in 2019. The increase was primarily due to an increase in the revenue derived from its back-office services and comprehensive marketing services segments, partially offset by a decrease in the revenue derived from its data centre services segment.

Back-office Services

The Target Group’s total revenue generated from back-office services increased by RMB106.0 million, or 39.3%, from RMB269.6 million in 2018 to RMB375.6 million in 2019. The increase was primarily due to an increase in the revenue derived from the provision of customer service solutions, partially offset by a decrease in the revenue derived from setting up of contact service systems and centres.

Provision of Customer Service Solutions

The Target Group’s total revenue generated from the provision of customer service solutions increased by RMB146.6 million, or 64.4%, from RMB227.8 million in 2018 to RMB374.4 million in 2019, primarily due to an increase in business volume from certain key customers in the internet industry, as well as the Target Group’s successful effort in attracting new customers from the internet and other industries. The increase also reflected the growing demand of the customer service outsourcing industry.

Setting Up Contact Service Systems and Centers

The Target Group’s total revenue generated setting up contact service systems and centres decreased by RMB40.6 million, or 97.0%, from RMB41.9 million in 2018 to RMB1.3 million in 2019, primarily due to the completion of the projects to set up contact service centres for a customer in 2018.

Comprehensive Marketing Services

The Target Group’s total revenue generated from comprehensive marketing services increased by RMB7.2 million, or 68.8%, from RMB10.5 million in 2018 to RMB17.7 million in 2019, primarily due to an increase in business volume from certain key customers.

Data Center Services

The Target Group’s total revenue generated from data centre services segment decreased by RMB33.7 million, or 74.0%, from RMB45.5 million in 2018 to RMB11.8 million in 2019. The decrease was primarily due to (i) the Target Group completed a one-off setting up of data

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

centres for its customer in 2018, and (ii) a shift in the Target Group’s strategy to focus more on securities firms in this segment in 2019 as services for securities firms typically yield a higher profit margin for the Target Group.

Cost of Services

The Target Group’s cost of services increased by RMB68.5 million, or 29.4%, from RMB233.0 million in 2018 to RMB301.5 million in 2019, primarily due to (i) a RMB75.8 million, or 62.3% increase in the labour costs of its operating employees, mainly as a result of an increase in the Target Group’s employee headcount as a result of the growing market demand for outsourced customer care services. As the Target Group took on more major Chinese internet-based service providers that are leading companies in their respective industries, the demand on the Target Group to employ better-educated and more qualified employees also increased, which in turn resulted in the higher salaries paid to its operating employees in general, and (ii) a RMB24.8 million, or 68.8% increase in outsourcing service expenses, mainly as a result of increased costs paid to the subcontractors since the Target Group used more outsourcing services in 2019 to expand its outsourced service capacity while at the same time control the labour costs of its operating employees; partially offset by a RMB45.0 million, or 96.5% decrease in hardware costs mainly as a result of the costs associated with acquiring hardware as a part of its project to set up a contact service centre for such customer in 2019.

Gross profit and gross profit margin

As a result of the foregoing, the Target Group’s gross profit increased by RMB11.1 million, or 12.0%, from RMB92.7 million in 2018 to RMB103.7 million in 2019. The Target Group’s gross profit margin decreased from 28.5% in 2018 to 25.6% in 2019, primarily due to a decrease in the gross profit margin in the Target Group’s back-office services in 2019 compared to 2018.

The table below sets forth, for the periods indicated, the gross profit, the percentage of the Target Group’s total gross profit and the gross profit margin by segment.

Back-office Services Comprehensive Marketing Services Data Center Services Total	RMB’000 76,932 (1,021) 16,740 92,651	Year ended 2018 % of total Gross Profit margin % 83.0 28.5 (1.1) (9.7) 18.1 36.8 100.0 28.5	31 March RMB’000 95,354 1,711 6,661 103,726	2019 % of total Gross Profit margin % 91.9 25.4 1.6 9.6 6.4 56.2 100.0 25.6

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Back-office Services

The decrease of gross profit margin of the Target Group’s back-office services was primarily due to the completion of the projects to set up customer service systems and centres for a customer in 2018, which included the sales of the Target Group’s software products related to contact service systems. The setting up of customer service systems and centres typically yields a higher profit margin for the Target Group than the provision of customer care services to its customers.

Comprehensive Marketing Services

The increase of gross profit margin of the Target Group’s comprehensive marketing services was primarily due to the low profit margin in 2018, mainly as a result of the additional costs the Target Group incurred in 2018 as part of its marketing strategy to produce free promotional videos to prospective customers.

Data Center Services

The increase of gross profit margin of the Target Group’s data centre services was primarily due to a shift in the Target Group’s strategy to focus more on securities firms in this segment in 2019 as services for securities firms typically yield a higher profit margin for the Target Group.

Other income

The Target Group’s other income decreased by RMB1.4 million from RMB5.8 million in 2018 to RMB4.4 million in 2019. The change was primarily due to (i) a RMB0.6 million, or 35.2% decrease in VAT refunds received by the Target Group mainly as a result of a decrease in the rebate on the sales of software products in 2019, as the Target Group completed its project to construct a customer service centre for a customer in 2018 that included the sales of the Target Group’s software products related to contact service systems, and (ii) a RMB0.5 million, or 14.7% decrease in government grants received by the Target Group mainly as a result of a decrease in one-off listing subsidies for new NEEQ-listed companies.

Other losses

The Target Group’s other losses remained relatively stable at RMB0.4 million in 2019 as compared to RMB0.4 million in 2018.

Marketing expenses

Marketing expenses decreased by RMB0.6 million, or 9.6%, from RMB6.4 million in 2018 to RMB5.8 million in 2019. The decrease was primarily due to a RMB0.6 million or 55.1% decrease in marketing-related office and other expenses, primarily because the Target Group has incurred a one-off expense of RMB0.4 million in agency fees in relation to its bidding of certain projects in 2018.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Research and development expenses

Research and development expenses increased by RMB1.6 million, or 8.7%, from RMB18.7 million in 2018 to RMB20.4 million in 2019. The increase was primarily due to a RMB1.6 million, or 9.3% increase in the labour costs related to the Target Group’s research and development personnel as the Target Group intensified its research and development effort in developing technology solutions and software products for its customers.

Administrative expenses

Administrative expenses decreased by RMB2.8 million, or 9.7%, from RMB28.9 million in 2018 as compared to RMB26.1 million in 2019. This was primarily due to (i) a RMB3.7 million, or 63.7%, decrease in office and other expenses in 2019, primarily due to professional fees paid, and (ii) a RMB2.1 million, or 55%, decrease in administration related travel expenses, primarily because the Target Group’s administrative personnel incurred more travel and business hospitality costs in 2018 in relation to the bidding of certain projects in that year; partially offset by (i) a RMB0.8 million, or 90.4%, increase in rent and property management fees related to administrative use as the Target Group expanded its business, (ii) a RMB0.7 million, or 5.2%, increase in labour costs related to the Target Group’s administrative personnel as the Target Group expanded its business, and (iii) a RMB0.7 million, or 53.0% increase in tax and surcharges, primarily in line with the increase in the Target Group’s revenue during the same period.

Net impairment losses

Net impairment losses decreased by RMB5.2 million, or 50.1%, from RMB10.4 million in 2018 to RMB5.2 million in 2019. The decrease was primarily due to a decrease in net impairment losses recognised on accounts receivables for services provided in 2019, mainly as a result of the provision made in relation to a customer in 2018.

Finance costs

Finance costs increased by RMB0.3 million, or 427.5%, from RMB0.1 million in 2018 to RMB0.4 million in 2019. The increase was primarily due to an increase in the interest payments on bank borrowings incurred in 2019 as the Target Group incurred bank borrowings during this period.

Profit before tax

As a result of the foregoing, the Target Group’s profit before tax increased by RMB16.4 million, or 48.7%, from RMB33.6 million in 2018 to RMB50.0 million in 2019.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Income tax expense

Income tax expense increased by RMB4.2 million, or 90.2%, from RMB4.6 million in 2018 to RMB8.8 million in 2019. The Target Group’s effective income tax rate increased from 13.7% for 2018 to 17.5% for 2019, primarily because (i) in 2019 the majority of the profit of the Target Group was generated from the subsidiaries that were taxed at 25%, while in 2018 the majority of the profit of the Target Group was generated from subsidiaries that were taxed at 15%, and (ii) the tax effect of certain tax losses not recognised for the year ended 31 March 2019 as certain subsidiaries had losses in that year.

Profit and total comprehensive income for the year

As a result of the foregoing, profit and total comprehensive income for the year increased by RMB12.2 million, or 42.1%, from RMB29.0 million in 2018 to RMB41.2 million in 2019.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The Target Group has historically met its working capital and other capital requirements principally from cash at hand while raising the remainder of its capital requirements through bank and other borrowings and proceeds from the Target Group’s NEEQ listing. After the Closing, the directors of the Target Company expect that it will be funded by cash provided by its operations, cash at hand and bank and other borrowings.

As at 31 March 2020, the Target Group had bank balances and cash of RMB74.4 million.

The directors of the Target Company are of the view that, taking into account the cash provided by its operations, cash at hand and bank and other borrowings, the Target Group, in the absence of unforeseen circumstances, has sufficient working capital for present requirements for at least the next 12 months from the date of this circular.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Cash Flows

The table below sets forth, for the periods indicated, a summary of the Target Group’s consolidated statements of cash flows.

Operating cash flows before working capital changes Net cash (used in)/from operating activities Net cash used in investing activities Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year, represented by bank balances and cash	Year ended 31 March 2018 2019 2020 RMB’000 51,331 69,114 113,441 (24,133) (1,834) 50,898 (30,186) (17,512) (28,195) 65,931 23,275 28,474 11,612 3,929 51,177 7,661 19,273 23,202 19,273 23,202 74,379

Net cash (used in)/from operating activities

The Target Group had net cash from operating activities of RMB50.9 million for the year ended 31 March 2020. The cash inflow primarily comprised of operating cash flows before working capital changes of approximately RMB113.4 million, adjusted for working capital increase of approximately RMB54.0 million and payment of income tax expense of approximately RMB8.5 million. The increase in working capital was primarily due to an increase in accounts and other receivables of approximately RMB41.7 million, mainly as a result of an increase in the Target Group’s revenue.

The Target Group had net cash used in operating activities of RMB1.8 million for the year ended 31 March 2019. The cash outflow primarily comprised of operating cash flows before working capital changes of approximately RMB69.1 million, adjusted for net working capital increase of approximately RMB63.7 million and payment of income tax expense of approximately RMB7.2 million. The increase in working capital was primarily due to an increase in accounts and other receivables of approximately RMB83.1 million, mainly as a result of an increase in the Target Group’s revenue. Such increase is partially offset by a decrease of RMB16.6 million in contract assets primarily due to the transfer of contract assets to accounts and other receivables after the work is billed.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group had net cash of RMB24.1 million used in its operating activities for the year ended 31 March 2018. The cash outflow primarily comprised of operating cash flows before working capital changes of approximately RMB51.3 million, adjusted for working capital increase of approximately RMB66.8 million and payment of income tax expense of approximately RMB8.6 million. The increase in working capital was primarily due to (i) an increase in accounts and other receivables of approximately RMB68.8 million, mainly as a result of an increase in the Target Group’s revenue, and (ii) an increase in contract assets of RMB6.5 million, mainly due to an increase in the amount of our work in setting up of contact service systems and centres that is not yet billed. Such increase is partially offset by an increase of RMB9.5 million in accounts and other payables as the Target Group expanded its business.

Net cash used in investing activities

The Target Group’s cash used in investing activities during the Track Record Period was principally for purchase of property, plant and equipment, acquisition of subsidiaries and acquisition of additional equity interests from non-controlling interests.

The Target Group used net cash of RMB28.2 million in investing activities for the year ended 31 March 2020, consisted of (i) RMB14.6 million of purchase of property, plant and equipment as the Target Group expanded its business; (ii) RMB9.7 million related to the development cost paid; and (iii) RMB4.2 million of purchase of equity instrument at fair value through other comprehensive income related to certain long-term equity investment.

The Target Group used net cash of RMB17.5 million in investing activities for the year ended 31 March 2019, primarily consisted of RMB18.0 million of purchase of property, plant and equipment as the Target Group expanded its business.

The Target Group used net cash of RMB30.2 million in investing activities for the year ended 31 March 2018, primarily consisted of (i) RMB23.0 million of purchase of property, plant and equipment, as the Target Group expanded its business, and (ii) RMB7.8 million of acquisition of subsidiaries, primarily related to the amount paid for shares held by former shareholders in connection with DaLian Kingwisoft’s acquisition of Shenzhen Kingwisoft and Chengdu Kingwisoft.

Net cash from financing activities

The Target Group’s cash generated from financing activities during the Track Record Period was primarily from proceeds from issuance of shares, bank borrowings and other bank borrowings. The Target Group’s cash used in financing activities during the Track Record Period was primarily for repayment of bank borrowings.

The Target Group had net cash from financing activities of RMB28.5 million for the year ended 31 March 2020, primarily consisted of RMB51.0 million of new borrowings raised and RMB12.0 million of contribution from non-controlling interests, partially offset by RMB27.0 million of repayment of borrowings and RMB11.6 million of repayments of lease liabilities.

– 340 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group had net cash from financing activities of RMB23.3 million for the year ended 31 March 2019, primarily consisted of RMB43.8 million of new borrowings raised; partially offset by RMB20.2 million of repayment of borrowings.

The Target Group had net cash from financing activities of RMB65.9 million for the year ended 31 March 2018, primarily consisted of RMB66.0 million of proceeds from issuance of shares related to its NEEQ listing.

Net Current Assets

The table below sets forth, as at the dates indicated, the Target Group’s current assets, current liabilities and net current assets.

Current assets Inventories Accounts and other receivables Contract assets Bank balances and cash Total current assets Current liabilities Accounts and other payables Contract liabilities Borrowings Tax payable Lease liabilities Total current liabilities Net current assets	As at 31 March 2018 2019 2020 RMB’000 487 2,266 2,007 133,376 210,365 245,202 16,588 — — 19,273 23,202 74,379 169,724 235,833 321,588 44,333 51,240 47,109 3,111 793 782 — 22,210 27,604 1,154 2,560 3,844 — — 12,056 48,598 76,803 91,395 121,126 159,030 230,193	As at 31 July 2020 2,005 266,711 — 46,221
		314,937
		279,032 1,021 20,556 2,902 10,607
		314,118
		819

The Target Group had net current assets of RMB0.9 million as at 31 July 2020, as compared to net current assets of RMB230.2 million as at 31 March 2020, primarily due to an increase in accounts and other payables, mainly as a result of the Debt Note incurred in satisfaction of the OPCO Share Repurchase.

– 341 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group’s net current assets increased from RMB159.0 million as at 31 March 2019 to RMB230.2 million as at 31 March 2020, primarily due to increases in the Target Group’s bank balances and cash and its accounts receivables, both in line with an increase in the Target Group’s revenue during the same period; partially offset by an increase in lease liabilities as at 31 March 2020 as the Target Group recognised lease liabilities as a result of its adoption of HKFRS 16 from 1 April 2019.

The Target Group’s net current assets increased from RMB121.1 million as at 31 March 2018 to RMB159.0 million as at 31 March 2019, primarily due to an increase in accounts and other receivables mainly as a result of an increase in accounts receivables, primarily due to an increase in the Target Group’s revenue, which was largely offset by (i) an increase in borrowings of RMB22.2 million, primarily due to the bank and other borrowings incurred by the Target Group in 2019, and (ii) a decrease in contract assets of RMB16.6 million, primarily due to the transfer of contract assets to accounts and other receivables after the work is billed.

DISCUSSION OF CERTAIN KEY CONSOLIDATED BALANCE SHEET ITEMS

The following discussion compares certain key line items in the Target Group’s consolidated statements of financial position as at 31 March 2018, 2019 and 2020.

Inventories

The table below sets forth, as at the dates indicated, the Target Group’s balance of inventories, which primarily consisted of hardware facilities.

Hardware Facilities Accessories, Phones and Packages Total	As at 31 March 2018 2019 RMB’000 380 2,063 107 203 487 2,266	2020 931 1,076
		2,007

The Target Group’s inventories decreased from RMB2.3 million as at 31 March 2019 to RMB2.0 million as at 31 March 2020. The Target Group’s inventories increased from RMB0.5 million as at 31 March 2018 to RMB2.3 million as at 31 March 2019, primarily due to an increase in hardware facilities.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The table below sets forth, for the periods indicated, the Target Group’s average inventory turnover days.

			For the year ended 31 March	For the year ended 31 March
			2018	2019	2020
Inventory	turnover	days1	0.5	1.7	2.4

Note:

• (1) Calculated as the average inventories for the relevant period divided by the cost of services recognised for the relevant period, multiplied by 365 days. The arithmetic mean of the opening and closing balances of inventory is used for the years ended 31 March 2018, 2019 and 2020.

As at 31 July 2020, we used inventories of RMB4,800, or 0.2%, of our inventories as at 31 March 2020.

During the Track Record Period, the Target Group has not incurred impairment on inventory.

Accounts and Other Receivables

The table below sets forth, as at the dates indicated, the Target Group’s accounts and other receivables.

Accounts receivables Less: allowance for expected credit losses Net accounts receivables Bills receivables Prepayments and others Deposits and other receivables Less: allowance for expected credit losses Total accounts and other receivables	As at 31 March 2018 2019 RMB’000 131,459 207,170 (15,981) (20,434) 115,478 186,736 1,026 2,064 6,520 9,523 11,488 13,894 (1,136) (1,852) 133,376 210,365	2020 249,328 (25,954) 223,374 131 9,866 14,270 (2,439) 245,202

– 343 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group’s accounts and other receivables generally increased from RMB133.4 million as at 31 March 2018 to RMB210.4 million as at 31 March 2019 and RMB245.2 million as at 31 March 2020. The increases are generally due to increases in net account receivables mainly as a result of an increase in the Target Group’s revenue and to a lesser extent, the extension of payment terms for its key customers, most of whom are internet-based service providers with household brands in China in part to strengthen the customer relationship and the directors of the Target Group believe that they generally have low credit risks and they increased their business volume with the Target Group.

The table below sets forth, as at the dates indicated, an aging analysis of the Target Group’s accounts receivables, based on the invoice date at the end of each reporting period.

0 — 60 Days 60 — 120 Days 120 — 180 Days Over 180 Days Total	As at 31 March 2018 2019 RMB’000 68,804 69,646 23,031 65,439 5,156 19,761 18,487 31,890 115,478 186,736	2020 73,632 82,250 13,005 54,487
		223,374

The bills receivables are aged within 60 days as at 31 March 2018, 2019 and 2020.

The table below sets forth, as at the dates indicated, the aging analysis of accounts receivables of the Target Group which are past due but not impaired as at 31 March 2018.

Overdue: 0 — 30 days 31 — 60 days 61 — 90 days 91 — 180 days More than 180 days	As at 31 March 2018 RMB’000 25,426 9,968 2,054 13,038 2,345
	52,831

– 344 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group has established a credit risk management regime run by its financial and legal department in order to maintain strict control over its outstanding receivables, where the credit period granted to its customers is generally shorter than 180 days. Before accepting any new customer, the Target Group uses an internal credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed twice a year. The Target Group has other monitoring procedures in place which specify the follow-up actions that need to be taken to recover overdue debts. Please refer to Note 33(b) to the Accountants’ Report set out in Appendix I to this circular for more details of the Target Group’s credit risk and impairment assessment.

The table below sets forth movements in the allowance for credit losses as at 31 March 2018.

At beginning of the year Addition Write-offs At end of the year	As at 31 March 2018 RMB’000 7,245 10,039 (167) 17,117

Since 1 April 2018, the Target Group applies the simplified approach to provide for expected credit losses on accounts receivables prescribed by HKFRS 9.

In determining the recoverability of accounts receivables, the management of the Target Group considers any change in the credit quality of the accounts receivables from the date credit was initially granted up to the end of the reporting period. Please refer to Note 33 to the Accountants’ Report set out in Appendix I to this circular for more details of impairment assessment of accounts and other receivables for the years ended 31 March 2019 and 2020.

The table below sets forth, for the periods indicated, the Target Group’s accounts receivables turnover days.

				For the year ended 31 March	For the year ended 31 March
				2018	2019	2020
Accounts	receivables	turnover	days1	91.5	136.1	174.3

Note:

(1) Calculated as the average net accounts receivables for the relevant period divided by the revenue for the relevant period, multiplied by 365 days. The arithmetic mean of the opening and closing balances of accounts receivables is used for the years ended 31 March 2018, 2019 and 2020.

– 345 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group’s accounts receivables turnover days increased from 91.5 days in the year ended 31 March 2018 to 136.1 days in the year ended 31 March 2019 and further to 174.3 days in the year ended 31 March 2020, primarily because the Target Group has extended the payment terms of its key customers, most of whom are internet-based service providers with household brands in China in part to strengthen the customer relationship and the directors of the Target Group believe that they generally have low credit risks. These customers increased their business volume with the Target Group, and as a result, their balances with the Target Group increased substantially over the Track Record Period and were significant as at 31 March 2020.

As at the Latest Practicable Date, the Target Group subsequently settled RMB119.6 million, or 53.6%, of its outstanding accounts receivables, net of allowance for expected credit losses, as at 31 March 2020. The Target Group will continue to closely monitor its accounts receivables and take appropriate actions to recover overdue debts.

Accounts and Other Payables

The table below sets forth, as at the dates indicated, the Target Group’s accounts and other payables.

Accounts payables Other payables Amounts due to a shareholder Payroll payables Other tax payables Total	As at 31 March 2018 2019 RMB’000 16,310 15,712 437 457 — — 22,177 25,686 5,409 9,385 44,333 51,240	2020 10,160 1,212 8,000 26,537 1,200
		47,109

The Target Group’s accounts and other payables decreased from RMB51.2 million as at 31 March 2019 compared to RMB47.1 million as at 31 March 2020, primarily due to decreases in (i) other tax payables mainly as a result of the settlement of the tax payables, and (ii) accounts payables mainly as a result of the payments to suppliers for several key projects, partially offset by an increase in amounts due to a shareholder, Mr. Hu, to the Target Group for working capital purpose. The advance was non-trade in nature, unsecured, interest free and repayable on demand.

– 346 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group’s accounts and other payables increased from RMB44.3 million as at 31 March 2018 to RMB51.2 million as at 31 March 2019, primarily due to increases in (i) payroll payables mainly as the employee headcount of the Target Group and the salaries paid to its operating employees both increased as the Target Group expanded its business, and (ii) other tax payables primarily in line with the increase in its revenue.

The table below sets forth, as at the dates indicated, an aging analysis of the Target Group’s accounts payables based on invoice date at the end of each reporting period.

0 – 60 days 60 – 120 days 120 – 180 days Over 180 days	As at 31 March 2018 2019 RMB’000 5,503 5,522 686 589 8,678 606 1,443 8,995 16,310 15,712	2020 1,149 2,725 103 6,183
		10,160

The table below sets forth, for the periods indicated, the Target Group’s accounts payables turnover days.

				For the year ended 31 March	For the year ended 31 March
				2018	2019	2020
Accounts	payables	turnover	days1	27.7	19.4	14.7
Note:

(1) Calculated as the average accounts payables for the relevant period divided by the cost of services for the relevant period, multiplied by 365 days. The arithmetic mean of the opening and closing balances of accounts payables is used for the years ended 31 March 2018, 2019 and 2020.

– 347 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group’s accounts payables turnover days decreased from 27.7 days for the year ended 31 March 2018 to 19.4 days for the year ended 31 March 2019 and further to 14.7 days for the year ended 31 March 2020, primarily because the growth of cost of services between 2018 and 2019 outpaced than the growth of account payables.

As at the Latest Practicable Date, the Target Group has subsequently settled RMB2.7 million, or 27.0%, of its outstanding total accounts payables, as at 31 March 2020.

INDEBTEDNESS

Bank and Other Borrowings

The table below sets forth, as at the dates indicated, a breakdown of the Target Group’s bank and other borrowings.

Bank borrowings repayable within one year Other borrowings repayable Within one year Within a period of more than one year but not exceeding five years Total Less: Amounts due within one year shown under current liabilities Amounts shown under non-current liabilities	As at 31 March 2018 2019 2020 RMB’000 — 18,800 25,820 — 3,410 1,784 — 1,429 20,000 — 23,639 47,604 — (22,210) (27,604) — 1,429 20,000	As at 31 July 2020 20,000 556 30,000 50,556 (20,556) 30,000

As at 31 March 2018, the Target Group has paid off all the bank borrowings incurred during the year ended 31 March 2018. The Target Group incurred other borrowings of RMB10.2 million during the year ended 31 March 2018. The borrowings were interest-free loans made from Ms. Zhou to the Target Group, and all of which has been paid off within the same year. This loan is primarily used for the expansion of its business and working capital purposes.

– 348 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group incurred bank and other borrowings in the year ended 31 March 2019 for the expansion of its business and working capital purposes. The Target Group’s borrowings increased from RMB23.6 million as at 31 March 2019 to RMB47.6 million as at 31 March 2020, primarily for the expansion of its business and working capital purposes. The Target Group’s total bank facilities increased slightly from RMB47.6 million as at 31 March 2020 to RMB50.6 million as at 31 July 2020. As at 31 July 2020, the Target Group’s total bank facilities available were RMB30.0 million, RMB30.0 million of which were utilised.

The bank and other borrowings are at fixed-rate and are secured by certain properties and equity interest of the Target Company held by the shareholders of the Target Company and accounts receivables of the Target Group and guaranteed by certain directors of the Target Company.

The table below sets forth, as at the dates indicated, the effective interest rates of the Target Group’s borrowings.

		As at 31 March
	2018	2019	2020
		RMB’000
Effective interest rate (per annum):
Fixed-rate bank borrowings	—	5.22% – 6.06%	5.22% – 10.17%
Other borrowings	—	15.47%	8% – 15.47%

The Target Group’s bank and other borrowings both contain certain restrictive covenants, including:

• . The bank borrowings: The Target Group’s bank borrowing agreements contain standard terms, conditions and covenants that are customary for commercial bank loans. Such covenants primarily include requirements for the Target Group to (i) obtain the lending bank’s prior consent for certain transactions, such as disposal of material assets, restructure, liquidation or winding-up and incurrence of securities or liens on its assets, (ii) inform the lending bank of certain events and information, such as operating condition, financial condition, pledging condition and material lawsuits, and (iii) refrain from certain conducts, such as violation of the laws and breach of certain social and environmental requirements.

• . The other borrowings: The Target Group’s other borrowing agreements contain standard terms, conditions and covenants that are customary for private loans. Such covenants primarily allow the creditors to terminate the agreements upon certain circumstances, such as fraud, disposal of material assets, material lawsuits, operation distress and etc., or require the Target Group to inform the creditors of certain events and information, such as operating condition, financial condition, pledging condition, material lawsuits and etc., or require the Target Group to refrain from certain conducts, such as violating the law, incompliance with certain social and environmental requirements, etc.

– 349 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

During the Track Record Period and up to the Latest Practicable Date, the Target Group had not experienced any significant difficulties in renewing or rolling over its borrowings. The Target Group does not have any plans to raise material external debt financing such as bond issuance. The Target Group has not experienced any significant difficulties in obtaining credit facilities, nor has the Target Group experienced a withdrawal of banking facilities or request for early repayment by banks.

Amount due to a Shareholder

In addition, the Target Group had advances from Mr. Hu in the amount of RMB8.0 million in the year ended 31 March 2020. As at 31 March 2018, 2019 and 2020, the amount due to its shareholder amounted to nil, nil and RMB8.0 million, respectively. The advance was non-trade in nature, unsecured, interest free and repayable on demand.

Lease Liabilities

As required by HKFRS 16, at the commencement of a lease, the lessee will recognise a liability to make lease payments, namely, the lease liabilities, and an asset representing the right to use the underlying asset during the lease term, namely, the right-of-use assets. As a result of its adoption of HKFRS 16 from 1 April 2019, the Target Group recognised lease liabilities of RMB25.2 million and the related right-of-use assets of RMB25.9 million. When recognising the lease liabilities for leases previously classified as operating leases, the Target Group has applied incremental borrowing rates of the relevant group entities at the date of initial application. The weighted average incremental borrowing rate applied is 5.5%. As at 31 March 2020, the lease liabilities of the Target Group increased to RMB26.0 million, primarily because the Target Group made the relevant rent payments. As at 31 July 2020, the Target Group had lease liabilities of RMB22.8 million.

Indebtedness Statement

As at 31 July 2020, being the latest practicable date for the purposes of the Target Group’s indebtedness statement, other than as disclosed above, the Target Group did not have any other borrowings, charges, mortgages, debentures or debt securities issued or outstanding, or authorized or otherwise created but unissued, or other similar indebtedness, hire purchase and finance lease commitments, liabilities under acceptance, acceptance credits, any guarantees or other material contingent liabilities.

Other than disclosed above, the directors of the Target Company confirm that the Target Group had no material defaults in payment of account and other payables and borrowings, nor any breach of financial covenants during the Track Record Period.

Since 31 March 2020 and up to the date of the circular, the directors of the Target Company confirm that, there had not been any material adverse change in the Target Group’s indebtedness and contingent liabilities.

– 350 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

KEY FINANCIAL RATIOS

The table below sets forth, as at the dates or for the periods indicated, certain financial ratios.

	Year ended 31 March/	Year ended 31 March/
		As at 31 March
	2018	2019	2020
Gross Profit Margin	28.5%	25.6%	25.7%
Net Profit Margin	8.9%	10.2%	15.3%
Current ratio (times) (1)	3.5x	3.1x	3.5x
Net gearing ratio (2)	0.3x	0.4x	0.5x
Return on assets (3)	18.1%	16.9%	19.2%
Return on equity (4)	26.3%	23.0%	27.4%

Notes:

• (1) Current ratio represents current assets as at a record date divided by current liabilities as at the same record date.

• (2) Net gearing ratio represents total liabilities divided by total equity as at the same record date.

• (3) Return on assets represents profit and total comprehensive income/expense for the year attributable to owners of the Target Company divided by average total assets as at the beginning and the end of such period.

• (4) Return on equity represents profit and total comprehensive income/expense for the year attributable to owners of the Target Company divided by average equity as at the beginning and the end of such period.

– 351 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Net Profit Margin

The Target Group’s net profit margin was 8.9%, 10.2% and 15.6% for the years ended 31 March 2018, 2019 and 2020, respectively. The increase from 2018 to 2019 was primarily due to the increase in net impairment losses in 2018 as a result of the provision made in relation to a customer in 2018. The increase from 2019 to 2020 was primarily due to (i) a decrease in the Target Group’s effective income tax rate mainly because certain subsidiaries that made profit in the year ended 31 March 2020 utilised previous tax losses, and (ii) decreases in administrative expenses, marketing expenses and research and development expenses as a result of the relocation of Beijing Nanyou.

Current Ratio

The Target Group’s current ratio remained relatively stable at 3.5, 3.1 and 3.5 as at 31 March 2018, 2019 and 2020.

Net Gearing Ratio

The Target Group’s net gearing ratio remained relatively stable at 0.3, 0.4 and 0.5 as at 31 March 2018, 2019 and 2020, respectively.

Return on Assets

The Target Group achieved return on assets of 18.1%, 16.9% and 19.2% for the years ended 31 March 2018, 2019 and 2020, respectively. The decrease in the Target Group’s return on assets from 2018 to 2019 was primarily due to an increase in accounts and other receivables, which in turn increased the total assets. The increase in the Target Group’s return on assets from 2019 to 2020 was primarily due to an increase in profit and total comprehensive income for 2020 attributable to the owners of the Target Group.

Return on Equity

The Target Group achieved return on equity of 26.3%, 23.0% and 27.4% for the years ended 31 March 2018, 2019 and 2020, respectively. The decrease in the Target Group’s return on equity from 2018 to 2019 was primarily due to an increase of total equity. The increase in the Target Group’s return on equity from 2019 to 2020 was primarily due to an increase in profit and total comprehensive income for 2020 attributable to the owners of the Target Group.

RELATED PARTY TRANSACTIONS

Other than disclosed elsewhere in the Accountants’ Report set out in Appendix I to this circular, the Target Group entered into a short-term borrowing with a shareholder and a director, which was unsecured, non-interest bearing and repayable on demand for the year ended 31 March 2018 amounting to RMB10,550,000 which was subsequently settled by 31 March 2018.

– 352 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

COMMITMENTS

Operating Lease Commitments[(1)]

The Target Group as lessee:

Minimum lease payments paid under operating leases	As at 31 March 2018 2019 RMB’000 6,448 11,760

At the end of each reporting period, the Target Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive More than five years Total	As at 31 March 2018 2019 RMB’000 11,760 13,124 28,964 20,111 4,123 2,771 44,847 36,006	As at 31 March 2018 2019 RMB’000 11,760 13,124 28,964 20,111 4,123 2,771 44,847 36,006
		36,006

Operating lease payments represent rental payable by the Target Group for office premises and staff quarters. Leases are negotiated and rentals are fixed for terms ranging from 1 to 10 years.

CAPITAL EXPENDITURES

The Target Group’s capital expenditures primarily consisted expenditures related to (i) renovating the Target Group’s contact service centres, (ii) acquiring electronic and other equipment for its operations and (iii) internally generated development costs related to an online training and call centre platform. The table below sets forth, for the periods indicated, a summary of the Target Group’s capital expenditures.

	Year	ended 31 March
	2018	2019	2020
		RMB’000
Property, plant and equipment	22,051	18,972	14,843
Development costs	—	—	9,656

(1) The Target Group adopted HKFRS 16 from 1 April 2019 and recognised its liability to make lease payments under lease liabilities. Please refer to the subsection headed ‘‘— Indebtedness — Lease liabilities’’ for more information.

– 353 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Group estimates that its capital expenditures, which include the additions of property and equipment and intangible assets, for the year ending 31 March 2021 will be RMB24.5 million, which will be primarily used to purchase office facilities and renovate existing and additional workplaces. The Target Group intends to finance such capital expenditures through its own funds.

CONTINGENT LIABILITIES

The directors of the Target Company confirm that it did not have any material contingent liabilities as at 31 March 2018, 2019 and 2020, respectively. For more information, please refer to Note 35 to the Accountants’ Report set out in Appendix I to this circular.

OFF-BALANCE SHEET ARRANGEMENTS

As at the Latest Practicable Date, the Target Group did not enter into any off-balance sheet transactions or arrangements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT FINANCIAL RISK

The Target Group is exposed to various types of financial risks in the ordinary course of its business, including market risk and liquidity risk. The management of the Target Group manages and monitors these exposures to ensure appropriate measures are implemented on a timely basis and in an effective manner. For more information, please refer to Note 33(b) to the Accountants’ Report set out in Appendix I to this circular.

Market Risk

Interest rate risk management

The Target Group is exposed to fair value interest rate risk in relation to fixed-rate borrowings and lease liabilities. The Target Group is exposed to cash flow interest rate risk in relation to variable-rate bank balances.

The management has considered the Target Group’s exposure to cash flow interest rate risk in relation to variable-rate bank balances and fair value interest rate risk in relation to fixed-rate bank borrowings to be limited because the current market interest rates on general deposits are relatively low and stable. The Target Group manages its interest rate exposures by assessing the potential impact arising from any interest rate movements based on interest rate level and outlook. The management will review the proportion of borrowings in fixed and floating rates and ensure they are within reasonable range.

The directors of the Target Company consider that the overall interest rate risk is not significant and no sensitivity analysis is presented for the Target Group.

– 354 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

Credit risk and impairment assessment

Before accepting any new customer, the Target Group uses an internal credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed twice a year. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. The Target Group’s key customers are mostly reputable public entities.

The Target Group has concentration of credit risk as 32%, 33% and 23% of the total accounts receivables was due from the Target Group’s largest customer and 57%, 68% and 69% of the total accounts receivables was due from the Target Group’s top five customers as at 31 March 2018, 2019 and 2020 respectively.

At the end of each reporting period, the carrying amount of the respective recognised financial assets of the Target Group as stated in the combined statements of financial position, respectively best represents the Target Group’s maximum exposure to credit risk which will cause a financial loss to the Target Group due to failure to discharge an obligation by the counterparties.

In order to minimise the credit risk for accounts receivables, the management of the Target Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, upon application of HKFRS 9, except for items that are subject to individual evaluation, which are assessed for impairment individually, the remaining accounts receivables and contract assets are grouped under a provision matrix according to internal credit rating based on shared credit risk characteristics by reference to repayment histories for recurring customers and current past due exposure for the new customers. For individually significant amounts, the Target Group reviews the recoverable amount of each individual debt at the end of each reporting period to ensure that adequate impairment losses are made and other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. In addition, the Target Group performs impairment assessment under ECL model upon application of HKFRS 9 on trade balances individually or based on provision matrix for the years ended 31 March 2019 and 2020 and performs impairment assessment under incurred loss model for the year ended 31 March 2018. In this regard, the directors of the Target Company consider that the Target Group’s credit risk is significantly reduced. Impairment of RMB20,434,000 and RMB25,954,000 was recognised as at 31 March 2019 and 2020, respectively. Details of the quantitative disclosures are set out below in this note.

For bills receivable, the directors of the Target Company were of the opinion that the credit risk of such commercial bills were insignificant as these bills were issued by selected customers, which have good credit quality with the Group.

For contract assets, the directors of the Target Company were of the opinion that the credit risk of such receivable were insignificant.

– 355 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

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 Target Company believe that there is no material credit risk inherent in the Target Group’s outstanding balance of other receivables. As such, the directors of the Target Company considered the risk over ECL to be immaterial after considering counterparty financial background and creditability. Accordingly, the loss allowance of other receivables is measured under 12m ECL in respect of other receivables, amounting to RMB1,852,000 and RMB2,439,000 as at 31 March 2019 and 2020, respectively.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The 12m ECL for bank balances of the Target Group as at 31 March 2019 and 2020 is considered to be insignificant.

Liquidity Risk

In the management of the liquidity risk, the Target Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Target Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings to ensure unutilised bank facilities are adequate and ensures compliance with loan covenants. Please refer to Note 33(b) to the Accountants’ Report set out in Appendix I to this circular for the Target Group’s remaining contractual maturity for its non-derivative financial liabilities.

DIVIDEND POLICY

As a holding company, the Target Company’s ability to declare and pay dividends will depend on receipt of sufficient funds from its subsidiaries incorporated in China. These subsidiaries must comply with their respective constitutional documents and the PRC laws and regulations in declaring and paying dividends to the Target Company. Pursuant to the laws applicable to China’s foreign-investment enterprises, the PRC subsidiaries must make appropriations from after-tax profit to non-distributable reserve funds as determined by the board of directors of each relevant entity prior to payment of dividends. These reserves include a general reserve and a development fund. Subject to certain cumulative limits, the general reserve requires annual appropriations of 10% of after-tax profits as determined under PRC laws and regulations at each year-end until the balance reaches 50% of the relevant PRC entity’s registered capital.

Any amount of dividends the Target Company pays will be at the discretion of its directors and will depend on our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that its directors consider relevant. Any declaration and payment as well as the amount of dividends will be subject to its constitutional documents and the Cayman Companies Law. The Target Company’s shareholders in a general meeting may approve any declaration of dividends, which must not exceed the amount recommended by its board of directors. No dividend shall be declared or payable except out of our profits and reserves lawfully available for distribution.

– 356 –

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION ON THE TARGET GROUP

The Target Company’s future declarations of dividends may or may not reflect its historical declarations of dividends and will be at the absolute discretion of its board of directors.

No dividend was paid or proposed for ordinary shareholders of the Target Company during the three years ended 31 March 2018, 2019 and 2020, nor has any dividend been proposed since 31 March 2020. The Target Company currently does not have any predetermined dividend payout ratio or related policy.

RECENT DEVELOPMENTS AND NO MATERIAL ADVERSE CHANGE

Considering the arrangement of the Target Group implemented for the COVID-19 outbreak, since 1 January 2020 and up to the Latest Practicable Date, the COVID-19 outbreak does not have any material impact on the operation and financial conditions of the Target Group. As at 31 March 2019 and 31 March 2020, the total projects handled by the Target Group were 71 and 77, respectively.

The directors of the Target Company confirm that, up to the date of this circular, there has been no material adverse change in the Target Group’s financial or trading position since 31 March 2020, and there is no event since 31 March 2020 which would materially affect the information shown in the Accountants’ Report in Appendix I to this circular.

DISCLOSURE REQUIRED UNDER THE LISTING RULES

The directors of the Target Company have confirmed that as at the Latest Practicable Date, there were no circumstances which, had they been required to comply with Rules 13.13 to 13.19 of the Listing Rules, would have given rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Please refer to the section headed ‘‘Unaudited Pro Forma Financial Information’’ set out in Appendix III to this circular for details.

– 357 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The following is the text of a report received from the Company’s reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, for the purpose of incorporation in this circular.

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ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF KINGNINE HOLDINGS LIMITED TO THE DIRECTORS OF ZZ CAPITAL INTERNATIONAL LIMITED

Introduction

We report on the historical financial information of KingNine Holdings Limited (the ‘‘Target Company’’) and its subsidiaries (collectively, the ‘‘Target Group’’) set out on pages I-4 to I-64, which comprises the combined statements of financial position of the Target Group as at 31 March 2018, 2019 and 2020, the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined statements of cash flows of the Target Group for each of the three years ended 31 March 2020 (the ‘‘Relevant Periods’’) and a summary of significant accounting policies and other explanatory information (together, the ‘‘Historical Financial Information of the Target Group’’). The Historical Financial Information of the Target Group set out on pages I-4 to I-64 forms an integral part of this report, which has been prepared for inclusion in the circular of ZZ Capital International Limited (the ‘‘Company’’) dated 18 September 2020 (the ‘‘Circular’’) in connection with the proposed acquisition of the entire equity interests in the Target Company (‘‘Proposed Acquisition’’), constituting an extreme transaction under the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’).

Directors’ Responsibility for the Historical Financial Information of the Target Group

The directors of the Target Company are responsible for the preparation of the Historical Financial Information of the Target Group that gives a true and fair view in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information of the Target Group, and for such internal control as the directors of the Target Company determine is necessary to enable the preparation of Historical Financial Information of the Target Group that is free from material misstatement, whether due to fraud or error.

The directors of the Company are responsible for the content of this Circular in which the Historical Financial Information of the Target Group is included, and such information is prepared based on accounting policies materially consistent with those of the Company.

– I-1 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Reporting Accountants’ Responsibility

Our responsibility is to express an opinion on the Historical Financial Information of the Target Group and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 ‘‘Accountants’ Reports on Historical Financial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information of the Target Group is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information of the Target Group. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information of the Target Group, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Historical Financial Information of the Target Group that gives a true and fair view in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information of the Target Group in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of the Target Company, as well as evaluating the overall presentation of the Historical Financial Information of the Target Group.

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

Opinion

In our opinion, the Historical Financial Information of the Target Group gives, for the purposes of the accountants’ report, a true and fair view of the Target Group’s financial position as at 31 March 2018, 2019 and 2020, and of the Target Group’s financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information of the Target Group.

– I-2 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Report on matters under the Rules Governing the Listing of Securities on GEM of the Stock Exchange and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

The Historical Financial Information is stated after making such adjustments to the Underlying Financial Statements as defined on page I-4 as were considered necessary.

Dividends

We refer to Note 14 to the Historical Financial Information of the Target Group which states that no dividends were declared or paid by the Target Company in respect of the Relevant Periods.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 18 September 2020

– I-3 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Preparation of Historical Financial Information of the Target Group

Set out below is the Historical Financial Information of the Target Group which forms an integral part of this accountants’ report.

The Historical Financial Information of the Target Group in this report was prepared based on consolidated financial statements of Dalian Kingwisoft Technology Co., Ltd., (‘‘Dalian Kingwisoft’’) for the Relevant Periods and the management accounts of KingNine Holdings Limited for the period from 4 December 2019 (date of incorporation) to 31 March 2020 (the ‘‘Underlying Financial Statements of the Target Group’’). The consolidated financial statements and the management accounts have been prepared in accordance with the accounting policies which conform with the Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA. The consolidated financial statements of Dalian Kingwisoft for the Relevant Periods were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Historical Financial Information of the Target Group is presented in Renminbi (‘‘RMB’’) and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated.

– I-4 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes Revenue 5 Cost of services Gross profit Other income 6 Other losses 7 Marketing expense Research and development expenses Administrative expenses Net impairment losses 8 Finance costs 9 Profit before tax Income tax expense 11 Profit for the year 10 Other comprehensive income Item that will not be reclassified to profit or loss: Fair value gain on equity instrument at fair value through other comprehensive income Total comprehensive income for the year Profit (loss) for the year attributable to: — Owners of the Target Company — Non-controlling interest Total comprehensive income (expense) for the year attributable to: — Owners of the Target Company — Non-controlling interests

Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 325,653 405,224 429,458 (233,002) (301,498) (320,149) 92,651 103,726 109,309 5,801 4,430 11,426 (353) (379) (399) (6,428) (5,814) (4,493) (18,731) (20,369) (13,014) (28,908) (26,090) (19,256) (10,369) (5,169) (6,107) (69) (364) (3,845) 33,594 49,971 73,621 (4,610) (8,769) (8,344) 28,984 41,202 65,277 — — 314 28,984 41,202 65,591 29,159 41,231 65,335 (175) (29) (58) 28,984 41,202 65,277 29,159 41,231 65,649 (175) (29) (58) 28,984 41,202 65,591

– I-5 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

STATEMENTS OF FINANCIAL POSITION

Notes Non-current assets Property and equipment 15 Intangible assets 16 Goodwill 17 Right-of-use assets 18 Deferred tax assets 24 Equity instrument at fair value through other comprehensive income 25 Other non-current assets Current assets Inventories Accounts and other receivables 19 Contract assets 19 Bank balances and cash 20 Current liabilities Accounts and other payables 21 Contract liabilities Borrowings 22 Tax payables Lease liabilities 23 Net current assets Total assets less current liabilities	The Target Group (Combined) As at 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 22,461 29,552 28,169 4,674 3,158 11,298 7,601 7,601 7,601 — — 26,374 3,534 3,203 4,439 — — 4,563 250 266 — 38,520 43,780 82,444 487 2,266 2,007 133,376 210,365 245,202 16,588 — — 19,273 23,202 74,379 169,724 235,833 321,588 44,333 51,240 47,109 3,111 793 782 — 22,210 27,604 1,154 2,560 3,844 — — 12,056 48,598 76,803 91,395 121,126 159,030 230,193 159,646 202,810 312,637	The Target Company As at 31 March 2020 RMB’000 — — — — — — —
		—
		— — — —
		—
		— — — — —
		—
		—
		—

– I-6 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Notes Non-current liabilities Borrowings 22 Other non-current liabilities Deferred tax liabilities 24 Lease liabilities 23 Net assets Capital and reserves Combined capital 26 Reserves Equity attributable to owners of the Target Company Non-controlling interests Total equity	The Target Group (Combined) As at 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 — 1,429 20,000 475 437 — 584 395 205 — — 13,919 1,059 2,261 34,124 158,587 200,549 278,513 31,300 31,300 31,300 127,250 169,241 235,309 158,550 200,541 266,609 37 8 11,904 158,587 200,549 278,513	The Target Company As at 31 March 2020 RMB’000 — — — —
		—
		—
		— —
		— —
		—

– I-7 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

COMBINED STATEMENTS OF CHANGES IN EQUITY

At 31 March 2017 Profit (loss) and total comprehensive income (expense) for the year Issuance of new shares Deemed contribution from Shareholder (Note iii) Transfer to reserve (Note ii) At 31 March 2018 Profit (loss) and total comprehensive income (expense) for the year Deemed contribution from Shareholder (Note iii) Transfer to reserve (Note ii) At 31 March 2019 Profit (loss) for the year Other comprehensive income for the year Total comprehensive income (expense) for the year Deemed contribution from Shareholder (Note iii) Transfer to reserve (Note ii) Deregistration of a subsidiary Capital contribution from non-controlling interests At 31 March 2020		Attributable to owners of the Target	Attributable to owners of the Target	Attributable to owners of the Target	Company	Sub-Total RMB’000 62,808 29,159 66,000 583 — 158,550 41,231 760 — 200,541 65,335 314 65,649 419 — — — 266,609	Non- controlling interests RMB’000 212 (175) — — — 37 (29) — — 8 (58) — (58) — — (46) 12,000 11,904	Total RMB’000 63,020 28,984 66,000 583 —
	Combined capital RMB’000 28,000 — 3,300 — — 31,300 — — — 31,300 — — — — — — — 31,300	Capital reserve RMB’000 (Note i) 6,654 — 62,700 — — 69,354 — — — 69,354 — — — — — — — 69,354	Statutory reserve RMB’000 (Note ii) 651 — — — 2,762 3,413 — — 4,377 7,790 — — — — 4,136 — — 11,926	Other reserve RMB’000 599 — — 583 — 1,182 — 760 — 1,942 — 314 314 419 — — — 2,675	Retained profits RMB’000 26,904 29,159 — — (2,762) 53,301 41,231 — (4,377) 90,155 65,335 — 65,335 — (4,136) — — 151,354
								158,587 41,202 760 —
								200,549 65,277 314
								65,591
								419 — (46 12,000
								278,513

– I-8 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Notes:

• (i) The capital reserve is mainly comprised of:

• (a) the capital injected in excess to the paid-up capital of the Target Group; and

• (b) the deemed contribution from the shareholders of the Target Group as a result of the group restructuring prior to listing of the Target Group on The National Equities Exchange And Quotations Co., Ltd. (the ‘‘NEEQ’’) on 4 August 2017 as described in Note 1.

• (ii) Statutory reserve represents the amounts set aside from the retained profits by certain subsidiaries incorporated in People’s Republic of China (the ‘‘PRC’’) and is not distributable as dividend. In accordance with the relevant regulations and their articles of association, the Target Company’s subsidiaries incorporated in the PRC are required to allocate at least 10% of their after-tax profit according to the PRC accounting standards and regulations to legal reserves until such reserves have reached 50% of registered capital. These reserves can only be used for specific purposes and are not distributable or transferable to loans, advances, cash dividends.

• (iii) Other reserve is recognised for the Share Reward (as defined in note 30) granted to certain employees of the target group entities by a shareholder for services rendered to the Target Group, the fair value of services received is determined by reference to the fair value of the Share Reward at the grant date. The fair value of services received is expensed on a straight line basis over the vesting period of 3 years, with a corresponding increase in other reserve as deemed contribution from a shareholder.

– I-9 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

COMBINED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES Profit before tax Adjustments for: Finance costs Depreciation of property and equipment Depreciation of right-of-use assets Amortisation of intangible assets Loss on disposal of property and equipment Net impairment losses Share reward expenses Interest income on bank deposits Operating cash flows before working capital changes Increase in accounts and other receivables (Increase) decrease in contract assets (Increase) decrease in inventories Increase (decrease) in accounts and other payables Decrease in non-current liabilities Decrease in contract liabilities Cash (used in) generated from operations Income tax paid NET CASH (USED IN) FROM OPERATING ACTIVITIES

Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 33,594 49,971 73,621 69 364 3,845 5,246 11,474 16,168 — — 11,994 1,516 1,516 1,516 103 — 4 10,369 5,169 6,107 583 760 419 (149) (140) (233) 51,331 69,114 113,441 (68,351) (83,087) (41,737) (6,546) 16,588 — (324) (1,779) 259 9,509 6,907 (12,131) (465) (38) (437) (660) (2,318) (11) (15,506) 5,387 59,384 (8,627) (7,221) (8,486) (24,133) (1,834) 50,898

– I-10 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

INVESTING ACTIVITIES Purchase of property and equipment Development costs paid Proceeds from disposal of property and equipment Interest received Purchase of equity instrument at fair value through other comprehensive income Acquisition of subsidiaries NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Interest paid New borrowings raised Repayment of borrowings Repayments of lease liabilities Contribution from non-controlling interests Proceeds from issuance of shares Advance from a shareholder NET CASH FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR, represented by bank balances and cash

Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 (22,963) (18,059) (14,577) — — (9,656) 395 407 54 149 140 233 — — (4,249) (7,767) — — (30,186) (17,512) (28,195) (69) (364) (3,845) 10,550 43,839 51,000 (10,550) (20,200) (27,035) — — (11,646) — — 12,000 66,000 — — — — 8,000 65,931 23,275 28,474 11,612 3,929 51,177 7,661 19,273 23,202 19,273 23,202 74,379

– I-11 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

NOTES TO THE HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

1. GENERAL

KingNine Holdings Limited (the ‘‘Target Company’’) was incorporated as an exempted company with limited liability in the Cayman Islands on 4 December 2019. The Target Company is controlled by Mr. Hu Shilong (‘‘Mr. Hu’’) and Ms. Liu Yingying (‘‘Ms. Liu’’), who hold equity interests in the Target Company indirectly through NINEGO Corporation, a company incorporated in the British Virgin Islands.

The address of the registered office and principal place of business of the Target Company is 4[th] Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands and 9F, Taide Building, No.537 Huangpu Road, High-tech Park, Dalian, Liaoning, the PRC, respectively.

The Target Company is an investment holding company. The major subsidiaries of the Target Company (collectively referred to as the ‘‘Target Group’’) are principally engaged in the provision of comprehensive services which principally provides:

• (a) Back-office services (primarily provision of customer service solutions, and setting up of contact service systems and centres);

• (b) Comprehensive marketing services; and

• (c) Data centre services.

The Historical Financial Information of the Target Group is presented in Renminbi (‘‘RMB’’), which is also the functional currency of the Target Company.

2. BASIS OF PREPARATION OF HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

During the Relevant Periods, the main operating activities of the Target Group were carried out by Dalian Kingwisoft Technology Co., Ltd. (‘‘Dalian Kingwisoft’’), a company incorporated in the PRC on 27 November 2013 and its shares were listed on The National Equities Exchange And Quotations Co., Ltd. (the ‘‘NEEQ’’) since 4 August 2017 and were delisted from the NEEQ on 16 December 2019, and controlled by Mr. Hu and Ms. Liu.

The Target Company becomes the holding company of Dalian Kingwisoft upon the completion of the reorganisation on 12 June 2020. All entities in the Target Group have been under the common control of Mr. Hu and Ms. Liu throughout the Relevant Periods. Accordingly, the Historical Financial Information of the Target Group has been prepared on the basis as if the Target Company had always been the holding company of Dalian Kingwisoft.

The combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Target Group for each of the three years ended 31 March 2018, 2019 and 2020 include the results, changes in equity and cash flows of the Target Company and Dalian Kingwisoft as if the group structure after the completion of the reorganisation had been in existence throughout the Relevant Periods, or since their respective dates of incorporation, where there is a shorter period.

The combined statements of financial position of the Target Group as at 31 March 2018, 2019 and 2020 have been prepared to present the assets and liabilities of the Target Company and Dalian Kingwisoft, as if the group structure after the completion of the reorganisation had been in existence at those dates taking into account their respective dates of incorporation, where applicable.

No statutory financial statements of the Target Company have been prepared since its date of incorporation as it is incorporated in the jurisdiction where there are no statutory audit requirements.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

For the purpose of preparing and presenting the Historical Financial Information of the Target Group for the Relevant Periods, the Target Group has consistently adopted the accounting policies set out in Note 3 which conform with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) that are effective for the Target Group’s financial year beginning 1 April 2019, including HKFRS 15 Revenue from Contracts with Customers, throughout the Relevant Periods except that the Target Group (i) adopted HKFRS 9 Financial Instruments on 1 April 2018 and Hong Kong Accounting Standard (‘‘HKAS’’) 39 Financial Instruments: Recognition and Measurement prior to 1 April 2018 and (ii) adopted HKFRS 16 Leases on 1 April 2019 and HKAS 17 Leases prior to 1 April 2019. The accounting policies for financial instruments under HKFRS 9 and HKAS 39, leases under HKFRS 16 and HKAS 17 and revenue recognition under HKFRS 15 are set out in Note 3.

Impacts and changes in accounting policies on application of HKFRS 9

On 1 April 2018, the Target Group has applied HKFRS 9 and the related consequential amendments to other HKFRSs. HKFRS 9 introduces new requirements for (1) the classification and measurement of financial assets and financial liabilities, (2) expected credit losses (‘‘ECL’’) for financial assets and (3) general hedge accounting.

The Target Group has applied HKFRS 9 in accordance with the transition provisions set out in HKFRS 9, i.e. applied the classification and measurement requirements (including impairment under ECL model) retrospectively to instruments that have not been derecognised as at 1 April 2018 (date of initial application) and has not applied the requirements to instruments that have already been derecognised as at 1 April 2018.

The difference between carrying amounts as at 31 March 2018 and the carrying amounts as at 1 April 2018, if any, are recognised in the opening retained profits and other components of equity, without restating the historical financial information for the years ended 31 March 2017 and 2018.

Impacts and changes in accounting policies on application of HKFRS 16

On 1 April 2019, the Target Group has applied HKFRS 16. HKFRS 16 superseded HKAS 17 and the related interpretations. The Target Group applied the following accounting policies in accordance with the transition provisions of HKFRS 16.

The Target Group has elected the practical expedient to apply HKFRS 16 to contracts that were previously identified as leases applying HKAS 17 and HK(IFRIC) — Int 4 Determining whether an Arrangement contains a Lease and not apply this standard to contracts that were not previously identified as containing a lease. Therefore, the Target Group has not reassessed contracts which already existed prior to the date of initial application.

For contracts entered into or modified on or after 1 April 2019, the Target Group applies the definition of a lease in accordance with the requirements set out in HKFRS 16 in assessing whether a contract contains a lease.

As a lessee

The Target Group has applied HKFRS 16 retrospectively with the cumulative effect recognised at the date of initial application, 1 April 2019.

As at 1 April 2019, the Target Group recognised additional lease liabilities and right-of use assets at amounts equal to the related lease liabilities adjusted by any prepaid or accrued lease payments by applying HKFRS 16.C8(b)(ii) transition. Any difference at the date of initial application is recognised in the opening retained profits and comparative information has not been restated.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

When applying the modified retrospective approach under HKFRS 16 at transition, the Target Group applied the following practical expedients to leases previously classified as operating leases under HKAS 17, on lease-by-lease basis, to the extent relevant to the respective lease contracts:

• i. relied on the assessment of whether leases are onerous by applying HKAS 37 Provisions, Contingent Liabilities and Contingent Assets as an alternative of impairment review;

• ii. elected not to recognise right-of-use assets and lease liabilities for leases with lease term ends within 12 months of the date of initial application;

• iii. excluded initial direct costs from measuring the right-of-use assets at the date of initial application; and

• iv. used hindsight based on facts and circumstances as at date of initial application in determining the lease term for the Target Group’s leases with extension and termination options.

On transition, the Target Group has made the following adjustments upon application of HKFRS 16:

The Target Group recognised lease liabilities of RMB25,182,000 and the related right-of-use assets of RMB25,929,000 at 1 April 2019 by applying HKFRS 16.C8(b)(ii) transition.

When recognising the lease liabilities for leases previously classified as operating leases, the Target Group has applied incremental borrowing rates of the relevant group entities at the date of initial application. The weighted average incremental borrowing rate applied is 5.5%.

Operating lease commitments disclosed as at 31 March 2019 Less: Recognition exemption — short-term leases Practical expedient — leases with lease term ending within 12 months from the date of initial application Lease liabilities discounted at relevant incremental borrowing rates Lease liabilities as at 1 April 2019 Analysed as Current Non-current	At 1 April 2019 RMB’000 36,006 (419) (6,665) 28,922 (3,740) 25,182 8,084 17,098 25,182

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The carrying amount of right-of-use assets as at 1 April 2019 comprises the following:

Right-of-use assets relating to operating leases recognised upon application of HKFRS 16 Adjustments on rental deposits at 1 April 2019 (Note i) Right-of-use assets relating to operating leases recognised upon application of HKFRS 16 Represented by: — Office premises and staff quarters	Right-of-use assets RMB’000 25,182 747
	25,929
	25,929
	25,929

Note:

• (i) Before the application of HKFRS 16, the Target Group considered refundable rental deposits paid as rights and obligations under leases to which HKAS 17 applied under other receivables. Based on the definition of lease payments under HKFRS 16, such deposits are not payments relating to the right to use of the underlying assets and were adjusted to reflect the discounting effect at transition. Accordingly, RMB747,000 was adjusted to refundable rental deposits paid and right-of-use assets.

New and amendments to HKFRSs in issue but not yet effective

At the date of this report, the Target Group has not early applied the following new and amendments to HKFRSs that are not yet effective.

HKFRS 17	Insurance Contracts1
Amendment to HKFRS 16	Covid-19-Related Rent Concessions6
Amendments to HKFRS 3	Definition of a Business2
Amendments to HKFRS 3	Reference to the Conceptual Framework5
Amendments to HKFRS 10 and HKAS 28	Sale or Contribution of Assets between an Investor
	and its Associate or Joint Venture3
Amendments to HKAS 1	Classification of Liabilities as Current or Non-current7
Amendments to HKAS 1 and HKAS 8	Definition of Material4
Amendments to HKAS 16	Property, Plant and Equipment - Proceeds before
	Intended Use5
Amendments to HKAS 37	Onerous Contracts – Cost of Fulfilling a Contract5
Amendments to HKFRS 9, HKAS 39 and	Interest Rate Benchmark Reform4
HKFRS 7
Amendments to HKFRSs	Annual Improvements to HKFRSs 2018-20205

• 1 Effective for annual periods beginning on or after 1 January 2021

• 2 Effective for business combinations and asset acquisitions for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 January 2020

• 3 Effective for annual periods beginning on or after a date to be determined

• 4 Effective for annual periods beginning on or after 1 January 2020

• 5 Effective for annual periods beginning on or after 1 January 2022

• 6 Effective for annual periods beginning on or after 1 June 2020

• 7 Effective for annual periods beginning on or after 1 January 2023

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

In addition to the above new and amendments to HKFRSs, a revised Conceptual Framework for Financial Reporting was issued in 2018. Its consequential amendments, the Amendments to References to the Conceptual Framework in HKFRS Standards, will be effective for annual periods beginning on or after 1 January 2020.

Except for the new and amendments to HKFRSs mentioned below, the directors of the Target Company anticipate that the application of all other new and amendments to HKFRSs will have no material impact on the Target Group’s combined financial information in the foreseeable future.

Amendments to HKAS 1 and HKAS 8 ‘‘Definition of Material’’

The amendments provide refinements to the definition of material by including additional guidance and explanations in making materiality judgements. In particular, the amendments:

• . include the concept of ‘‘obscuring’’ material information in which the effect is similar to omitting or misstating the information;

• . replace threshold for materiality influencing users from ‘‘could influence’’ to ‘‘could reasonably be expected to influence’’; and

• . include the use of the phrase ‘‘primary users’’ rather than simply referring to ‘‘users’’ which was considered too broad when deciding what information to disclose in the financial statements.

The amendments also align the definition across all HKFRSs and will be mandatorily effective for the Target Group’s annual period beginning on 1 April 2020. The application of the amendments is not expected to have significant impact on the financial position and performance of the Target Group but may affect the presentation and disclosures in the Historical Financial Information of the Target Group.

3. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information of the Target Group has been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the Historical Financial Information of the Target Group include applicable disclosures required by the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

The Historical Financial Information of the Target Group has been prepared on the historical cost basis at the end of each reporting period, as explained in the accounting policies set out below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Target Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the Historical Financial Information of the Target Group is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 Share-based Payment, leasing transactions that are accounted for in accordance with HKFRS 16 (since 1 April 2019) or HKAS 17 (before application of HKFRS 16), and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of Assets.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• . Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• . Level 2 inputs are inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• . Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

Basis of combination

The Historical Financial Information of the Target Group incorporates the financial statements of the Target Company and entities controlled by the Target Company and its subsidiaries. Control is achieved when the Target Company:

• . has power over the investee;

• . is exposed, or has rights, to variable returns from its involvement with the investee; and

• . has the ability to use its power to affect its returns.

The Target Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Combination of a subsidiary begins when the Target Group obtains control over the subsidiary and ceases when the Target Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the combined statements of profit or loss and other comprehensive income from the date the Target Group gains controls until the date when the Target Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Target Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Target Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Target Group’s accounting policies.

All intragroup assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of the Target Group are eliminated in full on combination.

Non-controlling interests in subsidiaries are presented separately from the Target Group’s equity therein, which represent present ownership interests entitling their holders to a proportionate share of net assets of the relevant subsidiaries upon liquidation.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Target Group, liabilities incurred by the Target Group to the former owners of the acquiree and the equity interests issued by the Target Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

• . deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively;

• . liabilities or equity instruments related to share-based payment arrangements of the acquiree or share based payment arrangements of the Target Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date (see the accounting policy below); and

• . assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net amount of the identifiable assets acquired and the liabilities assumed as at acquisition date. If, after re-assessment, the net amount of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the relevant subsidiary’s net assets in the event of liquidation are initially measured at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets or at fair value.

Merger accounting for business combination involving businesses under common control

The Historical Financial Information of the Target Group incorporates the financial statements items of the combining businesses in which the common control combination occurs as if they had been combined from the date when the combining businesses first came under the control of the controlling party.

The net assets of the combining businesses are consolidated using the existing carrying values from the controlling party’s perspective. No amount is recognised in respect of goodwill or bargain purchase gain at the time of common control combination.

The combined statement of profit or loss and other comprehensive income includes the results of each of the combining businesses from the earliest date presented or since the date when the combining businesses first came under the common control, where this is a shorter period.

The comparative amounts in the Historical Financial Information are presented as if the businesses had been combined at the beginning of the previous reporting period or when they first came under common control, whichever is shorter.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see the accounting policy above) less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Target Group’s cashgenerating units (‘‘CGUs’’) (or group of CGUs) that is expected to benefit from the synergies of the combination, which represent the lowest level at which the goodwill is monitored for internal management purposes and not larger than an operating segment.

A CGU (or group of CGUs) to which goodwill has been allocated is tested for impairment annually or more frequently when there is indication that the unit may be impaired. For goodwill arising on an acquisition in a reporting period, the CGU (or group of CGUs) to which goodwill has been allocated is tested for impairment before the end of that reporting period. If the recoverable amount is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit (or group of CGUs).

On disposal of the relevant CGU or any of the CGU within the group of CGUs, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal. When the Target Group disposes of an operation within the CGU (or a CGU within a group of CGUs), the amount of goodwill disposed of is measured on the basis of the relative values of the operation (or the CGU) disposed of and the portion of the CGU (or the group of CGUs) retained.

Revenue from contracts with customers

Revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Target Group expects to be entitled in exchange for those goods or services.

Specifically, the Target Group uses a 5-step approach to revenue recognition:

• . Step 1: Identify the contract(s) with a customer

• . Step 2: Identify the performance obligations in the contract

• . Step 3: Determine the transaction price

• . Step 4: Allocate the transaction price to the performance obligations in the contract

• . Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under HKFRS 15, the Target Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘‘control’’ of the goods or services underlying the particular performance obligation is transferred to the customer.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met:

• . the customer simultaneously receives and consumes the benefits provided by the Target Group’s performance as the Target Group performs;

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

• . the Target Group’s performance creates or enhances an asset that the customer controls as the Target Group performs; or

• . the Target Group’s performance does not create an asset with an alternative use to the Target Group and the Target Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.

A contract asset represents the Target Group’s right to consideration in exchange for goods or services that the Target Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with HKFRS 9. In contrast, a receivable represents the Target Group’s unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents the Target Group’s obligation to transfer goods or services to a customer for which the Target Group has received consideration (or an amount of consideration is due) from the customer.

A contract asset and a contract liability relating to the same contract are accounted for an presented on a net basis.

Over time revenue recognition: measurement of progress towards complete satisfaction of a performance obligation

Output method

The progress towards complete satisfaction of a performance obligation is measured based on output method, which is to recognise revenue on the basis of direct measurements of the value of the goods or services transferred to the customer to date relative to the remaining goods or services promised under the contract, that best depict the Target Group’s performance in transferring control of goods or services.

Principal versus agent

When another party is involved in providing goods or services to a customer, the Target Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Target Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Target Group is an agent).

The Target Group is a principal if it controls the specified good or service before that good or service is transferred to a customer.

The Target Group is an agent if its performance obligation is to arrange for the provision of the specified good or service by another party. In this case, the Target Group does not control the specified good or service provided by another party before that good or service is transferred to the customer. When the Target Group acts as an agent, it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party.

Variable consideration

For contracts that contain variable consideration, the Target Group estimates the amount of consideration to which it will be entitled using either (a) the expected value method or (b) the most likely amount, depending on which method better predicts the amount of consideration to which the Target Group will be entitled.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The estimated amount of variable consideration is included in the transaction price only to the extent that it is highly probable that such an inclusion will not result in a significant revenue reversal in the future when the uncertainty associated with the variable consideration is subsequently resolved.

At the end of each reporting period, the Target Group updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

Leasing

Accounting policy applicable before 1 April 2019

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Target Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Contingent rentals under operating leases are recognised as expenses in the periods in which they are incurred.

Accounting policy applicable after 1 April 2019

Definition of a lease

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

For contracts entered into or modified on or after the date of initial application, the Target Group assesses whether a contract is or contains a lease based on the definition under HKFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.

The Target Group as a lessee

Allocation of consideration to components of a contract

For a contract that contains a lease component and one or more additional lease or non-lease components, the Target Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the nonlease components.

As a practical expedient, leases with similar characteristics are accounted on a portfolio basis when the Target Group reasonably expects that the effects on the combined financial statements would not differ materially from individual leases within the portfolio.

The Target Group also applies practical expedient not to separate non-lease components from lease component, and instead account for the lease component and any associated non-lease components as a single lease component.

Short-term leases

The Target Group applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. Lease payments on short-term leases are recognised as expense on a straight-line basis over the lease term.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Right-of-use assets

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

The cost of right-of-use asset includes:

• . the amount of the initial measurement of the lease liability;

• . any lease payments made at or before the commencement date, less any lease incentives received;

• . any initial direct costs incurred by the Target Group; and

• . an estimate of costs to be incurred by the Target Group in dismantling and removing the underlying assets, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

Right-of-use assets in which the Target Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

The Target Group presents right-of-use assets as a separate line item on the combined statements of financial position.

Refundable rental deposits

Refundable rental deposits paid are accounted under HKFRS 9 and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments and included in the cost of right-of-use assets.

Lease liabilities

At the commencement date of a lease, the Target Group recognises and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Target Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

The lease payments include:

• . fixed payments (including in-substance fixed payments) less any lease incentives receivable;

• . variable lease payments that depend on an index or a rate;

• . amounts expected to be paid under residual value guarantees;

• . the exercise price of a purchase option reasonably certain to be exercised by the Target Group; and

• . payments of penalties for terminating a lease, if the lease term reflects the Target Group exercising the option to terminate.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Variable lease payments that reflect changes in market rental rates are initially measured using the market rental rates as at the commencement date. Variable lease payments that do not depend on an index or a rate are not included in the measurement of lease liabilities and right-of-use assets, and are recognised as expense in the period on which the event or condition that triggers the payment occurs.

After the commencement date, lease liabilities are adjusted by interest accretion and lease payments.

The Target Group remeasures lease liabilities (and makes a corresponding adjustment to the related right-of-use assets) whenever:

• . the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the related lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the date of reassessment.

• . the lease payments change due to changes in market rental rates following a market rent review in which cases the related lease liability is remeasured by discounting the revised lease payments using the initial discount rate.

The Target Group presents lease liabilities as a separate line item on the combined statement of financial position.

Lease modifications

The Target Group accounts for a lease modification as a separate lease if:

• . the modification increases the scope of the lease by adding the right to use one or more underlying assets; and

• . the consideration for the leases increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a lease modification that is not accounted for as a separate lease, the Target Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

Borrowing costs

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

Retirement benefit costs

Payments to state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

Share Reward granted to employees

For the Share Reward (as defined in note 30) granted certain employees of the Target Group by the shareholder (i.e. Mr. Hu) for services rendered to the Target Group, the fair value of services received was determined by reference to the fair value of the Share Reward at the grant date. The fair value of services received was expensed on a straight-line basis over the vesting period, with a corresponding increase in other reserve as deemed contribution from the shareholder. When the Share Reward are forfeited after the vesting date, the amount previously recognised in other reserve will continue to be held in other reserve.

Government grants

Government grants are not recognised until there is reasonable assurance that the Target Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Target Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Target Group should purchase, construct or otherwise acquire non-current assets are recognised as accounts and other payables and other non-current liabilities in the combined statements of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Target Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Target Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of each reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Historical Financial Information of the Target Group and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

– I-24 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of each reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Target Group expects, at the end of each reporting period, to recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred tax for leasing transactions in which the Target Group recognises the right-of-use assets and the related lease liabilities, the Target Group first determines whether the tax deductions are attributable to the right-of-use assets or the lease liabilities.

For leasing transactions in which the tax deductions are attributable to the lease liabilities, the Target Group applies HKAS 12 Income Taxes requirements to right-of-use assets and lease liabilities separately. Temporary differences on initial recognition of the relevant right-of-use assets and lease liabilities are not recognised due to application of the initial recognition exemption. Temporary differences arising from subsequent revision to the carrying amounts of right-of-use assets and lease liabilities, resulting from remeasurement of lease liabilities and lease modifications, that are not subject to initial recognition exemption are recognised on the date of remeasurement or modification.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied to the same taxable entity by the same taxation authority.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Property and equipment

Property and equipment are stated in the combined statements of financial position at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of assets less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

– I-25 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Intangible assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and any accumulated impairment loss. Amortisation for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated useful lives and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Internally-generated intangible assets — research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development activities (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

• . the technical feasibility of completing the intangible asset so that it will be available for use or sale;

• . the intention to complete the intangible asset and use or sell it;

• . the ability to use or sell the intangible asset;

• . how the intangible asset will generate probable future economic benefits;

• . the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

• . the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses (if any), on the same basis as intangible assets that are acquired separately.

Impairment on property and equipment, right-of-use assets and intangible assets other than goodwill

At the end of each reporting period, the Target Group reviews the carrying amounts of its property and equipment, right-of-use assets and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss (if any). Intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that they may be impaired.

The recoverable amount of property and equipment, right-of-use assets and intangible assets are estimated individually, when it is not possible to estimate the recoverable amount individually, the Target Group estimates the recoverable amount of the CGU to which the asset belongs.

– I-26 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

In testing a CGU for impairment, corporate assets are allocated to the relevant CGUs when a reasonable and consistent basis of allocation can be established, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be established. The recoverable amount is determined for the CGU or group of CGUs to which the corporate asset belongs, and is compared with the carrying amount of the relevant CGU or group of CGUs.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a CGU) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or a CGU) is reduced to its recoverable amount. For corporate assets or portion of corporate assets which cannot be allocated on a reasonable and consistent basis to a CGU, the Target Group compares the carrying amount of a group of CGUs, including the carrying amounts of the corporate assets or portion of corporate assets allocated to that group of CGUs, with the recoverable amount of the group of CGUs. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit or the group of CGU. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit or the group of CGU. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a CGU or a group if CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a CGU or a group of CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in, first-out method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.

Financial assets and financial liabilities are initially measured at fair value except for accounts receivables arising from contracts with customers which are initially measured in accordance with HKFRS 15 since 1 April 2018. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

– I-27 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Financial assets

Classification and subsequent measurement of financial assets (before application of HKFRS 9 on 1 April 2018)

Financial assets are classified into financial assets at fair value through profit and loss (‘‘FVTPL’’) and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is (i) held for trading or (ii) it is designated as at FVTPL.

A financial asset is classified as held for trading if:

• . it has been acquired principally for the purpose of selling in the near term; or

• . on initial recognition it is a part of a portfolio of identified financial instruments that the Target Group manages together and has a recent actual pattern of short-term profit-taking; or

• . it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

• . such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• . the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Target Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

• . it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets and is included in the ‘‘other gains or losses’’ line item.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including accounts receivables, contract assets, other receivables and bank balances and cash) are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial.

– I-28 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Impairment of financial assets (before application of HKFRS 9 on 1 April 2018)

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For financial assets, objective evidence of impairment could include:

• . significant financial difficulty of the issuer or counterparty; or

• . breach of contract, such as a default or delinquency in interest or principal payments; or

• . it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

Objective evidence of impairment for a portfolio of receivables could include the Target Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past 180 days, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of accounts receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When an accounts receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, 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, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Classification and subsequent measurement of financial assets (upon application of HKFRS 9 in accordance with transitions in Note 2)

Financial assets that meet the following conditions are subsequently measured at amortised cost:

• . the financial asset is held within a business model whose objective is to collect contractual cash flows; and

• . the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets that meet the following conditions are subsequently measured at fair value through other comprehensive income (‘‘FVTOCI’’):

• . the financial asset is held within a business model whose objective is achieved by both selling and collecting contractual cash flows; and

• . the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

– I-29 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

All other financial assets are subsequently measured at FVTPL, except that at the date of initial application of HKFRS 9/initial recognition of a financial asset the Target Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 Business Combinations applies.

A financial asset is held for trading if:

• . it has been acquired principally for the purpose of selling in the near term; or

• . on initial recognition it is a part of a portfolio of identified financial instruments that the Target Group manages together and has a recent actual pattern of short-term profit-taking; or

• . it is a derivative that is not designated and effective as a hedging instrument.

In addition, the Target Group may irrevocably designate a financial asset that are required to be measured at the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

Amortised cost and interest income

Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost and debt instruments/receivables subsequently measured at FVTOCI. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit impaired.

Equity instrument designated as at FVTOCI

Investment in equity instrument at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in other reserve; and are not subject to impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investment, and will be transferred to retained profits.

Dividends from the investment in equity instrument are recognised in profit or loss when the Target Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment. Dividends are included in the ‘‘other income’’ line item in profit or loss.

– I-30 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Impairment of financial assets (upon application HKFRS 9 with transitions in accordance with Note 2)

The Target Group performs impairment assessment under ECL model on financial assets (including accounts receivable, other receivables, contract assets and bank balances) which are subject to impairment under HKFRS 9. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL (‘‘12m ECL’’) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date.

Assessment are done based on the Target Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.

The Target Group always recognises lifetime ECL for accounts receivables. The ECL on these assets are assessed individually for debtors with significant balances and collectively using a provision matrix with reference to internal credit rating of the receivables.

For all other instruments, the Target Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Target Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition.

(i) Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, the Target Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Target Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly:

• . an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;

• . significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;

• . existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations;

• . an actual or expected significant deterioration in the operating results of the debtor;

• . an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations.

Irrespective of the outcome of the above assessment, the Target Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Target Group has reasonable and supportable information that demonstrates otherwise.

– I-31 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The Target Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

(ii) Definition of default

For internal credit risk management, the Target Group considers an event of default occurs when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Target Group, in full (without taking into account any collaterals held by the Target Group).

Irrespective of the above, the Target Group considers that default has occurred when a financial asset is more than 90 days past due unless the Target Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

(iii) Credit-impaired financial assets

A financial asset is credit-impaired when one or more events of default that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

• (a) significant financial difficulty of the issuer or the borrower;

• (b) a breach of contract, such as a default or past due event;

• (c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

• (d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

• (e) the disappearance of an active market for that financial asset because of financial difficulties.

(iv) Write-off policy

The Target Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example, when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of accounts receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Target Group’s recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

(v) Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risks of default occurring as the weights.

Generally, the ECL is the difference between all contractual cash flows that are due to the Target Group in accordance with the contract and the cash flows that the Target Group expects to receive, discounted at the effective interest rate determined at initial recognition.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Debtors with significant outstanding balances or credit impaired were assessed individually. Where ECL is measured on a collective basis or cater for cases where evidence at the individual instrument level may not yet be available, the financial instruments are grouped based on shared credit risk characteristics and days past due.

The Target Grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics.

Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit impaired, in which case interest income is calculated based on amortised cost of the financial asset.

The Target Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of accounts receivables where the corresponding adjustment is recognised through a loss allowance account.

Derecognition of financial assets

The Target Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

Financial liabilities and equity

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Target Company are recognised at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities including accounts and other payables and borrowings are subsequently measured at amortised cost, using the effective interest method.

Derecognition of financial liabilities

The Target Group derecognises financial liabilities when, and only when, the Target Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

– I-33 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Target Group’s accounting policies, which are described in Note 3, the directors of the Target Group are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Estimated impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the recoverable amount of the CGU or group of CGU to which goodwill has been allocated, which is the higher of the value in use or fair value less costs of disposal.

The value in use calculation requires the Target Group to estimate the future cash flows expected to arise from the CGU or group of CGU and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, or change in facts and circumstances which results in downward revision of future cash flows, a material impairment loss/further impairment loss may arise. As at 31 March 2018, 2019 and 2020, the carrying amount of goodwill is RMB7,601,000, RMB7,601,000 and RMB7,601,000, respectively. No impairment loss was recognised for the Relevant Periods. Details of the recoverable amount calculation are disclosed in Note 17.

Provision of ECL for accounts receivables and contract assets

Accounts receivables and contract assets with significant balances and credit impaired are assessed for ECL individually. In addition, the Target Group uses provision matrix to calculate ECL for the accounts receivables and contract assets which are individually insignificant. The provision rates are based on aging as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Target Group’s historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered.

The provision of ECL is sensitive to changes in estimates. The information about the ECL and the Target Group’s accounts receivables are disclosed in Note 33 and Note 19 respectively.

5. REVENUE AND SEGMENT INFORMATION

The Target Group’s revenue represents the fair value of the amounts received and receivables from the provision of i) back-office services; ii) comprehensive marketing services and iii) data centre services, net of rebates.

Information reported to the directors, being chief operating decision maker (‘‘CODM’’), of the Target Group, for the purpose of resource allocation and performance assessment of segment performance focuses on the revenue analysis by services provided by the Target Group. Other than the revenue analysis as set out below, no operating results and other discrete financial information are prepared regularly for internal reporting to the CODM for resources allocation and performance assessment. No other analysis of the Target Group’s segment assets and liabilities is presented as the information is not regularly provided to the CODM for review.

– I-34 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

An analysis of the Target Group’s revenue from major services for the Relevant Periods is as follows:

Type of services Back-office services — Provision of customer service solutions — Setting up of contact service systems and centres Comprehensive marketing services Data centre services Total Timing of revenue recognition: — Over time	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 227,754 374,378 412,575 41,859 1,253 — 269,613 375,631 412,575 10,516 17,748 5,001 45,524 11,845 11,882 325,653 405,224 429,458 325,653 405,224 429,458	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 227,754 374,378 412,575 41,859 1,253 — 269,613 375,631 412,575 10,516 17,748 5,001 45,524 11,845 11,882 325,653 405,224 429,458 325,653 405,224 429,458
		412,575 5,001 11,882
		429,458
		429,458

Recognition of revenue from specific major source of revenue

The Target Group recognises revenue from the following major services:

• . Back-office services;

• . Comprehensive marketing services; and

• . Data centre services

Back-office services

For back office services, the Target Group primarily involves in the provision of a range of services that help its clients to support their end-users. This includes primarily provision of customer service solutions which primarily provides round-the-clock contact services in multiple languages and accessible from various channels and provision of solutions on project-based customer service software and system development and setup support services.

For the provision of customer service solutions related services, revenue is recognised when the relevant services are rendered. The provision of services is billed based on various measurement mainly taking into account the number of service staff involved, the quality of the tasks performed, the service hours provided with fixed hourly rates and performance based adjustments. The Target Group has a right to invoice in an amount that corresponds directly with the value of the Target Group’s performance completed to date. The directors of the Target Company have assessed that outsourcing services represent one single performance obligation and the customers simultaneously receive and consume the benefits provided by the Target Group’s performance as the Target Group performs. Therefore, the directors of the Target Company considered that the services are satisfied over time. Revenue from the provision of services is recognised in an amount to which the Target Group has a right to invoice. Customers are invoiced on a monthly basis or according to agreed payment terms and consideration is payable when invoiced.

For the provision of revenue from setting up contact services systems and centres, it includes a comprehensive set of activities in the contract, such as system design, implementation, installation, trial launch and software and hardware support, which are highly interdependent and interrelated. The directors of the Target Company have assessed that the Target Group’s performance creates or enhances an asset that the customers control as the Target Group performs. Therefore, the directors of the Target Company considered that there is only one single performance obligation and the services are satisfied over time. Accordingly, revenue is recognised based on the stage of completion of the contracts which is determined as the

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

proportion of the costs incurred for the work (i.e. subcontracting costs, and direct staff costs incurred) performed to date relative to the estimated total costs to complete the satisfaction of these services, to the extent that the amount can be measured reliably and its recovery is considered probable.

Comprehensive marketing services

The Target Group renders various marketing services including advertising services to brand owners on various platforms including apps, social media and websites. Revenue from provision of the services is recognised when the services are rendered according to the terms of the agreements which the control of the service is transferred when the Target Group has provided the related services over the service period, the customer simultaneously receives and consumes the benefits provided by the Target Group’s performance as the Target Group performs. Revenue from provision of comprehensive marketing services is recognised over the period in which the services are rendered.

The progress towards complete satisfaction of a performance obligation in respect of the comprehensive marketing services contracts is measured based on output method, which, in most cases, is to recognise revenue based on time elapsed. In limited circumstances, such as contracts for implementation or marketing development projects, revenue is recognised based on the stage of completion of the contracts which is determined as the proportion of the costs incurred for the work (i.e. subcontracting costs, and direct staff costs incurred) performed to date relative to the estimated total costs to complete the satisfaction of these services, to the extent that the amount can be measured reliably and its recovery is considered probable.

Data centre services

The Target Group provides various corporate data centre services such as value-added services to internet data centres for securities houses, including their trading system, quotation system and data processing system. The revenue is recognised when the relevant services are rendered and the customer simultaneously receives and consumes the benefits provided by the Target Group throughout the contract period. Thus, the Target Group satisfies a performance obligation and recognises revenue over time with reference to the actual service period passed relative to the total contract period. The portion of services fee received in advance but not earned is recorded as contract liabilities and is reflected as a current liability as such amounts represent revenue that the Target Group expects to earn within one year.

Performance obligations for the provision of back-office services; comprehensive marketing services and data centre services are either for a period of one year or less or bill a fixed amount for each month of services provided. As permitted under HKFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

Information about major customers

During the Relevant Periods, revenue from customers individually contributing over 10% of total revenue of the Target Group are as follows:

		Year	ended 31 March
		2018	2019	2020
		RMB’000	RMB’000	RMB’000
Customer	1	43,260	N/A1	N/A1
Customer	2	99,330	171,940	148,854
Customer	3	N/A1	85,539	111,827
Customer	4	N/A1	40,967	N/A1
Customer	5	35,789	N/A1	N/A1

1 The corresponding revenue of these customers did not contribute over 10% of the total revenue of the Target Group for the Relevant Periods.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Geographical information

The Target Group’s revenue from customers is derived solely from its operations and services rendered in the PRC where the non-current assets of the Target Group are all located.

6. OTHER INCOME

Interest income on bank deposits Government grants and subsidies (Note i) Value-Add Tax (‘‘VAT’’) refund (Note ii) Others	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 149 140 233 3,650 3,114 9,460 1,813 1,174 1,733 189 2 — 5,801 4,430 11,426	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 149 140 233 3,650 3,114 9,460 1,813 1,174 1,733 189 2 — 5,801 4,430 11,426
		11,426

Notes:

• i. The government grants and subsidies mainly represented the subsidies on daily operation and purchase of property and equipment with no unfulfiled conditions. Government grants received for purchase of property and equipment but with conditions not yet fulfiled are included in other non-current liabilities. In addition, the amount also included the release of RMB465,000, RMB472,000 and RMB371,000 for the three years ended 31 March 2020, respectively recognised in profit or loss on a systematic basis over the estimated useful life of the property and equipment related to the government grants on capital expenditure.

• ii. According to the Value-Added Tax Policy for Software Products (Cai Shui 2011 No. 110), for sale of self-developed software products by a general VAT tax payer, after VAT is levied at a tax rate of 17%, the refund-upon-collection policy shall be applied and the portion of the actual VAT burden that is in excess of 3% shall be refunded.

7. OTHER LOSSES

Loss on disposal of property and equipment Others	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 (103) — (4 (250) (379) (395 (353) (379) (399	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 (103) — (4 (250) (379) (395 (353) (379) (399
		(399

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

8. NET IMPAIRMENT LOSSES

Net impairment losses recognised on: — Accounts receivables for services provided — Others receivables	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 9,919 4,453 5,520 450 716 587 10,369 5,169 6,107	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 9,919 4,453 5,520 450 716 587 10,369 5,169 6,107
		6,107

9. FINANCE COSTS

Interest on bank borrowings Interest on other borrowings Interest on lease liabilities	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 — 364 1,269 69 — 1,308 — — 1,268 69 364 3,845	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 — 364 1,269 69 — 1,308 — — 1,268 69 364 3,845
		3,845

Finance costs mainly represent interest expenses on bank and other borrowings and lease liabilities. No finance costs are capitalised during the Relevant Periods.

10. PROFIT FOR THE YEAR

Profit for the year has been arrived at after charging: Auditor’s remuneration Directors’ remuneration (Note 12) Other staff costs — salaries and other benefits — share reward expenses — performance-based bonus — retirement benefits scheme contributions excluding directors Total directors and other staff costs Depreciation of property and equipment (Note 15) Depreciation of right-of-use assets (Note 18) Amortisation of intangible assets (Note 16)	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 323 327 354 1,097 810 1,176 130,250 211,404 217,398 583 760 419 3,214 2,997 1,767 9,955 20,308 17,145 145,099 236,279 237,905 5,246 11,474 16,168 — — 11,994 1,516 1,516 1,516	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 323 327 354 1,097 810 1,176 130,250 211,404 217,398 583 760 419 3,214 2,997 1,767 9,955 20,308 17,145 145,099 236,279 237,905 5,246 11,474 16,168 — — 11,994 1,516 1,516 1,516
		237,905
		16,168 11,994 1,516

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

11. INCOME TAX EXPENSE

PRC Enterprise Income Tax (‘‘EIT’’) — Current tax Deferred tax (Note 24)	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 7,170 8,627 9,770 (2,560) 142 (1,426) 4,610 8,769 8,344

The basic tax rate of Target Group’s PRC subsidiaries is 25% under the law of the PRC on Enterprise Income Tax (the ‘‘EIT Law’’) and implementation regulations of the EIT Law. Certain subsidiaries of the Target Company qualified as advanced technology enterprises during the Relevant Periods and have obtained approvals from the relevant tax authorities for the reduction of the applicable tax rate to 15% for a period of 3 years up to 31 December 2020.

The income tax expense for the Relevant Periods can be reconciled to the profit before tax per the combined statements of profit or loss and other comprehensive income as follows:

Profit before tax Tax at applicable tax rate of 15% Tax effect of expenses not deductible for tax purposes Utilisation of tax losses previously not recognised Tax effect of deductible temporary differences previously not recognised Effect of tax benefit of subsidiaries Effect of different tax rates of subsidiaries Tax effect of tax losses not recognised Income tax expense for the year	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 33,594 49,971 73,621 5,039 7,496 11,043 135 263 584 (158) — (1,541) 88 87 (390) (1,588) (1,973) (1,673) (337) 845 (186) 1,431 2,051 507 4,610 8,769 8,344

Note: The preferential PRC EIT rate is used as it is the domestic tax in the jurisdiction where the operation of the Target Group is substantially based.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

12. DIRECTORS’, CHIEF EXECUTIVE’S EMOLUMENTS AND EMPLOYEES’ REMUNERATION

(a) Directors’ and Chief Executive’s emoluments

Details of the emoluments paid or payable to the directors and the Chief Executive of the Target Company during the Relevant Periods for their services rendered to the entities comprising the Target Group are as follows:

Year ended 31 March 2018 Executive directors Mr. Hu Shilong (Note i) Ms. Zhou Fang (Note iii) Ms. Liu Yingying (Note iii) Mr. Wang Yuanqing (Note v) Mr. Wang Jing (Note v) Year ended 31 March 2019 Executive directors Mr. Hu Shilong (Note i) Ms. Zhou Fang (Note iii) Ms. Liu Yingying (Note iii) Mr. Wang Yuanqing (Note v) Mr. Wang Jing (Note v) Year ended 31 March 2020 Executive directors Mr. Hu Shilong (Note i) Ms. Zhou Fang (Note iii) Ms. Liu Yingying (Note iii) Ms. Xu Dongyu (Note v) Ms. Liu Xiaochen (Note v) Mr. Wang Yuanqing (Note v) Mr. Wang Jing (Note v)	Fee RMB’000 — — — — — — — — — — — — — — — — — — — —	Salaries and allowances RMB’000 300 300 164 — — 764 300 300 177 — — 777 300 300 216 54 75 — — 945	Discretionary bonus RMB’000 (Note ii) 150 150 — — — 300 — — — — — — — — — 100 100 — — 200	Retirement benefit scheme contributions RMB’000 11 11 11 — — 33 11 11 11 — — 33 10 10 9 — 2 — — 31	Total RMB’000 461 461 175 — —
					1,097
					311 311 188 — —
					810
					310 310 225 154 177 — —
					1,176

Notes:

• (i) Mr. Hu Shilong was appointed as an executive director, who is the Chief Executive, of the board of directors of Dalian Kingwisoft and the Target Company in May 2016 and December 2019, respectively.

• (ii) Discretionary bonus was determined with reference to the Target Group’s operating results and individual performance of the executive directors of the Target Companies.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

• (iii) Ms. Zhou Fang and Ms. Liu Yingying were appointed as the directors of Dalian Kingwisoft in May 2016 and Ms. Zhou Fang was resigned in June 2020.

• (iv) Ms. Xu Dongyu and Ms. Liu Xiaochen were appointed as the directors of Dalian Kingwisoft in January 2020.

• (v) Mr. Wang Yuanqing and Mr. Wang Jing were appointed as the directors of Dalian Kingwisoft in May 2016 and resigned in January 2020.

• (vi) The executive directors’ emoluments show above were for their services in connection with the management of the affairs of the Target Group.

(b) Employees’ remuneration

The five highest paid individuals of the Target Group for the Relevant Periods include 2, 0 and 2 executive directors for the three years ended 31 March 2018, 2019 and 2020, respectively. The emoluments of the remaining individuals for the Relevant Periods are as follows:

Salaries and allowances Discretionary bonus Retirement benefit scheme contributions	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 890 1,471 1,508 300 500 550 28 47 64 1,218 2,018 2,122	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 890 1,471 1,508 300 500 550 28 47 64 1,218 2,018 2,122
		2,122

The number of the highest paid employees who are not the directors of the entities comprising the Target Group whose emoluments fell within the following bands is as follows:

Nil to HK$1,000,000	Year ended 31 March 2018 2019 2020 RMB’000 RMB’000 RMB’000 3 5 5

During the Relevant Periods, no emoluments were paid by the Target Group to any of the directors of the Target Company or the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the Target Group or as compensation for loss of office. None of the directors of the Target Company waived any emoluments during the Relevant Periods.

13. EARNINGS PER SHARE

No earnings per share information is presented for the purpose of this report as its inclusion is not considered meaningful for the Relevant Periods.

14. DIVIDENDS

No dividends were declared or paid by the Target Company during the Relevant Periods, nor has any dividend been proposed since 31 March 2020.

– I-41 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

15. PROPERTY AND EQUIPMENT

COST At 31 March 2017 Additions Disposals At 31 March 2018 Additions Disposals At 31 March 2019 Additions Disposals At 31 March 2020 DEPRECIATION At 31 March 2017 Provided for the year Eliminated on disposal At 31 March 2018 Provided for the year Eliminated on disposal At 31 March 2019 Provided for the year Eliminated on disposal At 31 March 2020 CARRYING VALUES At 31 March 2018 At 31 March 2019 At 31 March 2020	Leasehold improvement RMB’000 3,119 11,849 — 14,968 11,206 — 26,174 10,746 — 36,920 969 2,511 — 3,480 6,544 — 10,024 10,191 — 20,215 11,488 16,150 16,705	Electronic and other equipment RMB’000 5,688 9,852 (1,818) 13,722 6,264 (442) 19,544 2,792 (319) 22,017 2,429 2,497 (1,416) 3,510 4,669 (77) 8,102 5,279 (261) 13,120 10,212 11,442 8,897	Software RMB’000 484 — — 484 1,175 — 1,659 1,305 — 2,964 200 144 — 344 176 — 520 593 — 1,113 140 1,139 1,851	Motor vehicles RMB’000 584 350 (185) 749 327 (50) 1,026 — — 1,026 123 94 (89) 128 85 (8) 205 105 — 310 621 821 716	Total RMB’000 9,875 22,051 (2,003) 29,923 18,972 (492) 48,403 14,843 (319) 62,927 3,721 5,246 (1,505) 7,462 11,474 (85) 18,851 16,168 (261) 34,758 22,461 29,552 28,169

The above items of property and equipment are depreciated on a straight-line basis at the following useful lives:

Leasehold improvement Over the lease term Electronic and other equipment 3–5 years Software 3 years Motor vehicles 5 years

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

16. INTANGIBLE ASSETS

COST At 31 March 2017, 2018 and 2019 Additions At 31 March 2020 AMORTISATION At 31 March 2017 and 1 April 2017 Provided for the year At 31 March 2018 and 1 April 2018 Provided for the year At 31 March 2019 Provided for the year At 31 March 2020 CARRYING VALUES At 31 March 2018 At 31 March 2019 At 31 March 2020	Patent RMB’000 7,580 — 7,580 1,390 1,516 2,906 1,516 4,422 1,516 5,938 4,674 3,158 1,642	Development cost RMB’000 — 9,656 9,656 — — — — — — — — — 9,656	Total RMB’000 7,580 9,656
			17,236
			1,390 1,516
			2,906 1,516
			4,422 1,516
			5,938
			4,674
			3,158
			11,298

The patent of the Target Company is generated from the acquisition of subsidiaries, which have finite useful lives. Such intangible assets are amortised on a straight-line basis over a period of 5 years.

Development costs in relation to an online training and certain call center platforms are internally generated and will be used in provision of customer service solutions business.

17. GOODWILL

RMB’000 COST At 31 March 2018, 2019 and 2020 7,601

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

For the purposes of impairment testing, goodwill with indefinite useful lives set out above have been allocated to two individual CGUs), comprising two subsidiaries. The carrying amounts of goodwill allocated to these units are as follows:

Shenzhen Kingwisoft Data Services Co., Ltd. (‘‘Shenzhen Kingwisoft’’) (深圳市金慧融智數據服務有限公司) Beijing Nanyou Information Technology Co., Ltd (‘‘Beijing Nanyou’’) (北京南郵信息技術有限公司)	As at 31 March 2018 2019 RMB’000 RMB’000 6,758 6,758 843 843 7,601 7,601	2020 RMB’000 6,758 843
		7,601

• English name for identification only

The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are summarised below:

Shenzhen Kingwisoft

The recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a 5-year period, and discount rate of 16.37%, 16.07% and 15.50% at 31 March 2018, 2019 and 2020, respectively. Shenzhen Kingwisoft’s cash flows beyond the 5-year period are extrapolated using a 3%, 3% and 3% at 31 March 2018, 2019 and 2020, respectively. This growth rate is based on the relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted revenue and gross margin, such estimation is based on the unit’s past performance and management’s expectations for the market development. During the years ended 31 March 2018, 2019 and 2020, management of the Target Group determines that there is no impairment on Shenzhen Kingwisoft. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of Shenzhen Kingwisoft to exceed the aggregate recoverable amount of Shenzhen Kingwisoft.

Beijing Nanyou

The recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a 5-year period, and discount rate of 16.37%, 16.07% and 15.50% at 31 March 2018 and 2019 and 2020, respectively. Beijing Nanyou’s cash flows beyond the 5-year period are extrapolated using a 3%, 3% and 3% at 31 March 2018, 2019 and 2020, respectively. This growth rate is based on the relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted revenue and gross margin, such estimation is based on the unit’s past performance and management’s expectations for the market development. During the years ended 31 March 2018, 2019 and 2020, management of the Target Group determines that there is no impairment on Beijing Nanyou. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of Beijing Nanyou to exceed the aggregate recoverable amount of Beijing Nanyou.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

18. RIGHT-OF-USE ASSETS

COST At 1 April 2019 Additions At 31 March 2020 DEPRECIATION At 1 April 2019 Provided for the year At 31 March 2020 CARRYING VALUES At 1 April 2019 At 31 March 2020 Expense relating to leases with lease terms end within 12 months from the date of initial application Expense relating to short term lease Total cash outflow for leases	Office premises and staff quarters RMB’000 25,929 12,439
	38,368
	— 11,994
	11,994
	25,929
	26,374
	6,665
	4,215
	23,794

For both years, the Target Group leases office premises and staff quarters for its operations. Lease contracts are entered into for fixed term of 1 to 10 years. Lease terms are negotiated on an individual basis. In determining the lease term and assessing the length of the non-cancellable period, the Target Group applies the definition of a contract and determines the period for which the contract is enforceable.

The Target Group regularly entered into short-term leases for office premises and staff quarters. As at 31 March 2020, the portfolio of short-term leases is similar to the portfolio of short-term leases to which the shortterm lease expense disclosed above.

In addition, lease liabilities of approximately RMB25,975,000 are recognised with related right-of-use assets of approximately RMB26,374,000 as at March 2020. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

19. ACCOUNTS AND OTHER RECEIVABLES AND CONTRACT ASSETS

Accounts receivables Less: allowance for expected credit losses Bills receivables Prepayments Deposits and other receivables Less: allowance for expected credit losses Total accounts and other receivables Contract assets	As at 31 March 2018 2019 RMB’000 RMB’000 131,459 207,170 (15,981) (20,434) 115,478 186,736 1,026 2,064 6,520 9,523 11,488 13,894 (1,136) (1,852) 17,898 23,629 133,376 210,365 16,588 —	2020 RMB’000 249,328 (25,954
		223,374 131 9,866 14,270 (2,439
		21,828
		245,202
		—

All contract assets, which is related to setting up of contact service systems and centers, were expected to be settled within one year and are classified as current based on expected settlement dates.

The contract assets primarily is related to the Target Group’s setting up of contact service systems and centres and is relate to the Target Group’s right to consideration for work completed and not billed because the rights are conditioned on the Target Group’s future performance. The contract assets are transferred to accounts receivables when the rights become unconditional.

As at 1 April 2017, accounts receivables from contracts with customers amounted to RMB47,875,000. There were no contract assets as at 1 April 2017.

The Target Group allows a credit period of 3 to 6 months to its customers. The directors of the Target Company are in the view that there have been no significant increase in credit risk of default because the amounts are from customers with good credit rating and continuous repayment. Before accepting any new customer, the Target Group assesses the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed periodically.

The following is an aged analysis of accounts receivables, presented based on the date of services rendered at the end of each reporting period.

0 — 60 days 61 — 120 days 121 — 180 days Over 180 days	As at 31 March 2018 2019 RMB’000 RMB’000 68,804 69,646 23,031 65,439 5,156 19,761 18,487 31,890 115,478 186,736	2020 RMB’000 73,632 82,250 13,005 54,487
		223,374

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The bills receivables are aged within 60 days as at 31 March 2018, 2019 and 2020.

The Target Group recognised the allowance for certain accounts receivable which has been past due and considered as doubtful debts prior to 1 April 2018 when the Target Group applies the simplified approach to provide for ECL on accounts receivables prescribed by HKFRS 9.

Movement in the allowance for doubtful debts:

At beginning of the year Addition Write-offs At end of the year	As at 31 March 2018 RMB’000 7,245 10,369 (497
	17,117

Ageing of accounts receivables which are past due but not impaired:

Overdue: 0 — 30 days 31 — 60 days 61 — 90 days 91 — 180 days More than 180 days	As at 31 March 2018 RMB’000 25,426 9,968 2,054 13,038 2,345
	52,831

As at 31 March 2018, included in the Target Group’s accounts receivable balance are debtors with aggregate carrying amount of RMB52,831,000, which are past due as at the reporting date. Out of the past due balances, RMB2,345,000 as at 31 March 2018 have been past due 180 days or more and is not considered as in default due to their good repayment history and there is no default history of the debtors.

As at 31 March 2019 and 2020, included in the Target Group’s accounts receivables balance are debtors with aggregate carrying amount of RMB45,565,000 and RMB72,918,000, respectively which are past due as at the reporting date. Out of the past due balances, RMB44,527,000 and RMB57,776,000 as at 31 March 2019 and 2020 has been past due 90 days or more and is not considered as in default due to their good repayment history and there is no default history of the debtors.

As at 31 March 2018, included in the allowance are individually impaired account receivables with an aggregate balance of RMB10,057,000 of which the debtors have been in dispute with the Target Group.

Since 1 April 2018, the Target Group applies the simplified approach to provide for ECL on accounts receivables prescribed by HKFRS 9.

– I-47 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

In determining the recoverability of accounts receivables, the management of the Target Group considers any change in the credit quality of the accounts receivables from the date credit was initially granted up to the end of the reporting period.

Details of impairment assessment of accounts and other receivables for the year ended 31 March 2019 and 2020 are set out in Note 33.

20. BANK BALANCES AND CASH

Bank balances carried interest at prevailing market rate of 0.3%-1.35%, 0.3%-1.755%, 0.3%-1.755% per annum as at 31 March 2018, 2019 and 2020.

Details of impairment assessment of bank balances and cash for the year ended 31 March 2019 and 2020 are set out in Note 33.

21. ACCOUNT AND OTHER PAYABLES

Accounts payables Other payables Amount due to a shareholder (note) Payroll payables Other tax payables	As at 31 March 2018 2019 RMB’000 RMB’000 16,310 15,712 437 457 — — 22,177 25,686 5,409 9,385 44,333 51,240	2020 RMB’000 10,160 1,212 8,000 26,537 1,200
		47,109

Note: The amount due to a shareholder of the Target Company is non-trade nature, unsecured, interest-free and repayable on demand.

The ageing analysis of the accounts payables based on date of services rendered at the end of each reporting period is as follows:

0 — 60 days 61 — 120 days 121 — 180 days Over 180 days	As at 31 March 2018 2019 RMB’000 RMB’000 5,503 5,522 686 589 8,678 606 1,443 8,995 16,310 15,712	2020 RMB’000 1,149 2,725 103 6,183
		10,160

The average credit period on purchases of goods is 90 days.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

22. BORROWINGS

Bank borrowings repayable: Within one year Other borrowings repayable: Within one year Within a period of more than one year but not exceeding two years Less: Amounts due within one year shown under current liabilities Amounts shown under non-current liabilities	As at 31 March 2018 2019 RMB’000 RMB’000 — 18,800 — 3,410 — 1,429 — 23,639 — (22,210) — 1,429	2020 RMB’000 25,820 1,784 20,000
		47,604 (27,604
		20,000

The carrying amount of the above borrowings are at fixed-rate and are secured by certain properties and equity interest of the Target Group held by the shareholders of the Target Group, certain bank deposit and accounts receivables of the Target Group and guaranteed by certain directors of the Target Group.

The effective interest rates of the Target Group’s borrowings were as follows:

Effective interest rate (per annum): Fixed-rate bank borrowings Fixed-rate other borrowings	2018 RMB’000 — —	As at 31 March 2019 RMB’000 5.22% to 6.06% 15.47%	2020 RMB’000 5.22% to 5.65% 8% to 10.17%

23. LEASE LIABILITIES

Lease liabilities payable: Within one year More than one year but not exceeding five years More than five years Less: Amount due for settlement with 12 months shown under current liabilities Amount due for settlement after 12 months shown under non-current liabilities	As at 31 March 2020 RMB’000 12,056 9,796 4,123
	25,975 12,056
	13,919

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

24. DEFERRED TAXATION

For the purpose of presentation in the combined statements of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes.

Deferred tax assets Deferred tax liabilities At 31 March 2017 Credit to profit or loss At 31 March 2018 (Charge) credit to profit or loss At 31 March 2019 Credit (charge) to profit or loss At 31 March 2020	Loss allowance on accounts and other receivables RMB’000 948 2,284 3,232 (169) 3,063 1,302 4,365	As at 31 March 2018 2019 RMB’000 RMB’000 3,534 3,203 (584) (395) 2,950 2,808 Fair value adjustment of intangible assets arising from acquisition of subsidiaries Others RMB’000 RMB’000 (774) 216 190 86 (584) 302 189 (162) (395) 140 190 (66) (205) 74	2020 RMB’000 4,439 (205) 4,234 Total RMB’000 390 2,560 2,950 (142) 2,808 1,426 4,234

The Target Group has unused tax losses of RMB12,634,000, RMB26,307,000 and RMB19,414,000 as at 31 March 2018, 2019 and 2020 available for offset against future profits. No deferred tax asset has been recognised for the tax losses as at 31 March 2018, 2019 and 2020 due to the unpredictability of future profit stream. Included in unrecognised tax losses as at 31 March 2018 are losses of RMB1,990,000, RMB2,159,000 and RMB8,485,000 will expire in 2020, 2021 and 2022. Included in unrecognised tax losses as at 31 March 2019 are losses of RMB1,990,000, RMB2,159,000 and RMB8,485,000 and RMB13,673,000 will expire in 2020, 2021, 2022, 2023. Included in unrecognised tax losses as at 31 March 2020 are losses of RMB1,016,000, RMB3,924,000 and RMB11,094,000 and RMB3,380,000 will expire in 2021, 2022, 2023 and 2024.

At the end of the reporting period, the Target Group has deductible temporary differences mainly arising from loss allowances on accounts and other receivables of RMB17,117,000, RMB22,286,000 and RMB28,393,000 as at 31 March 2018, 2019 and 2020, respectively. Deferred tax assets have been recognised in respect of such deductible temporary differences of RMB15,001,000, RMB19,596,000 and RMB28,300,000 as at 31 March 2018, 2019 and 2020, respectively. No deferred tax assets have been recognised in relation to the remaining deductible temporary differences as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

25. EQUITY INSTRUMENT AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

In October 2019, the Target Group entered into an equity interest transfer agreement pursuant to which the Target Group acquired approximately 12.14% equity interest in a private entity established in the PRC for a consideration of RMB4,249,000. The directors of the Target Company have elected to designate the investment in equity instrument as at FVTOCI as they believe that recognising short-term fluctuations in the investment in profit or loss would not be consistent with the Target Group’s strategy of holding the investment for long term investment purpose and realising the performance potential in the long run. The fair value of the investment is RMB4,563,000 as at 31 March 2020.

26. COMBINED CAPITAL

On 4 December 2019, the Target Company was incorporated with ordinary shares of US$0.0001 each and two shares were issued upon incorporation and as of 31 December 2019.

For the purpose of this report, the combined capital as at 31 March 2018 and 2019 represented the paid up capital of Dalian Kingwisoft amounted to RMB31,300,000 and the combined capital as at 31 March 2020 represented the aggregate amount of the share capital/paid up capital of the Target Company and Dalian Kingwisoft amounting to RMB31,300,000.

27. OPERATING LEASES COMMITMENTS

The Target Group as lessee

Minimum lease payments paid under operating leases	As at 31 2018 RMB’000 6,448	March 2019 RMB’000 11,760

At the end of each reporting period, the Target Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the 2 to 5 year inclusive More than five years	As at 31 2018 RMB’000 11,760 28,964 4,123 44,847	March 2019 RMB’000 13,124 20,111 2,771
		36,006

Operating lease payments represent rental payable by the Target Group for office premises and staff quarters. Leases are negotiated and rentals are fixed for terms ranging from 1 to 10 years.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

28. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

The table below details changes in the Target Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flow were, or future cash flows will be, classified in the Target Group’s combined statements of cash flows as cash flows from financing activities.

At 1 April 2017 Interest expenses Financing cash flows At 31 March 2018 and 1 April 2018 Interest expenses Financing cash flows At 31 March 2019 Adoption of HKFRS 16 At 1 April 2019 (restated) Interest expenses Financing cash flows New leases entered At 31 March 2020	Bank borrowings RMB’000 (Note 22) — — — — 364 18,436 18,800 — 18,800 1,269 5,751 — 25,820	Other borrowings RMB’000 (Note 22) — 69 (69) — — 4,839 4,839 — 4,839 1,308 15,637 — 21,784	Lease liabilities RMB’000 (Note 23) — — — — — — — 25,182 25,182 1,268 (12,914) 12,439 25,975	Amount due from a shareholder (included in other payables) RMB’000 (Note 21) — — — — — — — — — — 8,000 — 8,000	Total RMB’000 — 69 (69) — 364 23,275 23,639 25,182 48,821 3,845 16,474 12,439 81,579

29. RETIREMENT BENEFIT SCHEMES

The employees of the Target Group in the PRC are members of a state-managed retirement benefits scheme operated by the PRC government. The Target Group is required to contribute a specified percentage of payroll costs as determined by respective local government authority to the retirement benefits scheme to fund the benefits. The only obligation of the Target Group with respect to the retirement benefits scheme is to make the specified contributions under the scheme. The total costs charged to profit and loss, amounted to RMB9,988,000, RMB20,341,000 and RMB17,176,000 for the years ended 31 March 2018, 2019 and 2020 respectively, represent contributions paid to the retirement benefit scheme by the Target Group.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

30. SHARE REWARD

During the Relevant Periods, share reward agreements (the ‘‘Share Reward Agreements’’) were entered into between Mr. Hu, certain employees of the Target Group and Dalian Xinrui Enterprise Management Partnership (Limited Partnership)* (大連新睿企業管理合夥企業(有限合夥)) (‘‘Dalian Xinrui’’), a limited partnership established in the PRC being the employee shareholding platform of the Target Company.

Dalian Xinrui was wholly owned by the Target Group’s substantial shareholder, Mr. Hu with a total equity of RMB500,000 and holds an equity interest of 244,000 shares in the Target Company (approximately 8% of the total issued shares of the Target Company). Pursuant to the Share Reward Agreements, employees under the agreement (‘‘Grantees’’) were granted the rights to purchase certain issued shares of the Target Company held by Dalian Xinrui, calculated based on a time proportional basis by reference to the aggregate length of service provided over a 3-year term, from Mr. Hu. The consideration was calculated based on the formula set in the Share Reward Agreements.

In addition, pursuant to the terms of Share Reward Agreements, the proportion of shares transferred to the Grantees which is not entitled to be received by the Grantees as a result of their termination of services with the Target Company shall be transferred back to Mr. Hu or a designated third party based on the condition and consideration set in the Share Reward Agreements.

The above-mentioned share entitlement is referred to as ‘‘Share Reward’’.

The following table discloses movements of the Share Reward, representing the shares in the Target Company, held by the Grantees during the year:

Share Reward Share Reward Share Reward	As at 1 April 2017 2,054,000 As at 1 April 2018 1,804,000 As at 1 April 2019 1,694,000	Granted during the year — Granted during the year — Granted during the year —	Forfeited during the year 250,000 Forfeited during the year 110,000 Forfeited during the year 120,000	As at 31 March 2018 1,804,000
				As at 31 March 2019 1,694,000
				As at 31 March 2020 1,574,000

Fair value of the Share Reward granted is determined based on the share price of the Target Company and is expensed over the vesting period, with a corresponding credit to the Target Group’s other reserve. For the year ended 31 March 2018, 2019 and 2020, RMB583,000, RMB760,000 and RMB419,000 was recognised in profit and loss. All Share Reward were vested during the year ended 31 March 2020.

• English name for identification only

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

31. RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in the Historical Financial Information of the Target Group, the Target Group entered into a short-term borrowing with a shareholder, who was also a director, which was unsecured, non-interest bearing and repayable on demand during the year ended 31 March 2018 amounting to RMB10,550,000. Such balance was subsequently settled by 31 March 2018.

Compensation of key management personnel

The directors of the Target Company were considered to be the key management personnel of the Target Group. The remuneration of the directors of the Target Company is set out in Note 12.

32. CAPITAL RISK MANAGEMENT

The Target Group manages its capital to ensure that the Target Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of debt and equity balance. The Target Group’s overall strategy remained unchanged throughout the Relevant Periods.

The capital structure of the Target Group consists of net debt, which includes the borrowings and lease liabilities disclosed in Notes 22 and 23, respectively, net of cash and cash equivalents and equity of the Target Company, comprising issued share capital and reserves.

The directors of the Target Group review the capital structure on a periodic basis. As part of this review, the directors of the Target Company consider the cost of capital and the risks associated with share capital. Based on recommendations of the directors of the Target Company, the Target Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt.

33. FINANCIAL INSTRUMENTS

a. Categories of financial instruments

Financial assets Equity instrument at FVTOCI Financial assets at amortised cost Loans and receivables (including cash and cash equivalents) Financial liabilities Financial liabilities at amortised cost	As at 31 March 2018 2019 RMB’000 RMB’000 — — — 224,044 162,717 — 38,924 65,494	2020 RMB’000 4,563 309,715 —
		93,513

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

b. Financial risk management objectives and policies

The Target Group’s major financial instruments include accounts and other receivables, bank balances and cash, accounts and other payables, borrowings and lease liabilities. Details of these financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include market risk (interest rate risk and other price risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

There has been no change to the types of the Target Group’s exposure in respect of financial instruments or the manner in which it manages and measures the risks.

Market risk

Interest rate risk management

The Target Group is exposed to fair value interest rate risk in relation to fixed-rate borrowings (see Note 22 for details of these borrowings) and lease liabilities (see note 23 for details). The Target Group is exposed to cash flow interest rate risk in relation to variable-rate bank balances (see Note 20 for details).

The management has considered the Target Group’s exposure to cash flow interest rate risk in relation to variable-rate bank balances (see Note 20) and fair value interest rate risk in relation to fixed-rate borrowings to be limited because the current market interest rates on general deposits are relatively low and stable. The Target Group manages its interest rate exposures by assessing the potential impact arising from any interest rate movements based on interest rate level and outlook. The management will review the proportion of borrowings in fixed and floating rates and ensure they are within reasonable range.

The directors of the Target Company consider that the overall interest rate risk is not significant and no sensitivity analysis is presented for the Target Group.

Credit risk and impairment assessment

Before accepting any new customer, the Target Group uses an internal credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed twice a year. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. The Target Group’s major customers are mostly reputable public entities.

The Target Group has concentration of credit risk as 32%, 33% and 23% of the total accounts receivables was due from the Target Group’s largest customer and 57%, 68% and 69% of the total accounts receivables was due from the Target Group’s top five customers as at 31 March 2018, 2019 and 2020 respectively.

At the end of each reporting period, the carrying amount of the respective recognised financial assets of the Target Group as stated in the combined statements of financial position, respectively best represents the Target Group’s maximum exposure to credit risk which will cause a financial loss to the Target Group due to failure to discharge an obligation by the counterparties.

In order to minimise the credit risk for accounts receivables, the management of the Target Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, upon application of HKFRS 9, except for items that are subject to individual evaluation, which are assessed for impairment individually, the remaining trade receivables and contract assets are grouped under a provision matrix according to internal credit rating based on shared credit risk characteristics by reference to repayment histories for recurring customers and current past due exposure for the new customers. In addition, the Target Group performs impairment assessment under ECL model upon

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

application of HKFRS 9 on accounts balances individually or based on provision matrix for the year ended 31 March 2019 and 2020, and performs impairment assessment under incurred loss model for the years ended 31 March 2018. In this regard, the directors of the Target Group consider that the Target Group’s credit risk is significantly reduced. Impairment of RMB20,434,000 and RMB25,954,000 was recognised as at 31 March 2019 and 2020, respectively. Details of the quantitative disclosures are set out below in this note.

For bills receivable, the directors of the Target Company were of the opinion that the credit risk of such commercial bills were insignificant as these bills were issued by selected customers, which have good credit quality with the Target Group.

For contract assets, the directors of the Target Company were of the opinion that the credit risk of such receivable were insignificant.

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 Target Company believe that there is no material credit risk inherent in the Target Group’s outstanding balance of other receivables. As such, the directors of the Target Company considered the risk over ECL to be immaterial after considering counterparty financial background and creditability. Accordingly, the loss allowance of other receivables is measured under 12m ECL in respect of other receivables, amounting to RMB1,852,000 and RMB2,439,000 as at 31 March 2019 and 2020, respectively.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The 12m ECL for bank balances of the Target Group as at 31 March 2019 and 2020 is considered to be insignificant.

The Target Group’s internal credit risk grading assessment comprises the following categories:

		Accounts	Other
Category	Description	receivables	receivables
Low risk	The counterparty has a low risk of default	Lifetime ECL —	12m ECL
	and does not have any past-due amounts	not credit-
		impaired
Watch list	The counterparty frequently repays after due	Lifetime ECL —	12m ECL
	dates but usually settle in full	not credit-
		impaired
Doubtful	There have been significant increases in	Lifetime ECL —	Lifetime ECL
	credit risk since initial recognition	not credit-	— not credit-
	through information developed internally	impaired	impaired
	or external resources
Loss	There is evidence indicating the asset is	Lifetime ECL —	Lifetime ECL
	credit-impaired	credit-	— credit-
		impaired	impaired

– I-56 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The tables below detail the credit risk exposures of the Target Group’s financial assets which are subject to ECL assessment:

		External	Internal		Gross carrying amount as at	Gross carrying amount as at
Financial assets at		credit	credit		31 March
amortised cost	Notes	rating	rating	12m or lifetime ECL	2019	2020
Accounts	19	N/A	Note	Lifetime ECL	192,270	232,947
receivables				(provision matrix)
		N/A	Loss	Lifetime ECL	14,900	16,381
				(credit-impaired)
Bills and other	19	N/A	Note	12m ECL	9,862	8,305
receivables
		N/A	Note	Lifetime ECL	6,096	6,096
				(credit-impaired)
Bank balance	20	IG*	Note	12m ECL	23,126	74,379

• Investment Grade — The Standard & Poor’s rating of the Target Group’s significant bank accounts

• Note: As part of the Target Group’s credit risk management, the Target Group applies internal credit rating for its customers. The following table provides information about the exposure to credit risk for accounts receivables and other receivables which are assessed based on provision matrix within lifetime ECL (credit-impaired) and 12m ECL, respectively.

31 March 2019 Internal Credit rating Average loss rate Accounts receivables RMB Low risk 0.02% 148,788 Watch list 0.20% 19,258 Doubtful 23%–30% 24,224 192,270	31 March 2020 Other receivables Average loss rate Accounts receivables RMB RMB 9,862 0.03% 166,792 — 0.23% 46,969 6,096 30%–50% 31,165 15,958 232,947	Other receivables RMB 8,305 — 6,096
		14,401

The estimated loss rates are estimated based on historical observed default rates over the expected life of the debtors and are adjusted for forward-looking information that is available without undue cost or effort. The grouping is regularly reviewed by management to ensure relevant information about specific debtors is updated.

As at 31 March 2019 and 2020, the Target Group provided RMB5,534,000 and RMB9,573,000 impairment allowance for accounts receivables respectively, based on the provision matrix. The Target Group also provided RMB14,900,000 and RMB16,381,000 impairment allowance for accounts receivables that are credit-impaired as at 31 March 2019 and 2020.

As at 31 March 2019 and 2020, the Target Group provided RMB1,852,000 and RMB2,439,000 impairment allowance for other receivables respectively, based on the provision matrix.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The following table shows a movement in lifetime ECL that has been recognised for accounts receivables under the simplified approach.

As at 31 March 2018 under HKAS 39 and as at 1 April 2018 under HKFRS 9 Expected credit losses recognised (reversed) As at 31 March 2019 Expected credit losses recognised As at 31 March 2020	Lifetime ECL (not credit- impaired) RMB’000 — 5,534 5,534 4,039 9,573	Lifetime ECL (credit- impaired) RMB’000 15,981 (1,081) 14,900 1,481 16,381	Total RMB’000 15,981 4,453
			20,434 5,520
			25,954

The following tables show reconciliation of loss allowances that has been recognised for other receivables

As at 31 March 2018 under HKAS 39 and as at 1 April 2018 under HKFRS 9 Expected credit losses recognised As at 31 March 2019 Expected credit losses recognised As at 31 March 2020	12m ECL RMB’000 — 2 2 — 2	Lifetime ECL (credit- impaired) RMB’000 1,136 714 1,850 587 2,437	Total RMB’000 1,136 716
			1,852 587
			2,439

Liquidity risk

In the management of the liquidity risk, the Target Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Target Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank and other borrowings to ensure unutilised bank facilities are adequate and ensures compliance with loan covenants.

The following table details the Target Group’s remaining contractual maturity for its nonderivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Target Group can be required to pay. The maturity dates for other non-derivative financial liabilities are based on the agreed repayment dates.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

The tables include both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from prevailing interest rate at the end of each reporting period.

Weighted Average Effective interest rate RMB’000 As at 31 March 2018 Non-derivative financial liabilities Accounts and other payables — As at 31 March 2019 Non-derivative financial liabilities Accounts and other payables — Fixed-rate bank borrowings 5.64% Fixed-rate other borrowings 15.47% As at 31 March 2020 Non-derivative financial liabilities Accounts and other payables — Fixed-rate bank borrowings 5.47% Fixed-rate other borrowings 8.18% Lease liabilities 5.50%	Repayable on-demand or less than 1 month RMB’000 32,969 35,840 175 297 36,312 37,068 5,061 311 769 43,209	Repayable 1-3 months RMB’000 5,955 6,015 347 594 6,956 8,841 5,851 616 2,205 17,513	Repayable 3 months to 1 year RMB’000 — — 18,643 2,674 21,317 — 15,799 906 9,812 26,517	Repayable more than 1 year RMB’000 — — — 1,433 1,433 — — 22,319 16,582 38,901	Total undiscounted cash flows RMB’000 38,924 41,855 19,165 4,998 66,018 45,909 26,711 24,152 29,368 126,140	Carrying amount RMB’000 38,924
						41,855 18,800 4,839
						65,494
						45,909 25,820 21,784 25,975
						119,488

c. Fair value measurements of financial instruments

Fair value measurements and valuation processes

In estimating the fair value of an asset or a liability, the Target Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Target Group engages third party qualified valuers to perform the valuation. The management of the Target Company works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. The management of the Target Company reports the findings to the board of directors of the Target Company periodically to explain the cause of fluctuations in the fair value of the assets and liabilities.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Fair value of the Target Group’s financial assets that are measured at fair value on a recurring basis

					Valuation	Significant	Relationship
				Fair value	technique(s) and	unobservable	of unobservable
Financial assets	Fair value as at 31		March	hierarchy	key input(s)	input(s)	inputs to fair value
	2018	2019	2020
	RMB’000	RMB’000	RMB’000
Unquoted equity	N/A	N/A	4,563	Level 3	Market approach —	Market multiples	The higher the market
investment at					in this approach, the		multiples, the higher
FVTOCI —					appraisal value is		fair value
12.14% equity					based on the market
investment in a					capitalisation of the	Discount of lack of	The higher the
private company					entities in similar	marketability	discount, the lower
in the PRC					industries with		fair value
					consideration of
					marketability of
					discount

There is no transfer between Level 1, 2 and 3 financial assets during the Relevant Periods.

Reconciliation of Level 3 fair value measurements of financial assets

At 1 April 2017, 31 March 2018 and 2019 Purchases Total gains in other comprehensive income At 31 March 2020	Unlisted equity securities RMB’000 4,249 314
	4,563

All gains and losses included in other comprehensive income relate to equity instruments at FVTOCI held at the end of the reporting period and are reported as changes of ‘‘other reserve’’.

The directors of the Target Company consider that the carrying amounts of other financial assets and financial liabilities recorded at amortised cost in the Historical Financial Information of the Target Group approximate their fair values at the end of each reporting period.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

34. PARTICULARS OF SUBSIDIARIES OF THE TARGET COMPANY

Details of the Target Group’s subsidiaries at the end of each reporting period are set out below.

		Particulars of
	Place of	issued share		Attributable of interest
	establishment/	capital/registered	held by the Target		Group
Name of subsidiary	operations	capital		31 March		Principal activities
			2018	2019	2020
		RMB’000	%	%	%
Dalian Kingwisoft	Dalian	31,300	100	100	100	Data Centre Services and
						bank-office services
Shenzhen Kingwisoft	Shenzhen	33,500	100	100	100	Data centre services and
						back-office services
Beijing Nanyou	Beijing	10,000	100	100	100	Back-office services
Dalian Zhixing Internet Technology Co., Ltd*	Dalian	5,000	60	60	—	Comprehensive marketing
(‘‘Dalian Zhixing’’) (note)						services
DaLian Kingwisoft Internet Service	Dalian	2,000	100	100	100	Back-office services
Outsourcing Co., Ltd.* (formerly known as
Dalian Zhiyun Consulting Services Co.,
Ltd.)
Chengdu Rongzhi Hudong Technology Co.,	Chengdu	10,000	100	100	100	Back-office services
Ltd.*
Wuhan Kingwisoft Technology Co., Ltd.*	Wuhan	10,000	100	100	100	Back-office services
Leshan Kingwisoft Technology Co., Ltd.*	Leshan	10,000	100	100	100	Back-office services
(‘‘Leshan Kingwisoft’’)
Kunshan Kingwisoft Information Technology	Kunshan	10,000	—	—	100	Back-office services
Co., Ltd.* (‘‘Kunshan Kingwisoft’’)
Chengdu Kingwisoft Data Services Co., Ltd.*	Chengdu	10,000	100	100	100	Back-office services
Sichuan Baihe Guoli Information Network Co.,	Chengdu	1,000	100	100	100	Dormant
Ltd.*
Luzhou Kingwisoft Data Services Co., Ltd.*	Luzhou	5,000	—	100	100	Back-office services
(‘‘Luzhou Kingwisoft’’)
Xiangyang Kingwisoft Internet Technology	Luzhou	10,000	—	100	100	Back-office services
Co., Ltd.* (‘‘Xiangyang Kingwisoft’’)
Dalian Zhiyin Internet Technology Co., Ltd.*	Dalian	28,000	—	—	60	Back-office services
(‘‘Dalian Zhiyin’’)
Qingdao Kingwisoft Boshang Media Co., Ltd.	Qingdao	20,000	—	—	60	Back-office services

• English name for identification only

Note: Dalian Zhixing was deregistered in December 2019.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of non-wholly-owned subsidiaries of the Target Group that have material noncontrolling interests:

Name of subsidiary Place of incorporation and principal place of business Proportion of ownership interests and voting rights held by non-controlling interests 31/3/2018 31/3/2019 31/3/2020 Dalian Zhiyin Dalian – – 40% Individually immaterial subsidiaries with non-controlling interests	(Loss) profit allocated to non-controlling interests 31/3/2018 31/3/2019 31/3/2020 RMB’000 RMB’000 RMB’000 – – (96) (175) (29) 38 (175) (29) (58)	Accumulated non-controlling interests 31/3/2018 31/3/2019 31/3/2020 RMB’000 RMB’000 RMB’000 – – 11,904 37 8 – 37 8 11,904	Accumulated non-controlling interests 31/3/2018 31/3/2019 31/3/2020 RMB’000 RMB’000 RMB’000 – – 11,904 37 8 – 37 8 11,904
			11,904

Summerised financial information in respect of the Target Group’s subsidiary that has material noncontrolling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations.

Dalian Zhiyin Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to owners of the Target Company Non-controlling interests of Dalian Zhiyin Revenue Expenses Loss and total comprehensive expense for the year Loss and total comprehensive expense attributable to owners of the Target Company Loss and total comprehensive expense attributable to the non-controlling interests of Dalian Zhiyin Loss and total comprehensive expense for the year	31/3/2020 RMB’000 26,258
	3,821
	(319
	—
	(17,856
	(11,904
	Year ended 31/3/2020 RMB’000 1,842
	(2,082
	(240
	(144 (96
	(240

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

Net cash outflow from operating activities Net cash outflow from investing activities Net cash inflow from financing activities Net cash inflow	Year ended 31/3/2020 RMB’000 (1,736) (4,686) 28,000 21,578

No statutory financial statements were issued for the Target Company as it is incorporated in a jurisdiction where there is no statutory audit requirement.

The statutory financial statements of Dalian Kingwisoft and its subsidiaries for the years ended 31 December 2017 and 2018 were prepared in accordance with the Accounting Standards for Business Enterprises and financial regulations applicable in the PRC and were audited by ZhongHui Certified Public Accountants LLP, a certified public accountant registered in the PRC.

No statutory financial statements of Dalian Kingwisoft and its subsidiaries for the year ended 31 December 2019 have been prepared as the financial statements were not yet due to issue.

None of the subsidiaries had issued any debt securities at the end of each reporting period.

35. CONTINGENT LIABILITY

According to the ‘‘Telecommunication Regulations of the PRC’’, the Target Group is required to obtain the internet content provider license (the ‘‘ICP License’’) to carry out the contact service centres business as it is considered as value-added telecommunications services. During the Relevant Periods, Luzhou Kingwisoft, Xiangyang Kingwisoft, Kunshan Kingwisoft and Leshan Kingswisoft (each a ‘‘Relevant Subsidiary’’ and together, ‘‘Relevant Subsidiaries’’) provided such contact service centres business without the ICP License. Based on the legal opinion, the directors of the Target Company considered that it is not probable to have a material adverse effect on financial condition or results of operations of the Target Group arising from such matter, on the basis that (i) the aggregate revenue from the relevant value-added telecommunications services of the Relevant Subsidiaries during the Relevant Periods represents an insignificant portion of the total revenue of the Target Group, (ii) each of the Relevant Subsidiaries has ceased operation of relevant value-added telecommunications services and (iii) each of the Relevant Subsidiaries has filed application with relevant government authority for the ICP License.

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ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX I

36. EVENT AFTER THE REPORTING PERIOD

Subsequent to 31 March 2020, the reorganisation as described in the section headed ‘‘History, Development and Reorganisation of the Target Group — Corporate Reorganisation’’ in the Circular is completed on 12 June 2020. The Target Company has acquired Dalian Kingwisoft and Dalian Kingwisoft become wholly-owned subsidiaries of the Target Company.

The outbreak of COVID-19 in the PRC has affected many businesses to different extent since early 2020. The government in the PRC had implemented different types and levels of precautionary measures in different cities in an attempt to curb the spread of the pandemic. Hence, the Target Group’s ability to serve customers will largely depend on (i) the development of the spread of the pandemic, (ii) the effectiveness of the government measures that have been implemented, (iii) continuous availability of workforce which may be affected by the temporary travel restrictions and home quarantine requirements, and (iv) consumer’s confidence and demand which may be influenced by the market sentiments and economic performances in different cities.

Based on available information up to this date, the management of the Target Group considers that COVID19 has limited impact on the Target Group’s operations. Given the dynamic nature of these circumstances, management may further reassess accounting estimate such as potential impairment on the long-lived assets and the expected credit loss of the accounts receivables. The related impact on the Target Group’s combined results of operations, cash flows and financial condition could not be reasonably estimated at this stage and will be reflected in the Target Group’s combined financial statements for the year ending 31 March 2021.

37. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Target Group, the Target Company or any of their subsidiaries have been prepared in respect of any period subsequent to 31 March 2020.

– I-64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

1. FINANCIAL INFORMATION ON THE GROUP

The audited consolidated financial information of the Group for each of the three financial years ended 31 March 2018, 2019 and 2020 and the unaudited consolidated financial information of the Group for the three months ended 30 June 2020 were disclosed in the following documents which have been published on the websites of the Hong Kong Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.zzcapitalinternational.com):

• (i) annual report of the Company for the year ended 31 March 2018 published on 28 June 2018 (pages 55 to 143). Please also see below the link to the 2018 annual report of the Company:

https://www1.hkexnews.hk/listedco/listconews/gem/2018/0628/gln20180628095.pdf

• (ii) annual report of the Company for the year ended 31 March 2019 published on 27 June 2019 (pages 55 to 155). Please also see below the link to the 2019 annual report of the Company:

https://www1.hkexnews.hk/listedco/listconews/gem/2019/0627/gln20190627033.pdf

• (iii) annual report of the Company for the year ended 31 March 2020 published on 26 June 2020 (pages 56 to 147). Please also see below the link to the 2020 annual report of the Company:

https://www1.hkexnews.hk/listedco/listconews/gem/2020/0626/2020062600685.pdf

• (iv) first quarterly report of the Company for the three months ended 30 June 2020 published on 13 August 2020 (pages 3 to 10). Please also see below the link to the 2020 first quarterly report of the Company:

https://www1.hkexnews.hk/listedco/listconews/gem/2020/0813/2020081300436.pdf

– II-1 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

2. INDEBTEDNESS STATEMENT OF THE ENLARGED GROUP

At the close of business on 31 July 2020, being the latest practicable date for the purpose of this indebtedness statement, the Enlarged Group had the following outstanding borrowings:

Carrying amount of bank and other borrowing — Secured and unguaranteed — Unsecured and guaranteed — Secured and guaranteed Lease liabilities — Unsecured and unguaranteed — Secured by rental deposits and unguaranteed	The Group HKD’000 — — — — — 5,638 5,638	The Target Group RMB’000 30,000 556 20,000
		50,556
		322 22,486
		22,808

The above bank and other borrowings are secured by certain properties and equity interest of Target Group held by the shareholders of Target Company, certain accounts receivables of Target Group and guaranteed by certain directors of Target Group.

Save as aforesaid or otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables in the ordinary course of business, as at the close of business on 31 July 2020, the Group and the Target Group did not have any debt securities authorised or created but unissued, or any term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts, loans, liabilities under acceptances (other than normal trade bills), acceptance credits, hire purchase commitments, mortgages or charges, material contingent liabilities or guarantees outstanding.

The Directors are not aware of any material changes in the indebtedness, contingent liabilities and commitments of the Enlarged Group since 31 July 2020, the date on which the statement of indebtedness is made up to the Latest Practicable Date.

– II-2 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

3. WORKING CAPITAL SUFFICIENCY OF THE ENLARGED GROUP

After due and careful consideration, the Directors are of the opinion that, taking into account the financial resources available to the Enlarged Group including the existing cash and bank balances, cash flows generated from the operating activities, available facilities and the effect of the Acquisition, the Enlarged Group will have sufficient working capital for its requirements for at least 12 months from the date of this circular.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Due to the combined effect of the continuous global trade tensions, slowdown in the global economy, increasing risks in some new emerging economies, tightening financial environment in developed economies and the outbreak of novel coronavirus (COVID-19), there is uncertainty in the global and PRC economic growth. Under this background, the Group is committed to its diversified development strategies by way of, among others, potential strategic investment in or acquisition of suitable businesses or targets with sizeable operations. On the one hand, the Group will continue to focus on the development of its corporate advisory, corporate financing, investment advisory and asset management businesses in the PRC and Hong Kong markets while adopting diversified development strategies and developing and promoting the business of the Target Group.

Investment advisory and management business and corporate advisory business

The Group continues to develop and provide investment advisory and management services and corporate advisory services, which are at all time the Group’s core businesses. Investment advisory and management services are provided by ZZCI Corporate Finance which include, but not limited to services provided under its type 4 (advising on securities) and type 9 (asset management) licenses which consist of market research services, portfolio management and fund management.

The Group’s investment advisory and management services include investment analysis and recommendation on Hong Kong and PRC listed equities. It also includes acting as investment manager to provide investment advice and management services on both a discretionary basis and non-discretionary basis. The Group is continuing to procure customers for providing investment recommendations and analysis and asset management services. The Group is also actively seeking to expand its customer base and is in negotiation with a number of potential customers and further develop this business. The Group expects the business operation will continue to expand through client referral and the network of the service team.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

The Group’s corporate advisory services mainly include (i) corporate resumption; (ii) advising on corporate finance activities of listed and unlisted companies including mergers and acquisitions, debt and equity fund raising and acting as independent financial adviser to listed companies; (iii) litigation support and distressed asset recover; and (iv) dealing in securities within the scope of corporate finance related activities, such as acting as underwriter or placing agent in fund raising activities of clients. With the established networks of the Group and the responsible officers, the Group expects its corporate advisory business will resume gradually. The Group is aiming to procure customers for corporate advisory services relating to fund raising, mergers and acquisitions, pre-IPO matters and independent financial adviser services and also target to provide dealing in securities services within the scope of corporate finance related activities, such as acting as underwriter or placing agent for fund raising activities, which the Group’s responsible officers have a strong expertise in.

The Group will continue to seek high-quality clients and provide professional services in corporate advisory, corporate financing, investment advisory, asset management and other fields.

Money lending and proprietary investment businesses

In light of the uncertainty in the economic outlook and the unexpected default of Geoswift Holding Limited on a loan, the Group continues to adopt a more prudent approach in carrying out its money lending business and proprietary investment business. On 31 March 2020, ZZCI Corporate Services Limited, an indirect wholly-owned subsidiary of the Company, entered into an assignment and assumption deed with Dragon Ocean Development Ltd., an independent third party, pursuant to which ZZCI Corporate Services Limited assigned all of its right, title, benefits and interests in respect of the loan to Geoswift Holding Limited and the charge over the shares of Geopay Holding Limited to Dragon Ocean Development Ltd. (and Dragon Ocean Development Ltd. also assumed all relevant obligations thereunder) at a settlement amount of US$28 million. For more details, please refer to the announcement published by the Company on 31 March 2020.

– II-4 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Set out below is the management discussion and analysis of performance and other information of the Group for each of the three years ended 31 March 2018, 31 March 2019 and 31 March 2020 and the three months ended 30 June 2020. Unless the context otherwise requires, capitalised terms used therein shall have the same meanings as those ascribed in the Company’s annual reports for the years ended 31 March 2018, 31 March 2019 and 31 March 2020 and the first quarterly report for the three months ended 30 June 2020 respectively.

(i) For the three months ended 30 June 2020

Business review

The outbreak of the novel coronavirus epidemic has caused huge impact on economic activities. The Group’s business is mainly conducted in Mainland China and Hong Kong. Some of the Group’s potential customers have delayed or suspended their financing plans due to the epidemic, resulting in the Group’s loss of some business opportunities. However, the Group has tried its best to provide corresponding services to its customers through remote conference and the provision of off-site services. This quarter, three new institutional customers were gained with financial advisory contracts worth a total of HK$1.45 million signed. The Group will continue to look for more institutional customers and provide diversified financial services to them, including investment consulting, asset management, corporate consulting, corporate financing and proprietary investment.

As disclosed in an announcement published by the Company on 19 August 2019, it entered into a memorandum of understanding with potential sellers with regard to a potential acquisition of the Target Group. The Target Group mainly provides internet-based back-office services, internet integrated marketing services and smart data solutions. The Group continued to push forward the potential acquisition and is actively negotiating with the potential sellers in this quarter. Further announcement(s) will be made to provide more details as and when appropriate. The Board considers that the potential acquisition provides a good opportunity for the Group to diversify its business and revenue sources, thereby increasing the shareholders’ value.

Financial review

For the three months ended 30 June 2020, corporate advisory income and interest income from lending business of approximately HK$0.15 million (2019: HK$2.64 million) and HK$0.41 million (2019: HK$0.37 million) were recognized respectively.

There was a net investment income for fair value change on financial assets at FVTPL of approximately HK$0.83 million for the three months ended 30 June 2020 (2019: net investment loss of HK$1.27 million).

– II-5 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Interest income on structured deposit was approximately HK$1.86 million (2019: HK$2.35 million). Interest income from bank deposits was approximately HK$1.11 million (2019: HK$1.17 million).

Net exchange loss of approximately HK$0.16 million was recognised for the three months ended 30 June 2020 (2019: HK$7.29 million).

Operating expenses for the three months ended 30 June 2020 increased to approximately HK$16.04 million (2019: HK$9.24 million). The major expenses components were staff costs of HK$7.11 million (2019: HK$5.01 million), rental related expenses of HK$1.12 million (2019: HK$1.11 million) and professional fees of HK$6.12 million (2019: HK$1.62 million). The increase was mainly attributable to increases in professional fees incurred for the acquisition project and staff costs.

Loss for three months ended 30 June 2020 was approximately HK$11.68 million (2019: HK$11.27 million). Basic loss per share for the three months ended 30 June 2020 was HK0.33 cent (2019: HK0.32 cent).

Outlook

The International Monetary Fund predicts that China will be the only major economy that registers positive growth this year. China has the opportunity to become a locomotive that powers a global economic recovery. In Mainland China, the epidemic waned and economic activities returned to normal. China’s GDP shrank 6.8% in the first quarter of 2020 due to the epidemic, but grew 3.2% yearon-year and 11.5% quarter-on-quarter in the second quarter, showing a sign of obvious recovery.

Over the past year or so, Hong Kong’s economy has plunged into a deep recession as a result of the Sino-US trade war, anti-extradition issue and the epidemic. The economy, however, appears to have finally bottomed out according to the recent data. Hong Kong’s PMI rose to 49.6 in June, the highest reading since April 2018.

Against this background, the Group has committed to diversify development strategies. On the one hand, the Group will continue to develop businesses such as corporate advisory and corporate finance services, which are expected to bring stable income to the Group. On the other hand, the Target Group that the Company intends to acquire will help promote the Group’s business development and provide potential opportunities for the Group to diversify its businesses and revenue sources. The Group will continue to push forward the possible acquisition, keep on negotiating with the potential sellers in a proactive manner and publish updated announcement(s) when appropriate. If the potential acquisition can be finalised, it is expected it will bring more stable income streams and development opportunities for the Group, thereby increasing shareholders’ value.

– II-6 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

(ii) For the year ended 31 March 2020

Business Review

During the year ended 31 March 2020, the Company focused on adjusting its overseas strategy and narrowing the scope of its business, with positive progress made in this respect, including the completion of the deregistration of its overseas subsidiaries in the UK and Israel.

On 19 August 2019, the Company entered into a memorandum of understanding (‘‘MOU’’) with the potential sellers with regard to a potential acquisition of a public company established in China (the ‘‘Target Company’’). The Target Company mainly provides internet-based back-office services, internet integrated marketing services and smart data solutions. The Group has continued to push forward the potential acquisition and is actively negotiating with the potential sellers. Further announcement(s) will be made to provide more details as and when appropriate. The Board considers that the potential acquisition provides a good opportunity for the Group to diversify its business and revenue sources, thereby increasing the shareholders’ value.

To achieve the Group’s new development strategy, the management of the Company underwent certain changes. On 29 August 2019, Ms. Duan Di resigned as the Company’s executive director, chairman of the board, chairman of the nomination committee and member of the remuneration committee, and Ms. Zhang Yun resigned as the Company’s executive director, chief executive officer, compliance officer and authorized representative. Mr. Niu Zhanbin, a veteran with internet background, was appointed as the Company’s executive director, chairman of the board, chief executive officer, chairman of the nomination committee and member of the remuneration committee. Mr. Wu Hui, the Company’s chief operating officer, was appointed as the Company’s executive director, compliance officer and authorized representative. On 26 March 2020, Mr. Jiang Yulin was appointed as the Company’s executive director and took over the position of chief executive officer.

The Group has achieved certain results in investment advisory business in the year ended 31 March 2020. A total of 3 new institutional customers were gained in the year ended 31 March 2020 and the income from investment advisory business increased from HK$1.63 million to HK$15.02 million.

During the year ended 31 March 2020, the Group focused on developing the financial advisory business and engaging prominent professionals in the market, with the aim to provide corporate financing and consulting services to more institutional customers. In the year ended 31 March 2020, a total of 2 new institutional customers were gained with the income from financial advisory service amounted to HK$0.37 million.

– II-7 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

The sudden outbreak of the novel coronavirus epidemic has caused huge impact on economic activities. The Group’s business is mainly conducted in the Mainland China and Hong Kong. Some of the Group’s potential customers have delayed or suspended their financing plans due to the epidemic, resulting in the Group’s loss of some business opportunities. However, the Group has tried its best to provide corresponding services to its customers through remote conference and the provision of off-site services.

The Group will continue to look for more institutional customers and provide diversified financial services to them, including investment consulting, asset management, corporate consulting, corporate financing and proprietary investment.

With regard to the announcement issued by the Company on 8 March 2019, Geoswift Holding Limited (the ‘‘Borrower’’) has defaulted in repayment of the principal amount with interest in the sum of approximately US$34.10 million on 7 March 2019. The Group received US$300,000 and US$750,000 on 19 June 2019 and 6 November 2019 respectively from the Borrower as partial repayment of the loan. As at 31 March 2020, according to the loan agreement, the aggregated amount (including outstanding principal, interest and default interest) owed by the Borrower to the Group was approximately US$36.64 million. On 31 March 2020, the Company’s indirect wholly-owned subsidiary (the ‘‘Assignor’’) and an independent third party (the ‘‘Assignee’’) entered into an assignment and assumption deed pursuant to which the Assignor assigned, and the Assignee accepted the assignment by the Assignor of, all relevant right, title, benefits and interests in the relevant loan and security documents, and the Assignee assumed all the obligations thereunder at a settlement amount of US$28 million. Completion of the assignment took place on 31 March 2020.

In order to enhance corporate governance and internal control, the Group has engaged BT Corporate Governance Limited again as its internal auditor to evaluate, assess and improve its internal control process and to ensure appropriate policies and procedures are in place. The Group has further improved various control measures on internal operation and management based on the findings and recommendations from the internal audit.

Under the Greater Bay Area plan, the business of the Group will leverage on Hong Kong’s geographical advantages and global presence. It is the intention of the Company’s management to optimize its resources and to develop business strategies oriented from the perspective of China, and to diversify products and services for achieving a sustainable growth.

– II-8 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Financial Review

Results of the Group

For the year ended 31 March 2020, corporate advisory fee income increased to approximately HK$15.39 million (2019: HK$1.63 million). Interest income from lending business of approximately HK$1.58 million was recognised for the year ended 31 March 2020 (2019: HK$2.31 million). Accordingly, the Group’s revenue increased to approximately HK$16.97 million (2019: HK$3.94 million).

Net investment income for the year ended 31 March 2020 was approximately HK$54.28 million (2019: net investment loss HK$84.99 million), mainly because of the fair value gain on convertible loan receivable at fair value through profit and loss (‘‘FVTPL’’) of HK$57.37 million recognised during the year ended 31 March 2020.

Interest income on structured deposit was approximately HK$8.83 million (2019: Nil). Interest income from bank deposits decreased to approximately HK$5.32 million (2019: HK$9.01 million).

Net exchange loss of HK$16.12 million was recognised for the year ended 31 March 2020 (2019: HK$8.90 million), mostly driven by the foreign exchange revaluation of the Group’s Renminbi (‘‘RMB’’) bank balances.

Operating expenses during the year ended 31 March 2020 was approximately HK$64.39 million (2019: HK$186.90 million). The decrease in operating expenses was mainly attributable to reduction in staff costs to HK$20.80 million (2019: HK$79.25 million), rental related expenses to HK$4.10 million (2019: HK$37.60 million) and professional fee to HK$31.63 million (2019: HK$50.26 million).

Profit for the year ended 31 March 2020 was approximately HK$1.59 million, compared to the loss of approximately HK$284.71 million for the financial year 31 March 2019.

Basic earnings per share for the year ended 31 March 2020 was approximately HK0.04 cent (2019: losses per share of HK8.02 cents), while diluted earnings per share for the year ended 31 March 2020 was the same as basic earnings per share of approximately HK0.04 cent (2019: losses per share of HK8.02 cent).

As at 31 March 2020, the Group’s non-current assets was approximately HK$26.56 million (2019: HK$19.19 million). The increase was mainly due to recognition of right-of-use assets as a result of adoption of HKFRS 16 in the year ended 31 March 2020.

– II-9 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

As mentioned in Business Review section above, the Group has assigned the convertible loan receivable at FVTPL at a settlement amount of US$28 million (equivalent to approximately HK$217.12 million), resulting in an increase of other assets and receivables for the same amount as at 31 March 2020. The Group has received the settlement amount in full subsequent to 31 March 2020. The carrying value of the said convertible loan receivable at FVTPL as at 31 March 2019 was approximately HK$167.99 million.

Total liabilities as at 31 March 2020 was approximately HK$21.96 million (2019: HK$9.70 million). The increase was mainly due to adoption of HKFRS 16 resulting in recognition of lease liabilities in aggregated amount of HK$6.94 million and increase in professional fee payable for the acquisition project.

Net assets value of the Group as at 31 March 2020 increased to approximately HK$709.89 million (2019: HK$705.18 million). The net assets value per share as at 31 March 2020 was approximately HK19.99 cents (2019: HK19.86 cents).

Liquidity and financial resources

The Group continued to adopt a prudent financial management strategy and maintained a healthy liquidity position. As at 31 March 2020, the Group had net current assets of approximately HK$686.34 million (2019: HK$685.99 million), and the current ratio was approximately 37.22 (2019: 71.71).

The Group’s operations and investments were financed principally by revenues generated from business operations and available bank balances. Funds are largely placed with financial institutions with maturities timed to cover any known capital investments or commitments. The Group had no borrowing and the gearing ratio of the Group, calculated as total borrowings over total equity, was nil as at 31 March 2020 (2019: Nil).

For foreign currency risk, the Group will continue to monitor its foreign currency exposure and will consider using hedging instruments if available in respect of significant foreign currency exposure should the need arise.

Capital structure

There has been no material change in the capital structure of the Company during the year ended 31 March 2020. The capital source of the Company comprises only ordinary shares.

Total equity attributable to owners of the Company amounted to approximately HK$709.89 million as at 31 March 2020 (2019: HK$705.18 million). This increase was mainly attributable to the increase in the retained profits and translation reserve for the year ended 31 March 2020.

– II-10 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Commitments

As at 31 March 2020, the Group has no operating lease commitment after adoption of HKFRS 16 (2019: HK$11.13 million). As at 31 March 2020, the establishment of a wholly-owned foreign equity investment management enterprise in Qianhai, Shenzhen for which there will be a capital contribution of US$1.60 million (31 March 2019: US$1.60 million). Save for the above, the Group and the Company did not have any significant commitment as at 31 March 2020 and 2019.

Charge on the Group’s assets

As at 31 March 2020, the Group did not have any charge on its assets (2019: Nil).

Employees and remuneration policies

As of 31 March 2020, the Group had 23 employees including Directors (31 March 2019: 23 employees). Total staff cost (including Directors’ emoluments) for the year ended 31 March 2020 amounted to approximately HK$20.80 million. Employees’ remuneration packages are decided based on their job responsibilities, local market benchmarks and industry trends. Employee bonus is distributable according to the performance of the respective subsidiaries and employees concerned.

The Remuneration Committee will review and determine the remuneration and compensation packages of the Directors and senior management of the Company with reference to salaries paid by comparable companies, time commitment and responsibilities of the Directors and performance of the Group.

The Company adopted a share option scheme on 7 June 2010 (the ‘‘Share Option Scheme’’), details of which are set out in note 26 to the consolidated financial statements. No option has however been granted, exercised or lapsed under this Share Option Scheme.

Contingent liabilities

As at 31 March 2020, the Group had no material contingent liabilities (2019: Nil).

– II-11 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Future plans for material investments or capital assets

As mentioned in the Business Review of this report, on 19 August 2019, the Company, as a potential purchaser, entered into the MOU with the potential sellers in respect of the possible acquisition of the Target Company. Pursuant to the MOU, the Company intends to acquire and obtain from the potential sellers, and the potential sellers intend to sell and transfer to the Company, in each case through the contractual arrangements, the control over the operations of the Target Company and the right to enjoy the economic benefits generated by the Target Company. Details of the MOU and this possible acquisition were disclosed in the announcement of the Company dated 19 August 2019.

Save as aforementioned, the Group has no plans for material investments or acquisitions of capital assets but will pursue investment and lending opportunities to enhance its profitability in the ordinary course of its business.

Material acquisitions and disposals of subsidiaries and affiliated companies

During the year ended 31 March 2020, two indirect wholly-owned subsidiaries of the Company, namely ZZ Capital International (Israel) Limited and ZZ Capital International (UK) Limited were deregistered with loss on such deregistration of approximately HK$3.11 million recognized in the year ended 31 March 2020. Save as aforementioned, the Group had no material acquisitions or disposal of subsidiaries and affiliated companies during the year ended 31 March 2020.

Outlook

According to the ‘‘World Economic Situation and Outlook 2020’’ released by the United Nations, as a result of the Sino-US trade dispute and the significant decrease in investment, the global economic growth rate dropped to 2.3% in 2019, which is the lowest level in 10 years.

Nevertheless, the economic growth rate of Mainland China in 2019 is 6.1% and the annual GDP is RMB99 trillion, in line with the expected target of 6%-6.5%. On a quarterly basis, the first quarter, the second quarter, the third quarter and the fourth quarter increased by 6.4%, 6.2%, 6.0% and 6.0% year-on-year, respectively. Affected by the novel coronavirus epidemic, the tension of global trade continues, the Sino-U.S. confrontation escalates and the instability in some regions intensifies. The International Monetary Fund has recently predicted the economic growth rate in 2020 to be -3%.

– II-12 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

The impact caused by the global novel coronavirus epidemic has brought severe impact on the global economy. On 28 May 2020, the third session of the 13th National People’s Congress was concluded and the PRC government did not set any quantitative indicators for GDP growth. Nevertheless, the PRC government has promptly controlled the spread of the novel coronavirus epidemic and various domestic economic activities had gradually resumed. It is believed that the economic performance of the PRC in 2020 would still outperform the global average economic growth. At the same time, the 2020 Government Work Report of the PRC advocated the idea of accelerating the implementation of regional development strategies and further push forward the construction of the GuangdongHong Kong-Macao Greater Bay Area. At the same time, it also proposed to continue to launch supporting policies and to fully promote ‘‘Internet Plus’’, creating new advantages of digital economy.

The novel coronavirus epidemic has caused significant impact on the global economy and the Group’s business has also been affected to a certain extent. Due to the epidemic, the contracts with respect to part of the Group’s investment consulting business were not renewed by our customers, which would bring certain loss to the Group. Nevertheless, the novel coronavirus epidemic has also brought new development opportunities to the internet economy. The Target Company that the Company proposes to acquire is a company that provides internet back-office services, internet integrated marketing solutions and smart data solutions. The impact of the novel coronavirus epidemic on it is less significant and may even bring new development opportunity to it.

Given the above situation, the Group will re-emphasize the combination of Hong Kong’s strategic geographic location and its integration with Mainland China in order to achieve a diversified development by crossing different geographical locations and asset classes. On the one hand, it will continue to provide financial services to customers, on the other hand, it will be through the acquisition of quality assets as soon as possible to improve the Group’s operating conditions and enhance the Group’s operating efficiency so as to achieve greater value for the shareholders.

(iii) For the year ended 31 March 2019

Business Review

The year ended 31 March 2019 marked the third year of operation for the Company after Zhongzhi Capital took majority control of the Company in 2016. The Group has made great efforts to adjust its overseas strategy and refocus its business scope, and has made a positive progress during the year ended 31 March 2019 rather than focusing on its global strategy to expand its international investment during the past two years.

– II-13 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Influenced by the foreign exchange policy and macro investment environment of the government of the PRC (the ‘‘PRC Government’’), the Group actively carried out strategic adjustments, focusing on project divestiture, team restructuring and cost reduction. The Company issued an announcement on 23 May 2018 (unless otherwise defined, capitalised terms used herein shall have the same meaning as those defined in the announcement of the Company dated 23 May 2018), (A) (i) the parties to the Alerian Unit Purchase Agreement (the ‘‘Alerian Unit Purchase Agreement’’) in relation to the acquisition of the entire issued and outstanding unit interest in GKD Index Partners, LLC (conducting its business under the name ‘‘Alerian’’) agreed to terminate the Alerian Unit Purchase Agreement and (ii) the Company entered into the Ancillary Transactions (including the Loan Commitment Agreement and the Omnibus Agreement) with Aretex Capital; and (B) Aretex Alerian Purchaser entered into an agreement with the sellers (under the Alerian Unit Purchase Agreement) to acquire the equity interests of Alerian which, among other things, facilitates the release to the buyer (under the Alerian Unit Purchase Agreement) of the Termination Fee that was deposited by the buyer (under the Alerian Unit Purchase Agreement) in the Termination Fee Escrow Account pursuant to the Alerian Unit Purchase Agreement. Upon the termination of Alerian Unit Purchase Agreement, the deposit of US$25.00 million (net of legal and professional fees paid) has been released and returned to the Group.

On 10 August 2018, the Company announced that it entered into a termination agreement with African Emerald and Zhongzhi Capital (HK) for the termination of the Term Sheet entered into between the Company and Africa Emerald and Zhongzhi Capital (HK) on 12 July 2017 with immediate effect and the Parties shall be released and discharged from all claims and demand thereunder (unless otherwise defined, capitalised terms used above shall have the same meanings as those defined in the announcement of the Company dated 12 July 2017).

Meanwhile, there occurred some changes in the management of the Company accordingly. In November 2018, Mr. CHEN Jianfeng Peter resigned from the Company’s executive director and Chief Financial Officer; and Mr. WU Hui was appointed as the Chief Operating Officer of the Group simultaneously, who is dedicated to the cost control and internal operation management of the Group. Mr. FU Chi King Johnson was appointed as the Company’s non-executive Director in March 2019. This further improved the governance structure of the Company.

On 15 December 2018, the Company announced that it was involved in an external debt business concerning lending the amount of HK$95.00 million to China Tianrui Group Cement Company Limited. The principal amount of the loan with interest in the sum of HK$96.90 million was successfully repaid on 15 March 2019.

– II-14 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

We had four new institutional clients during the year ended 31 March 2019. The Group provided such clients corporate advisory services leveraging on its professional capabilities and received a revenue on corporate advisory services of HK$1.63 million. The Group will continue to seek high-quality customers and provide professional services in investment advisory, asset management, corporate advisory, corporate financing and other fields.

On 8 March 2019, the Company issued an announcement in relation to a loan agreement entered into for the grant of a loan facility of up to US$31.00 million to the Borrower by the indirect wholly-owned subsidiary of the Company. The principal amount of the loan with interest in the sum of approximately US$34.10 million (equivalent to approximately HK$267.69 million) has fallen due on 7 March 2019, but the Borrower was unable to repay the said amount on the due date, which constituted a default in repayment of the loan under such loan agreement. On 19 June 2019, the Group received US$300,000 from the Borrower as partial repayment of the loan. The Company will attempt to further negotiate with the Borrower in relation to the repayment arrangement in respect of the remaining balance of the loan and the interest accrued thereon. Further announcement(s) will be made to follow up the details as and when appropriate. The default in repayment of the loan does not have significant impact on the daily operations of the Group.

In order to enhance corporate governance and internal control, the Company has engaged Corporate Governance Professionals Limited (formerly known as Baker Tilly Hong Kong Risk Assurance Limited) again as its internal auditor to evaluate, assess and improve its internal control process and to ensure appropriate policies and procedures are in place. The Company has further improved various control measures on internal operation and management based on the findings and recommendations from the internal audit.

Under the Greater Bay Area plan, the business of the Group will leverage on Hong Kong’s geographical advantages and global presence. It is the intention of the Company’s management to optimise its resources and to develop business strategies oriented from the perspective of China, and to diversify products and services for achieving a sustainable growth.

Financial Review

Results of the Group

For the year ended 31 March 2019, the Group’s revenue dropped to approximately HK$3.94 million (2018: HK$246.45 million) as the investment advisory and management agreement (the ‘‘IAM Agreement’’) with Zhongzhi Capital had expired on 31 March 2018. Interest income from lending business of approximately HK$2.31 million was recognised for the year ended 31 March 2019 (2018: Nil).

– II-15 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

There was a net investment loss on financial assets of approximately HK$84.99 million for the year ended 31 March 2019 (2018: net investment income HK$6.28 million), mainly because of the fair value loss on convertible loan receivable at FVTPL of HK$81.42 million recognised during the year ended 31 March 2019. Interest income from bank deposits increased to approximately HK$9.01 million (2018: HK$1.02 million). Net exchange loss of HK$8.90 million was recognised for the year ended 31 March 2019 (2018: gain of HK$2.32 million), mostly driven by the foreign exchange revaluation of the Group’s Renminbi bank balances.

Operating expenses during the year ended 31 March 2019 was approximately HK$186.90 million (2018: HK$229.24 million). The major expenses components were staff cost of HK$79.25 million (2018: HK$110.64 million), rental expenses of HK$37.60 million (2018: HK$46.63 million) and professional fee of HK$50.26 million (2018: HK$37.37 million). The decrease in operating expenses was mainly attributable to significant reduction in staff cost and rental expenses after the oneoff redundancy and termination programmes in the United States of America (the ‘‘US’’) and United Kingdom (the ‘‘UK’’) offices of the Group.

The resultant pre-tax loss for the year ended 31 March 2019 was approximately HK$283.90 million, compared to a pre-tax profit of approximately HK$26.82 million for the last financial year.

Income tax expense of approximately HK$0.81 million was incurred during the year ended 31 March 2019 (2018: HK$6.02 million).

Accordingly, total comprehensive loss for the year ended 31 March 2019 amounted to approximately HK$285.23 million, compared to total comprehensive income of HK$18.17 million recorded in the last financial year. Basic losses per share for the year ended 31 March 2019 was approximately HK8.02 cents (2018: earnings of HK0.59 cent), while diluted loss per share for the year ended 31 March 2019 was the same as basic losses per share of approximately HK8.02 cents (2018: earnings of HK0.59 cent).

The Group maintained non-current deposits of approximately HK$2.34 million as at 31 March 2019 (2018: HK$207.58 million). The significant decrease was mainly due to the deposit of HK$195 million being released and returned to the Group upon termination of Alerian Unit Purchases Agreement. Plant and equipment dropped to approximately HK$0.85 million (2018: HK$10.03 million), which was mainly due to the disposal of equipment for termination programmes in the US and UK offices. Loan receivables as at 31 March 2019 was approximately HK$16.00 million (2018: Nil), as a result of a loan of US$2.00 million was granted during the year ended 31 March 2019 as detailed in note 15.

– II-16 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

As mentioned in business review in the Company’s annual report for the year ended 31 March 2019, the convertible loan receivable at FVTPL was defaulted on 7 March 2019. The fair value of the convertible loan receivable at FVTPL decreased to approximately HK$167.99 million as at 31 March 2019 (2018: HK$249.41 million). Trade receivables as at 31 March 2019 decreased to approximately HK$0.05 million (2018: HK$233.07 million) because trade receivables of HK$233.07 million as at 31 March 2018 have been received in full during the year ended 31 March 2019.

Other payables and accruals as at 31 March 2019 decreased to approximately HK$5.20 million (2018: HK$14.24 million), consistent with the result of termination programmes in the US and UK offices.

Net assets value of the Group as at 31 March 2019 decreased to approximately HK$705.18 million (2018: HK$990.41 million). The net assets value per share as at 31 March 2019 was approximately HK19.86 cents (2018: HK27.90 cents).

Liquidity and financial resources

The Group continued to adopt a prudent financial management strategy and maintained a healthy liquidity position. As at 31 March 2019, the Group had net current assets of approximately HK$685.99 million (2018: HK$508.70 million), and the current ratio was approximately 71.71 (2018: 26.23).

The Group’s operations and investments were financed principally by revenues generated from business operations and available bank balances. Funds are largely placed with financial institutions with maturities timed to cover any known capital investments or commitments. The Group had no borrowing and the gearing ratio of the Group, calculated as total borrowings over total equity, was nil as at 31 March 2019 (2018: Nil).

For foreign currency risk, the Group will continue to monitor its foreign currency exposure and will consider using hedging instruments if available in respect of significant foreign currency exposure should the need arise.

Capital structure

There has been no material change in the capital structure of the Company during the year ended 31 March 2019. The capital source of the Company comprises only ordinary shares.

Total equity attributable to owners of the Company amounted to approximately HK$705.18 million as at 31 March 2019 (2018: HK$990.41 million). This decrease was mainly attributable to the decrease in the retained profits for the year ended 31 March 2019.

– II-17 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Commitments

As at 31 March 2019, the Group’s operating lease commitment dropped to HK$11.13 million as compared to HK$100.99 million recorded in the last financial year as the lease agreements in US and UK offices have been terminated during the year ended 31 March 2019. As at 31 March 2019, the establishment of a whollyowned foreign equity investment management enterprise (the ‘‘Qianhai Subsidiary’’) in Qianhai, Shenzhen for which there will be a capital contribution of US$1.60 million (31 March 2018: US$1.60 million). Save for the above, the Group and the Company did not have any significant commitment as at 31 March 2019 and 2018.

Charge on the Group’s assets

As at 31 March 2019, the Group did not have any charge on its assets (2018: Nil).

Employees and remuneration policies

As of 31 March 2019, the Group employed 23 employees including Directors (31 March 2018: 31 employees). Total staff cost (including Directors’ emoluments) for the year ended 31 March 2019 amounted to approximately HK$79.25 million. Employees’ remuneration packages are decided based on their job responsibilities, local market benchmarks and industry trends. Employee bonus is distributable according to the performance of the respective subsidiaries and employees concerned.

The Remuneration Committee will review and determine the remuneration and compensation packages of the Directors and senior management of the Company with reference to salaries paid by comparable companies, time commitment and responsibilities of the Directors and performance of the Group.

The Company adopted a share option scheme on 7 June 2010 (the ‘‘Share Option Scheme’’), details of which are set out in note 26 to the consolidated financial statements of the Company’s annual report for the year ended 31 March 2019. No option has however been granted, exercised or lapsed under the Share Option Scheme.

Contingent liabilities

As at 31 March 2019, the Group had no material contingent liabilities (2018: Nil).

– II-18 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Future plans for material investments or capital assets

The Qianhai Subsidiary was set up in August 2016. The registered capital required for setting up the Qianhai Subsidiary is US$2 million which will be financed by the Group’s internal resources. Save as aforementioned, the Group has no plans for material investments or acquisitions of capital assets, but will pursue investment and lending opportunities to enhance its profitability in the ordinary course of its business.

Material acquisitions and disposals of subsidiaries and affiliated companies

The Group had no material acquisitions or disposal of subsidiaries and affiliated companies during the year ended 31 March 2019.

Outlook

Due to the influence from the factors such as the continued global trade tensions, an unexpected slowdown in the economy of the Eurozone, the rising risks in some emerging economies, and the growing tensions on financial environment in developed economies, the International Monetary Fund has recently reduced the economic growth rate for 2019 from 3.5% to 3.3%. On the contrary, the economic growth rate in China was 6.6% in 2018, and its GDP exceeded RMB90 trillion for the first time, which was in line with the expected development target of 6.5% set by the PRC Government at the beginning of last year. The International Monetary Fund predicts that the economic growth rate in China will be 6.3% in 2019. Although the intensifying trade conflict between China and the US would bring uncertainties to global and Chinese economic growth, the economic growth and expectations in China are still far higher than the average global economic growth.

Given the above situation, the Company will re-emphasise its strategic Hong Kong location and connectivity with China in order to achieve a diversification by across geographies, sectors, and asset classes. In order to improve its state of operation, the Company is endeavour to achieve a more integrated Greater China strategy at a more balanced and steady pace. With growing investment opportunities in the Greater Bay Area, the Group will leverage on its local knowledge and expertise to drive its business growth, and will achieve a synergistic business by cooperating with domestic and overseas partners.

– II-19 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

(iv) For the year ended 31 March 2018

Business Review

The year ended 31 March 2018 marked the second year of operation for the Company after Zhongzhi Capital took majority control of the Company on 24 February 2016, with the vision and strategy to expand the Company’s business globally and to include international investments in addition to corporate and investment advisory. As part of its global rebranding efforts, the Company launched its new official website www.zzcapitalinternational.com in June 2017 and successfully convened the Company’s annual general meeting on 10 August 2017 with all motions approved.

Founded in 2011, Zhongzhi Capital is a leading institutional investor in China which focuses on investments in and consolidation of industry leaders. Its performance and track record are recognised as one of China’s top performing private equity investors by various third-party agencies such as Forbes China and the ChinaVenture Group. Positioned as the partner to industry leaders, Zhongzhi Capital actively offers complete capital structure solutions, often in partnership with leading Chinese enterprises.

By leveraging Zhongzhi Capital’s strong foundation and track record in China, the Company aims to offer a diversified range of financial services including investment advisory, asset management, and global alternative investments. By leveraging its international footprint of seasoned professionals, the Company has carefully sourced and screened a series of unique investment opportunities of quality companies whose products and services could be benefited from China’s market demand as well as the Company’s global financial expertise. As a result, we have announced four transactions during the year ended 31 March 2018 which substantially elevated the global profile of the Company. The Group’s corporate advisory services acted as the sole sponsor in one initial public offering engagement. As well, performance fee income has been generated by the Company through providing professional advice to Zhongzhi Capital on a portfolio of stocks under an IAM Agreement.

On the other hand, 2017 marked a general decline in Chinese outbound investment activities mainly driven by the China government’s foreign exchange policy as well as restrictions on certain types of investments and investors that do not benefit China’s real economy. In response to the macro market conditions, the Company has turned its focus to reorganisation, cost reduction, capital recycling as well as product diversification. For example, in January 2018, Mr. ZHANG Longgen replaced Mr. Edouard MERETTE as an Independent Non-executive Director of the Company; in February, Ms. ZHANG Yun replaced Mr. CHO Michael Min-kuk as Executive Director and Chief Executive Officer of the Company; also Mr. YEUNG Kai Cheung Patrick, Managing Director of Asian Capital (Corporate Finance) Limited (‘‘ACCF’’), exited since March 2018 under the terms of the supplementary appointment letter entered into on 30 June 2017.

– II-20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

In order to enhance corporate governance and internal control, the Company has engaged Baker Tilly Hong Kong Risk Assurance Limited (‘‘Baker Tilly’’) as its internal auditor to evaluate, assess and improve its internal control process and to ensure appropriate policies and procedures are in place. Moreover, Baker Tilly assisted the Company in drafting various internal operating policies based on the findings and recommendations from the internal audit.

Under the Greater Bay Area plan, the business and vitality of the Group will arise with its strategic Hong Kong location, global presence and China connectivity. It is the intention of the Company’s management to optimise its resources and to develop China-angled business strategies, and to diversify products and services for sustainable growth ahead.

Financial Review

Results of the Group

For the year ended 31 March 2018, the Group’s revenue and other income grew to approximately HK$256.06 million (2017: HK$216.37 million). Revenue from investment advisory and management services under an investment advisory and management agreement accounted for approximately HK$230.30 million (2017: HK$193.98 million) which represented a 19% increase.

Corporate advisory income (including placing and underwriting income) amounted to approximately HK$16.15 million for the year ended 31 March 2018 (2017: HK$19.71 million), representing a 18% decrease when compared to the last financial year. The decrease is mainly due to the shift of business focus from corporate advisory to alternative investments and overseas mergers and acquisitions (‘‘M&A’’).

There was a net investment income on financial assets of approximately HK$6.28 million for the year ended 31 March 2018, compared to net investment loss of HK$0.02 million recorded in the last financial year. Net interest income decreased to approximately HK$1.02 million (2017: HK$2.79 million).

Operating expenses during the year ended 31 March 2018 of approximately HK$229.24 million (2017: HK$148.50 million) were significantly higher due to the continued development of the Group. The operating expenses were mainly staff costs of approximately HK$110.64 million (2017: HK$93.14 million) which included payroll based on elevated headcounts and costs for recruitment of a world class team. Professional fees of approximately HK$37.37 million (2017: HK$15.30 million) was also witnessed during the year ended 31 March 2018 as a result of investment due diligence activities.

The resultant pre-tax profit for the year ended 31 March 2018 was approximately HK$26.82 million, compared to a pre-tax profit of approximately HK$67.87 million for the last financial year.

– II-21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Income tax expense of approximately HK$6.02 million was incurred during the year ended 31 March 2018 (2017: income tax credit of HK$11.31 million) as a result of profits generated by subsidiaries of the Company in Hong Kong, the UK and the US.

Total comprehensive income for the year ended 31 March 2018 amounted to approximately HK$18.17 million, compared to HK$79.18 million for the last financial year. Basic earnings per share for the year ended 31 March 2018 was approximately HK0.59 cent (2017: HK2.23 cents), while diluted earnings per share for the year ended 31 March 2018 was the same as basic earnings per share of approximately HK0.59 cent (2017: HK2.23 cents).

The Group maintained a non-current deposit of approximately HK$207.58 million as at 31 March 2018 (2017: HK$36.08 million). The significant increase is mainly due to the deposit made during the year for a proposed acquisition project. Investments at fair value through profit or loss were increased to approximately HK$255.31 million as at 31 March 2018 (2017: HK$0.12 million).

Trade receivables as at 31 March 2018, after allowing for debt provisioning, increased significantly to approximately HK$233.07 million (2017: HK$8.27 million), mainly because of the investment advisory and management fee earned from Zhongzhi Capital during the year ended 31 March 2018.

Other payables and accruals as at 31 March 2018 decreased to approximately HK$14.24 million (2017: HK$47.19 million) which was in line with the decrease in provision for staff bonus for the year ended 31 March 2018.

As at 31 March 2018, tax payable increased to approximately HK$5.92 million (2017: HK$0.03 million) as a result of profit generated by subsidiaries of the Company in Hong Kong, UK and the USA.

Net assets value of the Group as at 31 March 2018 increased to approximately HK$990.41 million (2017: HK$972.24 million). The net assets value per share as at 31 March 2018 was approximately HK27.90 cents (2017: HK27.38 cents).

Liquidity and financial resources

The Group continued to adopt a prudent financial management strategy and maintained a healthy liquidity position. As at 31 March 2018, the Group had net current assets of approximately HK$508.70 million (2017: HK$934.17 million), and the current ratio was approximately 26.23 (2017: 20.50).

The Group’s operations and investments were financed principally by revenues generated from business operations and available bank balances. Funds are largely placed with financial institutions with maturities timed to cover any known capital investments or commitments. The Group had no borrowing and the gearing ratio of the Group, calculated as total borrowings over total equity, was nil as at 31 March 2018 (2017: Nil).

– II-22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

During the year ended 31 March 2018, most income billings were in Hong Kong dollars, including the investment advisory and management fee receivable under the IAM Agreement which was computed in Renminbi but fixed in Hong Kong dollars at the time of billing, and most of the business transactions, assets and liabilities were denominated in Hong Kong dollars. Therefore, the Group had minimal exposure to foreign currency risks. While the Group is expected to have more foreign currency exposure in connection with its developments and investments overseas, the Group will closely monitor its foreign currency exposure and consider using hedging instruments if available and necessary.

Capital structure

There has been no material change in the capital structure of the Company during the year ended 31 March 2018. The capital source of the Company comprises only ordinary shares.

Total equity attributable to owners of the Company amounted to approximately HK$990.41 million as at 31 March 2018 (2017: HK$972.24 million). This increase was mainly attributable to the increase in the retained profits for the year ended 31 March 2018.

Commitments

As at 31 March 2018, the Group has operating lease commitments of approximately HK$100.99 million (2017: HK$87.06 million). As at 31 March 2018, pursuant to the Alerian Unit Purchase Agreement entered into by the Group on 14 July 2017 for the acquisition of the equity interest in GKD Index Partners, LLC, the total consideration payable by the Group under the Alerian Unit Purchase Agreement (including contingent consideration) is not expected to exceed US$812 million (equivalent to approximately HK$6,344 million). The Alerian Unit Purchase Agreement was subsequently terminated on 22 May 2018. Save for the above, the Group and the Company did not have any significant commitment as at 31 March 2018 and 2017.

Charge on the Group’s assets

As at 31 March 2018, the Group did not have any charge on its assets (2017: Nil).

Employees and remuneration policies

As of 31 March 2018, the Group employed 31 employees including executive directors (31 March 2017: 52 employees). Total staff cost (including directors’ emoluments) for the year ended 31 March 2018 amounted to approximately HK$110.64 million. Employees’ remuneration packages are decided based on their job responsibilities, local market benchmarks and industry trends. Employee bonus is distributable according to the performance of the respective subsidiaries and employees concerned.

– II-23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

The Company adopted the Share Option Scheme on 7 June 2010, details of which are set out in note 25 to the consolidated financial statements in the Company’s annual report for the year ended 31 March 2018. No option has however been granted, exercised or lapsed under this Share Option Scheme.

Contingent liabilities

As at 31 March 2018, the Group had no material contingent liabilities (2017: Nil).

Future plans for material investments or capital assets

Adjusting from the rapid growth shown during the first half of the fiscal year, and in response to China’s macro policies and opportunities, the Group will apply a balanced and prudent approach in business development and execution, by diversifying amongst private equity, private credit, overseas listed Chinese companies, asset management, and other structured and opportunistic investment opportunities, whilst partnering with other financial and strategic investors on deal by deal basis to preserve its own offshore capital liquidity, generate short-term profits and achieve long term growth. The Group will also streamline its overseas offices, leverage Zhongzhi Capital’s domestic resources, enhance internal management reporting system, upgrade internal accounting system with more analytical functionalities, and better use such data and information to support the development orientation and resource allocation more efficiently and effectively.

Material acquisitions and disposals of subsidiaries and affiliated companies

On 14 July 2017, ZZCI Index Partners LLC, an indirect wholly-owned subsidiary of the Company, entered into the Alerian Unit Purchase Agreement as the buyer with Mr. Gabriel Hammond, Mr. Daniel Hammond and Mr. Kenny Feng as the sellers, Mr. Gabriel Hammond as representative of the sellers thereunder and GKD Index Partners, LLC, pursuant to which ZZCI Index Partners LLC has conditionally agreed to acquire and Mr. Gabriel Hammond, Mr. Daniel Hammond and Mr. Kenny Feng have conditionally agreed to sell the equity interest in GKD Index Partners, LLC, subject to the terms and conditions therein.

Details of above transaction were disclosed in the announcement of the Company dated 14 July 2017 and 15 January 2018. A deposit of approximately US$26,309,000 (approximately HK$205,214,000) has been placed in an escrow account.

On 24 May 2018, upon the termination of Alerian Unit Purchase Agreement, the deposit of US$25,000,000 (net of legal and professional fees paid) has been released and returned to the Group.

– II-24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Outlook

2017’s world growth rate of 3.8% was the strongest since 2011 with a notable rebound in global trade, driven by investment recovery in advanced economies and continued strong growth in emerging Asia, a notable upswing in emerging Europe, and signs of recovery in bulk commodities. In April 2018, the International Monetary Fund projected 2018 and 2019 global growth rate both at 3.9%, supported by positive macro momentum, favourable market sentiment, and accommodative financial conditions which translate into growth in emerging/developing markets and resilient growth in advanced economies. China is expected to grow 6.6% and 6.4% respectively 2018 to 2019, while declining but still well above the global market average. Over the medium term, global growth is projected to decline to 3.7%.

During the 19th National Congress of the Communist Party of China held in October 2017, Chinese President Xi committed to end poverty in China by 2021, and to transform the country into a ‘‘fully developed nation’’ by 2049. The Chinese economy is to take gradual steps towards market reform and opening up to the outside world. Stability on the economic, political, financial and social fronts remain of paramount importance as China continues its transition from an export and investment-driven economy to a consumption and service-oriented one, with urbanisation and technology being key drivers of economic growth. Government initiatives such as the Belt and Road programme and the Guangdong- Hong KongMacau Greater Bay Area plan provide the infrastructure and policy support to facilitate the movements of people, capital, goods and services, and to balance economic growth amongst the regions. Investment will remain a powerful tool to help maintain an average GNP growth rate of 6.5% in order to achieve the goal of doubling GDP and GDP per capita by 2020 (relative to 2010) as set out in China’s 13th Five-Year Plan.

By responding to the policies highlighted by the 19th National Congress, the Company has adjusted its strategy by streamlining its global presence, reemphasising its strategic Hong Kong location and China connectivity, and by diversifying across geographies, sectors, and asset classes. 2016 was a year of foundation building, 2017 was a year of acceleration, and 2018 is a year of inflection towards a more integrated Greater China and international approach at a more balanced and steady pace to secure both short-term and long-term success. With growing investment opportunities in Greater Bay Area, Zhongzhi Capital will grow its business by leveraging its local knowledge and expertise, and will seek investment synergies by cooperating with domestic and overseas partners.

– II-25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

As of 31 March 2018, the IAM Agreement between the Group and Zhongzhi Capital is expired, and the Group is no longer entitled to the related investment advisory and management income, leading to potential loss by the Group in the coming quarters. Nevertheless, with the experience and momentum accumulated to date, the Group will persist in developing asset management business to maximise the value of its licensed resources. At the same time, the Group will speed up the investing and harvesting of secondary market investments in Chinese stocks listed in Hong Kong and overseas, as well as injecting strategic assets to create defensible and diversified income sources.

– II-26 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

(A) BASIS OF PREPARATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

In connection with the proposed very substantial acquisition of the entire issued share capital of KingNine Holdings Limited (the ‘‘Target Company’’) by ZZ Capital International Limited (the ‘‘Company’’) (the ‘‘Proposed Acquisition’’), the unaudited pro forma consolidated statement of financial position, unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Company and its subsidiaries (hereinafter referred to as the ‘‘Group’’) and the Target Company and its subsidiaries (hereinafter referred to as the ‘‘Target Group’’) (together with the Group hereinafter referred to as the ‘‘Enlarged Group’’) have been prepared to illustrate the effect of the Proposed Acquisition on the Group’s financial position as at 31 March 2020 and the Group’s financial performance and cash flows for the year ended 31 March 2020 as if the Proposed Acquisition had taken place at 31 March 2020 and 1 April 2019, respectively.

The unaudited pro forma financial information of the Enlarged Group has been prepared by the directors of the Company in accordance with paragraph 31 of Chapter 7 of the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited and is solely for the purpose to illustrate (a) the financial performance and cash flows of the Enlarged Group as if the Proposed Acquisition had taken place on 1 April 2019; and (b) the financial position of the Enlarged Group as if the Proposed Acquisition had taken place on 31 March 2020.

The unaudited pro forma financial information of the Enlarged Group is prepared based on the aforesaid historical data after giving effect to the pro forma adjustments described in the accompanying notes. Narrative description of the pro forma adjustments of the Proposed Acquisition that are (i) directly attributable to the Proposed Acquisition; and (ii) factually supportable, is summarised in the accompanying notes.

The unaudited pro forma financial information of the Enlarged Group has been prepared by the directors of the Company based on certain assumptions, estimates and uncertainties for illustrative purposes only and because of its hypothetical nature, the unaudited pro forma financial information of the Enlarged Group may not give a true picture of the results, cash flows or assets and liabilities of the Enlarged Group would have been upon the completion of the Proposed Acquisition for the year ended 31 March 2020 or as at 31 March 2020 and in any future periods or on any future dates, as appropriate.

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the management discussion and analysis of the Group as set out in this circular, the accountants’ report of the Target Group as set out in Appendix I to this circular and other financial information included elsewhere in this circular.

– III-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

(B) UNAUDITED PRO FORMA FINANCIAL INFORMATION

1. Unaudited Pro Forma Consolidated Statement of Financial Position

Non-current assets Property, plant and equipment Intangible assets Goodwill Loan receivables Right-of-use assets Deposits Deferred tax assets Equity instrument at fair value through other comprehensive income (‘‘FVTOCI’’) Current assets Inventories Trade receivables Financial assets at fair value through profit or loss (‘‘FVTPL’’) Other assets and receivables Tax recoverable Cash held on behalf of clients Bank balances and cash	The Group as at 31 March 2020 HK$’000 (Note 1) 222 — — 17,168 6,928 2,241 — — 26,559 — 3,513 3,584 221,542 2,597 3 474,053 705,292	Unaudited pro forma adjustments RMB’000 HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) (Note 5) 28,169 31,126 11,298 12,484 183,094 7,601 8,399 755,100 — — 26,374 29,143 (1,718) — — 4,439 4,905 4,563 5,042 82,444 91,099 2,007 2,218 223,374 246,822 — — 21,828 24,120 — — — — 74,379 82,187 (430,939) (37,567) 321,588 355,347	Unaudited pro forma of the Enlarged Group HK$’000 31,348 195,578 763,499 17,168 34,353 2,241 4,905 5,042
		RMB’000 (Note 2) 28,169 11,298 7,601 — 26,374 — 4,439 4,563 82,444 2,007 223,374 — 21,828 — — 74,379 321,588
			1,054,134
			2,218 250,335 3,584 245,662 2,597 3 87,734
			592,133

– III-2 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Current liabilities Trade payables Other payables and accruals Contract liabilities Borrowings Tax payable Lease liabilities Net current assets Total assets less current liabilities Non-current liabilities Borrowings Deferred tax liabilities Lease liabilities Consideration payable Net assets Capital and reserves Share capital/Paid-up capital Reserves Equity attributable to owner of the Company Non-controlling interests Total equity	The Group as at 31 March 2020 HK$’000 (Note 1) 3 11,433 — — 3,583 3,931 18,950 686,342 712,901 — — 3,007 — 3,007 709,894 35,505 674,389 709,894 — 709,894	Unaudited pro forma adjustments RMB’000 HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 4) (Note 5) 10,160 11,226 36,949 40,828 782 864 27,604 30,502 3,844 4,248 12,056 13,322 (231) 91,395 100,990 230,193 254,357 312,637 345,456 20,000 22,099 205 227 45,774 13,919 15,380 (1,046) — — 277,119 34,124 37,706 278,513 307,750 31,300 34,586 (28,206) 235,309 260,010 212,127 (37,567) 266,609 294,596 11,904 13,154 278,513 307,750	Unaudited pro forma of the Enlarged Group HK$’000 11,229 52,261 864 30,502 7,831 17,022
		RMB’000 (Note 2) 10,160 36,949 782 27,604 3,844 12,056 91,395 230,193 312,637 20,000 205 13,919 — 34,124 278,513 31,300 235,309 266,609 11,904 278,513
			119,709
			472,424
			1,526,558
			22,099 46,001 17,341 277,119
			362,560
			1,163,998
			41,885 1,108,959
			1,150,844 13,154
			1,163,998

– III-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

1. Unaudited Pro Forma Consolidated Statement of Profit or Loss and Other Comprehensive Income

Revenue Cost of services Gross profit Net investment income Other income Other losses Marketing expense Research and development expenses Operating expenses Net impairment loss Finance costs Profit before tax Income tax expense Profit for the year Other comprehensive income (expense): Items that may be subsequently reclassified to profit or loss: Exchange differences arising on translation of foreign operations Reclassification of translation reserve upon deregistration of subsidiaries Item that will not be reclassified to profit or loss: Fair value gain on equity investment at FVTOCI Profit and total comprehensive income for the year Profit (loss) for the year attributable to: — Owners of the Company — Non-controlling interests Profit (loss) and total comprehensive income (expense) attributable to: — Owners of the Company — Non-controlling interests	The Group for the year ended 31 March 2020 HK$’000 (Note 1) 16,969 — 16,969 54,275 14,153 (19,232) — — (64,385) — — 1,780 (191) 1,589 13 3,110 3,123 — 3,123 4,712 1,589 — 1,589 4,712 — 4,712		Unaudited pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 (Note 3) (Note 5) (Note 6) (Note 8) 481,455 (358,911) 122,544 — 12,809 (447) (5,037) (14,590) (21,587) (37,567) (19,503) (6,846) (4,311) (11,085) 82,535 (9,354) 4,876 73,181 (13,476) — (13,476) 352 (13,124) 60,057 73,246 (65) 73,181 60,122 (65) 60,057	Unaudited pro forma of the Enlarged Group HK$’000 498,424 (358,911
		RMB’000 (Note 2) 429,458 (320,149) 109,309 — 11,426 (399) (4,493) (13,014) (19,256) (6,107) (3,845) 73,621 (8,344) 65,277 — — — 314 314 65,591 65,335 (58) 65,277 65,649 (58) 65,591
				139,513 54,275 26,962 (19,679 (5,037 (14,590 (143,042 (6,846 (15,396
				16,160 (4,669
				11,491 (13,463 3,110
				(10,353
				352
				(10,001
				1,490
				11,556 (65
				11,491
				1,555 (65
				1,490

– III-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

3. Unaudited Pro Forma Consolidated Statement of Cash Flows

OPERATING ACTIVITIES Profit before tax Adjustments for: Interest income Finance costs Loss on disposal of property, plant and equipment Depreciation of property, plant and equipment Depreciation or right-of-use assets Amortisation of intangible assets Net impairment loss Dividend income Share reward expenses Fair value loss on financial assets at FVTPL Fair value gain on convertible loan receivable designated at FVTPL Loss on deregistration of subsidiaries Operating cash flows before working capital changes Decrease in deposits Increase in trade receivables Increase in loan receivables Increase in other assets and receivables Decrease in inventories Decrease in trade payables Increase (decrease) in other payables and accruals Decrease in non-current liabilities Decrease in contract liabilities Cash (used in) generated from operations Income tax paid NET CASH (USED IN) FROM OPERATING ACTIVITIES	The Group for the year ended 31 March 2020 HK$’000 (Note 1) 1,780 (14,153) 206 — 290 3,942 — — (127) — 3,218 (57,366) 3,110 (59,100) 100 (3,461) (1,060) 36,151 — — 6,633 — — (20,737) (1,107) (21,844)		Unaudited pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 (Note 3) (Note 5) (Note 6) (Note 8) 82,535 (37,567) (19,503) (11,085) (261) 4,311 11,085 4 18,126 13,446 1,700 19,503 6,846 — 470 — — — 127,177 — (47,262) — 472 290 (6,224) (7,376) (490) (12) 66,575 (9,513) 57,062	Unaudited pro forma of the Enlarged Group HK$’000 16,160 (14,414 15,602 4 18,416 17,388 21,203 6,846 (127 470 3,218 (57,366 3,110
		RMB’000 (Note 2) 73,621 (233) 3,845 4 16,168 11,994 1,516 6,107 — 419 — — — 113,441 — (42,158) — 421 259 (5,552) (6,579) (437) (11) 59,384 (8,486) 50,898
				30,510 100 (50,723 (1,060 36,623 290 (6,224 (743 (490 (12
				8,271 (10,620
				(2,349

– III-5 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION

INVESTING ACTIVITIES Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Development cost paid Interest received Dividend income received Placement of time deposit with original maturity of more than three months when acquired Withdrawal of time deposit with original maturity of more than three months when acquired Repayment from convertible loan receivable at FVTPL Purchase of equity instrument at fair value through other comprehensive income Placement of restricted bank deposits Acquisition of subsidiaries NET CASH FROM (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES New borrowings raised Repayment of borrowings Repayments of lease liabilities Interest paid Advanced from a shareholder Contribution from non-controlling interests CASH (USED IN) FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Effect of exchange rates changes on the bank balances and cash held in foreign currencies CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	The Group for the year ended 31 March 2020 HK$’000 (Note 1) (60) — — 14,153 127 (199,950) 199,950 8,232 — 182 — 22,634 — — (3,842) (206) — — (4,048) (3,258) 472,159 (158) 468,743	Unaudited pro forma adjustments RMB’000 HK$’000 HK$’000 HK$’000 (Note 2) (Note 3) (Note 5) (Note 7) (14,577) (16,342) 54 61 (9,656) (10,825) 233 261 — — — — — — — — (4,249) (4,763) — — — — (428,002) (28,195) (31,608) 51,000 57,175 (27,035) (30,308) (11,646) (13,056) (3,845) (4,311) 8,000 8,969 12,000 13,453 28,474 31,922 51,177 57,376 — — — (827) 51,177 56,549	Unaudited pro forma of the Enlarged Group HK$’000 (16,402 61 (10,825 14,414 127 (199,950 199,950 8,232 (4,763 182 (428,002
		RMB’000 (Note 2) (14,577) 54 (9,656) 233 — — — — (4,249) — — (28,195) 51,000 (27,035) (11,646) (3,845) 8,000 12,000 28,474 51,177 — — 51,177
			(436,976
			57,175 (30,308 (16,898 (4,517 8,969 13,453
			27,874
			(411,451 472,159 (985
			59,723

– III-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

Notes:

• 1) The audited consolidated statement of financial position as at 31 March 2020 and the audited consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows of the Group for the year ended 31 March 2020 were extracted from the published annual report of the Company for the year ended 31 March 2020.

• 2) The audited consolidated statement of financial position as at 31 March 2020 and the audited consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows of the Target Group for the year ended 31 March 2020 were extracted from the accountants’ report on the Target Group as set out in Appendix I to the circular, with certain reclassification being made to be in line with presentation of consolidated financial statements of the Group, where appropriate.

• 3) For the purpose of the unaudited pro forma financial information, the exchange rates adopted are stated as followings.

• (a) HK$1.00 to RMB0.905 as at 31 March 2020

• (b) HK$1.00 to RMB0.892 for the year ended 31 March 2020

• (c) HK$1.00 to RMB0.857 as at 1 April 2019

No representation is made that the RMB amounts have been, could have been or could be converted to HK$, or vice versa, at those rates or at any other rates or at all.

• 4) The adjustment represents the recognition of goodwill and identifiable intangible assets and the related deferred tax liability as identified arising from the Proposed Acquisition, as if the Proposed Acquisition had been completed on 31 March 2020, in accordance with HKFRS 3 (Revised) Business Combination (‘‘HKFRS 3 (Revised)’’).

Notes Cash consideration (a1) Deferred consideration (a1) Contingent consideration (a2) Consideration shares (a3) Fair value of consideration transferred Less: fair value of net identifiable assets Net identifiable assets of the Target Group (excluding goodwill) (b) Pro forma fair value adjustments in relation to — Intangible assets (c) — Right-of-use assets (d) — Lease liabilities (d) — Deferred tax liability (e) Non-controlling interests of the Target Group Goodwill arising from the Proposed Acquisition (f)

HK$’000 430,939 277,119 — 478,517 1,186,575 299,351 183,094 (1,718) 1,277 (45,774) (13,154) 763,499

– III-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

Notes:

• (a) The total consideration of the Proposed Acquisition includes cash consideration of RMB670,000,000 (equivalent to approximately HK$740,331,000) and issuance of 638,022,754 shares by the Company.

• (a1) Under HKFRS 3 (Revised), any consideration, including deferred consideration, contingent consideration and shares consideration, to be transferred by the acquirer will be recognised at fair value at the acquisition date. Consideration is recognised to reflect its fair value at the date of completion on information obtained about facts and circumstances that existed as of that date or, if known, during the measurement period.

The cash consideration of RMB390,000,000 (equivalent to approximately of HK$430,939,000) will be settled by the Company on 31 March 2020 as if the Proposed Acquisition had been completed. The remaining cash consideration of RMB280,000,000 (equivalent to approximately of HK$309,392,000) will be settled by the Company in four instalments of RMB70,000,000 each on 31 July 2021, 31 July 2022, 31 July 2023 and 31 July 2024.

The valuation of the deferred consideration was carried out by an independent professional qualified valuer, AVISTA Valuation Advisory Limited. The fair value of the deferred consideration as at 31 March 2020 is approximately RMB250,792,000 (equivalent to approximately HK$277,119,000), which is based on the present value of the deferred consideration discounted using the discount rate of 4% as if the date of completion was 31 March 2020 for the purpose of preparing the unaudited pro forma consolidated statement of financial position.

• (a2) The sellers have undertaken to the Company pursuant to the Share Purchase Deed that the audited consolidated profit attributable to the equity holders of the Target Company would not be less than:

• i. RMB60,000,000 for the financial year of the Target Group commenced on 1 April 2019 and ended on 31 March 2020;

• ii. RMB90,000,000 for the financial year of the Target Group commenced on 1 April 2020 and ending on 31 March 2021;

• iii. RMB120,000,000 for the financial year of the Target Group commencing on 1 April 2021 and ending on 31 March 2022;

• iv. RMB150,000,000 for the financial year of the Target Group commencing on 1 April 2022 and ending on 31 March 2023; and

• v. RMB180,000,000 for the financial year of the Target Group commencing on 1 April 2023 and ending on 31 March 2024.

In the event that the actual amount of the audited consolidated net profit attributable to the equity holders of the Target Company for any guarantee period is less than the guaranteed profit in respect of such guarantee period, the sellers are expected to compensate the Company by paying the Company an amount in cash equal to (((A – B)/C) x D) – E

where:

• A = the sum of: (i) the amount of the guaranteed profit in respect of such guarantee period; and (ii) the amount of the guaranteed profit in respect of each guarantee period preceding such guarantee period;

• B = the sum of: (i) the actual amount of the audited consolidated net profit/net loss attributable to equity holders of the Target Company for such guarantee period; and (ii) the actual amount of the audited consolidated net profit/net loss attributable to equity holders of the Target Company for each guarantee period preceding such guarantee period;

– III-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

• C = RMB600,000,000 (i.e. the sum of the amount of the guaranteed profit in respect of each guarantee period);

• D = RMB779,392,971 (i.e. the consideration less the amount of the consideration paid, or payable, by the Company to Zhong Zhi Xin Zhuo Capital Company Limited (‘‘Zhongzhi Xinzhuo’’), one of the sellers);

• E = the sum of the amount of any such compensation which has been paid by the sellers in respect of each guarantee period preceding such guarantee period.

In the event that the accumulated amount of actual net profit for the entire guarantee period is zero and the shortfall for the entire guarantee period is therefore RMB600,000,000, the compensation obliged to be paid by the sellers for the shortfall equals the amount of consideration paid by the Company (other than the amount of the consideration paid by the Company to Zhongzhi Xinzhuo).

In the event that the Target Company records an accumulated actual audited consolidated net loss attributable to the equity holders of the Target Company in accordance with HKFRSs for the entire guarantee period and the shortfall for the entire guarantee period is therefore greater than RMB600,000,000, the amount of Compensation obliged to be paid by the sellers will exceed the compensation paid by the Company (other than the amount of the consideration paid by the Company to Zhongzhi Xinzhuo).

Subject to the compliance of all applicable laws and regulations (including the GEM Listing Rules and the Takeovers Code), in the event that the sum of the actual amount of the audited consolidated net profit attributable to equity holders of the Target Company for each guarantee period is equal to or more than RMB1,000,000,000 (equivalent to approximately of HK$1,090,000,000), it is expected that:

• i. the Company would pay the sellers an additional consideration in the amount of RMB150,000,000, subject to the Hong Kong Stock Exchange’s grant of the approval for the listing of and permission to deal in the additional shares, and would settle such payment by issuing additional shares to the sellers on the 10th business day after the date on which the audited consolidated financial statements of the Target Company for the last guarantee period is approved by the board of directors of the Target Company; and

• ii. such additional shares would be issued at an issue price per share equal to the volume weighted average closing price per share for the 30 consecutive trading days up to and including the last trading day that is five business days immediately prior to the date on which such additional shares are allotted and issued to the sellers.

The valuation of the contingent consideration was carried out by an independent professional qualified valuer, AVISTA Valuation Advisory Limited. The fair value of the contingent consideration as at 31 March 2020 is zero, on the basis that profit guarantee could be fulfilled by the Target Group in respect of each guarantee period and that the audited consolidated net profit attributable to equity holders of the Target Company for each guarantee period equal to or more than RMB1,000,000,000 (equivalent to approximately of HK$1,090,000,000) could not be fulfilled by the Target Group.

The fair value of the contingent consideration shall be reassessed on the date of completion and subsequent years and is therefore subject to change upon the actual completion of the Proposed Acquisition.

• (a3) For the purpose of the unaudited pro forma financial information, the closing price of the share of the Company of HK$0.75 each as at 31 March 2020 was adopted for the calculation of the fair value of the consideration shares of 638,022,754, as if the Proposed Acquisition had been effected on 31 March 2020. The actual fair value of the consideration shares will be determined upon the actual completion of the Proposed Acquisition, which consequently may result in a financial effect which is materially different from the above.

– III-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

• (b) For the purpose of the unaudited pro forma financial information, it is assumed that the fair value of the net identifiable assets of the Target Group (excluding goodwill and remeasurement of right-of-use assets and lease liabilities) approximates their carrying values as at 31 March 2020. The fair value of the net identifiable assets of the Target Group (excluding goodwill and remeasurement of right-of-use assets and lease liabilities) being acquired is subject to changes upon completion of the Proposed Acquisition because the fair value being acquired shall be assessed at the date of the actual completion of the Proposed Acquisition.

• (c) The estimated fair values of the identifiable intangible assets, comprising brand, customer relationship and technical know-how amounting to RMB60,800,000 (equivalent to approximately of HK$67,182,000), RMB62,700,000 (equivalent to approximately of HK$69,282,000) and RMB42,200,000 (equivalent to approximately of HK$46,630,000) respectively, were based on the independent valuation report prepared by an independent professional qualified valuer, AVISTA Valuation Advisory Limited, as at 31 March 2020. Except for brand which is having indefinite useful life, the remaining intangible assets are estimated to have an useful life ranged from 5 to 7 years.

The fair value of the intangible assets being acquired is subject to changes upon completion of the Proposed Acquisition because the fair value being acquired shall be assessed at the date of the actual completion of the Proposed Acquisition.

• (d) The adjustment represents remeasurement of right-of-use assets and lease liabilities as at 31 March 2020 in accordance with HKFRS 3 as if the acquired leases are new leases at the completion date.

• (e) Deferred tax liability, calculated based on the 25% tax rate in accordance with the law of the People’s Republic of China on Enterprise Income Tax (the ‘‘EIT Law’’) and implementation regulations of the EIT Law, arose from the difference between the tax base and the fair value of intangible assets.

• (f) The adjustment represents the goodwill arising from the Proposed Acquisition provisionally determined based on the fair value of the identifiable assets acquired and liabilities assumed of the Target Group and the consideration on the completion date. For the purpose of the unaudited pro forma financial information, the goodwill of HK$763,499,000 arising from the Proposed Acquisition, which represents the amount by which the fair value of consideration transferred exceeds the fair value of the identifiable assets and liabilities of the Target Group to be acquired, as if the Proposed Acquisition has been completed on 31 March 2020. The amount of goodwill is subject to change based on the fair value of the deferred consideration and contingent consideration and when the fair value of assets and liabilities of the Target Group is finalised on the date of actual completion of the Proposed Acquisition.

According to the Group’s accounting policy, after initial recognition, the goodwill will be measured at cost less any accumulated impairment losses. The goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, the goodwill is allocated to the Group’s cash generating units that are expected to benefit from the synergies of the acquisition, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Further, impairment is determined by assessing the recoverable amount of the cash-generating units to which the goodwill relates. Where the recoverable amount of the cash-generating units is less than the carrying amount of the units, an impairment loss will be recognised by reducing the carrying amount of any goodwill allocated to the units at first.

For the purpose of the unaudited pro forma financial information, the Group’s management has performed an impairment assessment on the provisional goodwill arising from the Acquisition and intangible asset with indefinite useful life in accordance with HKAS 36 Impairment of Assets (‘‘HKAS 36’’) and concluded that there would have been no impairment of the goodwill and intangible asset with indefinite useful life as if the Acquisition had been completed on 31 March 2020 for the purpose of unaudited pro forma consolidated statement of financial position and 1 April 2019 for the purpose of unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated statement of cash flows. The recoverable amount under impairment assessment was derived based on the value-in-use calculations. That calculations used cash flows projections based on financial budgets as approved by management of the Target Group covering five

– III-10 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION

years period, assuming that (i) there are no material adverse changes in the fair values of the assets and liabilities of the Target Group; and (ii) the identifiable assets and liabilities can be realised at their carrying amounts. However, should there be any adverse changes to the business of the Target Group, including but not limited to, any subsequent adverse changes in the operation, impairment may be required to be recognised against provisional goodwill and intangible asset with indefinite useful life in accordance with HKAS 36 and the Group’s accounting policies.

The amounts of intangible asset with indefinite useful life and goodwill and the related impairment assessment are subject to change upon actual completion of the Proposed Acquisition due to the fair value assessment of the net assets and fair value of the consideration, which may differ materially from the amounts disclosed above.

The Company will adopt consistent accounting policies and principal assumptions to assess the impairment of assets (including the intangible asset with indefinite useful life) and goodwill of the Enlarged Group in the financial statements in the future.

• 5) The adjustment represents the estimated transaction costs of approximately HK$37,567,000, including the accountancy, legal, valuation and other professional services related to the Proposed Acquisition. The expenses are charged to profit or loss directly. The adjustment has no continuing effect on the financial statements of the Enlarged Group in subsequent years.

• 6) The estimated fair values of customer relationship and technical know-how on 1 April 2019 approximate to those on 31 March 2020. The adjustment represents the additional amortisation of intangibles assets, including the customer relationship and technical know-how amounting to RMB8,957,000 (equivalent to approximately of HK$10,041,000) and RMB8,440,000 (equivalent to approximately of HK$9,462,000) respectively, together with corresponding deferred income tax impact for the year ended 31 March 2020 arising from the fair value adjustments on the net identifiable assets of the Target Group as if the Proposed Acquisition had been effected on 1 April 2019.

• 7) The adjustment represents the cash outflow on acquisition of the Target Group comprising the payment of cash consideration of RMB390,000,000 (equivalent to approximately of HK$455,076,000) and cash and cash equivalent balances acquired of RMB23,202,000 (equivalent to approximately of HK$27,074,000)), assuming the cash consideration is settled in full on 1 April 2019. The cash consideration is assumed to be financed by internal resources of the Group.

• 8) The adjustment represents interest on consideration payable for the year ended 31 March 2020 which is determinated based on the present value of the future cash outflows discounted using an effective interest rate of 4% per annum.

• 9) Apart from the above, no other adjustment has been made to reflect any trading results or other transactions entered into by the Group or the Target Group subsequent to 31 March 2020 for the unaudited pro forma statement of financial position as at 31 March 2020, and subsequent to 31 March 2020 for the unaudited pro forma statement of profit or loss and other comprehensive income and the unaudited pro forma statement of cash flows for the year ended 31 March 2019 as if the Proposed Acquisition had taken place at 31 March 2020 and 1 April 2019, respectively.

– III-11 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

The following is the text of the independent reporting accountants’ assurance report received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, the reporting accountants of the Company, in respect of the Enlarged Group’s unaudited pro forma financial information prepared for the purpose of incorporation in this circular.

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

To the Directors of ZZ Capital International Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of ZZ Capital International Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as 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 consolidated statement of financial position as at 31 March 2020, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income and the unaudited pro forma consolidated statement of cash flows for the year ended 31 March 2020 and related notes as set out on pages III-1 to III-11 of Appendix III to the circular issued by the Company dated 18 September 2020 (the ‘‘Circular’’). The applicable criteria on the basis of which the Directors have compiled the unaudited pro forma financial information are described in section A of Appendix III to the Circular.

The unaudited pro forma financial information has been compiled by the Directors to illustrate the impact of the Group’s proposed very substantial acquisition in relation to the equity interest of KingNine Holdings Limited (the ‘‘Proposed Transaction’’) on the Group’s financial position as at 31 March 2020 and the Group’s financial performance and cash flows for the year ended 31 March 2019 as if the Proposed Transaction had taken place at 31 March 2020 and 1 April 2019, respectively. As part of this process, information about the Group’s financial position, financial performance and cash flows has been extracted by the Directors from the Group’s financial statements for the year ended 31 March 2020, on which an auditor’s report has been published.

Directors’ Responsibilities for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the unaudited pro forma financial information in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited (the ‘‘GEM 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 (the ‘‘HKICPA’’).

– III-12 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

Our Independence and Quality Control

We have complied with the independence and other ethical requirements 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 Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 7.31(7) of the GEM 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.

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 accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the unaudited pro forma financial information in accordance with paragraph 7.31 of the GEM 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 an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction 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 event or transaction at 31 March 2020 or 1 April 2019 would have been as presented.

– III-13 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION

APPENDIX III

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 event or transaction, 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 accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction 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.

Opinion

In our opinion:

• a) the unaudited pro forma financial information has been properly compiled 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 7.31(1) of the GEM Rules.

Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong 18 September 2020

– III-14 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

The following is the text of a valuation report, prepared for the purpose of inclusion in this circular, received from the Valuer, in connection with its valuation as at 31 May 2020 of the fair value of the Target Group.

��������������������������

23rd Floor, Siu On Centre, No. 188 Lockhart Road, Wan Chai, Hong Kong

: (852) 3702 7338 : (852) 3914 6388

18 September 2020

The Board of Directors

ZZ Capital International Limited

11/F, 8 Queen’s Road Central, Hong Kong

Dear Sirs/Madams,

Re: Valuation of 100% Equity Interest of DaLian Kingwisoft Technology Co., Ltd.

In accordance with your instructions, AVISTA Valuation Advisory Limited (‘‘AVISTA’’ or ‘‘we’’) has conducted a fair value valuation in connection with the 100% equity interest of DaLian Kingwisoft Technology Co., Ltd. (‘‘DaLian Kingwisoft’’ or the ‘‘Target’’, together with its subsidiaries as the ‘‘Target Group’’) as of 31 May 2020 (the ‘‘Valuation Date’’). We understand that ZZ Capital International Limited (‘‘ZZ Capital’’, the ‘‘Company’’ or ‘‘you’’) intends to acquire 100% shareholding of the Target Group (the ‘‘Proposed Acquisition’’).

It is our understanding that this appraisal is strictly addressed to the directors of the Company (the ‘‘Directors’’) and used for the Proposed Acquisition solely for your internal reference purpose. This report (the ‘‘Report’’) does not constitute an opinion on the commercial merits and structure of the Proposed Acquisition. We are not responsible for unauthorized use of the Report.

We accept no responsibility for the realisation and completeness of any estimated data, or estimates furnished by or sourced from any third parties which we have used in connection with this Report. We assumed that financial and other information provided to us are accurate and complete.

This Report presents the summary of the business appraised, describes the basis of analysis and assumptions and explains the analysis methodology adopted in this appraisal process to calculate the value.

– IV-1 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

BASIS OF ANALYSIS

We have appraised the fair value of 100% equity interest of the Target Group.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

COMPANY BACKGROUND

ZZ Capital, an investment holding company, is principally engaged in investment holding, provision of corporate advisory services, investment advisory and asset management services, proprietary investments and money lending.

The Target Group is principally engaged in the provision of: (i) back-office services (primarily provision of customer service solutions, and setting up of contact service system and centres); (ii) comprehensive marketing services; and (iii) data centre services.

We understand that the Company intends to acquire 100% equity interest of the Target Group. As such, the Company would like to assess the fair value of the 100% equity interest of the Target Group as of the Valuation Date.

SCOPE OF WORK

In conducting this valuation exercise, we have

• . Co-ordinated with the Company’s representatives to obtain the required information and documents for our valuation;

• . Gathered the relevant information of the Target Group, including the legal documents, financial statements, etc. made available to us;

• . Discussed with the Company and the Target Group to understand the history, business model, operations, business development plan, etc. of the Target Group for valuation purpose;

• . Carried out researches in the sector concerned and collected relevant market data from reliable sources for analysis;

• . Studied the information of the Target Group made available to us and considered the bases and assumptions of our conclusion of value;

• . Selected an appropriate valuation method to analyze the market data and derived the estimated fair value of the Target Group; and

• . Compiled this Report on the valuation, which outlines our findings, valuation methodologies and assumptions, and conclusion of value.

– IV-2 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

When performing our valuation, all relevant information, documents, and other pertinent data concerning the assets, liabilities and contingent liabilities should have been provided to us. We relied on such data, records and documents in arriving at our opinion of values and had no reason to doubt the truth and accuracy of the information provided to us by the Company, the Target Group and their authorized representatives.

INDUSTRY OVERVIEW

Overview of the People’s Republic of China (‘‘PRC’’) economy

According to National Bureau of Statistics, the PRC’s real gross domestic product (‘‘GDP’’) growth rate slowed to 6.7% and 6.1% for the year of 2018 and 2019. In 2017, the China economy achieved its first acceleration in 7 years, but was appeared to be slowing down again thereafter. The year-on-year (‘‘yoy’’) GDP growth rate of the PRC reached 6.1% in 2019 which marked the slowest pace since 1990.

In 2018, the GDP of the PRC reached a level of approximate RMB90 trillion, in which the service sector has accounted for more than 50% of the total GDP. According to the National Bureau of Statistics, the urban household disposable income per capita of the PRC recorded at RMB39,251 in 2018 which represents a compound annual growth rate (‘‘CAGR’’) of 9.4% from 2010, reflecting the increasing purchasing power of the Chinese citizens.

Annual GDP Growth Rate of the PRC

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8.0%8
7.4%
7.0%
6.9%
7.0%7 6.8%
6.7%
6.1%
6.0%6
2014 2015 2016 2017 2018 2019
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(Source: The National Bureau of Statistics)

– IV-3 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

Per Capital Urban Household Disposable Income of the PRC

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

45,000 39,251
37500 36,396
33,616
35,000 31,195
29,381
26,955
24,565
25,000
21,810
22500
19,109
15,15 000
2010 2011 2012 2013 2014 2015 2016 2017 2018
RMB
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(Source: The National Bureau of Statistics)

Overview of the PRC business process outsourcing (‘‘BPO’’) market

The key players of BPO market in the Asia-Pacific region are Philippines, India and the PRC. The PRC has the world’s second largest outsourcing industry, taking up 33% of global market share, according to a news release from the Ministry of Commerce of the PRC in 2017. The Business Processing Industry Association of India in 2017 had concurring figures, assessing that China had the second largest outsourcing industry, behind India and ahead of the Philippines. In recent years, the Chinese government has pushed for significant BPO advances in terms of infrastructure, training and monetary support. According to the Ministry of Commerce of the PRC, the service outsourcing market size of the PRC has increased from USD226.7 trillion in 2011 to USD959.7 trillion in 2018, representing a CAGR of 22.9%.

Although India has outperformed the PRC in the BPO market because of its lower labor cost, the disadvantage position of the PRC market is expected to be eased off in the long run as the cost level among the emerging markets shall converge with time. In addition, the PRC not only has a sheer size of its labor pool comparable to India, the quality of labor also makes it well suited for the BPO market in view of the significant gains in English proficiency as well as BPO training of the labor population in recent years. Meanwhile, as the traditional BPO business is rather labor intensive, technology advancement might be able to minimize the impact of high labor cost. Data-based technology and artificial intelligence products might provide a higher profit margin to the market participants in the long-term despite the significant cost of development.

– IV-4 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

Service Outsourcing Market Size of the PRC

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

1200
959.7
1000 883.0
760.2
800
676.8
569.4
600 447.0
326.0
400
226.7
200
0
2011 2012 2013 2014 2015 2016 2017 2018
(USD’ trillion)
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(Source: Ministry of Commerce of the People’s Republic of China)

LIMITATIONS OF THE REPORT

The Report is addressed strictly to the Directors for their internal reference only. Accordingly, the Report may not be used nor relied upon in any other connection by, and are not intended to confer any benefit on, any person (including without limitation the respective shareholders of the Company and the Target Group).

The Report does not constitute an opinion on the commercial merits and structure of the Proposed Acquisition. The Report does not purport to contain all the information that may be necessary or desirable to fully evaluate the Proposed Acquisition. We are not required to and have not conducted a comprehensive review of the business, technical, operational, strategic or other commercial risks and merits of the Proposed Acquisition and such remain the sole responsibility of the Directors and the management of the Company.

We have assumed and relied upon, and have not independently verified the accuracy, completeness and adequacy of the information provided or otherwise made available to us or relied upon by us in the Report especially for the financial information of the Target Group as of 31 March 2020 provided by the management of the Company, whether written or verbal, and no representation or warrant, expressed or implied, is made and no responsibility is accepted by us concerning the accuracy, completeness or adequacy of all such information.

– IV-5 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

VALUATION ASSUMPTIONS OF BUSINESS ENTERPRISE VALUE ANALYSIS

In arriving at our opinion of value, we have considered the following principal factors:

• . the economic outlook for the region operated by the Target Group and specific competitive environments affecting the industry;

• . the business risks of the Target Group;

• . the comparable companies engaging in business operations similar to the Target Group;

• . the experience of the management team of the Target Group and support from its shareholders; and

• . the legal and regulatory issues of the industry in general.

A number of general assumptions have to be made in arriving at our value conclusion. The key assumptions adopted in this valuation include:

• . There will be no material change in the existing political, legal, technological, fiscal or economic conditions, which might adversely affect the business of the Target Group;

• . There was no material change in terms of business operation and financial position of the Target Group between 31 March 2020 (i.e. the latest date with available financial information) and the Valuation Date; and

• . We have assumed that there are no hidden or unexpected conditions associated with the assets valued that might adversely affect the reported values. Further, we assume no responsibility for changes in market conditions after the Valuation Date.

– IV-6 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

VALUATION APPROACH

General Valuation Approaches

There are three generally accepted approaches to appraise the fair value of the equity value of the Target Group, namely Income Approach, Cost Approach and Market Approach. All three of them have been considered regarding the valuation of the Target Group:

• Income Approach

The income approach provides an indication of value based on the principle that an informed buyer would pay no more than the present value of anticipated future economic benefits generated by the subject asset.

The fundamental method for income approach is the discounted cash flow (‘‘DCF’’) method. Under the DCF method, the value depends on the present value of future economic benefits to be derived from ownership of the enterprise. Thus, an indication of the equity value is calculated as the present value of the future free cash flow of a company less outstanding interest-bearing debt, if any. The future cash flow is discounted at the market-derived rate of return appropriate for the risks and hazards of investing in a similar business.

• Cost Approach

The cost approach considers the cost to reproduce or replace in new condition the assets appraised in accordance with current market prices for similar assets, with allowance for accrued depreciation arising from condition, utility, age, wear and tear, or obsolescence (physical, functional or economical) present, taking into consideration past and present maintenance policy and rebuilding history.

• Market Approach

• The market approach provides an indication of value by comparing the subject asset to similar assets that have been sold in the market, with appropriate adjustments for the differences between the subject asset and the assets that are considered to be comparable to the subject asset.

Under the market approach, the comparable company method computes a price multiple for publicly listed companies that are considered to be comparable to the subject asset and then applies the result to a base of the subject asset. The comparable transaction method computes a price multiple using recent sales and purchase transactions of assets that are considered to be comparable to the subject asset and then applies the result to a base of the subject asset.

– IV-7 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

Selected Valuation Approach

Each of the abovementioned approaches is appropriate in one or more circumstances, and sometimes, two or more approaches may be used together. Whether to adopt a particular approach will be determined by the most commonly adopted practice in valuing business entities that are similar in nature. In this appraisal regarding the fair value of the equity value of the Target Group, we applied the Market Approach due to the following reasons:

• . Cost Approach is not appropriate in current appraisal as it assumed the assets and liabilities of the Target Group are separable and can be sold separately. This methodology is more appropriate for the industry that their assets are highly liquid, like property development and financial institution. Thus, Cost Approach is not adopted in this valuation.

• . Income Approach is also considered inappropriate as plenty of assumptions were involved in formulating the financial projection of the Target Group, and the assumptions might not be able to reflect the uncertainties in the future performance of the Target Group. Given that improper assumptions will impose significant impact on the fair value, Income Approach is not adopted in this valuation.

• . Fair value arrived from Market Approach reflects the market expectations over the corresponding industry as the price multiples of the comparable companies were arrived from market consensus. Since there are sufficient public companies in similar nature and business to that of the Target Group, their market values are good indicators of the industry. Therefore, Market Approach has been adopted in this valuation.

There are two methods commonly used in performing market approach, namely comparable companies and comparable transactions.

Market Approach — Comparable Company Method

By adopting comparable company method, we have to select the appropriate comparable public companies. The selection of the comparable companies was based on the comparability of the overall industry sector. Although no two companies are ever exactly alike, behind the differences there are certain business universals such as required capital investment and overall perceived risks and uncertainties that guided the market in reaching the expected returns for companies with certain similar attributes.

The comparable public companies are selected with reference to the following selection criteria:

• . The primary industry of the acquiree is provision of BPO services, call center services or customer service solutions;

• . The companies are all listed in major exchange markets in the United States of America (‘‘US’’) or Hong Kong; and

• . The financial information of the companies is available to the public.

– IV-8 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

Based on the above criteria, there are ten comparable companies that can fully match the criteria. Details of the selected comparable companies are listed as follows:

					Revenue Contribution
			Listing		from Business
#	Company Name	Stock Code	Location	Business Description	Segment(s) (1)
1	Genpact Limited	NYSE:G	US	Genpact Limited provides BPO and	BPO services (84.5%);
				information technology (‘‘IT’’) services	IT services (15.5%)
				North and Latin America, India, rest of Asia,
				and Europe. It primarily engaged in (i) BPO
				services including accounts payable, invoice-
				to-cash services; record to report services;
				enterprise performance management and
				enterprise risk and compliance services. It
				also provides transformation services; core
				industry operation services; and sourcing and
				procurement services; and (ii) IT services
				comprise end-user computing support,
				infrastructure management, application
				production support, and database
				management services, as well as business
				intelligence and data, enterprise resource
				planning, quality assurance, technology
				integration, and business intelligence
				reporting services.
2	Atento S.A.	NYSE:ATTO	US	Atento S.A., together with its subsidiaries,	Customer relationship
				provides customer relationship management	management and
				and business process outsourcing services	business process
				and solutions in Brazil, the Americas,	outsourcing services
				Europe, the Middle East, and Africa. It	and solutions (100.0%)
				offers a range of front and back-end services,
				including sales, customer care, collections,
				back office, applications-processing, credit-
				management, and technical support services.
3	Chinasoft	SEHK:354	Hong Kong	Chinasoft International Limited develops and	TPG (86.8%); IIG
	International			provides IT solutions, IT outsourcing, and	(13.2%)
	Limited			training services. It operates through (i)
				Technical professional services group
				(‘‘TPG’’) segment — development, provision
				of solutions, IT outsourcing services for
				banks and other financial institutions,
				telecommunication carriers and other large-
				scale multinational companies, including sale
				of products; and (ii) Internet IT services
				group (‘‘IIG’’) segment — development,
				provision of solutions and IT outsourcing
				services for government, tobacco industry
				and other small- scaled companies and
				training business, including sale of products.

– IV-9 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

					Revenue Contribution
			Listing		from Business
#	Company Name	Stock Code	Location	Business Description	Segment(s) (1)
4	Sykes	NasdaqGS:	US	Sykes Enterprises, Incorporated provides	Customer engagement
	Enterprises,	SYKE		multichannel demand generation and global	solutions and services
	Incorporated			customer engagement services, including	(100.0%)
				customer care services, technical support
				services, customer acquisition services,
				technical staffing and outsourced corporate
				help desk services; and fulfillment services,
				as well as consulting, implementation,
				hosting, and managed services that optimize
				its differentiated full lifecycle management
				services platform.
5	WNS (Holdings)	NYSE:WNS	US	WNS (Holdings) Limited, a business process	Industry-specific
	Limited			management (‘‘BPM’’) company, provides	(39.2%); Customer
				data, voice, analytical, and business	interaction services
				transformation services worldwide. The	(20.7%); Finance and
				company operates through (i) industry-	accounting (22.7%);
				specific services to clients primarily in	Research and analytics
				insurance; diversified businesses, including	(10.4%); Auto claims
				manufacturing, retail, consumer packaged	(5.0%); Others (2.0%)
				goods, media and entertainment, and
				telecom; travel and leisure; healthcare;
				utilities; shipping and logistics; consulting
				and professional services; and banking and
				financial services; (ii) customer interaction
				services; (iii) finance and accounting; (iv)
				research and analytics; (v) auto claims
				handling services; and (vi) others includes
				revenue from technology services, legal
				services and human resources outsourcing
				services.
6	ETS Group	SEHK:8031	Hong Kong	ETS Group Limited provides multi-media	Staff insourcing
	Limited			contact service, contact center systems, and	services (43.1%);
				staff insourcing and financial services in	Outsourcing outbound
				Hong Kong. It operates through (i)	contact services
				outsourcing inbound contact services; (ii)	(21.6%); Outsourcing
				outsourcing outbound contact services; (iii)	inbound contact
				staff insourcing services; (iv) contact service	services (9.1%);
				centre and service centre facilities	Contact service centre
				management services; (v) financial services	and service centre
				and (vi) others segments.	facilities management
					services (8.4%); Others
					(1.8%)
7	China Customer	NasdaqCM:	US	China Customer Relations Centers, Inc.	BPO services (100.0%)
	Relations	CCRC		provides BPO services for
	Centers, Inc.			telecommunications companies in the
				People’s Republic of China. It offers voice-
				based and online-based customer care
				services, including customer relationship
				management, technical support, sales,
				customer retention, marketing surveys, and
				research.

– IV-10 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

					Revenue Contribution
			Listing		from Business
#	Company Name	Stock Code	Location	Business Description	Segment(s) (1)
8	UTS Marketing	SEHK:6113	Hong Kong	UTS Marketing Solutions Holdings Limited	Telemarking services
	Solutions			provides outbound telemarketing services in	(100.0%)
	Holdings Limited			Malaysia. Its outbound telemarketing services
				included telemarketing services of financial
				products, business development solutions that
				assist its clients in securing or acquiring new
				business partnerships, and expanding their
				businesses; and workstations and its related
				services for the promotion of financial
				products and its related activities.
9	StarTek, Inc.	NYSE:SRT	US	StarTek, Inc. operates as a business process	BPO services (100.0%)
				outsourcing company that provides BPO
				services, including omnichannel customer
				interactions and technology back-office
				support solutions. It primarily offers
				customer engagement consulting,
				omnichannel engagement, social media,
				customer intelligence analytics, scientific
				research, back office, and receivables
				management services under the Startek and
				Aegis brands.
10	ALJ Regional	NasdaqGM:	US	ALJ Regional Holdings, Inc. provides call	Faneuil (55.4%);
	Holdings, Inc.	ALJJ		center, back-office, staffing, and toll	Phoenix (30.8%);
				collection services to government and	Carpets (13.8%)
				commercial clients in the healthcare, utility,
				consumer goods, toll, and transportation
				industries in the United States. It operates
				through (i) Faneuil segment offers customer
				contact centers, fulfillment operations, and
				information technology services. This
				segment also provides customer relationship
				management; billing, payment, and claims
				processing; data entry; document
				management; operational expertise;
				workforce and support analytics; quality
				assurance; and system support and
				maintenance services; (ii) Carpets segment
				engages in the retail of floor coverings,
				countertop and surrounds cabinets,closet and
				closet organizers, as well as window
				coverings; and (iii) Phoenix segment
				manufactures book components, educational
				materials and related products.

Source: S&P Capital IQ and annual reports of the comparable companies

(1) Based on the latest available annual reports & S&P Capital IQ database.

– IV-11 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

As over 50% of revenue of the above comparable companies are generated from provision of BPO services, call center services or customer service solutions, these comparable companies, together with the Target Group, are considered to be similarly subject to fluctuations in the economy and performance of the industry, among other risks. Thus, we consider they are confronted with similar industry risks and rewards.

After selecting the abovementioned comparable companies, we have to determine the appropriate valuation multiples for the valuation of the Target Group, in which we have considered price-to-earnings (‘‘P/E’’), price-to-book (‘‘P/B’’), price-to-sales (‘‘P/S’’), enterprise value/sales (‘‘EV/S’’), enterprise value/earnings before interests and taxes (‘‘EV/ EBIT’’) and enterprise value/earnings before interests, taxes, depreciation and amortization (‘‘EV/EBITDA’’) multiples.

P/B multiple is considered not appropriate for this valuation because book value captures only the tangible assets of a company which, if a company creates any added market value (as reflected by a P/B ratio of larger than one), should have its own intangible competencies and advantages. These intangible company-specific competencies and advantages are not captured in the P/B ratio and so in general, the equity’s book value has little bearing with its fair value. Thus, the P/B multiple is not a good measurement of the fair value of a company.

P/S and EV/S multiples are considered not appropriate for this valuation because they do not consider the profitability of the Target Group. As both P/S and EV/S multiples only focus on the sales amounts but not the margin, the result will be easily distorted if the cost structure is not being taken into account. Thus, P/S and EV/S multiples are not adopted in this valuation.

P/E multiple is considered not appropriate for this valuation because it does not capture differences in financial leverage and related risk features across the companies. Similar with EV/EBIT multiple, they also comprise non-cash items in earnings, such as depreciation and amortization of fixed assets.

Therefore, EV/EBITDA multiple is considered to be the most appropriate indicator of the fair values of the Comparable Companies, as this multiple eliminates the difference in capital structure, taxation and deprecation methods. Hence, it is adopted in the valuation of the Target Group. Enterprise value is generally derived based on the market capitalization of a company, plus net debt (total debt minus cash and short-term investment), minority interest and preferred shares.

– IV-12 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

The EV/EBITDA multiples of comparable companies are as follows:

		Reporting	Enterprise Value	Last-Twelve-	LTM EV/EBITDA
		Currency	as of 31 May 2020	Month (‘‘LTM’’)	Before LOMD and
#	Stock Code	(in mm)	(1)	EBITDA (1)	Control Premium (1)
1	NYSE:G	USD	8,380	549	15.26
2	NYSE:ATTO	USD	628	104	6.04
3	SEHK:354	RMB	8,815	992	8.89
4	NasdaqGS:SYKE	USD	1,270	165	7.71
5	NYSE:WNS	USD	2,394	177	13.52
6	SEHK:8031	HKD	22	10	2.32
7	NasdaqCM:CCRC	USD	71	16	4.44
8	SEHK:6113	MYR	163	12	13.57
9	NYSE:SRT	USD	438	49	8.89
10	NasdaqGM:ALJJ	USD	130	16	8.08
	Maximum				15.26
	Minimum				2.32
	Median (2)				8.49

Notes:

• (1) Data sourced from S&P Capital IQ database. The enterprise values of the comparable companies are computed based on the market capitalization of the companies as of 31 May 2020. EBITDA data are based on the trailing 12-month financial data of the comparable companies available as of the Valuation Date.

• (2) Median and average share the same role in understanding the central tendency of a sets of numbers. Median, which would not be affected by extreme values, is regarded a better mid-point measure for skewed number distributions. Hence, median is adopted to derive the result, which we consider to be a more reasonable approach to prevent the outliners from distorting the result.

Valuation Parameters

(in RMB’000 unless otherwise specified)

EBITDA of the Target Group (1)	106,417
Adopted EV/EBITDA multiple (2)	8.49x
Estimated 100% Enterprise Value of the Target Group	902,959
Add: Cash or cash equivalent (1)	74,379
Less: Debts (1)	(47,604)
Less: Minority Interest (1)	(11,904)
Estimated 100% Equity Value of the Target Group based on EV/EBITDA	917,830
(marketable and non-controlling basis)
Less: Lack of Marketability Discount (‘‘LOMD’’) (3)	(189,073)
Add: Control Premium (4)	186,562
Adjusted 100% Equity Value of the Target Group based on EV/	915,319
EBITDA (non-marketable and controlling basis)

– IV-13 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

Notes:

• (1) The data are based on the financial information provided by management for the year ended 31 March 2020.

• (2) Given that the multiples of comparable companies show a range of values, the median of the EV/ EBITDA multiples is adopted, which is able to minimize the impact of outliers to the valuation result.

• (3) LOMD reflects the fact that there is no ready market for shares in a closely held company. Ownership interests in closely held companies are typically not readily marketable compared to similar interests in publicly listed companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly listed company.

The report ‘‘Stout Restricted Stock Study Companion Guide (2019 edition)’’ by Stout Risius Ross, LLC, a reputable research company, suggested an average marketability discount is 20.6% which is based on 751 private placement transactions of unregistered common shares issued by publicly traded companies from July 1980 through June 2018. A marketability discount of 20.6% is considered appropriate and suitable for this valuation as we understand that the Target Group is a group of privately held companies.

The value of non-marketable interest can be calculated from marketable interest using the following formula:

Fair Value of Non-Marketable Interest = Fair Value of Marketable Interest x (1- LOMD)

• (4) Control premium is the amount that a buyer is willing to pay over the minority equity value of the company in order to acquire a controlling interest in that company. The EV/EBITDA multiple adopted in the valuation was calculated from public listed companies, which represents minority ownership interest; market value calculated using such EV/EBITDA multiple, therefore, represents the minority interest. Thus, control premium was adopted to adjust such minority interest market value to controlling interest market value.

Adjustment for control is made by the application of a control premium to the value of the Target Group’s shares. The report ‘‘Control Premium Study: 4th Quarter 2019’’ by FactSet Mergerstat, LLC, a reputable research company, suggested an overall median control premium is 25.6%. A control premium of 25.6% is considered appropriate and suitable for this valuation as we understand that the Company intends to acquire a controlling stake in the Target Group.

The value of controlling interest can be calculated from minority interest using the following formula:

Fair Value of Controlling Interest = Fair Value of Minority Interest x (1 + Control Premium)

Market Approach — Comparable Transaction Method

The comparable transactions are selected with reference to the following selection criteria:

• . The primary industry of the acquiree is provision of BPO services, call center services or customer service solutions;

• . The transaction is announced within 1 year from the Valuation Date (i.e. between 1 June 2019 and 31 May 2020); and

• . The financial information of the companies is available to the public.

– IV-14 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

Based on the above criteria, there is one independent transaction with the acquiree engaging in similar businesses as the Target Group. Details of the transaction is illustrated as follows:

					% of				Implied EV/
	Announcement				Shareholding		Implied P/B	Implied P/E	EBITDA
#	Date	Acquiree	Acquirer	Business Description of the Acquiree	Acquired	Consideration	Multiple	Multiple	Multiple
1)	14 Jun 2019	Allsec	Conneqt	Allsec Technologies Limited provides	99.2%	INR 4,563.63	1.7x — 2.2x	24.3x — 31.1x	5.9x — 8.6x
		Technologies	Business	business process solutions in India and	(through 4	million
		Limited	Solutions	internationally. The company operates	transactions)	(through 4
			Limited	through three segments: Customer		transactions)
				Lifecycle Management, Anti Money
				Laundering, and Human Resource
				Outsourcing. Its services include data
				verification, processing of orders received
				through telephone calls, telemarketing,
				monitoring quality of calls of other call
				centers, customer services, human
				resource, and payroll processing. The
				company also provides IT enabled
				services comprising Web development,
				Web design, search engine optimization,
				strategic teleservices, customer care, and
				quality management. In addition, it offers
				anti-money laundering review services;
				and outsourced solutions in customer
				engagement, sales and retention, and
				quality assurance for businesses.

Source: S&P Capital IQ

Given the fact that only one recent comparable transaction can be identified, we consider that the multiple derived based on comparable transactions may not be representable for our valuation, and thus, the comparable transactions method is not appropriate for this valuation. Nonetheless, we observed that the median of the implied EV/EBITDA from comparable companies is still within the range of the independent comparable transaction.

CONCLUSION OF VALUE

Based on our investigation and analysis method employed, it is our opinion that the fair value of the 100% equity interest of the Target Group as of the Valuation Date is RMB 915,319,000.

– IV-15 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

Our valuation is prepared in compliance with the requirements of International Valuation Standards published by The International Valuation Standards Council, with the conclusion of value relying extensively on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

We hereby certify that we have neither present nor prospective interests in in the Company, the Target Group nor the value reported.

Yours faithfully, For and on behalf of AVISTA Valuation Advisory Limited

Vincent C B Pang CFA, FCPA(HK), FCPA (Aus.), MRICS Managing Director

Analysed and Reported by:

Ivan K K Lui CFA, FCPA(HK), LL.M. Director

Leo K W Hung CPA(HK) Senior Manager

Alan K L Ng CPA(HK) Senior Analyst

Note: Mr. Vincent Pang is a member of CFA Institute and a fellow member of Hong Kong Institute of Certified Public Accountants and CPA Australia and a member of Royal Institution of Chartered Surveyors. Vincent has over 20-year experience in financial valuation and business consulting in Hong Kong and the PRC.

– IV-16 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

APPENDIX — GENERAL LIMITATIONS AND CONDITIONS

This Report was prepared based on the following general assumptions and limiting conditions:

• . All data, including historical financial data, which we relied upon in reaching opinions and conclusions or set forth in the Report are true and accurate to our best knowledge. Whilst reasonable care has been taken to ensure that the information contained in the Report is accurate, we cannot guarantee its accuracy and we assume no liability for the truth or accuracy of any data, opinions, or estimates furnished by or sourced from any third parties which we have used in connection with the Report.

• . We also assume no responsibilities in the accuracy of any legal matters. In particular, we have not carried out any investigation on the title of or any encumbrances or any interest claimed or claimable against the property appraised. Unless otherwise stated in the Report, we have assumed that the owner’s interest is valid, the titles are good and marketable, and there are no encumbrances that cannot be identified through normal processes.

• . We have not verified particulars of property, including their areas, sizes, dimensions, and descriptions, which we have used or have referred to in connection with the preparation of this Report, unless otherwise stated in this Report. Any information regarding areas, sizes, dimensions, and descriptions of property mentioned in this Report are for identification purposes only, and no one should use such information in any conveyance or other legal document. Any plans or graphical illustrations presented in this Report are intended only for facilitating the visualization of the property and its surroundings and such plans or graphical illustrations should not be regarded as a survey or a scale for size.

• . The value opinion presented in this Report is based on the prevailing or then prevailing economic conditions and on the purchasing power of the currency stated in the Report as of the date of analysis. The date of value on which the conclusions and opinions expressed apply is stated in this Report.

• . This Report has been prepared solely for the use or uses stated. Except for extraction of or reference to the Report by the Company, its financial advisor and/or its independent financial advisor for their respective work in relation to the Proposed Acquisition, it is not intended for any other use or purpose or use by any third parties. We hereby disclaim that we are not liable for any damages and/or loss arisen in connection with any such unintended use.

– IV-17 –

VALUATION REPORT OF THE TARGET GROUP

APPENDIX IV

• . Prior written consent must be obtained from AVISTA Valuation Advisory Limited for publication of this Report. Except for disclosure in the Circular in relation to the Proposed Acquisition, no part of this Report (including without limitation any conclusion, the identity of any individuals signing or associated with this Report or the firms/companies with which they are connected, or any reference to the professional associations or organisations with which they are affiliated or the designations awarded by those organisations) shall be disclosed, disseminated or divulged to third parties by any means of publications such as prospectus, advertising materials, public relations, news.

• . No environmental impact study has been carried out, unless otherwise stated in this Report. We assume all applicable laws and governmental regulations are being complied with unless otherwise stated in this Report. We have also assumed responsible ownership and that all necessary licenses, consents, or other approval from the relevant authority or private organisations have been or to be obtained or renewed for any use that is relevant to value analysis in this Report.

• . Unless otherwise stated in this Report, the value estimate set out in this Report excludes the impact of presence of any harmful substances such as asbestos, ureaformaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials or of structural damage or environmental contamination. For purposes of evaluating potential structural and/or environmental defects, where their existence could have a material impact on value of the property, we would recommend that advices from the relevant experts, such as a qualified structural engineer and/or industrial hygienist, should be sought.

– IV-18 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL OF THE COMPANY

As at the Latest Practicable Date, the authorised share capital of the Company was HK$100,000,000 divided into 10,000,000,000 Shares, of which 3,550,496,836 Shares had been issued and fully paid.

Since 31 March 2020 (being the date up to which the latest published audited accounts of the Group were made up) and up to the Latest Practicable Date, there has been no alterations in the capital of any member of the Group.

The Company does not have any outstanding options, warrants, derivatives and other securities convertible or exchangeable into Shares or any other derivatives as at the Latest Practicable Date. As at the Latest Practicable Date, the issued Shares are listed and traded on the GEM board of the Hong Kong Stock Exchange and there is no other stock exchange on which any part of the equity or debt securities of the Company is listed or dealt in or on which listing or permission to deal is being, or is proposed to be, sought, and particulars of the dealing and settlement arrangements on each such exchange and between such exchanges.

3. DISCLOSURE OF INTERESTS

• (a) As at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interests or short positions in any shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by the Directors, to be notified to the Company and the Hong Kong Stock Exchange.

– V-1 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

• (b) As at the Latest Practicable Date, so far as was known to the Directors, the following persons (other than the Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying Shares of the Company (i) which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or (ii) which were recorded in the register required to be kept by the Company under Section 336 of the SFO, or (iii) who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

Long positions in the Shares as at the Latest Practicable Date

			Approximate
			percentage of
		Number of	shareholding in
Name of Shareholder	Capacity	Shares held	the Company
Zhongzhi Xinzhuo	Beneficial owner	2,159,552,102	60.82%
Kang Bang (HK)	Beneficial owner	455,820,525	12.84%
Tian Xi Capital Company	Interests of controlled	2,615,372,627	73.66%
Limited (‘‘Tian Xi	corporation
Capital’’) (Note)
Zhong Zhi Ze Yun Capital	Interest of controlled	2,615,372,627	73.66%
Company Limited (‘‘Ze	corporation
Yun Capital’’) (Note)
Mr. Xie (Note)	Interest of controlled	2,615,372,627	73.66%
	corporation

Note: Each of Zhongzhi Xinzhuo and Kang Bang (HK) is a wholly-owned subsidiary of Tian Xi Capital. Ze Yun Capital, a company wholly-owned by Mr. Xie, controls 100% of the voting power at general meetings of Tian Xi Capital. As such, each of Tian Xi Capital, Ze Yun Capital and Mr. Xie is deemed to be interested in an aggregate of 2,615,372,627 Shares held by Zhongzhi Xinzhuo and Kang Bang (HK) by virtue of the SFO.

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any other person (other than the Directors and chief executive of the Company) who had an interest or short position in the Shares or underlying Shares (i) which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or (ii) which were recorded in the register required to be kept by the Company under Section 336 of the SFO, or (iii) who was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, any member of the Enlarged Group since 31 March 2020, being the date to which the latest published audited accounts of the Company were made up.

– V-2 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

None of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Enlarged Group.

4. SERVICE CONTRACTS

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

5. LITIGATION

As at the Latest Practicable Date, save as disclosed in this circular, no member of the Enlarged Group was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

6. COMPETING BUSINESS

As at the Latest Practicable Date, save as disclosed in this circular, none of the Directors was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

Mr. Xie, a controlling shareholder of the Company, holding approximately 73.66% of the total issued share capital of the Company as at the Latest Practicable Date through Zhongzhi Xinzhuo and Kang Bang (HK), indirectly holds 100% equity interest in Zhongzhi Capital. Zhongzhi Capital’s key business include private equity investments in the primary market, private placement, mergers and acquisitions of overseas businesses and funds which may compete or are likely to compete with the business of the Group.

Mr. Xie also holds indirect interests in the following companies, which are corporations licensed by the SFC to conduct Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities: (1) 80% indirect interest in Tang Wealth International Limited, which mainly provides private banking services, including providing asset allocation and investment consultancy services, including agency sales of public funds and private equity funds, issue of private equity funds or asset management etc. but is not engaged in traditional investment services; and (2) 45.1% indirect interest in Hang Tang International Capital Management Limited, which mainly provides asset management and funds distribution services. Mr. Xie is also the sole shareholder of ZhongTai Financing (Hong Kong) Limited, which holds a Money Lenders Licence and conducts money lending business.

Save as disclosed above, none of the Directors, controlling shareholder of the Company or their respective close associates had any direct or indirect interest in a business which competes or is likely to compete with the business of the Enlarged Group.

– V-3 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

7. DIRECTORS’ INTERESTS IN ASSETS, CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors had a direct or indirect interest in any assets acquired or disposed of by or leased to, or which were proposed to be acquired, disposed of by or leased to, any member of the Group since 31 March 2020, the date up to which the latest published audited accounts of the Group were made up.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group taken as a whole.

8. QUALIFICATIONS

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

Name	Qualification
Dongxing Securities	A licensed corporation to carry out type 1 (dealing in
	securities), type 4 (advising on securities) and type 6
	(advising on corporate finance) regulated activities as
	defined under the SFO
China Insights Consultancy	Industry consultant
Deloitte Touche Tohmatsu	Certified public accountants
Lego Corporate Finance	A licensed corporation to carry out type 6 (advising on
Limited	corporate finance) regulated activity as defined under the
	SFO
Shihui Partners	Legal adviser to the Company as to PRC Laws
Walkers (Hong Kong)	Legal adviser to the Company as to Cayman Islands
	Laws
AVISTA Valuation Advisory	Independent valuer
Limited

As at the Latest Practicable Date, each of the above experts had no interest in the share capital of any member of the Group, nor had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group, and each of the above experts had no interest, either directly or indirectly, in any assets which have been, since 31 March 2020, the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

– V-4 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and report (as the case may be) and references to its name, in the form and context in which they respectively appear.

9. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) had been entered into by the members of the Enlarged Group within the two years immediately preceding the issue of this circular and are material:

• (a) the Share Purchase Deed;

• (b) the Exclusive Business Cooperation Agreement;

• (c) the Exclusive Call Option Agreement;

• (d) the Share Pledge Agreement;

• (e) the Powers of Attorney;

• (f) the Authorisation Agreement;

• (g) the Spouse Consent Letters;

• (h) an assignment and assumption deed dated 31 March 2020 entered into between ZZCI Corporate Services Limited, an indirect wholly-owned subsidiary of the Company (as assignor), and Dragon Ocean Development Ltd. (as assignee) in relation to the assignment of the rights, and the assumption of the obligations, under the loan agreement dated 7 September 2017 entered into between ZZCI Corporate Services Limited (as lender) and Geoswift Holding Limited (as borrower) and related security documents at a settlement amount of US$28,000,000; and

• (i) an equity injection agreement dated 16 October 2019 entered into between DaLian Kingwisoft and Hunan Mango U-Show Internet Technology Co., Ltd.* (湖南芒果優 秀網絡科技有限公司) (‘‘Mango U-Show’’) pursuant to which DaLian Kingwisoft agreed to acquire 12.14% equity interest in Mango U-Show for a consideration of RMB4,249,000.

10. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2020, being the date to which the latest published audited accounts of the Company were made up.

– V-5 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

11. INTELLECTUAL PROPERTY RIGHTS OF THE TARGET GROUP

(a) Trademarks

As at the Latest Practicable Date, the Target Group has registered the following trademarks which are considered to be material in relation to its business:

			Registration	Place of			Term of
No.	Registrant	Trademark	number	registration	Class	Registration date	use (years)
1.	Shenzhen Kingwisoft		9635282	PRC	36	21 August 2013	10
2.	Shenzhen Kingwisoft		9635267	PRC	42	28 January 2013	10
3.	Shenzhen Kingwisoft	‘‘金慧融智’’	9635260	PRC	42	21 July 2012	10
4.	Shenzhen Kingwisoft	‘‘融錢網’’	14717389	PRC	36	7 September 2015	10
5.	Shenzhen Kingwisoft	‘‘融證寶’’	14717059	PRC	35	28 June 2015	10
6.	Shenzhen Kingwisoft	‘‘融證寶’’	14717126	PRC	36	28 June 2015	10
7.	Shenzhen Kingwisoft	‘‘融證宝’’	14717247	PRC	42	28 June 2015	10
8.	Shenzhen Kingwisoft	‘‘融證通’’	14716772	PRC	35	28 June 2015	10
9.	Shenzhen Kingwisoft	‘‘融證通’’	14716855	PRC	36	28 June 2015	10
10.	Shenzhen Kingwisoft	‘‘融證通’’	14716928	PRC	38	28 June 2015	10
11.	Shenzhen Kingwisoft	‘‘融證通’’	14716973	PRC	42	28 June 2015	10
12.	Chengdu Kingwisoft		22636737	PRC	35	14 February 2018	10
13.	Chengdu Kingwisoft		22637080	PRC	42	14 February 2018	10
14.	DaLian Kingwisoft	喃呱	28221070	PRC	35	7 December 2018	10
15.	DaLian Kingwisoft	喃呱	28221130	PRC	41	21 November 2018	10
16.	DaLian Kingwisoft		28204818	PRC	9	21 November 2018	10
17.	DaLian Kingwisoft		28208160	PRC	35	21 November 2018	10
18.	DaLian Kingwisoft		28209663	PRC	42	21 November 2018	10
19.	DaLian Kingwisoft		28215826	PRC	36	21 November 2018	10
20.	DaLian Kingwisoft		28215859	PRC	41	21 November 2018	10
21.	DaLian Kingwisoft	喃呱云	28208180	PRC	36	21 November 2018	10
22.	DaLian Kingwisoft	喃呱云	28208213	PRC	41	21 November 2018	10
23.	DaLian Kingwisoft	喃呱云	28214317	PRC	35	21 November 2018	10
24.	DaLian Kingwisoft	喃呱云	28216073	PRC	9	21 November 2018	10
25.	DaLian Kingwisoft	喃呱云	28221265	PRC	42	21 November 2018	10
26.	DaLian Kingwisoft		25791688	PRC	35	28 March 2019	10
27.	DaLian Kingwisoft		25801972	PRC	42	7 April 2019	10
28.	Rongzhi Outsourcing	Hi客圖標	30667448	PRC	9	21 February 2019	10
29.	Rongzhi Outsourcing	Hi客圖標	30652224	PRC	38	21 February 2019	10
30.	Rongzhi Outsourcing	Hi客圖標	30653838	PRC	42	21 February 2019	10
31.	Shenzhen Kingwisoft		29731426	PRC	35	21 January 2019	10
32.	Shenzhen Kingwisoft		29739998	PRC	41	28 April 2019	10

– V-6 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

			Registration	Place of			Term of
No.	Registrant	Trademark	number	registration	Class	Registration date	use (years)
33.	Shenzhen Kingwisoft	融錢網	14717377	PRC	35	21 July 2016	10
34.	Chengdu Kingwisoft		22637228	PRC	42	21 March 2019	10
35.	Chengdu Kingwisoft		22636794	PRC	42	14 February 2019	10

(b) Computer Software Copyrights

As at the Latest Practicable Date, the Target Group has registered the following computer software copyrights which are considered to be material in relation to its business:

	Copyright		Software
	registration		registration	Copyright	Registration
No.	number	Name of software	version	owner	Date
1.	2013SR065934	Call Centre Predictive Outbound Call	V1.0	Beijing Nanyou	15 July 2013
		System
2.	2013SR066003	Call Centre Survey System	V1.0	Beijing Nanyou	15 July 2013
3.	2013SR065931	Call Centre System	V1.0	Beijing Nanyou	15 July 2013
4.	2016SR384053	Kingwisoft Technology SmartBOX	V1.0	Beijing Nanyou	21 December
		Cloud Phone Supervision System			2016
		(Short name: SmartBOX)
5.	2016SR384253	Kingwisoft Technology SmartWS	V1.0	Beijing Nanyou	21 December
		Cloud Intelligent Order			2016
		Management System (Short name:
		SmartWS)
6.	2016SR386093	Kingwisoft Technology	V1.0	Beijing Nanyou	21 December
		SmartAnalytics Big Data Analysis			2016
		System (Short name:
		SmartAnalytics)
7.	2016SR387174	Kingwisoft Technology SmartCS	V1.0	Beijing Nanyou	22 December
		Cloud Customer Services System			2016
		(Short name: SmartCS)
8.	2016SR387165	Kingwisoft Technology SmartCC	V1.0	Beijing Nanyou	22 December
		Cloud Call Centre System (Short			2016
		name: SmartCC)
9.	2016SR387180	Kingwisoft Technology SmartCRM	V1.0	Beijing Nanyou	22 December
		Cloud Client Information			2016
		Management System (Short name:
		SmartCRM)
10.	2017SR041372	Nanyou Yunke Crowdsourcing	V1.0	Beijing Nanyou	13 February
		Platform (Short name: Yunke			2017
		Platform)

– V-7 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

	Copyright		Software
	registration		registration	Copyright	Registration
No.	number	Name of software	version	owner	Date
11.	2017SR110391	Nanyou Yunke User Management	V1.0	Beijing Nanyou	11 April 2017
		Platform (Short name: Yunke User
		Management Platform)
12.	2017SR110096	Nanyou Yunke Crowdsourcing Project	V1.0	Beijing Nanyou	11 April 2017
		Management Platform (Short name:
		Crowdsourcing Project
		Management Platform)
13.	2017SR110386	Nanyou Yunke Financial Management	V1.0	Beijing Nanyou	11 April 2017
		Platform (Short name: Yunke
		Financial Management Platform)
14.	2017SR109033	Nanyou Yunke Employer Management	V1.0	Beijing Nanyou	11 April 2017
		Platform (Short name: Yunke
		Employer Management Platform)
15.	2017SR110418	Nanyou Yunke Team Management	V1.0	Beijing Nanyou	11 April 2017
		Platform (Short name: Yunke
		Team Management Platform)
16.	2017SR109882	Nanyou Yunke Training Management	V1.0	Beijing Nanyou	11 April 2017
		Platform (Short name: Yunke
		Training Platform)
17.	2017SR110093	Nanyou Yunke Supervision	V1.0	Beijing Nanyou	11 April 2017
		Management Platform (Short name:
		Yunke Supervision Platform)
18.	2017SR109031	Nanyou Yunke Customer-end	V1.0	Beijing Nanyou	11 April 2017
		Software (Windows) (Short name:
		Yunke Customer-end Software
		(Windows))
19.	2017SR110092	Nanyou Yunke Monitoring	V1.0	Beijing Nanyou	11 April 2017
		Management Platform (Short name:
		Yunke Monitoring Platform)
20.	2018SR111722	smart1 Intelligent Audio Management	V1.0	DaLian	13 February
		System (WEB Version) (Short		Kingwisoft	2018
		name: smart1 WEB Management
		System)
21.	2018SR111243	smartN1 Intelligent Hardware and	V1.0	DaLian	13 February
		Equipment Management System		Kingwisoft	2018
		(WEB Version) (Short name:
		smartN1 Management System)
22.	2018SR111237	smartN1 Intelligent Audio	V1.0	DaLian	13 February
		Management System (WeChat		Kingwisoft	2018
		Version) (Short name: smartN1
		WeChat Management System)

– V-8 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

	Copyright		Software
	registration		registration	Copyright	Registration
No.	number	Name of software	version	owner	Date
23.	2018SR112273	Nangua Intelligent Reporting System	V1.0	DaLian	13 February
		(Short name: Nangua Reporting		Kingwisoft	2018
		System)
24.	2018SR112295	Nangua Telephone Customer Services	V1.0	DaLian	13 February
		System (Short name: Nangua		Kingwisoft	2018
		Telephone System)
25.	2018SR111247	Nangua Intelligent Monitoring System	V1.0	DaLian	13 February
		(Short name: Nangua Monitoring		Kingwisoft	2018
		System)
26.	2018SR112289	Nangua Client Information System	V1.0	DaLian	13 February
		(Short name: Nangua Client		Kingwisoft	2018
		System)
27.	2018SR112722	Nangua Intelligent Statistics System	V1.0	DaLian	13 February
		(Short name: Nangua Statistics		Kingwisoft	2018
		System)
28.	2018SR112717	Nangua User Management System	V1.0	DaLian	13 February
		(Short name: Nangua User System)		Kingwisoft	2018
29.	2018SR111579	Nangua Online Customer Services	V1.0	DaLian	13 February
		System (Short name: Nangua		Kingwisoft	2018
		Online System)
30.	2018SR112270	Nangua Knowledge Base System	V1.0	DaLian	13 February
		(Short name: Nangua Knowledge		Kingwisoft	2018
		Base)
31.	2018SR111589	Nangua Quality Inspection System	V1.0	DaLian	13 February
		(Short name: Nangua Quality		Kingwisoft	2018
		Inspection System)
32.	2018SR112152	Nangua On-site Management System	V1.0	DaLian	13 February
		(Short name: Nangua On-site		Kingwisoft	2018
		System)
33.	2017SR102655	Kingwisoft Technology Cloud	V1.0	DaLian	5 April 2017
		Services Crowdsourcing Training		Kingwisoft
		Platform (Short name: Cloud
		Services Crowdsourcing Training
		Platform)
34.	2017SR102662	Kingwisoft Technology Cloud	V1.0	DaLian	5 April 2017
		Services Crowdsourcing Platform		Kingwisoft
		(Short name: Cloud Services
		Crowdsourcing Platform)
35.	2015SR115829	Cross-media Vertical Search Engine	V1.0	DaLian	25 June 2015
		System		Kingwisoft

– V-9 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

	Copyright		Software
	registration		registration	Copyright	Registration
No.	number	Name of software	version	owner	Date
36.	2015SR115827	General Performance Evaluation	V1.0	DaLian	25 June 2015
		System		Kingwisoft
37.	2011SR055541	Call Centre Outbound Call System	V2.0	Shenzhen	6 August 2011
		Software (Short name: JROC)		Kingwisoft
38.	2011SR055892	Call Centre System Software (Short	V1.3	Shenzhen	8 August 2011
		name: JRCC)		Kingwisoft
39.	2017SR181227	Kingwisoft Rongzhi Risk Management	V1.0	Shenzhen	16 May 2017
		and Post-Event Handling Software		Kingwisoft
40.	2014SR213139	Kingwisoft Rongzhi Internet	V1.0	Shenzhen	27 December
		Investment and Financing Risk		Kingwisoft	2014
		Management System (Short name:
		Internet Investment and Financing
		Risk Management System)
41.	2014SR213138	Kingwisoft Rongzhi Internet	V1.0	Shenzhen	27 December
		Investment and Financing Website		Kingwisoft	2014
		Software (Short name: Investment
		and Financing Website)
42.	2017SR166386	Kingwisoft Rongzhi Data Collection	V1.0	Shenzhen	8 May 2017
		Software System		Kingwisoft
43.	2017SR181170	Kingwisoft Rongzhi Data Transfer	V1.0	Shenzhen	16 May 2017
		Software		Kingwisoft
44.	2014SR029054	Kingwisoft Rongzhi Cloud Disaster	V1.0	Shenzhen	11 March 2014
		Recovery and Data Backup		Kingwisoft
		Software
45.	2013SR161632	Kingwisoft Rongzhi CRM Customer	V1.0	Shenzhen	30 December
		Services System (Taobao Version)		Kingwisoft	2013
46.	2013SR161420	Taobao CRM Customer Services	V1.0	Shenzhen	30 December
		Quality Inspection System		Kingwisoft	2013
		Software (Short name: TCRMZJ)
47.	2011SR055543	Securities Marketing Services	V1.3	Shenzhen	6 August 2011
		Integrated Platform Software		Kingwisoft
		(Short name: JRUS)
48.	2018SR433371	Hike Knowledge Sharing Software	V1.0	Rongzhi	8 June 2018
		(Short name: Hike)		Outsourcing
49.	2019SR0322344	Jingyi Crowdsourcing Call Centre	V1.0	Shenzhen	11 April 2019
		Customer Services Platform		Kingwisoft
50.	2019SR0322291	Big Data-based Internet Financial	V1.0	Shenzhen	11 April 2019
		Risk Management System		Kingwisoft
51.	2019SR0321714	Securities Customer Services and	V1.0	Shenzhen	11 April 2019
		Marketing Management Platform		Kingwisoft
52.	2019SR0321733	Securities Disaster Recovery System	V1.0	Shenzhen	11 April 2019
		Auto Switch Software		Kingwisoft

– V-10 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

	Copyright		Software
	registration		registration	Copyright	Registration
No.	number	Name of software	version	owner	Date
53.	2017SR509757	Securities Client Information Enquiry	V1.0	Shenzhen	13 September
		System		Kingwisoft	2017
54.	2017SR510036	Securities Transaction Monitoring and	V1.0	Shenzhen	13 September
		Alert System		Kingwisoft	2017
55.	2017SR509748	Securities Data Management System	V1.0	Shenzhen	13 September
				Kingwisoft	2017
56.	2017SR511338	Securities Internet Operation	V1.0	Shenzhen	13 September
		Inspection and Management		Kingwisoft	2017
		System
57.	2017SR510029	Securities Information Security	V1.0	Shenzhen	13 September
		Management Software		Kingwisoft	2017
58.	2017SR508864	Securities Automatic Deployment	V1.0	Shenzhen	12 September
		Software		Kingwisoft	2017
59.	2017SR508832	Securities Automatic Monitoring	V1.0	Shenzhen	12 September
		System		Kingwisoft	2017
60.	2017SR508873	Securities Safety Protection System	V1.0	Shenzhen	12 September
				Kingwisoft	2017
61.	2017SR508856	Securities Outsourcing Staff	V1.0	Shenzhen	12 September
		Operation Management System		Kingwisoft	2017
62.	2017SR510163	Securities Workflow Operation	V1.0	Shenzhen	12 September
		Maintenance and Management		Kingwisoft	2017
		System
63.	2008SR09062	Interactive Digital Audio Management	V2.0	Baihe Guoli	13 May 2008
		System (Short name: Audio
		Management System)
64.	2019SR1250082	Xiaonan Intelligent Robot System	V1.0	Beijing Nanyou	2 December
					2019
65.	2019SR1251168	Mail Work Order System	V1.0	Beijing Nanyou	2 December
					2019
66.	2019SR1251143	SmartBOX Audio Management	V1.0	Beijing Nanyou	2 December
		System			2019
67.	2019SR1313770	Hiker Learning Platform (Android	V1.0	Beijing Nanyou	9 December
		Version)			2019
68.	2019SR1317724	Hiker Learning Platform (ios Version)	V1.0	Beijing Nanyou	9 December
					2019
69.	2019SR1317733	KWS Assessment System	V1.0	Beijing Nanyou	9 December
					2019
70.	2019SR1314501	KWS Personnel Management System	V1.0	Beijing Nanyou	9 December
					2019
71.	2019SR1321384	SmartConference Conference	V1.0	Beijing Nanyou	9 December
		Management System			2019

– V-11 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

	Copyright		Software
	registration		registration	Copyright	Registration
No.	number	Name of software	version	owner	Date
72.	2019SR1321394	SmartcrmFH After-sales Management	V1.0	Beijing Nanyou	9 December
		System			2019
73.	2019SR1321399	SmartCRM Asset Management System	V1.0	Beijing Nanyou	9 December
					2019
74.	2019SR1321404	SmartQC Intelligent Quality	V1.0	Beijing Nanyou	9 December
		Inspection System			2019
75.	2019SR1319145	Nanyou Information Call Centre	V1.0	Beijing Nanyou	9 December
		System Software			2019
76.	2019SR1319155	Knowledge Sharing and Publishing	V1.0	Beijing Nanyou	9 December
		System			2019
77.	2019SR1325671	KWS Asset Management System	V1.0	Beijing Nanyou	10 December
					2019
78.	2019SR1325662	ScheDue Shift Arrangement	V1.0	Beijing Nanyou	10 December
		Management System			2019
79.	2019SR1326026	SmartATM Attendance Management	V1.0	Beijing Nanyou	10 December
		System			2019
80.	2019SR1337548	SmartPA Performance Management	V1.0	Beijing Nanyou	11 December
		System			2019
81.	2019SR1378199	Nangua Telephone System	V2.0	DaLian	16 December
				Kingwisoft	2019
82.	2019SR1378196	Nangua Work Order Management	V1.0	DaLian	16 December
		System		Kingwisoft	2019
83.	2019SR1378207	Nangua Quality Inspection System	V2.0	DaLian	16 December
		(Short name: Nangua Quality		Kingwisoft	2019
		Inspection System)
84.	2019SR1378205	Nangua Intelligent Reporting System	V2.0	DaLian	16 December
		(Short name: Nangua Reporting		Kingwisoft	2019
		System)
85.	2019SR1378202	Nangua Intelligent Monitoring System	V2.0	DaLian	16 December
		(Short name: Nangua Monitoring		Kingwisoft	2019
		System)

– V-12 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

(c) Domain Names

As at the Latest Practicable Date, the Target Group has registered the following domain names which are considered to be material in relation to its business:

• No. Registrant Domain Name Expiry Date 1 DaLian Kingwisoft nanguakf.com 12 November 2020 2 DaLian Kingwisoft nanguajinfu.com 15 May 2021 3 DaLian Kingwisoft kingwisoft.cn 5 July 2021 4 DaLian Kingwisoft kingwisoft.com 5 July 2021 5 Rongzhi Outsourcing hikerbang.com 28 April 2021 6 Rongzhi Hudong thinkmore.net 30 January 2021 7 Beijing Nanyou southtel.cn 29 November 2020 8 Beijing Nanyou smartn1.com 5 April 2021 9 Chengdu Kingwisoft rzthinkmore.com 3 August 2021 10 Qingdao Kingwisoft kingwimedia.com 14 February 2022 11 Dalian Zhiyin kingwisolutions.com 18 October 2021

12. GENERAL

• (a) The registered office of the Company is situated at P.O. Box 309, Ugland House, Grand Cayman, KY1–1104, Cayman Islands.

• (b) The Company’s head office and principal place of business in Hong Kong is situated at 11/F, 8 Queen’s Road Central, Hong Kong.

• (c) The Company was registered as a non-Hong Kong company under Part 16 of the Companies Ordinance on 4 March 2010.

• (d) The Hong Kong branch share registrar and transfer office of the Company is Tricor Investor Services Limited, Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (e) The company secretary of the Company is Ms. Chan Sau Mui Juanna, who is a fellow member of the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators.

• (f) The compliance officer of the Company is Mr. Wu Hui.

• (g) Mr. Wu Hui and Ms. Chan Sau Mui Juanna are the authorised representatives of the Company for the acceptance of service of process and notices on behalf of the Company in Hong Kong.

• (h) This circular has been printed in English and Chinese, in the event of inconsistency, the English version shall prevail.

– V-13 –

STATUTORY AND GENERAL INFORMATION

APPENDIX V

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at 11/F, 8 Queen’s Road Central, Hong Kong during normal business hours on any weekdays other than public holidays from the date of this circular up to and including Monday, 12 October 2020:

• (a) the memorandum and articles of association of the Company;

• (b) the annual reports of the Company for the financial years ended 31 March 2019 and 31 March 2020;

• (c) the accountants’ report on the Target Group, the text of which is set out in Appendix I to this circular;

• (d) the report of Deloitte Touche Tohmatsu on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III of this circular;

• (e) the written consents referred to in the paragraph headed ‘‘Qualifications’’ of Appendix V of this circular;

• (f) the material contracts referred to in the paragraph headed ‘‘Material Contracts’’ of Appendix V of this circular;

• (g) the letter from the Board, the text of which is set out in ‘‘Letter from the Board’’ in this circular;

• (h) the letter for recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out in ‘‘Letter from the Independent Board Committee’’ in this circular;

• (i) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out in ‘‘Letter from the Independent Financial Adviser’’ in this circular;

• (j) the valuation report of the Target Group issued by the Valuer, the text of which is set out in Appendix IV of this circular; and

• (k) this circular.

– V-14 –

NOTICE OF EGM

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this notice, 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 notice.

==> picture [57 x 62] intentionally omitted <==

ZZ CAPITAL INTERNATIONAL LIMITED 中 植 資 本 國 際 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 08295)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (the ‘‘EGM’’) of the shareholders of ZZ Capital International Limited (the ‘‘Company’’) will be held at 11/F, 8 Queen’s Road Central, Hong Kong on Monday, 12 October 2020 at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions as an ordinary resolutions.

Unless otherwise indicated, capitalised terms used in this notice and the following resolutions shall have the same meanings as those defined in the circular of the Company dated 18 September 2020 (the ‘‘Circular’’) of which this notice forms part.

ORDINARY RESOLUTIONS

Resolution in relation to the Acquisition

1. ‘‘THAT subject to and conditional upon the passing of all of the ordinary resolutions in this notice,

2. (a) the Share Purchase Deed and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and

3. (b) the Directors (or any one of them) be and are hereby authorised to do all such acts and things and execute (where appropriate, as a deed) and deliver, and (where required) to affix the common seal of the Company to, all such documents for and on behalf of the Company as they may consider necessary or desirable in connection with paragraph (a) of this resolution no. 1.’’

– EGM-1 –

NOTICE OF EGM

Resolution in relation to the grant of the Specific Mandate for the allotment and issuance of the Consideration Shares and the Additional Shares

1. ‘‘THAT subject to and conditional upon the passing of all of the ordinary resolutions in this notice,

2. (a) and conditional upon the GEM Listing Committee of The Stock Exchange of Hong Kong Limited granting the approval for the listing of, and permission to deal in, the Consideration Shares and the Additional Shares, the grant of a specific mandate to the Directors with the power and authority to allot and issue the Consideration Shares and the Additional Shares in accordance with the terms of the Share Purchase Deed be and are hereby approved; and

3. (b) the Directors (or any one of them) be and are hereby authorised to do all such acts and things and execute all such documents for and on behalf of the Company as they may consider necessary or desirable in connection with paragraph (a) of this resolution no. 2.’’

Resolution in relation to the Contractual Arrangements

1. ‘‘THAT subject to and conditional upon the passing of all of the ordinary resolutions in this notice,

2. (a) the Contractual Arrangements and the transactions contemplated thereunder (which are not subject to a maximum aggregate annual cap under Rule 20.51 of the GEM Listing Rules) be and are hereby approved, confirmed and ratified; and

3. (b) the Directors (or any one of them) be and are hereby authorised to do all such acts and things and execute all such documents for and on behalf of the Company as they may consider necessary or desirable in connection with paragraph (a) of this resolution no. 3.’’

Registered office: Head office and principal place P.O. Box 309 of business in Hong Kong: Ugland House 11/F, 8 Queen’s Road Central Grand Cayman, KY1–1104 Hong Kong Cayman Islands

Notes:

1. A member entitled to attend and vote at the EGM convened by the above notice is entitled to appoint one or more proxy(ies) to attend and, subject to the provisions of the memorandum and articles of association of the Company, 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.

2. A form of proxy for use at the EGM is enclosed. If you wish to appoint proxy(ies), you are requested to complete and sign the enclosed form of proxy in accordance with the instructions printed thereon.

– EGM-2 –

NOTICE OF EGM

1. In order to be valid, the form of proxy 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 must be deposited at the Hong Kong Branch Share Registrar of the Company, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude a member of the Company from attending and voting in person at the EGM or any adjournment thereof, and in such event, the proxy form shall be deemed to be revoked.

2. The register of members of the Company will be closed from Wednesday, 7 October 2020 to Monday, 12 October 2020 (both days inclusive) for the purpose of determining the entitlement to attend and vote at the EGM. During which period no transfer of shares of the Company will be registered. In order to be eligible to attend and vote at the EGM, all completed transfer documents accompanied by the relevant share certificate(s) must be lodged with the Hong Kong Branch Share Registrar of the Company, Tricor Investor Services Limited at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Tuesday, 6 October 2020.

3. If a Typhoon Signal No.8 or above is hoisted or a Black Rainstorm Warning Signal is in force at or at any time after 8:00 am on the date of the EGM, the EGM will be adjourned. The Company will post an announcement on Company’s website (www.zzcapitalinternational.com) and the GEM website (www.hkgem.com) to notify its shareholders of the date, time and place of the adjourned meeting.

The EGM will be held as scheduled when an Amber or Red Rainstorm Warning Signal is in force. The Shareholders should decide on their own whether they would attend the meeting under bad weather conditions bearing in mind their own situation.

1. In light of the continuing risks posed by the COVID-19 pandemic, and in the interests of protecting the Shareholders, the Company is supportive of the precautionary measures being adopted. Shareholders are reminded that physical attendance in person at the EGM is not necessary for the purpose of exercising their voting rights. Shareholders are advised to consider appointing the chairman of the EGM as their proxy to vote according to their indicated voting instructions as an alternative to attending the EGM in person. Subject to the development of COVID-19, the Company may implement further changes and precautionary measures and may issue further announcement(s) on such measures as appropriate.

2. In view of the traveling restrictions imposed by various jurisdictions including Hong Kong to prevent the spread of the COVID-19, certain Director(s) may attend the EGM through telephone, video conference or similar electronic means.

As at the date of this notice, the executive Directors are Mr. NIU Zhanbin (Chairman), Mr. JIANG Yulin (Chief Executive Officer) and Mr. WU Hui (Chief Operating Officer); and the independent non-executive Directors are Mr. Stephen MARKSCHEID, Mr. ZHANG Weidong, and Mr. ZHANG Longgen.

This notice, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM 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 notice 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 notice misleading.

This notice will remain on the ‘‘Latest Listed Company Information’’ page of the GEM website at www.hkgem.com for at least seven days from the date of its posting and on the website of the Company at http://www.zzcapitalinternational.com.

– EGM-3 –

==> picture [57 x 62] intentionally omitted <==

ZZ CAPITAL INTERNATIONAL LIMITED 中 植 資 本 國 際 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 08295)

PRECAUTIONARY MEASURES FOR THE 2020 EXTRAORDINARY GENERAL MEETING (‘‘EGM’’)

In compliance with the Hong Kong Government’s directive on social distancing, personal and environmental hygiene, and the guidelines issued by the Centre for Health Protection (‘‘CHP’’) of the Department of Health on the prevention of COVID-19, the Company will implement additional precautionary measures at the EGM in the interests of the health and safety of our Shareholders, investors, Directors, staff and other participants of the EGM (the ‘‘Stakeholders’’) which include without limitation:

• (1) All attendees will be required to wear surgical face masks before they are permitted to attend, and during their attendance of, the EGM. Attendees are advised to maintain appropriate social distance with each other at all times when attending the EGM.

• (2) There will be compulsory body temperature screening for all persons before entering the EGM venue. Any person with a body temperature of 37.4 degrees Celsius or above will not be given access to the EGM venue.

• (3) Attendees may be asked if (i) he/she has travelled outside of Hong Kong within 14 days immediately before the EGM (‘‘Recent Travel History’’); (ii) he/she is subject to any HKSAR Government prescribed quarantine requirement; and (iii) he/she has any flu-like symptoms or close contact with any person under quarantine or with Recent Travel History. Any person who responds positively to any of these questions will be denied entry into the EGM venue or be required to promptly leave the EGM venue.

• (4) Anyone who has Recent Travel History, is subject to quarantine, or has any flu-like symptoms or close contact with any person under quarantine or with Recent Travel History will not be permitted to attend the EGM.

• (5) Anyone attending the EGM is reminded to observe good personal hygiene at all times.

• (6) Appropriate distancing and spacing in line with the guidance from the HKSAR Government will be maintained and as such, the Company may limit the number of attendees at the EGM as may be necessary to avoid over-crowding.

• (7) No refreshment will be served either during or after the EGM and no corporate gifts will be distributed to avoid close contacts of the participants of the EGM during their attendance.

– EGM-4 –

• (8) In light of the continuing risks posed by the COVID-19 pandemic, and in the interests of protecting the Stakeholders, the Company is supportive of the precautionary measures being adopted. Shareholders are reminded that physical attendance in person at the EGM is not necessary for the purpose of exercising their voting rights. Shareholders are advised to consider appointing the chairman of the EGM or any Director or the company secretary of the Company as their proxy to vote according to their indicated voting instructions as an alternative to attending the EGM in person.

• (9) Shareholders are advised to read this leaflet carefully and monitor the development of COVID-19. Subject to the development of COVID-19, the Company may implement further changes and precautionary measures and may issue further announcement(s) on such measures as appropriate. Shareholders are advised to check any further announcement(s) which the Company may publish on the websites of the Hong Kong Stock Exchange and the Company.

• (10) Up-to-date development on COVID-19 can be found on the CHP website (www.chp.gov.hk) and the website of the Hong Kong Government on COVID-19 (www.coronavirus.gov.hk).

– EGM-5 –